LATITUDE TREE INTERNATIONAL GROUP LTD. (Incorporated in the Republic of Singapore) (Company Registration No N)

Transcription

1 CIRCULAR DATED 1 DECEMBER 2011 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you should consult your legal, financial, tax or other professional advisers immediately. If you have sold or transferred all your ordinary shares in the capital of Latitude Tree International Group Ltd. (the Company ) held through The Central Depository (Pte) Limited ( CDP ), you need not forward this Circular to the purchaser or the transferee as arrangements will be made by CDP for a separate Circular to be sent to the purchaser or the transferee. If you have sold or transferred all your shares represented by physical share certificate(s), you should immediately forward this Circular together with the Notice of Extraordinary General Meeting and the accompanying Proxy Form immediately to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or the transferee. This Circular has been prepared by the Company and its contents have been reviewed by the Company s sponsor, PrimePartners Corporate Finance Pte. Ltd. (the Sponsor ) for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited (the SGX-ST ). The Sponsor has not independently verified the contents of this Circular. This Circular has not been examined or approved by the SGX-ST and the SGX-ST assumes no responsibility for the contents of this Circular, including the correctness of any of the statements or opinions made or reports contained in this Circular. The contact person for the Sponsor is Mr Mark Liew, Managing Director, Corporate Finance, at 20 Cecil Street, #21-02 Equity Plaza, Singapore , telephone (65) LATITUDE TREE LATITUDE TREE INTERNATIONAL GROUP LTD. (Incorporated in the Republic of Singapore) (Company Registration No N) CIRCULAR TO SHAREHOLDERS IN RELATION TO THE PROPOSED ACQUISITION OF AN 85% EQUITY INTEREST IN GROB HOLZ CO., LTD AS AN INTERESTED PERSON TRANSACTION Financial Adviser in relation to the Proposed Acquisition (as defined herein) PRIMEPARTNERS CORPORATE FINANCE PTE. LTD. (Incorporated in the Republic of Singapore) (Company Registration No D) Independent Financial Adviser to the Independent Directors in relation to the Proposed Acquisition IMPORTANT DATES AND TIMES ASIASONS WFG CAPITAL PTE LTD (Incorporated in the Republic of Singapore) (Company Registration No M) Last date and time for lodgement of Proxy Form : 14 December 2011 at 2.30 p.m. Date and time of Extraordinary General Meeting : 16 December 2011 at 2.30 p.m. Place of Extraordinary General Meeting : Orchard Room, Raffles City Convention Centre Level 4, 80 Bras Basah Road Singapore

2 CONTENTS Page DEFINITIONS INTRODUCTION THE PROPOSED ACQUISITION RATIONALE FOR AND BENEFITS OF THE PROPOSED ACQUISITION RISK FACTORS CHAPTERS 9 AND 10 OF THE CATALIST LISTING MANUAL FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION INTERESTS OF DIRECTORS AND CONTROLLING SHAREHOLDERS INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS INDEPENDENT FINANCIAL ADVISER RECOMMENDATION OF THE AC DIRECTORS RECOMMENDATION EXTRAORDINARY GENERAL MEETING ACTION TO BE TAKEN BY SHAREHOLDERS ABSTENTION FROM VOTING CONSENTS RESPONSIBILITY STATEMENT FOR THE FINANCIAL ADVISER DIRECTORS RESPONSIBILITY STATEMENT DOCUMENTS FOR INSPECTION APPENDIX 1 LETTER FROM ASIASONS WFG CAPITAL PTE LTD TO THE INDEPENDENT DIRECTORS IN RESPECT OF THE PROPOSED ACQUISITION APPENDIX 2 INDEPENDENT VALUATION REPORTS NOTICE OF EXTRAORDINARY GENERAL MEETING PROXY FORM 1

3 DEFINITIONS For the purpose of this Circular, the following definitions apply throughout unless otherwise stated: AC : The audit committee of the Company Act or Companies Act : The Companies Act (Chapter 50) of Singapore, as amended or modified from time to time Adjusted NTA : Has the meaning ascribed in Section of this Circular AGM : The annual general meeting of the Company Agreement : The sale and purchase agreement dated 31 October 2011 entered into between the Company and the Vendor in respect of the Proposed Acquisition, as from time to time amended, supplemented or modified Articles : The articles of association of the Company, as amended from time to time Associate : (a) in relation to any director, chief executive officer, substantial shareholder or controlling shareholder (being an individual) means: (b) (i) (ii) (iii) his immediate family; the trustees of any trust of which he or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; any company in which he and his immediate family together (directly or indirectly) have an interest of 30% or more; and in relation to a substantial shareholder or a controlling shareholder (being a company) means any other company which is its subsidiary or holding company or is a subsidiary of such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have a interest of 30% or more associated company : A company in which at least 20% but not more than 50% of its shares are held by the Company or the Group Auditors : The auditors of the Company for the time being Board : The board of Directors of the Company for the time being BOI : The Office of the Board of Investment of Thailand 2

4 BOI Approval of Commencement of Operations : Has the meaning ascribed thereto in footnote 1 of Section of this Circular Budget Reports : Has the meaning ascribed thereto in Section of this Circular Call Option : Has the meaning ascribed in Section 2.5 of this Circular Call Option Agreement : Has the meaning ascribed in Section 2.5 of this Circular Catalist : The sponsor-supervised listing platform of the SGX-ST Catalist Listing Manual : The Listing Manual (Section B: Rules of Catalist) of the SGX-ST, as amended or modified from time to time Circular : This circular to Shareholders dated 1 December 2011 Company or Latitude Tree Singapore : Latitude Tree International Group Ltd. Completion : The completion of the Proposed Acquisition pursuant to the terms and conditions of the Agreement Completion Date : The date of Completion pursuant to the terms and conditions of the Agreement Consideration : The purchase consideration of THB148,560,000 or approximately S$6,211,014 (based on the Exchange Rate) payable by the Company to the Vendor for the acquisition of the Sale Shares pursuant to the terms and conditions of the Agreement as detailed in Section of this Circular Controlling Shareholder : A person who: (a) (b) holds directly or indirectly 15% or more of all the voting shares in the Company; or in fact exercises control over the Company Deed of Indemnity : The deed of indemnity dated 31 October 2011 entered into by the Vendor to indemnify and save harmless the Company for the 85% Indemnified Liabilities (as defined in Section 2.4 of this Circular), as from time to time amended, supplemented or modified Director(s) : The director(s) of the Company for the time being EGM : The extraordinary general meeting of the Company to be convened, notice of which is given on page 101 of this Circular 3

5 Environmental Act : Has the meaning ascribed thereto in Section of this Circular Environmental Reports : Has the meaning ascribed thereto in Section of this Circular EPS : Earnings per Share Exchange Rate : Means an exchange rate of S$1:THB as at the Latest Practicable Date Factory Operation Act : Has the meaning ascribed thereto in Section of this Circular Fixed Assets : Means certain fixed assets of Grob Holz (including plant, property and equipment) as set out in the Agreement FY : Financial year ended or, as the case may be, ending 30 June GHSB : Grob Holz Sdn Bhd Grob Holz : Grob Holz Co., Ltd Grob Holz Share(s) : Ordinary share(s) of par value THB100 each in the capital of Grob Holz Group or Latitude Tree Singapore Group : The Company and its subsidiaries, collectively IFA or Asiasons : Asiasons WFG Capital Pte Ltd, appointed as the independent financial adviser to the Independent Directors in relation to the Proposed Acquisition IFA Letter : The letter of the IFA dated 1 December 2011 as set out in Appendix 1 of this Circular Independent Valuer : United Valuers and Consultant Co., Ltd., which was commissioned by the Company on 3 September 2011 to determine the Valuation for the purpose of the Proposed Acquisition Independent Valuation Reports : Separate valuation reports issued by the Independent Valuer dated 22 September 2011 for the valuation of the machinery and equipment and 23 September 2011 for the valuation of the plant as set out in Appendix 2 of this Circular 4

6 Independent Directors : Yeoh Joe Son, Ng Wei Hua, Phuan Phui Seck and Peter Sim Swee Yam, being the Directors for the time being other than the Directors who are deemed interested in the Proposed Acquisition for reasons set out in Section 7 of this Circular KKSB : Konsortium Kontrek Sdn Bhd Latest Practicable Date : 24 November 2011, being the latest practicable date prior to the printing of this Circular Latitude Tree Malaysia Group : LTHB and its subsidiaries, collectively LTHB : Latitude Tree Holdings Berhad, a company incorporated in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. LTHB is the Controlling Shareholder of the Company as at the date of this Circular m 3 : Cubic metres NAV : Net asset value Notice of EGM : The notice of EGM which is on page 101 of this Circular NTA : Net tangible assets Ordinary Resolution : The ordinary resolution in relation to the Proposed Acquisition as set out in the Notice of EGM which is on page 101 of this Circular Parties : The Company and the Vendor, collectively and each a Party PPCF, Sponsor or Financial Adviser : PrimePartners Corporate Finance Pte. Ltd. Production Plant : Means the plant located at 99/18 Village 1, Tung-mor Sub district, Sadao District, Songkhla Province, Thailand at which the wood processing, manufacturing, warehousing and other facilities for the Wood Processing Business are located Promoted Business Licence : Means the licence granted by the BOI to Grob Holz as further described in Section of this Circular Proposed Acquisition : Has the meaning ascribed thereto in Section 1.1 of this Circular Proxy Form : The proxy form in respect of the EGM 5

7 Renewed Shareholders Recurrent IPT Mandate : The mandate for the Latitude Tree Singapore Group to enter into certain recurrent interested person transactions with the Latitude Tree Malaysia Group as approved by the Shareholders for its renewal at the AGM held on 28 October 2011 Revaluation Surplus : Has the meaning ascribed in Section of this Circular Revised Non-competition Undertaking : The revised deed of non-competition undertaking dated 31 October 2011 entered into between LTHB and the Company, as from time to time amended, supplemented or modified, as detailed in Section 2.3 of this Circular RKT : Rhong Khen Timbers Sdn Bhd, a wholly-owned subsidiary of LTHB RM : Malaysian Ringgit Sale Shares : 1,997,500 Grob Holz Shares, representing 85% of the issued and paid-up share capital of Grob Holz and which the Company agreed to purchase from the Vendor under the terms and conditions of the Agreement SGX-ST : Singapore Exchange Securities Trading Limited Securities and Futures Act or SFA : Securities and Futures Act (Chapter 289) of Singapore, as amended, supplemented or modified from time to time Share(s) : Ordinary share(s) in the capital of the Company Shareholders : The registered holders of the Shares and in the case of Depositors, Depositors who have Shares entered against their names in the Depository Register Substantial Shareholder : A person (including a corporation) who holds not less than 5% (directly or indirectly) of the total votes attached to all the voting Shares sq m : Square metres S$ and cents : Singapore dollars and cents respectively Tax Exemption Period : Has the meaning ascribed thereto in Section of this Circular THB : Thai Baht US$ : United States dollars 6

8 Valuation : The market value ascribed to the Fixed Assets as determined by the Independent Valuer, being THB279,832,000 or approximately S$11,699,249 (based on the Exchange Rate) whereby the machinery and equipment were valued at THB59,832,000 or approximately S$2,501,463 (based on the Exchange Rate) as at 9 September 2011 while the plant (comprising land, building improvements and land improvements) was valued at THB220,000,000 or approximately S$9,197,786 (based on the Exchange Rate) as at 19 September 2011 Vendor : GHSB Wood Processing Business : Means Grob Holz s business of manufacturing and sale of dried sawn timber, laminated board, wooden furniture parts and components % or per cent. : Per centum or percentage The terms Depositor, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Act. The term subsidiary shall have the meaning ascribed to it under Section 5 of the Act. Words importing the singular shall, where applicable, include the plural and vice versa. Words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall, where applicable, include corporations. Any reference to a time of day and dates in this Circular shall be a reference to Singapore time and dates unless otherwise stated. Any reference in this Circular to any statute or enactment is a reference to that statute or enactment as for the time being amended or re-enacted. Any word defined under the Act, the SFA, the Catalist Listing Manual or any statutory modification thereof and not otherwise defined in this Circular shall, where applicable, have the same meaning assigned to it under the Act, the SFA, the Catalist Listing Manual or any statutory modification thereof, as the case may be, unless otherwise provided. Any term defined under the Act, the SFA, the Catalist Listing Manual or any statutory modification thereof and used in this Circular shall, where applicable, have the meaning ascribed to it under the Act, the SFA, the Catalist Listing Manual or such modification thereof, as the case may be, unless otherwise provided. Any discrepancies in figures included in this Circular between the sum of listed amounts and the totals thereof shown are due to rounding. Accordingly, figures shown as totals in this Circular may not be an arithmetic aggregation of the figures which precede them. 7

9 LATITUDE TREE INTERNATIONAL GROUP LTD. (Incorporated in the Republic of Singapore) (Company Registration No N) Directors Yek Siew Liong (Non-Executive Chairman) Lin Tzu-Keng (Chief Executive Officer and Executive Director) Yeoh Joe Son (Executive Director) Toh Seng Thong (Non-Executive Non-Independent Director) Ng Wei Hua (Independent Director) Peter Sim Swee Yam (Independent Director) Phuan Phui Seck (Independent Director) Lin Chin-Hung (Alternate Director to Lin Tzu-Keng) Registered Office 50 Raffles Place #32-01 Singapore Land Tower Singapore December 2011 To: The Shareholders of Latitude Tree International Group Ltd. Dear Shareholders, 1. INTRODUCTION 1.1 On 31 October 2011, the Company announced that it had entered into the Agreement with the Vendor pursuant to which the Company agreed to acquire the Sale Shares representing 85% of the issued and paid-up share capital of Grob Holz from the Vendor (the Proposed Acquisition ). 1.2 The Board is convening the EGM to be held on Friday, 16 December 2011 at 2.30 p.m. to seek approval from Shareholders for the Proposed Acquisition as an interested person transaction pursuant to Chapter 9 of the Catalist Listing Manual. 1.3 GHSB is an interested person within the meaning of Chapter 9 of the Catalist Listing Manual, as detailed in Section 5 of this Circular. Accordingly, the Proposed Acquisition is deemed as an Interested Person Transaction (as defined therein) pursuant to Chapter 9 of the Catalist Listing Manual. In addition, the Proposed Acquisition constitutes a Discloseable Transaction (as defined therein) pursuant to Chapter 10 of the Catalist Listing Manual, further details of which are set out in Section 5.1 of this Circular. 1.4 The IFA has been appointed to advise the Independent Directors in relation to the Proposed Acquisition. The IFA Letter is set out in Appendix 1 of this Circular and a summary of the opinion of the IFA is set out in Section 9.2 of this Circular. 1.5 The purpose of this Circular is to provide Shareholders with information relating to, and to explain the rationale for and benefits of the Proposed Acquisition and the financial effects thereof on the Group and to seek Shareholders approval by way of the Ordinary Resolution at the EGM. 1.6 The SGX-ST takes no responsibility for the accuracy of any statements or opinions made or reports contained in this Circular. 8

10 2. THE PROPOSED ACQUISITION 2.1 Background Agreement The Company entered into the Agreement with the Vendor on 31 October 2011 pursuant to which the Company agreed to purchase the Sale Shares from the Vendor, free from all encumbrances and with all rights attaching thereto as at the Completion Date and thereafter. GHSB is the beneficial owner of the Sale Shares and directly holds 1,997,495 of the Sale Shares while the remaining five (5) of the Sale Shares are held by Mr Lin Tzu-Keng, the Chief Executive Officer and Executive Director of the Company (the Nominee Shareholder ) as bare trustee on trust for GHSB. The remaining 15% of the issued and paid-up share capital of Grob Holz is held by KKSB Information on the Vendor GHSB was incorporated in Malaysia on 27 April 2001 and has an issued and paid-up share capital of RM2 comprising two (2) ordinary shares. It is an investment holding company and beneficially owns 85% of the equity interest of Grob Holz. GHSB is a wholly-owned subsidiary of LTHB. LTHB is the Controlling Shareholder of the Company, holding 75.95% of the equity interest of the Company as at the Latest Practicable Date. 2.2 Key Terms of the Agreement Consideration Subject to the terms and conditions of the Agreement, the Consideration for the Proposed Acquisition is THB148,560,000 or approximately S$6,211,014 (based on the Exchange Rate). The Consideration was arrived at on a willing-buyer and willing-seller basis after arm s length negotiations and based on 85% of: (i) (ii) Grob Holz s audited NTA as at 30 June 2011 of THB109,818,554 or approximately S$4,591,307 (based on the Exchange Rate), adjusted for estimated bad debts of THB1,000,000 as at 30 June 2011 or approximately S$41,808 (based on the Exchange Rate) and the Revaluation Surplus (1) of THB75,158,175 or approximately S$3,142,222 (based on the Exchange Rate) based on the Independent Valuation Reports ( Adjusted NTA ); and a discount of five per cent. (5%) to the Adjusted NTA, and thereafter, rounded down to the nearest ten thousand THB. Note: (1) Revaluation surplus equals to the market value of the Fixed Assets based on the Independent Valuation Reports minus the audited net book value of the Fixed Assets as at 30 June 2011 of THB204,673,825 ( Revaluation Surplus ). Under the terms and conditions of the Agreement, the Consideration shall be fully satisfied by the payment thereof in cash on Completion by the Company to the Vendor. The Consideration will be financed by the Company s internal resources. 9

11 2.2.2 Conditions Precedent Completion is conditional upon all and not some only of the following conditions being fulfilled or waived on or before the Completion Date: (a) (b) (c) (d) (e) (f) (g) (h) (i) GHSB having executed a deed of revocation of trust (in a form reasonably acceptable to the Company) (a) absolutely revoking the trust over five (5) of the Sale Shares held by the Nominee Shareholder on its behalf; and (b) declaring that the Nominee Shareholder will no longer be holding five (5) of the Sale Shares on trust for GHSB, with effect from the Completion Date; the Company having completed its legal and financial due diligence in respect of Grob Holz and the Wood Processing Business, including, inter alia, the affairs, operations, assets and liabilities, prospects and records of Grob Holz and being satisfied with the same (as determined in the Company s sole and absolute discretion); the Company having received legal opinions from its legal counsel from Thailand (as determined in its sole and absolute discretion) on the legality, validity, enforceability and such matters relating to, inter alia, Grob Holz, the Agreement and the Proposed Acquisition, the Wood Processing Business, as well as the applicable licences, permits and approvals or consents required for Grob Holz and/or the Wood Processing Business and being satisfied with the same as the Company may determine in its sole and absolute discretion; the approval of the BOI for the change in shareholding of Grob Holz arising from the Proposed Acquisition; the approval for the change in shareholding of Grob Holz from the financial institution who has granted outstanding banking facilities to Grob Holz; the Independent Valuer having issued, and not before Completion withdrawn, the Independent Valuation Reports; the Company having obtained the approval of its Shareholders at the EGM in respect of the Proposed Acquisition and such approval not having been withdrawn or revoked and if such consents or approvals are obtained subject to any conditions, such conditions being acceptable to the Company, and to the extent that any conditions are required to be fulfilled on or before Completion, such conditions are so fulfilled; the IFA having issued and not withdrawn before the EGM its opinion stating whether or not the Proposed Acquisition (a) is on normal commercial terms; and (b) is not prejudicial to the interests of the Company and its minority Shareholders, and (if necessary) the AC having issued and not withdrawn before the EGM its opinion, if it takes a different view to the IFA; all material approvals, consents, licences, permits, waivers and exemptions (collectively, the Approvals ) necessary for the Proposed Acquisition and the Agreement and all Approvals which are material for the carrying on of the Wood Processing Business immediately after Completion being granted by all third parties, including all governmental authorities, to the Company, the Vendor and Grob Holz (as the case may be) in Singapore, Malaysia, Thailand or elsewhere on or prior to Completion; 10

12 (j) (k) (l) (m) none of the Company, the Vendor or Grob Holz having received, on or prior to Completion, notice of any directive, injunction or other order, which restrains or prohibits the consummation, carrying out or undertaking of the Proposed Acquisition and the Agreement and there being no action, on or prior to Completion, seeking to restrain or prohibit the consummation, carrying out or undertaking thereof, or seeking damages in connection therewith, which is pending or any such directive, injunction or other order or action which is threatened; all of the warranties, representations and undertakings in the Agreement being true and accurate in all respects on Completion, as if repeated on Completion and at all times between the date of the Agreement and Completion; no material adverse change (as determined by the Company in its sole discretion) in the business, prospects, financial condition, financial performance or operation of Grob Holz occurring on or prior to Completion; and the Vendor and Grob Holz having complied in all respects with all applicable laws, rules, regulations and orders of all relevant government bodies whether of Malaysia, Thailand or elsewhere to which it and/or its assets is subject as of the date of the Agreement and up to Completion. 2.3 Revised Non-Competition Undertaking In connection with the Agreement and the Proposed Acquisition, the Company and LTHB had on 31 October 2011 entered into the Revised Non-Competition Undertaking to regulate the respective businesses of the Group and the Latitude Tree Malaysia Group and to provide clear demarcation of operations between the Group and the Latitude Tree Malaysia Group with effect from the Completion Date. The Revised Non-Competition Undertaking shall replace and supersede the non-compete undertaking dated 17 June 2009 which was previously executed by LTHB in favour of the Company in connection with the initial public offering of the Company in August Under the Revised Non-Competition Undertaking: (A) LTHB Undertaking (i) LTHB undertook to procure that no member of the Latitude Tree Malaysia Group shall: (a) (b) (c) solicit or entice away or attempt to solicit or entice away from the Group the custom of any Business Associate (as defined herein); or accept from any Business Associate any business forming part of the Group Business (as defined herein); or solicit or persuade any Business Associate to cease doing business with the Group or reduce the amount of business in which the Business Associate would normally do with the Group. Group Business means any business comprising of or involving or otherwise connected with: (i) any manufacture, sale, import, export, distribution, trading, or otherwise any dealings in or with respect to wooden furniture, including but not limited to the manufacture and sale of collection sets using a variety of composite wood as well as solid wood materials including hardwood and rubberwood; and 11

13 (ii) any manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components. Business Associate means any person, firm, company or organisation who is or who shall at any time have been a customer, client, agent or correspondent of the Group or in respect of any person who is a supplier or manufacturer of any of the products or services, sold or used by the Group or in the habit of dealing with the Group. (ii) (iii) LTHB undertook to procure that the Latitude Tree Malaysia Group shall not, unless otherwise agreed to by the independent Directors of the Company, carry on or undertake any business which is competing with, or similar to or otherwise in conflict with the Group Business, subject to the exceptions as set out in sub-paragraphs (iii) and (iv) below. The Latitude Tree Malaysia Group is not restricted or prohibited from carrying on or undertaking the following business in Peninsular Malaysia: (a) (b) (c) (d) manufacture and sale of rubberwood furniture; manufacture and sale of veneer-top dining tables or sets, provided that such sales are made only to its existing customers; manufacture and sale of veneer-top dining tables to new customers provided that they have given a right of first refusal to the Group to solicit or secure purchase orders from such new customers and the Group has declined to exercise its right of first refusal to do so; and manufacture and sale of veneer-top dining tables to new customers who may not wish to provide, extend or otherwise grant purchase orders to the Group. (iv) (v) (vi) The right of first refusal given by the Latitude Tree Malaysia Group to the Group in respect of the manufacture and sale of veneer-top dining tables or sets to new customers (being customers other than the existing customers of LTHB, as set out in one of the appendices to the Revised Non-Competition Undertaking) ( New Customers ) shall not (save as provided in subparagraph (v) below) apply to any purchase order which is less than US$50,000 under each invoice ( Minimum Purchase Order ). In the event that the total value of all Minimum Purchase Orders in respect of the manufacture and sale of veneer-top dining tables or sets to the New Customers accepted by LTHB is equal to or in excess of US$500,000 at any relevant date within a financial year, the Group will be given the right of first refusal for all purchase orders (including the Minimum Purchase Orders) received by the Latitude Tree Malaysia Group thereafter in that financial year. RKT is not restricted or prohibited from carrying on or undertaking the manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components in Malaysia provided that (i) such products are sold solely to the Latitude Tree Malaysia Group or to any existing or potential customers of RKT who are companies, corporations, entities, or persons incorporated, domiciled or resident in Malaysia and/or whose operations and/or businesses are located or based in Malaysia; (ii) such products are sold to non-malaysian customers ( RKT Non-Malaysian Customers ) after the 12

14 Company has declined to exercise its right of first refusal; or (iii) in the event the Company wishes to exercise its right of first refusal but such RKT Non-Malaysian Customer has confirmed in writing that it does not wish to provide, extend or otherwise grant the purchase order to the Company. (vii) (viii) The right of first refusal given by the Latitude Tree Malaysia Group to the Group in respect of manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components to the RKT Non-Malaysian Customers shall not (save as provided in sub-paragraph (viii) below) apply to any purchase order which is less than US$50,000 under each invoice ( Minimum RKT Non-Malaysian Purchase Order ). In the event that the total value of all Minimum RKT Non-Malaysian Purchase Orders in respect of the manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components to the RKT Non-Malaysian Customers accepted by LTHB is equal to or in excess of US$500,000 at any relevant date within a financial year, the Group will be given the right of first refusal for all purchase orders (including the Minimum RKT Non-Malaysian Purchase Orders) received by the Latitude Tree Malaysia Group thereafter in that financial year. (B) Company undertaking (i) (ii) (iii) (iv) The Company undertook to procure that no member of the Group shall, unless otherwise agreed to by the independent directors of LTHB, carry on or undertake the manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components to any existing or potential customers of Grob Holz who are companies, corporations, entities, or persons incorporated, domiciled or resident in Malaysia and/or whose operations and/or businesses are located or based in Malaysia ( Grob Holz Malaysian Customers ), subject to the exceptions as set out in sub-paragraphs (ii) and (iii) below. The Group is not restricted or prohibited from carrying on or undertaking the manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components to Grob Holz Malaysia Customers (i) after LTHB has declined to exercise its right of first refusal to do so; or (ii) in the event LTHB wishes to exercise its right of first refusal but such Grob Holz Malaysian Customer has confirmed in writing that it does not wish to provide, extend or otherwise grant the purchase order to LTHB. The right of first refusal given by the Group to the Latitude Tree Malaysia Group in respect of the manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components to customers in Malaysia shall not (save as provided in sub-paragraph (iv) below) apply to any purchase order which is less than US$50,000 under each invoice ( Minimum Grob Holz Malaysian Purchase Order ). In the event that the total value of all Minimum Grob Holz Malaysian Purchase Orders in respect of the manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components to Grob Holz Malaysian Customers is equal to or in excess of US$500,000 at any relevant date within a financial year, the Latitude Tree Malaysia Group will be given the right of first refusal for all purchase orders (including the Minimum Grob Holz Malaysian Purchase Orders) received by the Group thereafter in that financial year. 13

15 (C) Duration Subject as provided below, the Revised Non-Competition Undertaking shall take effect on the Completion Date, and shall continue in full force and effect for so long as: (a) (b) LTHB and/or any of the Relevant Shareholders (as defined below) and/or their respective concert parties (as defined under the Singapore Code of Takeovers & Mergers) (collectively, the LTHB Shareholders ), in aggregate, have a shareholding interest of 20% or more in the then prevailing issued and paid-up share capital of the Company; and/or the LTHB Shareholders in fact exercise control over the Company including but not limited to the right or ability to determine the composition of the Board and/or control over the management and operations of the Group. Relevant Shareholder means any shareholder of LTHB who either alone or together with its or his associates (as defined under the Catalist Listing Manual) has a shareholding interest (whether directly or indirectly) of 30% or more in the then prevailing issued and paid-up share capital of LTHB. (D) Exclusion of Sabah, Sarawak and the Federal Territory of Labuan from the Revised Non-Competition Undertaking The Revised Non-Competition Undertaking does not preclude or restrict the Group or the Latitude Tree Malaysia Group from carrying on or undertaking any manufacture or sale of dried sawn timber, laminated board, wooden furniture and parts and components in Sabah, Sarawak and the Federal Territory of Labuan. (E) Disputes In the event of any dispute relating to, or any issue of breach or non-compliance of the Revised Non-Competition Undertaking by LTHB and where such non-compliance by LTHB is not, in the opinion of the independent Directors of the Company, satisfactorily addressed or resolved by the Board due to, inter alia, the inability of the Board to secure a consensus or majority decision on such issue, the Board has undertaken to give the independent Directors of the Company the authority and resources to seek independent legal advice and if necessary, seek legal recourse on behalf of the Company for the enforcement of the Revised Non-Competition Undertaking. 2.4 Deed of Indemnity In connection with the Agreement and the Proposed Acquisition, the Vendor had on 31 October 2011 entered into the Deed of Indemnity pursuant to which the Vendor had undertaken to, inter alia, indemnify and save harmless the Company from 85% of the portion of the Aggregate Post-FY2011 Liabilities that is in excess of the Aggregate Post-FY2011 Assets (the 85% Indemnified Liabilities ). Under the Deed of Indemnity: (i) Aggregate Post-FY2011 Liabilities is defined as any and all liabilities (including without limitation to bank borrowings, amounts guaranteed or secured under mortgage(s), charge(s), pledge(s), guarantee(s), performance bond(s), liability for liquidated or unliquidated damages or compensation, present or deferred taxation), whether actual or contingent, and whether arising in the ordinary course of business or otherwise, which are or may be recorded against Grob Holz in its books of 14

16 accounts for any reason whatsoever as at the Completion Date, or which otherwise have arisen or may arise on the part of, or which have been or may be assumed, suffered, incurred or sustained by Grob Holz for any reason whatsoever as at the Completion Date less such liabilities which have been fully reported and disclosed in the audited financial statements of Grob Holz for FY2011; and (ii) Aggregate Post-FY2011 Assets is defined as the aggregate amount or quantum or value of any or all assets (whether fixed or current assets), which are or may be recorded in Grob Holz s books of accounts as at the Completion Date less such assets which have been fully reported and disclosed in the audited financial statements of Grob Holz for FY2011. For avoidance of doubt, the indemnity shall not apply in the event that the 85% Indemnified Liabilities is less than THB12,000,000 or approximately S$501,697 (based on the Exchange Rate). The Vendor has undertaken to furnish the Company with the unaudited management accounts of Grob Holz (the Management Accounts ) for the period from 1 July 2011 up to and including the Completion Date as soon as practicable and in any event no later than 30 days following the Completion Date. The Auditors shall carry out an interim review of the Management Accounts and the determination of the Aggregate Post-FY2011 Liabilities and the Aggregate Post-FY2011 Assets shall be based on the Management Accounts. The Vendor has agreed and undertaken to provide such information as the Company and/or its Auditors may require in their sole and absolute discretion for the purpose of determining the existence or quantum of any portion of the Aggregate Post-FY2011 Liabilities and/or the Aggregate Post-FY2011 Assets and/or the applicability of the indemnity given by the Vendor. 2.5 Call Option Agreement KKSB had on 14 November 2011 entered into a call option agreement (the Call Option Agreement ) with the Company pursuant to which KKSB had granted the Company a call option whereby the Company shall be entitled (but not obliged) to purchase from KKSB 352,500 Grob Holz Shares (the Call Option ), representing 15% of the issued and paid-up share capital of Grob Holz as at the Latest Practicable Date, at any time from 1 July 2013 to 30 June 2014 at a consideration to be mutually agreed between the Company and KKSB on a willing-buyer and willing-seller basis after arms length negotiations prior to the exercise of the Call Option. As the Call Option is exercisable at the discretion of Company and the terms are not fixed as at the Latest Practicable Date, if required pursuant to the Catalist Listing Manual, the Company will seek all the necessary approvals, including but not limited to the approval of Shareholders at an extraordinary general meeting of the Company to be convened, at the time of exercise of the Call Option. The Company will make the relevant announcements in relation to the finalisation of the agreed value for the consideration and the exercise of the Call Option (if applicable), and will comply with all relevant requirements relating thereto. 2.6 Valuation under the Independent Valuation Reports The Company had on 3 September 2011 commissioned United Valuers and Consultant Co., Ltd. to conduct a valuation on the Fixed Assets. The Independent Valuation Reports were issued by the Independent Valuer on 22 September 2011 for the valuation of the machinery and equipment and on 23 September 2011 for the valuation of the plant. Based on the Independent Valuation Reports, the Valuation was determined to be in aggregate, THB279,832,000 or approximately S$11,699,249 (based on the Exchange Rate), whereby 15

17 the machinery and equipment was valued at THB59,832,000 or approximately S$2,501,463 (based on the Exchange Rate) as at 9 September 2011 while the plant was valued at THB220,000,000 or approximately S$9,197,786 (based on the Exchange Rate) as at 19 September Arising from the Valuation, there is a Revaluation Surplus of THB75,158,175 or approximately S$3,142,222 (based on the Exchange Rate) as the amount of the Valuation is higher than the audited net book value of the Fixed Assets as at 30 June 2011 of THB204,673,825 or approximately S$8,557,027 (based on the Exchange Rate). Such Revaluation Surplus was taken into account in arriving at the Consideration. The Independent Valuer had applied the cost approach to estimate the fair market value of the machinery and equipment. Under the cost approach, the fair market value of the machinery and equipment in continued use is equal to its replacement cost new less depreciation. For the valuation of the plant, the Independent Valuer had applied the sales comparison approach to estimate the fair market value of the land and the cost approach to estimate the fair market value of the building improvements and land improvements. Under the sales comparison approach, the value of appraised property is based on recent sales and listings of comparable property. Adjustments are made for differences between the subject property and those actual sales and listings regarded as comparable. Under the cost approach, the fair market value of the building improvements and land improvements in continued use is equal to its replacement cost new less depreciation. The Independent Valuer stated in the Independent Valuation Reports that implicit in the basic definition of fair market value is the consummation of a sale as of a specified date and the passing of title from the seller to the buyer under conditions whereby: (a) (b) (c) (d) (e) (f) Buyer and seller are typically motivated; Both parties are well-informed or well-advised, and each is acting in what he considers his own best interest; A reasonable time is allowed for exposure in the open market; Payment is made in cash or its equivalent; Financing, if any, is on terms generally available in the relevant marketplace at the specified date and is typical for the type of property in its market; and The price represents a normal consideration for the property sold, unaffected by special financing amounts or terms, services, fees, costs, or credits incurred in the transaction. When fair market value is established on the premise of continued use, it is assumed that the buyer and the seller would be contemplating retention of the assets as part of the current operations. An estimate of fair market value arrived at on the premise of continued use does not represent the amount that might be realised from piecemeal disposition of the property in the market place or from an alternative use of the property. The premise of continued use is generally appropriate when: (a) (b) (c) (d) The property is fulfilling an economic demand for the service it provides; The property has a significant remaining useful life expectancy; There is responsible ownership and competent management; Diversion of the property to an alternative use would not be economically feasible or legally permitted; 16

18 (e) (f) (g) Continuation of the existing use by present or similar users is practical; Due consideration is given to the property s functional utility for its present use; and Due consideration is given to the property s economic utility. Shareholders are advised to read the above in conjunction with the Independent Valuation Reports in their entirety as set out in Appendix 2 of this Circular. The Valuation is final and conclusive and binding on the Parties. 2.7 Information on Grob Holz Grob Holz is a joint venture company incorporated in Thailand on 6 October As at the Latest Practicable Date, Grob Holz has an issued and paid-up share capital of THB235,000,000 comprising 2,350,000 Grob Holz Shares. Its principal place of business is located at 99/18 Village 1, Tung-mor Sub district, Sadao District, Songkhla Province, Thailand. Grob Holz is owned by GHSB and KKSB, who hold 85% and 15% of the equity interest in Grob Holz respectively. KKSB is collectively owned by Mr Yek Siew Liong, the Non- Executive Chairman of the Company and his spouse, Mdm Kiu Een Edith Kiu Poh Een. As at the Latest Practicable Date, the board of directors of Grob Holz comprises Mr Lin Tzu-Keng, Mr Teh Ah Ann, Mr Yek Siew Liong, Mdm Lin Chen Jui-Fen, Mr Doh Wing Wah, Ms Lin Chin Ni and Mr Chung Che-Shih. Subsequent to Completion, the Company may make changes to the composition of Grob Holz s board of directors. As at the Latest Practicable Date, the shareholding structure of Grob Holz before and after the Proposed Acquisition is as follows: Shareholders Before the Proposed Acquisition Direct Deemed Interest Interest (%) (%) After the Proposed Acquisition Direct Deemed Interest Interest (%) (%) GHSB KKSB LTHB (1) Mr Lin Tzu-Keng (2) Mr Yek Siew Liong (3) The Company Notes: (1) As LTHB has a direct interest of 75.95% in the Company as at the Latest Practicable Date, LTHB has a deemed interest in the 85% equity interest held by the Company in Grob Holz after the Proposed Acquisition. (2) Mr Lin Tzu-Keng, the Chief Executive Officer and Executive Director of the Company exercises or controls the exercise of an aggregate of 30.78% of the votes attached to the voting shares of LTHB by virtue of his direct and indirect shareholdings of 30.78% in LTHB, which has a direct interest of 75.95% in the Company. As such, Mr Lin Tzu-Keng has a deemed interest in the 85% equity interest held by the Company in Grob Holz after the Proposed Acquisition. However, his effective interest in Grob Holz would be reduced from 26.16% before the Proposed Acquisition to 20.12% after the Proposed Acquisition. (3) Mr Yek Siew Liong has a deemed interest in the 15% equity interest in Grob Holz held by KKSB, which is collectively owned by Mr Yek Siew Liong and his spouse, Mdm Kiu Een Edith Kiu Poh Een. 17

19 2.7.1 Salient financial information on Grob Holz For FY2011, Grob Holz reported an audited net loss of THB12,298,943 and has a net assets of THB109,818,554. Extracts of the audited balance sheet and the statement of income of Grob Holz for FY2011 are set out below: BALANCE SHEET AS AT 30 JUNE 2011 THB CURRENT ASSETS Cash and cash equivalents 2,435,015 Trade receivables related companies 1,163,225 Trade receivables others 8,457,201 Inventories 20,371,784 Refundable value added tax 144,360 Other current assets 2,063,363 Total Current Assets 34,634,948 NON CURRENT ASSETS Property, plant and equipment net 200,878,185 Unused land 4,080,277 Other non current assets 29,700 Total Non Current Assets 204,988,162 TOTAL ASSETS 239,623,110 LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES Short-term loans from financial institutions 62,841,135 Trade payables others 6,941,227 Current portion of long-term loans 23,998,852 Advance received from related parties 2,251,482 Other current liabilities 8,527,995 Total Current Liabilities 104,560,691 NON CURRENT LIABILITIES Long-term loans net 25,243,865 Total Non Current Liabilities 25,243,865 TOTAL LIABILITIES 129,804,556 SHAREHOLDERS EQUITY Share capital common share Baht 100 par value Authorised 2,350,000 shares 235,000,000 Issued and paid-up 2,350,000 shares 235,000,000 Accumulated losses (125,181,446) Shareholders Equity net 109,818,554 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 239,623,110 18

20 REVENUES STATEMENT OF INCOME FOR FY2011 THB Net sales 247,255,266 Other income 560,545 Total Revenues 247,815,811 EXPENSES Cost of sales 236,613,211 Selling expenses 4,098,338 Administrative expenses 12,240,823 Total Expenses 252,952,372 LOSS BEFORE FINANCE COSTS (5,136,561) FINANCE COSTS 7,162,382 NET LOSS (12,298,943) BASIC LOSS PER SHARE (5.23) Details of any service contracts There are no directors who are proposed to be appointed to the Board in connection with the Proposed Acquisition. Accordingly, no service contract is proposed to be entered into between the Company and any such person Production facilities Grob Holz is principally involved in the manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components. As at the Latest Practicable Date, Grob Holz s operations are located in Songkhla Province, Thailand. Its wood processing and manufacturing facilities are located at the Production Plant which occupies an aggregate land area of approximately 114,759 sq m (comprising the production building and warehouses, among others). Grob Holz is licensed to operate 10 hours per day for 312 days a year, with a licensed annual capacity to produce 14,000 m 3 of laminated boards, 12,000 m 3 of laminated seat boards, 2,780 m 3 of chair back posts and 2,860 m 3 of table pedestal legs. As at the Latest Practicable Date, the Production Plant is operating at approximately half of the full capacity. 19

21 2.7.4 Applicable approvals, licences and permits required for the Wood Processing Business As at the Latest Practicable Date, the key licences and permits obtained by Grob Holz for the Wood Processing Business are as follows: Licence/ Permit/ Approval Issuing Authority Issue Date/ Expiry Date Scope of Licence Material Conditions Promoted Business Licence BOI 28 December 2004/ 10 June 2014 Grants Grob Holz promoted business status in respect of the production and manufacturing of furniture parts and components Grants 100% foreign ownership of Grob Holz Grants ownership of land Tax benefits, including: o Exemption of corporate income tax for 8 years from date income is first derived from operations ( Tax Exemption Period ). Amount of exemption shall vary according to the amount of total investment (which shall exclude the cost of land and working capital) as at the date of commencement of operations, but shall not exceed THB173,000,000 3 o Exemption on import duty for raw materials and machinery Prescribed annual production capacity for laminate boards, laminate seat boards, chair back posts and table pedestal legs The land approved by the BOI for ownership by Grob Holz and the machinery and raw materials approved for exemption from import duties and tax must be used only for the purposes of the promoted business, and shall not be used for any other purposes save with the prior approval of the BOI Approval required for changes to shareholding ownership in Grob Holz Annual submission of financial conditions and results of operations of Grob Holz Commencement of operations to be effected within 36 months from the date of the issue of the promotion certificate 1 ISO 9000 certification to be obtained within two years from the date of the BOI s approval of Grob Holz s commencement of operations as aforesaid 2 Registered capital of Grob Holz must not be less than THB 50,000,000, fully paid before commencement of operations Minimum investment of THB 1,000,000, excluding land value and working capital Approval required for mortgage, sale, transfer or other third party usage of authorised machinery and land owned by Grob Holz 4 Factory Operation Licence Ministry of Industry 3 August 2007/ 31 December 2012 For factory operations Approval required for changes, modifications or increases in production capacity or installation or replacement of production machinery Approval required for night shift operations Wood Processing Licence Department of Forestry 19 September 2007/ Renewable annually For processing of unprocessed rubberwood and 13 other types of wood for use towards furniture manufacturing Compliance with certain regulations in Thailand Machinery used subject to approval Approval required for use of processed woods or timber logs (excluding rubberwood) Hazardous Health Operations Licence Administration Organisation of Thungmoor 7 December 2010/ 6 December 2011 For factory operations with hazardous effects on human health Compliance with certain regulations in Thailand Ground Water Usage Licence Department of Mineral Resources 9 November 2011/ 9 November 2014 Grants Grob Holz the right to pump ground water from well No located at 99/18 Village 1 KlongNgea-Khuan Sator Road, Tambon Thungmoor, Sadao District, Songkhla Maximum permissible quantity of water shall be 50 m 3 per day Use of a submersible pump that is 32.5 millimetres in diameter which must be installed at a depth of not less than 42 metres 20

22 Notes: 1. Under the terms of the Promoted Business Licence, Grob Holz was required to commence operations and submit the relevant application to notify the BOI of its commencement of operations, including without limitation the notification of the actual investment amount in Grob Holz, the production capacity of the Production Plant and its income, and to obtain the BOI s approval of such commenced operations (the BOI Approval of Commencement of Operations ) by 27 December Although Grob Holz has commenced operations within such time prescribed, as it had not earlier submitted the relevant application as aforesaid to the BOI, it had obtained an extension of time to 27 December 2011 to submit the relevant application to the BOI, and which has since been submitted by Grob Holz to the BOI on 9 November The Company understands that the BOI will usually take approximately three to six months to give the BOI Approval of Commencement of Operations following the submission of the relevant application by Grob Holz. 2. Under the terms of the Promoted Business Licence, Grob Holz is required to obtain the ISO 9000 or other international standard certification within two years from the BOI Approval of Commencement of Operations. Accordingly, the period for fulfilling the requirement to obtain the ISO 9000 or other international standard certification will be extended automatically following the BOI Approval of Commencement of Operations to be obtained by Grob Holz as aforesaid. 3. Based on the first invoice of Grob Holz dated 10 June 2006, the Tax Exemption Period will commence from 10 June 2006 and will expire on 9 June Grob Holz is permitted to deduct any annual losses during the Tax Exemption Period from net profits accrued following the expiration of the Tax Exemption Period up to a maximum of five years. Following the expiry of the Tax Exemption Period, Grob Holz is entitled to a tax exemption of 50% of the corporate tax rate (currently 30% of net profits). 4. Grob Holz had granted a mortgage of the land and buildings at the Production Plant to a financial institution in 2006 without obtaining the prior approval of the BOI. Please refer to the section entitled Risk Factors for further information. In addition to the above licences, permits and approvals, Grob Holz is also required to comply with the various laws of Thailand which are applicable to it including the Enhancement and Conservation of National Environmental Quality Act (1992) (the Environmental Act ) and the Factory Operation Act (1992) (the Factory Operation Act ). Under the Environmental Act, Grob Holz is required to submit quarterly reports on environmental quality and air pollution quality (collectively, the Environmental Reports ) to the Industrial Office of Songkhla. Under the Factory Operation Act, Grob Holz is required to submit quarterly reports on the budgets of projects (the Budget Reports ) to the Industrial Office of Songkhla. Since commencing operations, Grob Holz has not submitted the quarterly Environmental Reports and Budget Reports to the Industrial Office of Songkhla. As at the Latest Practicable Date, Grob Holz is in the midst of commissioning a consultant licensed by the authorities in Thailand to prepare the Environmental Reports and the Budget Reports. Please refer to the section entitled Risk Factors for further information. As at the Latest Practicable Date, save as disclosed above and in the section entitled Risk Factors, to the best of the Directors knowledge based on, inter alia, the findings in the legal due diligence report of Grob Holz, Grob Holz is in compliance with all applicable laws and regulations in Thailand which are material to the Wood Processing Business and Grob Holz has all the necessary business licences and permits for the Wood Processing Business in Thailand. As at the Latest Practicable Date, none of its licences have been suspended or revoked. The Directors are not aware of any facts or circumstances which would cause the suspension or revocation or affect the renewal of the said licences. 21

23 2.7.5 Properties and fixed assets As at the Latest Practicable Date, to the best of the Directors knowledge based on, inter alia, the findings in the legal due diligence report of Grob Holz, Grob Holz owns the title to the following land parcels and properties built thereon at the Production Plant: Title Deed No. Type of Properties Production building, warehouse, kiln drying room, sawmill building and boiler building Production building, warehouse, kiln drying room, sawmill building and boiler building Date of Acquisition Land area (sq m) Tenure 21 January ,048 Freehold 21 January ,348 Freehold Warehouse 21 January ,852 Freehold Workers hostel and canteen 21 January ,367 Freehold Production building 11 October ,852 Freehold Land 21 January ,292 Freehold 2.8 Renewed Shareholders Recurrent IPT Mandate At the AGM held on 28 October 2011, Shareholders had approved the Renewed Shareholders Recurrent IPT Mandate for the Group to enter into the categories of interested person transactions set out below with the Latitude Tree Malaysia Group (the Recurrent Interested Persons ). The Renewed Shareholders Recurrent IPT Mandate is valid until the conclusion of the next AGM or the date by which the next AGM is required by law to be held, whichever is the earlier. The transactions that are covered by the Renewed Shareholders Recurrent IPT Mandate (the Recurrent Interested Person Transactions ) are as follows: sale and purchase of raw materials and supplies, including sawn timber, lumber and laminated boards between the Group and the Recurrent Interested Persons; sale and purchase of furniture components (such as chair legs, lathes and turnings) between the Group and the Recurrent Interested Persons; and sale and purchase of finished products between the Group and the Recurrent Interested Persons. Currently, the Group s purchases of raw materials and supplies such as laminated board, S4S, sawn timber and furniture components (such as chair legs, lathes and turnings) from Grob Holz are covered under the ambit of the Renewed Shareholders Recurrent IPT Mandate. Subsequent to Completion, the Latitude Tree Malaysia Group, being a major customer of Grob Holz, may from time to time purchase raw materials and supplies such as laminated board, S4S, sawn timber and furniture components (such as chair legs, lathes and turnings) from Grob Holz, which will still constitute Recurrent Interested Person Transactions which will fall under the ambit of the Renewed Shareholders Recurrent IPT Mandate although it will be in relation to the Group s sales of (instead of purchases of) such products to the Latitude Tree Malaysia Group. To ensure that such Recurrent Interested Person Transactions will be carried out at arm s length and on normal commercial terms which will not be prejudicial to the interests of the Group and its minority Shareholders, the Company has implemented procedures, inter alia, for the sale of raw materials, supplies, furniture components and finished products under the Renewed 22

24 Shareholders Recurrent IPT Mandate which will apply to Grob Holz s sale of raw materials and supplies such as laminated board, S4S, sawn timber and furniture components (such as chair legs, lathes and turnings) to the Latitude Tree Malaysia Group following Completion. When selling raw materials, supplies, furniture components and finished products to a Recurrent Interested Person, the price and terms of two other successful transactions of a similar nature with non-recurrent Interested Persons will be used for comparison to ensure that the interests of minority Shareholders are not disadvantaged. The sale price shall be similar to prices extended to non-interested persons and shall not be lower than the lowest sale price of the two other successful transactions with non-recurrent Interested Persons. Other pertinent factors which the Company would consider include but is not limited to creditworthiness, repayment history and order size, which will be taken into consideration by the Company in deciding whether to make the sale. As at the Latest Practicable Date, the aggregate value of all interested person transactions between the Company and the Latitude Tree Malaysia Group for FY2011 up to the Latest Practicable Date is approximately S$1,173,419 (based on the exchange rate of US$1:S$ as at the Latest Practicable Date), further details of which are set out below. Name of interested person Latitude Tree Furniture Sdn Bhd (1) : Aggregate value of all interested person transactions (excluding transactions less than S$100,000 and transactions conducted under shareholders mandate pursuant to Rule 920 of the Catalist Listing Manual) Aggregate value of all interested person transactions under the shareholders mandate (A) Purchase of raw materials and furniture components S$9,382 (B) Payment made on behalf of the Group S$43,006 Grob Holz Purchase of raw materials and furniture components (2) S$1,121,031 Notes: (1) Latitude Tree Furniture Sdn Bhd is a wholly-owned subsidiary of LTHB. (2) Following Completion, the Group may from time to time enter into transactions for the sale of (instead of purchase of) raw materials and semi-finished products including dried sawn timber, laminated board, wooden furniture parts and components to the Latitude Tree Malaysia Group. Such Recurrent Interested Person Transactions will continue to fall under the ambit of the Renewed Shareholders Recurrent IPT Mandate. 3. RATIONALE FOR AND BENEFITS OF THE PROPOSED ACQUISITION The Proposed Acquisition represents an upstream acquisition which will improve the Group s value chain and provide synergies to the Group s current business, being the manufacture and sale of wooden furniture using a variety of composite wood as well as solid wood materials including hardwood and rubberwood. The Wood Processing Business will enable the Group to better manage its raw material and supply costs, lower its transaction costs, as well as synchronise supply and demand along the Group s production chain. 23

25 As Grob Holz has been acting as a supplier and sub-contractor of raw materials and semi-finished products such as sawn timber, laminated boards and wooden furniture components and parts to the Group, due to such ongoing business relationship between the Group and Grob Holz, the Group is to a certain extent assured of the track record and credibility of Grob Holz. Apart from augmenting and improving the Group s production chain for its current business, the Proposed Acquisition is in line with the Group s expansion plans to set up upstream operations to sell or export wooden furniture parts and components into nearby countries such as China, Thailand and Vietnam. The Board is of the view that there is growth potential in the Wood Processing Business due to increasing demand of sawn timber and wooden furniture parts and components from nearby countries especially China, Thailand and Vietnam. Accordingly, the Proposed Acquisition is expected to generate new revenue streams for the Group via sales of sawn timber, laminated boards and wooden furniture components and parts to external customers and to enhance the Group s financial performance in the future. The Proposed Acquisition will enable the Group to venture into the Wood Processing Business at an attractive price, since the Consideration for the Proposed Acquisition was arrived at based on, inter alia, a discount of five per cent. (5%) to 85% of Grob Holz s Adjusted NTA. Furthermore, the Vendor has agreed to indemnify and save harmless the Company from the 85% Indemnified Liabilities. While Grob Holz was loss-making for FY2011, the Directors took into consideration that such losses arose mainly because of constraints faced due to insufficient working capital and a lack of consensus on the strategic direction for Grob Holz between GHSB, KKSB and the previous joint venture partner prior to GHSB s acquisition of the shareholding stake of the previous joint venture partner on 1 April Following Completion, Grob Holz will become a subsidiary of, and directly managed by the Company. The Company intends to focus on managing the equity and working capital requirements of Grob Holz, and increasing the utilisation rate of Grob Holz s production capacity with a corresponding improvement of its business performance. 4. RISK FACTORS An investment in the Shares following Completion involves a number of risks, some of which, including market, liquidity, credit, operational, legal and regulatory risks, could be substantial and are inherent in the Wood Processing Business. Shareholders should evaluate carefully the following considerations and the other information in this Circular before deciding on how to cast their votes at the EGM. The risks as set out below are not the only risks which the Group faces following the Proposed Acquisition. Some risks are not yet known to the Company and there may be others which the Company currently believes are not material but may subsequently turn out to be so. As such, the following should not be construed as a comprehensive list of all risks factors relating to the Proposed Acquisition. If any of the following considerations, risks and uncertainties develops into actual events, the business, financial condition, results of operations, cash flow and prospects of the Group following the Proposed Acquisition could be materially affected. This Circular also contains forward-looking statements that involve risks and uncertainties. The actual results could differ materially from those anticipated or implied in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this Circular. 24

26 Grob Holz s ability to carry out the Wood Processing Business is subject to it obtaining and maintaining all necessary licences, permits, approvals or consents and complying with the laws and regulations in Thailand applicable for such business Grob Holz requires various licences, permits and approvals from the government authorities of Thailand to operate the Wood Processing Business and the Production Plant. These licences include the Promoted Business Licence as well as licences or permits for, among others, undertaking wood processing, factory operations, health-hazardous operations and for ground water usage. As at the Latest Practicable Date, save as disclosed in Section of this Circular and below, Grob Holz has obtained all of the relevant licences, permits, approvals and consents required for the operation of the Wood Processing Business and the Production Plant and has complied with all of the conditions required pursuant thereto which are due to be complied with. These licences, permits, approvals and consents have to be renewed as they expire (where applicable), and new licences, permits, approvals or consents (as the case may be) may be required by Grob Holz for its operations in future. No assurance can be given that the government authorities of Thailand will issue or renew the licences, permits, approvals or consents required by Grob Holz within anticipated timeframes or at all. A loss of, or failure to obtain or renew, any material or significant licence, permit, approval or consent required for the conduct of its business and operations will materially and adversely affect Grob Holz s business, financial condition, results of operations and prospects. In addition, if Grob Holz commits a breach of any of the terms or conditions or is not able to meet or continue to meet any of the terms and conditions as set out in or required pursuant to any of the applicable licences, permits, approvals or consents required for the Wood Processing Business and/or the Production Plant, this could lead to a termination or revocation of such licences, permits, approvals or consents and/or any of the rights, benefits or privileges granted thereunder (as the case may be), and will cause Grob Holz s business or operations to be disrupted or restricted, and will also adversely affect its business, financial condition, results of operations and prospects. As mentioned in Section of this Circular, Grob Holz is also required to comply with the various laws of Thailand applicable to it including the Environmental Act and the Factory Operation Act. Since commencing operations in June 2006, Grob Holz has not submitted the quarterly Environmental Reports and Budget Reports to the Industrial Office of Songkhla as required under the Environmental Act and the Factory Operation Act respectively. As at the Latest Practicable Date, Grob Holz is in the midst of commissioning a consultant licensed by the authorities in Thailand to prepare the Environmental Reports and the Budget Reports. The Company understands from the consultant that the Environmental Reports and the Budget Reports will be submitted to the Industrial Office of Songkhla by mid December The Company also understands from its legal counsel in Thailand that the penalty for failing to submit the Environmental Reports is a fine of up to THB200,000 for the failure to submit each environmental quality and each air pollution quality report. The Company also understands from its legal counsel in Thailand that although the failure to submit the Budget Reports will not attract a fine per se, the officer from the Industrial Office of Songkhla can make an order for Grob Holz to furnish such Budget Reports. A failure by Grob Holz to obey such an order will result in a maximum fine of THB200,000. Although the Company will be submitting the Environmental Reports and the Budget Reports by mid December 2011, there is no assurance that the authorities will not impose the above fines for past breaches of Grob Holz under the Environmental Act and the Factory Operation Act. As the breaches have been ongoing since 2006, any fines imposed by the authorities in Thailand, if aggregated, may be substantial, and may have a material adverse financial effect on Grob Holz. Save as aforesaid, the Company understands from its legal counsel in Thailand that there are no other penalties, financial or otherwise which may be imposed by the Industrial Office of Songkhla in connection with any failure to submit the Environmental Reports and Budget Reports. 25

27 Grob Holz has not fully complied with the terms and conditions of the Promoted Business Licence The most significant licence relating to Grob Holz s business is the Promoted Business Licence issued by the BOI in relation to the Wood Processing Business. The Promoted Business Licence allows Grob Holz, amongst other rights and privileges, to be wholly foreign-owned, to own land, to enjoy exemption from corporate income tax during the Tax Exemption Period and to enjoy exemption from import duties and taxes for certain machinery and raw materials to be used in connection with the Wood Processing Business, subject to certain conditions to be complied with. Please refer to Section of this Circular for further details on the scope and key conditions attached to the Promoted Business Licence. As at the Latest Practicable Date, Grob Holz has neither obtained the BOI Approval of Commencement of Operations, nor obtained the ISO 9000 certification for the Wood Processing Business, which is supposed to be obtained within two years from the date of the BOI Approval of Commencement of Operations. As mentioned in Section of this Circular, Grob Holz had on 9 November 2011 submitted an application to notify the BOI of its commencement of operations and to seek the BOI Approval of Commencement of Operations. In considering such application by Grob Holz, the BOI will take into consideration, inter alia, the actual investment amount made in Grob Holz, the production capacity of the Production Plant and its income, and whether it complies with the conditions as set out under the terms of the Promoted Business Licence. Although the Company understands from its legal counsel in Thailand that the BOI Approval of Commencement of Operations is usually expected to be granted within three to six months of an application being submitted, there is no assurance or certainty that such approval will indeed be granted within the anticipated timeframe or at all, or that such approval may be granted but subject to such new or additional conditions which may be more onerous or unfavourable to Grob Holz. In the event Grob Holz s application for the BOI Approval of Commencement of Operations is approved by the BOI, the BOI has the right to impose new conditions in the Promoted Business Licence or a financial penalty on Grob Holz by reducing the Tax Exemption Period granted to Grob Holz by up to one year. Such penalty, if imposed, will have an adverse financial effect on Grob Holz by subjecting such of its profit before tax to taxation which may otherwise be tax-exempt under the original Tax Exemption Period. Save as aforesaid, the Company understands from its legal counsel in Thailand that there are no other penalties, financial or otherwise (including but not limited to revocation or termination of the Promoted Business Licence) which may be imposed by the BOI in connection with any failure or delay to obtain the BOI Approval of Commencement of Operations as aforesaid. Grob Holz needs to rectify its earlier mortgage of land without the approval of the BOI Grob Holz had mortgaged the land and buildings at the Production Plant to a financial institution in 2006 (the Mortgage ) as security for certain banking facilities obtained from such financial institution without obtaining the prior approval of the BOI, as required under the terms and conditions of the Promoted Business Licence. Grob Holz had on 11 November 2011 submitted an application to the BOI to rectify its earlier omission to seek approval for the Mortgage. Notwithstanding that the Company understands from its legal counsel in Thailand that such approval by the BOI will usually be granted as a matter of course, there is however, no assurance or certainty that such approval will be obtained. The Company understands from its legal counsel in Thailand that the BOI has the right to impose a financial penalty on Grob Holz for its failure or delay to obtain the prior approval of the BOI for the Mortgage by reducing the Tax Exemption Period granted to Grob Holz by up to one year, which 26

28 may be aggregated with the possible reduction of the Tax Exemption Period by up to one year for not complying with the requirement to obtain the BOI Approval of Commencement of Operations as mentioned in the paragraph above. Such penalty, if imposed, will have an adverse financial effect on Grob Holz by subjecting such of its profit before tax to taxation which may otherwise be tax-exempt under the original Tax- Exemption Period. Save as aforesaid, the Company understands from its legal counsel in Thailand that there are no other penalties, financial or otherwise (including but not limited to revocation or termination of the Promoted Business Licence) which may be imposed by the BOI in connection with Grob Holz s failure or delay to obtain the prior approval of the BOI for the Mortgage. There is no certainty that the Wood Processing Business will result in revenues or profits for the Group or will generate sufficient working capital for its operations For FY2011, Grob Holz reported an audited net loss of THB12.3 million and has accumulated losses of THB125.2 million as at 30 June The Company understands from the Vendor that the main reasons for the losses incurred for FY2011 were caused by constraints faced due to insufficient working capital and a lack of consensus on the strategic direction for Grob Holz between GHSB, KKSB and the previous joint venture partner prior to GHSB s acquisition of the shareholding stake from the previous joint venture partner on 1 April Grob Holz also had a net current liabilities position of THB 70.0 million as at 30 June 2011 due to, inter alia, non-current assets being financed by short-term loans and non-matching of payment terms between its purchases of raw materials and supplies (which were mainly on cash terms) and its sales (which were mainly on credit terms). Notwithstanding such losses and net current liabilities position, the Board is of the view that there is growth potential in the Wood Processing Business due to increasing demand for sawn timber and wooden furniture parts and components especially from China, Thailand and Vietnam. Also, the revenue of Grob Holz increased from THB155.8 million in FY2009 to THB247.3 million in FY2011. However, there is no certainty or assurance of the demand and/or prices for lumber or sawn timber, in particular, of sustainable sales or orders being received for the lumber or sawn timber produced by Grob Holz, or of the sale prices or margins which Grob Holz may be able to charge or earn for such products. If Grob Holz does not earn sufficient revenue to offset costs, it will incur a loss or earn a smaller profit than what is anticipated and there is no guarantee that the Wood Processing Business will result in revenues or earnings or profits for Grob Holz and the Group. If Grob Holz does not derive sufficient revenue from or does not manage the costs of the Wood Processing Business or suffers from negative cashflow or a lack of working capital, the overall financial position and profitability of the Group may be adversely affected. Grob Holz is subject to the credit risks of customers Grob Holz s financial performance and position is dependent, to a certain extent, on the creditworthiness of its customers. If there are any unforeseen circumstances affecting its customers ability or willingness to pay, Grob Holz may experience payment delays or nonpayment. In any of these events, Grob Holz s and the Group s financial performance and financial position will be affected adversely. The Group has no proven track record in the Wood Processing Business The Wood Processing Business is a new venture into an upstream business area for the Group and while the Group may be able to draw on the expertise of some of its Directors and management, including Mr Lin Tzu-Keng and Mr Yek Siew Liong, the other Directors and management of the Company have no proven track record of operating or managing such business, and may lack the necessary industry and market knowledge as well as experience to operate and manage the Wood Processing Business. 27

29 Grob Holz faces intense competition from existing competitors and new entrants There are other established and large-scale companies operating in the lumber and sawn timber, wooden furniture parts and components production and related businesses, both in Thailand and overseas, who are or will be the Group s competitors in the Wood Processing Business following Completion. Grob Holz s ability to compete effectively against such competitors will depend on, inter alia, its technical competence, quality of products, price competitiveness, and cost-effectiveness as compared to its competitors. There is no assurance that Grob Holz will be able to compete successfully following Completion, and if it is unable to compete effectively with its existing and future competitors, its business and financial performance may be adversely affected, and may thereby undermine the business operations and financial performance of the Group. The Wood Processing Business is subject to forces of nature There are inherent force majeure circumstances and risks relating to the Wood Processing Business, such as the risk of heavy rainfall, floods, droughts, pestilence and other forces of nature and unforeseen events which may affect the growth or production volume or output or quality of the trees used for the production of lumber or sawn timber. The working conditions and continued operations at Grob Holz may be disrupted or delayed as a result of heavy rainfall, floods, droughts, pestilence and other adverse situations, and may lead to lower sales or demand and/or cost overruns. As Grob Holz sources its raw materials and supplies from external parties, the occurrence of such risks or conditions will disrupt the supply of raw materials and adversely affect the performance of the Wood Processing Business which will in turn adversely affect the financial results or condition of Grob Holz and the Group. The manufacturing facilities at the Production Plant are susceptible to risk of fire due to the storage of large quantities of wood or wood-based raw materials and work-in-progress which are flammable products in nature. It may also be affected by adverse weather conditions or natural calamities such as floods. Grob Holz may not have adequate insurance coverage in relation to the potential losses in the course of the Wood Processing Business or may suffer material losses in excess of insurance proceeds The stock of raw materials used, and inventory of semi-processed/ processed products stored by Grob Holz in the ordinary course of business are particularly vulnerable to physical damage caused by fire, acts of God such as floods or any other natural disasters. In addition, certain types of risks (such as war risk, terrorist acts and losses caused by the outbreak of contagious diseases, contamination or other environmental breaches) may be uninsurable or the cost of insurance may be prohibitive when compared to the risk. Currently, Grob Holz s insurance policies do not cover acts of war, outbreak of contagious diseases, contamination or other environmental breaches. As at the Latest Practicable Date, Grob Holz maintains accidental damage coverage in respect of its property, plant and machinery and stock of raw materials, work-in-progress and finished goods, among others. However, no assurance can be given that uninsured losses or material losses in excess of insurance proceeds will not occur, or that such events will not in turn adversely affect the financial condition of Grob Holz and the Group. There is no assurance that the Group will not in future suffer incidents of loss or damage to such properties, facilities and equipment which is not insured or fully insured, for instance certain types of losses such as acts of God, acts of terrorism, war and civil disorder are generally very costly to insure and it may not be cost effective for the Group to obtain such insurance coverage. Should 28

30 there be loss arising out of any event which is not covered by the insurance policies or should such damage be in excess of the amount for which it is insured, the profitability and financial performance of the Group would be adversely affected. Grob Holz s operations are subject to disruptions in port access and volatility in freight costs due to the export-orientated nature of its business Due to the export-orientated nature of its business, Grob Holz relies heavily on maritime transportation services provided by third parties for the timely delivery of its products to customers overseas. Significant downtime due to unexpected waiting times for vessels to on-load or off-load cargo caused by congestion and infrastructure constraints at port facilities will affect Grob Holz s ability to deliver its products to customers and to receive the raw materials and supplies in a timely manner which may result in Grob Holz incurring additional costs such as additional inventory costs and in some cases additional production costs (e.g. production stoppage or delay due to late delivery of raw materials). As inland transportation costs and export charges incurred in the transportation of the finished products may account for a substantial portion of Grob Holz s distribution costs as well as carriage inwards charges, any increase in export or transport related costs could increase the Group s expenses which may in turn have a material adverse effect on the Group s operating results. Volatility in inland transportation costs and export charges could come about due to, inter alia, changes in global and regional demand for maritime transportation services and the price of oil. Labour strikes or failure to maintain satisfactory labour relations may disrupt Grob Holz s operations Grob Holz s operations are labour-intensive. Grob Holz generally enjoys healthy relationships with its workforce and the labour unions of which its employees are members. Grob Holz s operations have not been materially affected by any significant work stoppage or labour dispute during the last three financial years save for a few minor strikes, disputes, sit-ins by its workers which did not exceed three days on each occasion. However, there is no assurance that Grob Holz will not experience any major or significant work stoppage, labour unrest or dispute in the future which could disrupt its operations, and which may adversely and materially affect its business operations and financial performance as a whole. Grob Holz may be affected by labour shortages and increases in labour costs As at the Latest Practicable Date, Grob Holz employs a total of 263 workers at the Production Plant, of which approximately 73.0% are from Myanmar and Cambodia. Grob Holz s direct and indirect labour costs represent approximately 18.0%, 14.7% and 14.3% of its total cost of sales in FY2009, FY2010, FY2011 respectively. As Thailand, Myanmar and Cambodia have become increasingly more industrialised, there may be a tightening of labour supply, especially in the more popular industrial areas, and this may in turn lead to higher wage costs. In addition, Grob Holz may be affected by changes to the employment laws or regulations in Thailand, Myanmar and Cambodia from time to time including changes to the mandatory minimum salary for local and foreign workers in Thailand. In the event Grob Holz is unable to hire sufficient workers required for its operations, or have to employ workers at higher costs, its operations may be affected or its costs will increase. This may in turn have an adverse effect on the Group s operations, financial performance and financial position. Grob Holz is exposed to potential liability arising from injuries or deaths due to accidents Due to the nature of its operations, there is risk of deaths or injuries occurring to Grob Holz s employees as a result of accidents in the course of their work at the Production Plant. These work place accidents may occur as a result of human error or negligence, machine malfunction or other unforeseeable accidents. 29

31 During the last three financial years, Grob Holz had experienced incidents of accidents resulting in injuries to some of its employees, none of which was of a material nature. In the event that any claims for compensation are made against Grob Holz or the Group in respect of accidents which are not covered by insurance policies taken up by the Group, or if claims arising from such accidents are in excess of the Group s insurance coverage and/or any of the Group s insurance claims are contested by any insurance company, the Group will be required to pay for such claims for compensation. In addition, the Group may have to pay fines under relevant government regulations or suffer work stoppages if the accidents were a result of non-compliance with the regulated safety standards. The financial performance of the Group may be adversely affected by the occurrence of any of the above incidences. The Wood Processing Business is subject to compliance with the local laws and regulations applicable for such business The Wood Processing Business is subject to compliance with the laws and regulations of Thailand that may be applicable, including but not limited to laws and regulations relating to the environment, water pollution, emission of hazardous substances or trade effluents and other environmental assessments or reviews, factories regulations, regulations relating to the health and safety of workers, production and safety standards. In particular, the relevant governmental agencies in Thailand may from time to time examine Grob Holz s compliance with the relevant environmental laws and regulations for its operation of the Production Plant, and in the event that it is found to be in breach of any of such laws and regulations, it may be subject to fines and penalties and its existing licences and permits may be revoked or not renewed. As at the Latest Practicable Date, Grob Holz is not aware of any violations of any environmental or health and safety regulations. There is no assurance that Grob Holz s existing licences and permits will be renewed upon expiry or will not be revoked, inter alia, in the event that it fails to comply with the applicable laws or regulations of Thailand. If any of the necessary licences, permits, approvals or consents are not duly obtained or if there is any non-renewal, withdrawal or suspension of any of these licences, permits approvals or consents, inter alia, due to non-compliance with any applicable laws or regulations, Grob Holz s ability to continue operating the Wood Processing Business will be adversely affected. Any changes in applicable laws and regulations could also result in higher compliance costs or may disrupt or adversely affect the operations of the Wood Processing Business. Environmental concerns leading to increasingly stringent standards and requirements for use or treatment of wood Due to increasing concerns about the environmental damage and hazards caused by the widespread destruction of trees and deforestation, governments all around the world may increasingly impose more stringent standards and requirements dealing with the use and treatment of wood, which will affect Grob Holz s business and operations. As an illustration, the United States has passed legislation to curb illegal timber imports including prohibiting any dealings or commerce of plants and derivative products (including all timber and wooden products) that were illegally taken or transported in violation of the laws of the country in which the timber was originally harvested. From April 2009, shipments of wood products into the United States have to be accompanied by the submission of mandatory customs declarations to declare the origin of the products. Offenders who knowingly export or import illegally harvested timber (or wood-based products derived from such timber) into the United States are subject to civil administrative penalties, forfeiture of the trafficked goods or imprisonment. Companies found not to have exercised appropriate due care to avoid illegal wood in their supply chain may also be subject to the imposition of penalties. 30

32 In view of the above, Grob Holz may have to put in place more vigorous control measures in its supply chain and production processes and provide for certification or verification processes to give its customers assurance on the legality of its wood sources. Such additional steps to be taken by Grob Holz are likely to lead to an increase in its costs of production. In the event that it is unable to pass on such increase in costs to its customers, its profitability and financial performance may be adversely affected. Grob Holz s operations are affected by any changes in government export taxes and tariffs imposed in Thailand and the countries in which its customers are located As Grob Holz exports almost all of its products to countries outside of Thailand, it is affected by changes to the export and trade laws, regulations or policies imposed by the Government of Thailand and/or in the countries which its customers are located including China, Vietnam and Malaysia. For instance, any increase in the export taxes levied by the Government of Thailand for its products or the import taxes, bans or tariffs (if any) imposed on foreign imports in the countries to which it exports to, or other similar or related actions may adversely affect the demand for its products or the price competitiveness of its products, and its revenue and profits may hence be adversely affected. Demand for Grob Holz s products is dependent on demand for wooden furniture end products and the wooden furniture industry As Grob Holz acts as a supplier and sub-contractor to the wooden furniture industry, demand for its products will be affected by the demand for the wooden furniture end products which its products are made into and the strength and prospects of the wooden furniture industry in general. Demand for the wooden furniture end products made by Grob Holz s customers will depend on, inter alia, the relevant market(s), including overseas markets, where such products are sold to, the existence of favourable political, economic, regulatory and social conditions in the relevant markets, and events such as any economic downturn, changes in consumer sentiments, tastes and preferences, currency and/or interest rate fluctuations, capital controls or capital restrictions, changes in laws or regulations such as environmental protection laws and regulations, duties and taxation, tariffs, quotas and limitations on imports and exports in these markets. The Wood Processing Business will also be affected by the strength and prospects of the wooden furniture industry in general which will depend on, inter alia, design and fashion trends and customer preferences and tastes. Should there be any adverse changes to any of the foregoing, there is no assurance that there will not be any adverse impact on the Wood Processing Business which will in turn adversely affect the Group s business operations, financial performance and future growth. Any disruption in the supply of water, electricity or any outbreak of fire, adverse weather conditions or other calamities may result in major disruption to Grob Holz s operations Grob Holz s business operations are dependent on a stable supply of water and electricity. Disruptions to Grob Holz s supply of utilities due to down-time, restrictions or disruptions in supply by or from the relevant authorities may result in disruptions to its operations. The occurrence of such events may result in its facilities, equipment, inventory and/or products being destroyed or damaged. This may lead to interruptions, disruptions or delay of Grob Holz s operations, and adversely affect its ability to fulfil its sales orders and hence its profitability. Grob Holz and the Group may be exposed to potential product liability claims and reputational risks If there are any defects in the products manufactured and/or supplied by Grob Holz, it may face claims from its customers, or it may face claims for the injury or damages suffered by the end-consumers of its products arising from such defects or accidents. 31

33 Grob Holz does not have any general product liability insurance coverage. Instead, it may acquire product liability insurance polices on a case-by-case basis based on the requirements of its customers. In the event that Grob Holz is not covered for claims made against it or the quantum insured under its product liability insurance policies is insufficient to settle successful claims against it, its profitability may be materially and adversely affected. In addition, any successful product liability claim against Grob Holz may also adversely affect the Group s business and reputation. Even if the Group is able to successfully defend any such claims, there can be no assurance that the Group s customers will not lose confidence in the Group s products or that the Group s business and reputation will not be adversely affected. The Group may require additional financing for the Wood Processing Business in the future In the event that Grob Holz requires additional funding for the Wood Processing Business beyond its available internal resources, for instance to fund its working capital requirements or new projects or further capital expenditure required for the Wood Processing Business in the future, the Group may either have to deploy funds or to tap the capital markets for further debt or equity financing in order to meet such requirements. Additional equity financing may result in a dilution to the shareholdings of Shareholders. Additional debt financing is subject to interest payments and interest rate fluctuations and may also be subject to conditions that restrict or require consent for corporate restructuring or additional financing or fund raising, or restrictions on the payment of dividends and maintenance of certain financial ratios. These conditions may limit the flexibility of the Group in planning for, or reacting to, changes in the business or industry. The ability of the Group to obtain additional debt financing or equity funds from the capital markets for its requirements depends on the prevailing market conditions, the ongoing performance of the Group and the acceptability of the financing terms offered. The Group cannot ensure that future financing will be available or available on acceptable terms, or in an amount sufficient to fund the needs of the Group in relation to the Wood Processing Business. In the event that the Group is unable to obtain acceptable and adequate financing, it may not be able to undertake such new projects or further capital expenditure required for the Wood Processing Business. The Group will be affected by foreign exchange fluctuations arising from the Proposed Acquisition Grob Holz is subject to foreign exchange risk arising mainly from the mismatch between the currency of its receipts, which are mainly in the US$ and the RM, and the currency of the payments it makes, which are mainly in the THB. To the extent that its receipts and payments are not denominated in the same currency, it may be exposed to foreign exchange fluctuations. Any significant fluctuations in the exchange rates of the currencies in which it transacts business could cause it to incur foreign exchange losses. The Group is also subject to foreign currency translation risk as the Group s consolidated financial statements are denominated in the S$ while the financial statements of Grob Holz are prepared in the THB. For the purpose of preparing the Group s consolidated financial statements, the financial statements of Grob Holz would be translated from the THB to the S$ using the exchange rates prevailing on the balance sheet date except for share capital and reserves (which would be translated at historical exchange rates) and income statement items which would be translated at average exchange rates for the relevant financial year. Any significant appreciation of the S$ against the THB may adversely affect the Group s operating results. 32

34 Grob Holz and the Wood Processing Business could be adversely affected by changes in the political, economic, regulatory and social conditions in Thailand Since Grob Holz is a company incorporated in Thailand and the operations of the Wood Processing Business are all located and based in Thailand, its business and future growth is dependant on the political, economic, regulatory and social conditions in Thailand. Any changes in the policies to be implemented by the Government of Thailand resulting in, inter alia, currency and interest rate fluctuations, foreign exchange restrictions and controls, capital restrictions, political and economic instability, expropriation or nationalisation of private enterprises and confiscation of private property and changes in government regulations and policies or duties and taxes detrimental to Grob Holz s business may materially affect its operations, financial performance and future growth in Thailand. Unfavourable changes in such political, economic, regulatory and social conditions may have a negative impact on Grob Holz s operations and business in Thailand which will in turn adversely affect the Group s overall financial performance. Furthermore, Grob Holz may also be required to operate under new laws or regulations or revisions in existing laws or regulations, if any, that may impose onerous conditions on the manner in which it carries out the Wood Processing Business. In the event that the Government of Thailand introduces more stringent regulations, the Group may need to utilise significant resources to ensure Grob Holz s compliance with those new or changed regulations which will result in an increase in the Group s operating costs and have an adverse effect on the Group s financial performance and prospects. There will be a time lag for the successful integration of Grob Holz with the Group Notwithstanding that Grob Holz operates in the same industry as the Group, Grob Holz has its own set of operations, internal systems and procedures. The process of integrating Grob Holz s operations with the Group may require a substantial amount of time and resources before the expected synergy may be achieved. As such, the positive impact of the Proposed Acquisition may not be experienced by the Group immediately. 5. CHAPTERS 9 AND 10 OF THE CATALIST LISTING MANUAL Pursuant to Chapter 9 of the Catalist Listing Manual, an immediate announcement and shareholders approval is required in respect of a transaction between an entity at risk and its interested persons if the value of that transaction exceeds five per cent. (5%) of the group s latest audited NTA. Pursuant to Chapter 10 of the Catalist Listing Manual, where any of the relative figures computed on the bases set out in Rule 1006 exceeds five per cent. (5%), the issuer must, after terms have been agreed, immediately make an announcement in accordance with Rule Interested Person Transaction GHSB is a wholly-owned subsidiary of LTHB. LTHB is a Controlling Shareholder of the Company, holding 182,000,000 Shares, representing 75.95% of the issued and paid-up share capital of the Company as at the Latest Practicable Date. As such, pursuant to the definition of the Catalist Listing Manual, GHSB is an associate of LTHB. GHSB is also an associate of Mr Lin Tzu-Keng, the Chief Executive Officer and Executive Director of the Company, pursuant to the definition of the Catalist Listing Manual, as he exercises or controls the exercise of an aggregate of 30.78% of the votes attached to the voting shares of LTHB by virtue of his direct and indirect shareholdings of 30.78% in LTHB. As such, GHSB falls under the definition of an interested person within the meaning of Chapter 9 of the Catalist Listing Manual. 33

35 Accordingly, the Proposed Acquisition will constitute an interested person transaction pursuant to Chapter 9 of the Catalist Listing Manual (the Interested Person Transaction ). As the value of the Proposed Acquisition is greater than five per cent. (5%) of the Group s latest audited NTA as at 30 June 2011, the Company is seeking Shareholders approval for the Proposed Acquisition pursuant to Chapter 9 of the Catalist Listing Manual at the EGM. As LTHB, the Company s Controlling Shareholder, owns the entire shareholding interest in GHSB, LTHB will abstain, and have undertaken to ensure that its associates (if any) will abstain, from making any recommendations and/or from voting on the Ordinary Resolution. 5.2 Discloseable Transaction For the purposes of Chapter 10 of the Catalist Listing Manual, the relative figures for the Proposed Acquisition computed on the bases set out in Rule 1006 of the Catalist Listing Manual based on the audited consolidated financial statements of the Group for FY2011 are as follows: Rule 1006 (a) (b) Bases of calculation The net asset value of the assets to be disposed of, compared with the Group s net asset value. The net profits attributable to the assets acquired compared with the Group s net profits. Size of relative figures (to the nearest 2 decimal places) Not applicable (3.87%) (1) (c) (d) (e) The aggregate value of the consideration given, compared with the Company s market capitalisation based on the total number of issued Shares excluding treasury shares. The number of equity securities issued by the Company as consideration for an acquisition, compared with the number of equity securities previously in issue. The aggregate volume or amount of proven and probable reserves to be disposed of, compared with the aggregate of the Group s proven and probable reserves % (2) Not applicable Not applicable Notes: (1) Based on the latest audited financial statements of Grob Holz for FY2011, Grob Holz incurred an audited loss of THB12,298,943 or approximately S$514,196 (based on the Exchange Rate). (2) The Company s market capitalisation of S$59,118,201 was computed based on the Company s existing issued share capital of 239,636,000 Shares and the volume weighted average price of the Shares of S$ traded on the SGX-ST on 27 October 2011 (being the last traded day preceding the date of the Agreement). The aggregate value of the Consideration is THB148,560,000 or approximately S$6,211,014 (based on the Exchange Rate). Having regard to the above, the Proposed Acquisition constitutes a discloseable transaction (the Discloseable Transaction ) within the meaning of Chapter 10 of the Catalist Listing Manual pursuant to Rule 1010 read together with Rule 1006 of the Catalist Listing Manual. 34

36 6. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION The financial effects of the Proposed Acquisition on the Group set out below are for illustrative purposes only and are therefore not indicative of the actual financial performance or position of the Group immediately after Completion. The financial effects set out below have been prepared based on the audited consolidated financial statements of the Group for FY2011 and on the following key assumptions: (i) (ii) the effect of the Proposed Acquisition on the EPS of the Group shown below is based on the assumption that the Proposed Acquisition had been effected at the beginning of FY2011; and the effect of the Proposed Acquisition on the NTA per Share of the Group shown below is based on the assumption that the Proposed Acquisition had been effected at the end of FY Share Capital 6.2 EPS The Proposed Acquisition will have no effect on the issued and paid-up share capital of the Company. The effects of the Proposed Acquisition on the EPS of the Group for FY2011 are as follows: Before the Proposed Acquisition After the Proposed Acquisition Profit attributable to Shareholders (S$ 000) 13,303 12,866 Number of Shares ( 000) 239, ,636 EPS (cents) NTA per Share The effects of the Proposed Acquisition on the NTA per Share of the Group for FY2011 are as follows: Before the Proposed Acquisition After the Proposed Acquisition NTA (S$ 000) 52,176 50,556 Number of Shares ( 000) 239, ,636 NTA per Share (cents)

37 6.4 Net Gearing Ratio Net gearing ratio is computed based on the ratio of total net borrowings to shareholders equity. Net borrowings consist of total borrowings less cash and cash equivalents. The effects of the Proposed Acquisition on the net gearing ratio of the Group for FY2011 are as follows: Before the Proposed Acquisition After the Proposed Acquisition Net borrowings (S$ 000) 10,106 14,690 Shareholders equity (S$ 000) 52,176 49,868 Net gearing (times) INTERESTS OF DIRECTORS AND CONTROLLING SHAREHOLDERS The Chief Executive Officer, Executive Director and Controlling Shareholder of the Company, Mr Lin Tzu-Keng, has a deemed interest in GHSB as GHSB is a wholly-owned subsidiary of LTHB and Mr Lin Tzu-Keng exercises or controls the exercise of an aggregate of 30.78% of the votes attached to the voting shares of LTHB by virtue of his direct and indirect shareholdings of 30.78% in LTHB. Mr Lin Tzu-Keng has declared his interests as described above to the Board and shall abstain from voting in respect of the resolutions of the Board for the Proposed Acquisition, from making recommendations to Shareholders on the Proposed Acquisition and from voting in respect of the Ordinary Resolution. The Non-Executive Chairman and Substantial Shareholder of the Company, Mr Yek Siew Liong is also a director of LTHB, the holding company of the Vendor. As such, Mr Yek Siew Liong shall abstain from voting in respect of the resolutions of the Board for the Proposed Acquisition, from making recommendations to Shareholders on the Proposed Acquisition and from voting in respect of the Ordinary Resolution. The Non-Executive Non-Independent Director of the Company, Mr Toh Seng Thong shall abstain from voting in respect of the resolutions of the Board for the Proposed Acquisition, from making recommendations to the Shareholders on the Proposed Acquisition and from voting in respect of the Ordinary Resolution in relation to the Proposed Acquisition as he is a director of LTHB, the holding company of the Vendor. The Controlling Shareholder of the Company, LTHB owns the entire shareholding interest in GHSB. LTHB and its associates will abstain from voting on the Ordinary Resolution at the EGM. LTHB and its associates will also not accept any nominations to act as proxy, corporate, representative or attorney for any Shareholder in relation to the Ordinary Resolution at the EGM unless specific instructions on how to vote are given in respect of the Ordinary Resolution. Save as disclosed above, none of the Directors or Controlling Shareholders of the Company has any interest, direct or indirect (other than through their respective shareholding interests in the Company) in the Proposed Acquisition. 36

38 8. INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS 8.1 Interests of Directors The interests (both direct and indirect) of the Directors in the issued and paid-up share capital of the Company, as recorded in the Register of Directors shareholdings of the Company as at the Latest Practicable Date, are as follows: Directors Direct Interest Deemed Interest No. of Shares % (1) No. of Shares % (1) Yek Siew Liong (2) 11,630, ,295, Lin Tzu-Keng (3) 700, ,000, Yeoh Joe Son Toh Seng Thong Ng Wei Hua Phuan Phui Seck Peter Sim Swee Yam Lin Chin-Hung (4) Notes: (1) Based on the issued and paid-up share capital of the Company of 239,636,000 Shares as at the Latest Practicable Date. (2) The Non-Executive Chairman and Substantial Shareholder of the Company, Mr Yek Siew Liong is deemed interested in the 2,295,000 Shares held by his spouse, Mdm Kiu Een Edith Kui Poh Een. (3) The Chief Executive Officer and Executive Director of the Company, Mr Lin Tzu-Keng is deemed interested in the Shares held by LTHB as he exercises or controls the exercise of an aggregate of 30.78% of the votes attached to the voting shares of LTHB, by way of his 19.45% direct shareholdings in LTHB and his deemed interest in his spouse, Mdm Lin Chen Jui-Fen s 11.33% direct shareholdings in LTHB. (4) Alternate Director to Mr Lin Tzu-Keng. Save as disclosed above, none of the Directors has any interest, whether direct or indirect in the issue and paid-up share capital of the Company as at the Latest Practicable Date. 8.2 Interests of Substantial Shareholders The interests (both direct and indirect) of the Substantial Shareholders (other than Directors) in the issued and paid-up share capital of the Company, as recorded in the Register of Substantial Shareholders of the Company as at the Latest Practicable Date, are as follows: Substantial Shareholders (other than Directors) Direct Interest Deemed Interest No. of Shares % (1) No. of Shares % (1) LTHB 182,000, Kiu Een Edith Kiu Poh Een (2) 2,295, ,630, Notes: (1) Based on the issued and paid-up share capital of the Company of 239,636,000 Shares as at the Latest Practicable Date. (2) Mdm Kiu Een Edith Kiu Poh Een is deemed interested in the 11,630,000 Shares held by her spouse, Mr Yek Siew Liong. 37

39 9. INDEPENDENT FINANCIAL ADVISER 9.1 The Company has appointed Asiasons WFG Capital Pte Ltd as the IFA in accordance with Rule 921(4) of the Catalist Listing Manual to advise the Independent Directors in relation to the Proposed Acquisition on whether the terms of the Proposed Acquisition are on normal commercial terms and whether it is prejudicial to the interests of the Company and its minority Shareholders. A copy of the IFA Letter is set out in Appendix 1 of this Circular and Shareholders are advised to read such IFA Letter carefully and consider it in the context of this Circular. 9.2 The advice of the IFA to the Independent Directors has been extracted and is set out in italics below. Unless otherwise defined, all terms and expressions used in the extract below shall have the same meaning as those defined in the IFA Letter. Shareholders should read the following extract in conjunction with, and in the context of the full text of the IFA Letter. Accordingly, after taking into account the above factors, we are of the opinion as of the date hereof that the Proposed Acquisition is on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders. 10. RECOMMENDATION OF THE AC The AC comprises the independent Directors of the Company, Mr Ng Wei Hua, Mr Phuan Phui Seck and Mr Peter Sim Swee Yam and the Non-Executive Non-Independent Director, Mr Toh Seng Thong. The Chairman of the AC is Mr Ng Wei Hua. The aforementioned Directors (save for Mr Toh Seng Thong) do not have any interests in the Proposed Acquisition (other than through their respective shareholding interest in the Company) and are accordingly deemed to be independent for the purposes of the Proposed Acquisition. The AC (excluding Mr Toh Seng Thong), having reviewed and considered, inter alia, the terms and conditions of, financial effects of and rationale for and benefits of, the Proposed Acquisition as well as the IFA Letter and after discussions with the management of the Company, is of the view that the Proposed Acquisition is on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders. Accordingly, the AC (excluding Mr Toh Seng Thong) recommends that Shareholders vote in favour of the Ordinary Resolution to be proposed at the EGM as set out in the Notice of EGM. 11. DIRECTORS RECOMMENDATION The Directors (save for Mr Lin Tzu-Keng, Mr Yek Siew Liong and Mr Toh Seng Thong who have abstained from making recommendations on the Proposed Acquisition) are of the opinion that the Proposed Acquisition is in the best interest of the Company and accordingly recommend that Shareholders vote in favour of the Ordinary Resolution at the EGM as set out in the Notice of EGM. 12. EXTRAORDINARY GENERAL MEETING The EGM, notice of which is set out on page 101 of this Circular, will be held at Orchard Room, Raffles City Convention Centre, Level 4, 80 Bras Basah Road, Singapore on Friday, 16 December 2011 at 2.30 p.m. for the purpose of considering and, if thought fit, passing, with or without modification the Ordinary Resolution as set out in the Notice of EGM. 13. ACTION TO BE TAKEN BY SHAREHOLDERS Shareholders who are unable to attend the EGM and who wish to appoint a proxy or proxies to attend and vote on their behalf should complete, sign and return the Proxy Form attached to the Notice of EGM in accordance with the instructions printed therein as soon as possible and, in any 38

40 event, so as to arrive at the registered office of the Company at 50 Raffles Place, #32-01 Singapore Land Tower, Singapore not later than 48 hours before the time fixed for the holding of the EGM. The appointment of a proxy by a Shareholder does not preclude him/her from attending and voting in person at the EGM if he/she so wishes in place of the proxy. A Depositor shall not be regarded as a member of the Company entitled to attend the EGM and to speak and vote thereat unless his/her name appears on the Depository Register maintained by CDP at least 48 hours before the EGM. 14. ABSTENTION FROM VOTING In accordance with Rule 919 of the Catalist Listing Manual, an interested person shall abstain and ensure that its associates will abstain, from voting on the resolutions approving interested person transactions involving themselves and their associates. Furthermore, such interested persons and their associates shall not act as proxies in relation to such resolutions unless voting instructions have been given by the Shareholder. The Controlling Shareholder of the Company, LTHB owns the entire shareholding interests in GHSB. Accordingly, LTHB will abstain and has undertaken to ensure that its associates (if any) will abstain from voting in favour of the Ordinary Resolution to be proposed at the EGM and they shall (if applicable) decline to accept appointment as proxies for any Shareholder to vote in respect of each of the Ordinary Resolution in the Notice of EGM unless the Shareholder concerned shall have given instructions in his/her proxy as to the manner in which the votes are to be cast in respect of the Ordinary Resolution. 15. CONSENTS The Financial Adviser has given and has not withdrawn its written consent to the issue of this Circular, with the inclusion of its name and all references to its name, in the form and context in which they appear in this Circular. The IFA has given and has not withdrawn its written consent to the issue of this Circular, together with the IFA Letter as set out in Appendix 1 of this Circular, with the inclusion of its name and all references to its name, in the form and context in which they appear in this Circular. The Independent Valuer has given and has not withdrawn its written consent to the issue of this Circular, together with the Independent Valuation Reports as set out in Appendix 2 of this Circular, with the inclusion of its name and all references to its name, in the form and context in which they appear in this Circular. 16. RESPONSIBILITY STATEMENT FOR THE FINANCIAL ADVISER To the best of the Financial Adviser s knowledge and belief, this Circular constitutes full and true disclosure of all material facts about the Proposed Acquisition, the Company and its subsidiaries, and the Financial Adviser is not aware of any facts the omission of which would make any statement in this Circular misleading. 17. DIRECTORS RESPONSIBILITY STATEMENT The Directors collectively and individually accept full responsibility for the accuracy of the information given in this Circular and confirm after making all reasonable enquires, that to the best of their knowledge and belief, this Circular constitutes full and true disclosure of all material facts about the Proposed Acquisition, the Company and its subsidiaries, and the Directors are not aware of any facts the omission of which would make any statement in this Circular misleading. Where information in this Circular has been extracted from published or otherwise publicly available sources or obtained from a named source, the sole responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted from those sources and/or reproduced in this Circular in its proper form and context. 39

41 18. DOCUMENTS FOR INSPECTION Copies of the following documents are available for inspection during normal office hours at the registered office of the Company at 50 Raffles Place, #32-01 Singapore Land Tower, Singapore for a period of three (3) months from the date of this Circular: (a) (b) (c) (d) (e) (f) (g) (h) (i) the Memorandum and Articles; the Agreement; the Revised Non-competition Undertaking; the Deed of Indemnity; the Call Option Agreement; the IFA Letter; the Independent Valuation Reports; the Annual Report of the Company for FY2011; and the consent letters of the Financial Adviser, the IFA and the Independent Valuer. Yours faithfully For and on behalf of the Board of Directors of LATITUDE TREE INTERNATIONAL GROUP LTD. Lin Tzu-Keng Executive Director and Chief Executive Officer 40

42 APPENDIX 1 LETTER FROM ASIASONS WFG CAPITAL PTE LTD TO THE INDEPENDENT DIRECTORS IN RESPECT OF THE PROPOSED ACQUISITION 1 December 2011 Latitude Tree International Group Ltd. 50 Raffles Place #32-01 Singapore Land Tower Singapore Attention : The Independent Directors Dear Sirs LETTER FROM ASIASONS WFG CAPITAL PTE LTD TO THE INDEPENDENT DIRECTORS IN RESPECT OF THE PROPOSED ACQUISITION OF AN 85% EQUITY INTEREST IN GROB HOLZ CO., LTD AS AN INTERESTED PERSON TRANSACTION Unless otherwise defined or the context otherwise requires, all terms defined in the Circular shall have the same meanings herein. Unless otherwise stated, the S$ equivalent for all THB amounts stated in this letter have been converted based on the Exchange Rate. 1. INTRODUCTION On 31 October 2011, the board of directors (the Board ) of Latitude Tree International Group Ltd. (the Company together with its subsidiaries, the Group ) announced that the Company had on 31 October 2011 entered into a sale and purchase agreement (the Agreement ) with Grob Holz Sdn Bhd ( GHSB or the Vendor ) for the acquisition by the Company from the Vendor of 1,997,500 issued and paid-up ordinary shares of par value THB100 each (the Sale Shares ) in the capital of Grob Holz Co., Ltd ( Grob Holz ) representing 85% of the issued and paid-up share capital of Grob Holz for a cash consideration of THB148,560,000 or approximately S$6,211,014 (the Proposed Acquisition ). GHSB is the beneficial owner of the Sale Shares and directly holds 1,997,495 of the Sale Shares while the remaining five (5) of the Sale Shares are held by Mr Lin Tzu-Keng, the Chief Executive Officer and Executive Director of the Company as bare trustee on trust for GHSB. The remaining 15% of the issued and paid-up capital of Grob Holz is held by Konsortium Kontrek Sdn Bhd ( KKSB ). KKSB is collectively owned by Mr Yek Siew Liong, the Non- Executive Chairman of the Company and his spouse, Mdm Kiu Een Edith Kiu Poh Een. GHSB is a wholly-owned subsidiary of Latitude Tree Holdings Berhad ( LTHB ), a public company incorporated in Malaysia that is listed on the Main Market of Bursa Malaysia Securities Berhad. LTHB is a Controlling Shareholder, holding 182,000,000 ordinary shares in the capital of the Company, representing approximately 75.95% of the issued and paid-up share capital of the Company as at the Latest Practicable Date. As such, pursuant to the definition of the Listing Manual (Section B: Rules of Catalist) of the Singapore Exchange Page 1 of 22 41

43 Securities Trading Limited (the SGX-ST ) (the Catalist Listing Manual ), GHSB is an associate of LTHB. GHSB is also an associate of Mr Lin Tzu-Keng pursuant to the definition of the Catalist Listing Manual as he exercises or controls the exercise of an aggregate of 30.78% of the votes attached to the voting shares of LTHB by virtue of his direct and indirect shareholdings of 30.78% in LTHB. As such, GHSB, is an interested person within the meaning of Chapter 9 of the Catalist Listing Manual and the Proposed Acquisition will constitute an interested person transaction pursuant to Chapter 9 of the Catalist Listing Manual (the Interested Person Transaction ). Based on the Exchange Rate, the Proposed Acquisition constitutes 11.90% of the Group s latest audited net tangible assets of S$52,176,000 as at 30 June As the value of the Proposed Acquisition is greater than 5% of the Group s latest audited net tangible assets, the Company is seeking Shareholders approval for the Proposed Acquisition pursuant to Chapter 9 of the Catalist Listing Manual at the EGM to be convened. The Controlling Shareholder of the Company, LTHB owns the entire shareholding interests in GHSB. Accordingly, LTHB will abstain and has undertaken to ensure that its associates (if any) will abstain from voting in favour of the Ordinary Resolution to be proposed at the EGM and they shall (if applicable) decline to accept appointment as proxies for any Shareholder to vote in respect of each of the Ordinary Resolution in the Notice of EGM unless the Shareholder concerned shall have given instructions in his/her proxy as to the manner in which the votes are to be cast in respect of the Ordinary Resolution. Mr Lin Tzu-Keng, Mr Yek Siew Liong and Mr Toh Seng Thong shall abstain from voting in respect of the resolutions of the Board for the Proposed Acquisition, from making recommendations to the Shareholders on the Proposed Acquisition and from voting in respect of the Ordinary Resolution. Asiasons WFG Capital Pte Ltd ( Asiasons WFG Capital ) has been appointed to advise the Directors other than those Directors who are deemed interested in the Proposed Acquisition, namely Yeoh Joe Son, Ng Wei Hua, Phuan Phui Seck and Peter Sim Swee Yam (collectively the Independent Directors ), as to whether the Proposed Acquisition is on normal commercial terms and whether it is prejudicial to the interests of the Company and its minority Shareholders. This letter sets out our evaluation of the terms of the Proposed Acquisition and our advice to the Independent Directors thereon (this IFA Letter ). It forms part of the circular to the Shareholders dated 1 December 2011 issued by the Company in connection with the Proposed Acquisition (the Circular ). Page 2 of 22 42

44 2. TERMS OF REFERENCE Asiasons WFG Capital has been appointed to advise the Independent Directors on whether the Proposed Acquisition is on normal commercial terms and is not prejudicial to the interests of the Company and the minority Shareholders. We do not, by this IFA Letter, make any representation or warranty in relation to the merits of the Proposed Acquisition. We are not and were not involved in any aspect of the negotiations pertaining to the Proposed Acquisition, nor were we involved in the deliberations leading up to the decisions on the part of the Directors to agree on the terms of the Proposed Acquisition. Our evaluation is limited to the financial terms of the Proposed Acquisition and has not taken into account the legal risks, commercial risks or merits, financial risks or merits of the Proposed Acquisition. Our terms of reference do not require us to evaluate or comment on the rationale for, strategic or commercial merits and/or risks of the Proposed Acquisition or the future performance or prospects of the Group. As with other business transactions of the Company, the merit and/or associated risks, whether commercial, financial or otherwise, of the Proposed Acquisition are solely the responsibility of the Board. Likewise we are not expressing herein as to the prices at which the Shares may trade upon completion of the Proposed Acquisition. We are also not addressing the relative merits of the Proposed Acquisition as compared to any alternative transaction previously considered by the Company or that otherwise may become available to the Group in the future. Such evaluations or comments remain the responsibility of the Board and the management of the Company. In the course of our evaluation and for the purpose of our opinion in relation to the Proposed Acquisition, we have held discussions with certain Directors and management of the Company and have examined information provided by the Directors and management of the Company and other publicly available information collated by us, upon which our view is based. We have not independently verified such information, whether written or verbal, and accordingly cannot and do not make any representation or warranty in respect of, and do not accept any responsibility for, the accuracy, completeness or adequacy of such information. We have nevertheless made enquiries and used our judgment as we deemed necessary or appropriate in assessing such information and are not aware of any reason to doubt the reliability of the information. We have relied upon the assurance of the Directors that the Directors collectively and individually accept full responsibility for the accuracy of the information given in the Circular and confirm after making all reasonable enquiries, that to the best of their knowledge and belief, the Circular constitutes full and true disclosure of all material facts about the Proposed Acquisition, the Company and its subsidiaries, and the Directors are not aware of any facts the omission of which would make any statement in the Circular misleading. Where information in the Circular has been extracted from published or otherwise publicly available sources or obtained from a named source, the sole responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted from those sources and/or reproduced in the Circular in its proper form and context. In relation to this IFA Letter, the Directors have confirmed that the facts stated, with respect to the Group and the Proposed Acquisition, are to the best of their knowledge and belief, fair and accurate in all material aspects. Page 3 of 22 43

45 We have been furnished with separate independent valuation reports issued by United Valuers and Consultant Co., Ltd. (the Independent Valuer ) dated 22 September 2011 for the valuation of the machinery and equipment and dated 23 September 2011 for the valuation of the plant (collectively the Independent Valuation Reports ). We have placed sole reliance thereon for the valuation and/or information contained therein. We are not involved and assume no responsibility for the Independent Valuation Reports. We have not made any independent verification of the matters or bases set out in the Independent Valuation Reports. In addition, we have not made any independent evaluation or appraisal of the assets or liabilities (including without limitation, real property) of Grob Holz. Accordingly, no representation or warranty, express or implied, is made and no responsibility is accepted by us concerning the accuracy, completeness or adequacy of all such information, provided or otherwise made available to us or relied on by us as described above. Furthermore, our terms of reference do not require us to express, and we do not express, an opinion on the future growth prospects of the Company or the Group. We are, therefore, not expressing any opinion herein as to the future financial or other performance of the Company or the Group. Our opinion is based upon prevailing market, economic, industry, monetary and other conditions (where applicable) and the information made available to us contained in the Circular as of, the Latest Practicable Date. We assume no responsibility to update, revise or reaffirm our view in light of any subsequent development after the Latest Practicable Date that may affect our opinion contained therein. Shareholders should take note of any announcements relevant to their consideration of the Proposed Acquisition which may be released by the Company after the Latest Practicable Date. In arriving at our opinion, we did not consider the specific investment objectives, financial situation, tax consequences, risk profile or unique needs and constraints of any Shareholder or any specific group of Shareholders. We recommend that any individual Shareholder or group of Shareholders who may require specific advice in relation to his or their investment objectives or portfolios should consult his or their legal, financial, tax or other professional advisors immediately. Our opinion is for the use and benefit of the Independent Directors in their deliberation of whether the financial terms of the Proposed Acquisition are on normal commercial terms and are not prejudicial to the interests of the Company and its minority Shareholders, and the statements made by the Independent Directors shall remain the responsibility of the Independent Directors. The Company has been separately advised by its own advisors in the preparation of the Circular (other than this IFA Letter). We have no role or involvement and have not provided any advice, financial or otherwise, whatsoever in the preparation, review and verification of the Circular (other than this IFA Letter). Accordingly, we take no responsibility for and express no views, express or implied, on the contents of the Circular (other than this IFA Letter). Page 4 of 22 44

46 Our opinion in relation to the Proposed Acquisition should be considered in the context of the entirety of this IFA Letter and the Circular. We recommend that the Independent Directors advise the Shareholders to read these pages carefully. 3. THE PROPOSED ACQUISITION AS AN INTERESTED PERSON TRANSACTION Information on the Proposed Acquisition as an Interested Person Transaction is set out in section 5.1 of the Circular, and Shareholders are advised to read the information carefully. 4. THE PROPOSED ACQUISITION 4.1 INFORMATION ON THE PROPOSED ACQUISITION Information on the Proposed Acquisition is set out in section 2 of the Circular, and Shareholders are advised to read the information carefully. 4.2 PURCHASE CONSIDERATION We set out certain extracts pertaining to the purchase consideration from section of the Circular in italic as follows: (a) Subject to the terms and conditions of the Agreement, the Consideration for the Proposed Acquisition is THB148,560,000, or approximately S$6,211,014 (based on the Exchange Rate). The Consideration was arrived at on a willing-buyer and willingseller basis after arm s length negotiations and based on 85% of:- (i) (ii) Grob Holz s audited NTA as at 30 June 2011 of THB109,818,554, or approximately S$4,591,307 (based on the Exchange Rate), adjusted for estimated bad debts of THB1,000,000 as at 30 June 2011 or approximately S$41,808 (based on the Exchange Rate) and the Revaluation Surplus (1) of THB75,158,175 or approximately S$3,142,222 (based on the Exchange Rate) based on the Valuation Reports ( Adjusted NTA ); and a discount of five per cent. (5%) to the Adjusted NTA, and thereafter, rounded down to the nearest ten thousand THB. Note (1) : Revaluation surplus equals to the market value of the Fixed Assets based on the Independent Valuation Reports minus the audited net book value of the Fixed Assets as at 30 June 2011 of THB204,673,825 ( Revaluation Surplus ). (b) Under the terms and conditions of the Agreement, the Consideration shall be fully satisfied by the payment thereof in cash on Completion by the Company to the Vendor. The Consideration will be financed by the Company s internal resources. Page 5 of 22 45

47 4.3 CONDITIONS PRECEDENT The conditions precedent for the Proposed Acquisition are set out in section of the Circular, and Shareholders are advised to read the information carefully. We set out certain extracts in italic as follows: (b) (c) (f) (k) (l) the Company having completed its legal and financial due diligence in respect of Grob Holz and the Wood Processing Business, including, inter alia, the affairs, operations, assets and liabilities, prospects and records of Grob Holz and being satisfied with the same (as determined in the Company s sole and absolute discretion); the Company receiving legal opinions from its legal counsel from Thailand (as determined in its sole and absolute discretion) on the legality, validity, enforceability and such matters relating to, inter alia, Grob Holz, the Agreement and the Proposed Acquisition, the Wood Processing Business, as well as the applicable licences, permits and approvals required for Grob Holz and/or the Wood Processing Business and being satisfied with the same as the Company may determine in its sole and absolute discretion; the Independent Valuer having issued, and not before Completion withdrawn, the Independent Valuation Reports; all of the warranties, representations and undertakings in the Agreement being true and accurate in all respects at Completion, as if repeated at Completion and at all times between the date of the Agreement and Completion; and no material adverse change (as determined by the Company in its sole discretion) in the business, prospects, financial condition, financial performance or operation of Grob Holz occurring on or prior to Completion. 5. INFORMATION ON GROB HOLZ Information on Grob Holz can be found in section 2.7 of the Circular. We set out certain extracts in italics from section of the Circular as follows: (a) (b) Grob Holz is principally involved in the manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components; Grob Holz is licensed to operate 10 hours per day for 312 days a year, with a licensed annual capacity to produce 14,000 m 3 of laminated boards, 12,000 m 3 of laminated seat boards, 2,780 m 3 of chair back posts and 2,860 m 3 of table pedestal legs. As at the Latest Practicable Date, the Production Plant is operating at approximately half of the full capacity. Page 6 of 22 46

48 6. EVALUATION OF THE PROPOSED ACQUISITION In our evaluation of the Proposed Acquisitions, we have taken into account the following factors which we consider to be pertinent and to have a significant bearing on our evaluation: (a) (b) (c) (d) (e) (f) the audited financial statements of Grob Holz; the Independent Valuation Reports; the review of comparable companies; the rationale for and benefits of the Proposed Acquisition; the proforma financial effects of the Proposed Acquisition; and other considerations. These factors are discussed in greater detail in the ensuing paragraphs. 6.1 THE AUDITED FINANCIAL STATEMENTS OF GROB HOLZ (a) Auditors We note that the financial statements of Grob Holz for the last three financials years ended 30 June 2011 have been audited by Intadit C.P.A Office Company Limited. (b) Financial Performance A summary of the audited income statements of Grob Holz for the financial years ended 30 June 2009, 2010 and 2011 are set out below: Financial Year Ended 30 June Revenue (THB 000) 155, , ,255 Net loss (THB 000) (18,992) (9,575) (12,299) Net loss per share (THB) (9.50) (4.79) (5.23) We note that Grob Holz has been loss-making in the recent three completed financial years. However, the revenue of Grob Holz has increased from THB155.8 million (or approximately S$6.5 million) in FY2009 to THB247.3 million (or approximately S$10.3 million) in FY2011. We also understand from the management of Grob Holz that the higher net loss of THB12.3 million (or approximately S$0.5 million) in FY2011 as compared to the net loss of THB9.6 million (or approximately S$0.4 million) in FY2010 was due mainly to a higher gain in foreign exchange of THB4.3 million (or Page 7 of 22 47

49 approximately S$0.2 million) in FY2010 as compared to THB0.6 million (or approximately S$0.2 million) in FY2011. (c) Financial Position The following information should be read together with the balance sheet of Grob Holz as at 30 June 2011 set out in section of the Circular. As at 30 June 2011, Grob Holz s NTA was THB109.8 million (or approximately S$4.6 million) comprising total assets of THB239.6 million (or approximately S$10.0 million) and total liabilities of THB129.8 million (or approximately S$5.4 million). We have discussed the following factors that may affect the NTA of Grob Holz with the management of Grob Holz: (i) Non-Current Assets The details of the non-current assets of Grob Holz are as follows: THB 000 Net book value as at 30 June 2011 Property, plant and equipment Land 12,640 (1) Land improvement 6,354 (1) Buildings and improvement 110,572 (1) Machinery and equipment 58,956 (1) Electricity systems 12,071 (1) Furniture and office equipment 276 Vehicles 9 200,878 Unused land 4,080 (1) Other non-current assets 30 Total non-current assets 204,988 Note: (1) The Company had on 3 September 2011 commissioned United Valuers and Consultant Co., Ltd. to conduct a valuation on these Fixed Assets. Please refer to paragraph 6.2 of this IFA Letter for further information on our evaluation of the Independent Valuation Reports. We noted from LTHB s annual report for FY2010 that no revaluation has been conducted on the land and buildings held by Grob Holz since Grob Holz acquired them in January Based on the Independent Valuation Reports, the Fixed Assets have an aggregate market value of approximately THB279.8 million (as at 9 September 2011 for the machinery and equipment and as at 19 September 2011 for the plant) representing a revaluation surplus of THB75.2 million. Page 8 of 22 48

50 (ii) Collectability of Outstanding Trade Receivables As at 30 June 2011, Grob Holz had trade receivables of THB9.6 million (or approximately S$0.4 million). After reviewing the aging schedules of the outstanding trade receivables as at 30 June 2011, the management of Grob Holz estimated bad debts of approximately THB1.0 million (or approximately S$41,808). (iii) Others Saved as disclosed above, the management of Grob Holz confirms that there were no material contingent liabilities, unrecorded earnings, expenses or provisions which could have a material impact on the NTA of Grob Holz as at 30 June After adjusting for the revaluation surplus of THB75.2 million (or approximately S$3.1 million) and provision of bad debts of THB1.0 million (or approximately S$41,808), the adjusted NTA of Grob Holz is THB184.0 million (or approximately S$7.7 million) or THB78.29 (or approximately S$3.27) for each ordinary share in the capital of Grob Holz ( Adjusted NTA per GH Share ). On a per share basis, the purchase consideration of THB74.37 (or approximately S$3.11) for each Sale Share is a discount of 5.01% to the Adjusted NTA per GH Share. In additional, the Vendor had on 31 October 2011 entered into a Deed of Indemnity which effectively limits any negative impact on the Company s portion of the NTA of Grob Holz to THB12,000,000 (or approximately S$0.5 million) or approximately 8.1% of the Consideration. Further details on the Deed of Indemnity is set out in section 2.4 of the Circular. (d) Net Current Liabilities Position As at 30 June 2011, Grob Holz had net current liabilities of THB70.0 million (or approximately S$2.9 million) with current assets of THB34.6 million (or approximately S$1.4 million) and current liabilities of THB104.6 million (or approximately S$4.4 million). Its currents assets comprised inventories of THB20.4 million (or approximately S$0.9 million), trade receivables of THB9.6 million (or approximately S$0.4 million), cash and cash equivalents of THB2.4 million (or approximately S$0.1 million), refundable value added tax of THB0.1 million (or approximately S$4,181) and other current assets of THB2.1 million (or approximately S$0.1 million). Its current liabilities comprised short-term loans from financial institutions of THB62.8 million (or approximately S$2.6 million), current portion of long-term loans of THB24.0 million (or approximately S$1.0 million), trade payables of THB6.9 million (or approximately S$0.3 million), advances received from related parties of THB2.3 million Page 9 of 22 49

51 (or approximately S$0.1 million) and other current liabilities of THB8.6 million (or approximately S$0.4 million). We understand from the management of Grob Holz that its net current liabilities position arose mainly because Grob Holz s non-current assets (which had a net book value of THB205.0 million (or approximately S$8.6 million) as at 30 June 2011) have been financed by loans of shorter tenure as compared to its non-current assets. As at 30 June 2011, short-term loans and current portion of long-term loans in aggregate accounted for 77.5% of Grob Holz s total loans as at 30 June In addition, most of the purchases of Grob Holz are made from local family-run suppliers who conduct sales on cash term whereas Grob Holz sells its products to established customers on credit terms. However, the management of Grob Holz informed that the average trade receivables turnover of Grob Holz has improved from 27 days in FY2010 to 22 days in FY2011. Further, Grob Holz is able to obtain advance payments from some of its customers. Grob Holz has also improved its inventory controls and its average inventory turnover has improved from 42 days in FY2010 to 32 days in FY2011. Based on the above, the management of Grob Holz confirmed that Grob Holz is able to generate sufficient cash flow from its operations to meet its obligations as and when they fall due. The management of Grob Holz acknowledges that Grob Holz would need more working capital to expand its operations. 6.2 THE INDEPENDENT VALUATION REPORTS The Company had on 3 September 2011 commissioned United Valuers and Consultant Co., Ltd. to conduct a valuation on the Fixed Assets. The valuation reports were issued by the Independent Valuer on 22 September 2011 for the valuation of the machinery and equipment and on 23 September 2011 for the valuation of the plant (collectively the Independent Valuation Reports ). We recommend that the Independent Directors advise the Shareholders to read the Independent Valuation Reports carefully, in particular the terms of reference and key assumptions. In particular, we highlight the following disclosure in the Independent Valuation Reports: (a) We appraised the property on the premise of fair market value in continued use. In respect of the valuation report dated 22 September 2011 for the valuation of the machinery and equipment: (b) (c) For this appraisal, we applied the cost approach to estimate the fair market value of the property. We could not apply the customary sales comparison approach due to lack of meaningful market data of comparable sales. Page 10 of 22 50

52 In respect of the valuation report dated 23 September 2011 for the valuation of the plant: (d) For this appraisal, we applied the sales comparison approach to estimate the fair market value of the land and the cost approach to estimate the fair market value of the building improvements and land improvements. Based on the Valuation Reports, the valuation was determined to be, in aggregate, THB279,832,000 or approximately S$11,699,249, whereby the machinery and equipment were valued at THB59,832,000 or approximately S$2,501,463 as at 9 September 2011 while the plant (comprising land, building improvements and land improvements) was valued at THB220,000,000 or approximately S$9,197,786 as at 19 September Arising from the Valuation, there is a revaluation surplus of THB75,158,175 or approximately S$3,142,222 as the amount of the Valuation is higher than the audited net book value of the Fixed Assets as at 30 June 2011 of THB204,673,825 or approximately S$8,557,027. The revaluation surplus can be primarily attributed to the revaluation of the plant which has not been revalued since Grob Holz acquired the plant in January Such revaluation surplus was taken into account in arriving at the Consideration. 6.3 THE REVIEW OF SELECTED COMPARABLE COMPANIES Grob Holz is principally involved in the manufacture and sale of dried sawn timber, laminated board, wooden furniture parts and components ( Wood Processing Business ). While we note that Grob Holz is not publicly-traded, reference can be made to companies which are listed and traded on the regional exchanges, whose business activities and industries are largely comparable to that of Grob Holz ( Selected Comparable Companies ) to give an indication of the current market expectations with regards to the valuation of these businesses, implied by their respective closing market prices as at the Latest Practicable Date. We recognised, however, that these Selected Comparable Companies are not directly comparable to Grob Holz in terms of geographical location, principal business activities, scale of operations, geographical markets, track record, future prospects, asset base, risk profile, customer base and other relevant criteria. For the comparison with these Selected Comparable Companies, we have referred to various valuation ratios to provide an indication of the market expectations with regard to the valuation of these companies. In this respect, we have considered the following widely used ratios: Valuation Ratio Price-earnings ( P/E ) General Description The P/E ratio illustrates the ratio of the market price of a company s share relative to its historical consolidated earnings per share. The P/E ratio is affected by, inter alia, the capital structure of a company, its tax position as well as its accounting policies relating to among others, depreciation and amortisation. Page 11 of 22 51

53 Valuation Ratio Price-to-Net Asset Value ( P/NAV ) Price-to-Net Tangible Asset ( P/NTA ) General Description P/NAV ratio illustrates the ratio of the market price of a company s share relative to its asset backing as measured in terms of its historical consolidated NAV per share as stated in its financial statements. The NAV figure provides an estimate of the value of a company assuming the sale of all its tangible and intangible assets, the proceeds which are first used to settle its liabilities and obligations with the balance available for distribution to its shareholders. Comparisons of companies using their book NAVs are affected by differences in their respective accounting policies, in particular their depreciation and asset valuation policies. NTA or net tangible asset is defined to exclude, where applicable, minority interests, deferred tax assets and liabilities, deferred expenditure, land use rights and goodwill. P/NTA ratio illustrates the ratio of the market price of a company s share relative to its historical NTA per share as recorded in its financial statements. The NTA figure provides an estimate of the value of a company assuming the sale of all its tangible assets, the proceeds which are first used to settle its liabilities and obligations with the balance available for distribution to its shareholders. Comparisons of companies using their NTAs are affected by differences in their respective accounting policies, in particular, their depreciation and asset valuation policies. We set out in the table below the list of Selected Comparable Companies which are listed on regional exchanges, together with a brief description of their principal activities which are considered broadly comparable to Grob Holz. Selected Comparable Companies Listing Location Brief Business Description Market Capitalisation as at the Latest Practicable (1) (2) Date (S$ million) Len Cheong Holdings Berhad Malaysia Len Cheong Holdings Berhad is an investment holding company. Through its subsidiaries, the company manufactures and markets rubber wood furniture, and operates rubber wood sawmilling and molding. Len Cheong Holdings Berhad also manufactures, upholsters, and trades furniture and sofa sets. 3.9 Page 12 of 22 52

54 Selected Comparable Companies Aikbee Resources Berhad Listing Location Malaysia Brief Business Description Aikbee Resources Berhad operates in the logging and sawmilling business. The company also produces downstream products such as railway sleepers, truck bodies, truck bolsters, finger-joints, building materials such as architraves, door and window frames, wheelbarrow, handles, timber skirting, cornices, floor strips, and other wooden finished products. Market Capitalisation as at the Latest Practicable (1) (2) Date (S$ million) 19.5 Golden Pharos Berhad BTM Resources Berhad Malaysia Golden Pharos Berhad is an investment holding company. The company, through its subsidiaries, manufactures and trades wooden doors, windows, glass, plywood, and veneer. Golden Pharos Berhad also operates in sawmilling, harvesting, and kiln-drying. Malaysia BTM Resources Berhad is an investment holding company. The company, through its subsidiaries, performs logging, sawmilling, kilndrying operations, and timber molding. BTM Resources also manufactures finger joint timber and laminates boards, and trades sawn timber Source: Bloomberg Finance L.P. Notes: (1) Market capitalisation of the Selected Comparable Companies is based on their respective closing prices as at the Latest Practicable Date. (2) Based on exchange rate of S$1:RM2.433 as at the Latest Practicable Date. The statistics of the Selected Comparable Companies are computed based on the last traded prices as at the Latest Practicable Date and latest publicly available financial results. Page 13 of 22 53

55 Comparisons between Grob Holz and the Selected Comparable Companies may be affected, inter alia, by differences in their accounting policies. Our analysis has not attempted to adjust for such differences. In view of the above, it should be noted that any comparison made with respect to the Selected Comparable Companies merely serves as an illustration and that the conclusions drawn from the comparisons may not necessarily reflect the perceived market valuation of Grob Holz as at the Latest Practicable Date. We set out in the table below the financial ratios of the Selected Comparable Companies as at the Latest Practicable Date: Selected Comparable Companies Revenues (1) (S$ million) Net Profit / (Loss) (1) (S$ million) P/E (2) (times) P/NAV (3) (times) P/NTA (3) (times) Len Cheong Holdings Berhad Aikbee Resources Berhad 28.2 (0.8) n.m (4) Golden Pharos Berhad 29.6 (9.4) n.m (4) BTM Resources Berhad 5.3 (1.4) n.m (4) Maximum Minimum Mean Median Grob Holz 10.4 (0.5) n.m (4) 0.95 (5) 0.95 (5) Source: Bloomberg Finance L.P., annual reports and/or announcements of the respective companies. Notes: (1) The latest available full year revenue and net profits as announced by the respective companies. Revenue and net profit figures are based upon the average exchange rates prevailing during the respective company s latest financial year. (2) The P/E of the Selected Comparable Companies are based on (i) their respective closing prices as at the Latest Practicable Date; and (ii) the net profits for the most recently completed financial year as announced by the respective companies. Page 14 of 22 54

56 (3) The P/NAV and P/NTA of the Selected Comparable Companies are based on (i) their respective closing prices as at the Latest Practicable Date; and (ii) the NAV and NTA for the most recently completed financial year as announced by the respective companies. (4) Not meaningful as the respective companies reported net losses for their most recently completed financial year. (5) Based on (i) the purchase consideration of THB148,560,000 for 85% equity interest in Grob Holz; and (ii) the adjusted NAV and the Adjusted NTA of Grob Holz of THB183,976,729 (or approximately S$7,691,721). Based on the above ratio analysis, we noted that: (a) (b) the P/NAV ratio of Grob Holz, as implied by the purchase consideration and based on the adjusted NAV, is within the range of the Selected Comparable Companies. the P/NTA ratio of Grob Holz, as implied by the purchase consideration and based on the Adjusted NTA, is within the range of the Selected Comparable Companies. Given that Grob Holz reported a net loss of THB12.3 million (or approximately S$0.5 million) in FY2011, the P/E ratio comparison would not be meaningful. Nonetheless, we have set out the P/E ratios of the Selected Comparable Companies for completeness. We noted that three out of the four Selected Comparable Companies reported net loss for the most recently completed financial year and the other Selected Comparable Company reported a low profit of S$0.1 million. As mentioned above, these Selected Comparable Companies are not directly comparable to Grob Holz. Shareholders may wish to refer to paragraph 6.1(b) of this IFA Letter for our analysis of Grob Holz s financial performance for the last three completed financial years. 6.4 THE RATIONALE FOR AND BENEFITS OF THE PROPOSED ACQUISITION The rationale for and benefits of the Proposed Acquisition are set out in section 3 of the Circular and we recommend that the Independent Directors advise the Shareholders to read the paragraph carefully. We set out certain extracts in italic as follows:- (a) (b) (c) The Proposed Acquisition represents an upstream acquisition which will improve the Group s value chain and provide synergies to the Group s current business, being the manufacture and sale of wooden furniture using a variety of composite wood as well as solid wood materials including hardwood and rubberwood. Accordingly, the Proposed Acquisition is expected to generate new revenue streams for the Group via sales of sawn timber, laminated boards and wooden furniture components and parts to external customers and thus enhance the Group s financial performance in the future. The Proposed Acquisition will enable the Group to venture into the Wood Processing Business at an attractive price, since the Consideration for the Proposed Acquisition was arrived at based on, inter alia, a discount of five per cent. (5%) to 85% of Grob Holz s Adjusted NTA. Furthermore, the Vendor has agreed to indemnify and save harmless the Company from the 85% Indemnified Liabilities; and Page 15 of 22 55

57 (d) While Grob Holz was loss-making for FY2011, the Directors took into consideration that such losses arose mainly because of constraints faced due to insufficient working capital and a lack of consensus on the strategic direction for the company between GHSB, KKSB and the previous joint venture partner prior to GHSB s acquisition of the shareholding stake of the previous joint venture partner in 1 April PROFORMA FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION The full text of the proforma financial effects of the Proposed Acquisition is set out in section 6 of the Circular. Shareholders are advised to read section 6 of the Circular carefully. In summary, we note the following:- (a) (b) (c) the EPS would decrease slightly by 0.18 cent (or 3.2%) from 5.55 cents to 5.37 cents after the Proposed Acquisition; the NTA per Share would decrease slightly by 0.67 cent (or 3.1%) from cents to cents after the Proposed Acquisition; and the gearing of the Group would increase by 0.1 times from 0.19 times to 0.29 times after the Proposed Acquisition. Saved for the higher gearing ratio, the Proposed Acquisition does not have any material financial effects on the Group. Although the gearing ratio of the Group will increase by 0.1 times to 0.29 times after the Proposed Acquisition, the gearing ratio of the Group is still relatively healthy at less than 1.0 times. 6.6 OTHER CONSIDERATIONS In determining whether the terms of the Proposed Acquisition are on normal commercial terms and are not prejudicial to the Company and minority Shareholders, we have also considered the following:- (a) Recent Share Sale We note from LTHB s announcements that GHSB had on 1 April 2010 executed a sale and purchase agreement with Silverbell Investments Pte Ltd ( SIPL ) to acquire 680,000 ordinary shares of par value THB100 each representing 34% of the issued and paid-up capital of Grob Holz from SIPL for a total cash consideration of RM4,750,000 (the Acquisition from SIPL ) on a willing buyer and willing seller basis. The Acquisition from SIPL translates to a purchase consideration of RM6.99 per ordinary share of Grob Holz. The Proposed Acquisition values each ordinary share of Grob Holz at THB74.37, which represents a 6.5% premium to the RM6.99 (approximately THB69.52 based on an exchange rate of RM1 = THB as at 1 Page 16 of 22 56

58 April 2010) paid for per ordinary share of Grob Holz during the earlier Acquisition from SIPL. However, we also note: (i) (ii) as at the date of the Acquisition from SIPL, being 1 April 2010, the most recently completed financial year for Grob Holz would have been FY2009. Grob Holz reported a higher net loss of THB19.0 million in FY2009 as compared to the net loss of THB12.3 million in FY2011; and there was no valuation carried out on the plant and machinery of Grob Holz for the Acquisition from SIPL. Based on the latest available audited financial statements of Grob Holz then, Grob Holz had a NTA of THB96,692,772 as at 30 June 2009 or RM9,974,291 (based on an exchange rate of RM1=THB as at 30 June 2009). The cash consideration paid by GHSB for the Acquisition from SIPL represents a P/NTA of 1.40 times which is higher than the P/NTA of the Proposed Acquisition of 0.95 times. (b) Recent Share Subscription Based on LTHB s announcements that on 30 June 2010, Grob Holz issued 350,000 new ordinary shares of par value THB100 each at its par value ( New Subscription Shares ). GHSB, as the 85% shareholder of Grob Holz, had subscribed for 297,500 New Subscription Shares for a total cash consideration of THB29,750,000 (the Subscription ). The Proposed Acquisition values each ordinary share of Grob Holz at THB74.37, which represents a 25.6% discount to the THB100 paid by GHSB for each New Subscription Share. (c) Acquisition of Controlling Interest The Company will be acquiring a controlling interest in Grob Holz via the acquisition of 85% of the issued and paid-up share capital of Grob Holz. The Company will gain statutory control over Grob Holz which entitles the Company to significantly influence, inter alia, the board composition, the financial and operating policies as well as Grob Holz s capital structure, management and strategy. With a controlling interest in Grob Holz, the Company will be able to address the issue of a lack of consensus on the strategic direction for Grob Holz between GHSB, KKSB and the previous joint venture partner that was highlighted in section 3 of the Circular, Rationale for and benefits of the Proposed Acquisition. (d) Revised Non-Competition Undertaking In connection with the Agreement and the Proposed Acquisition, the Company and LTHB had on 31 October 2011 entered into the Revised Non-Competition Undertaking to regulate the respective businesses of the Group and the Latitude Tree Malaysia Page 17 of 22 57

59 Group and to provide clear demarcation of operations between the Group and the Latitude Tree Malaysia Group with effect from the Completion Date. The Revised Non- Competition Undertaking shall replace and supersede the non-compete undertaking dated 17 June 2009 which was previously executed by LTHB in favour of the Company in connection with the initial public offering of the Company in August The details of the Revised Non-Competition Undertaking are set out in section 2.3 of the Circular and we recommend that the Independent Directors advise the Shareholders to read the section carefully. We set out certain extracts in italics as follows: (A)(i) LTHB undertook to procure that no member of the Latitude Tree Malaysia Group shall:- (a) solicit or entice away or attempt to solicit or entice away from the Group the custom of any Business Associate (as hereinafter defined); or (b) accept from any Business Associate any business forming part of the Group Business; or (c) solicit or persuade any Business Associate to cease doing business with the Group or reduce the amount of business which the Business Associate would normally do with the Group. (A)(ii) LTHB undertook to procure that the Latitude Tree Malaysia Group shall not, unless otherwise agreed to by the independent Directors of the Company, carry on or undertake any business which is competing with, or similar to or otherwise in conflict with the Group Business, subject to the exceptions as set out in sub-paragraphs (iii) and (iv) below. (C) Subject as provided below, the Revised Non-Competition Undertaking shall take effect on the Completion Date, and shall continue in full force and effect for so long as:- (a) LTHB and/or any of the Relevant Shareholders (as hereinafter defined) and/or their respective concert parties (as defined under the Singapore Code of Takeovers & Mergers) (collectively, the LTHB Shareholders ), in aggregate, have a shareholding interest of 20% or more in the then prevailing issued and paid-up capital of the Company; and/or (b) the LTHB Shareholders in fact exercise control over the Company including but not limited to the right or ability to determine the composition of the Board and/or control over the management and operations of the Group. (D) Exclusion of Sabah, Sarawak and the Federal Territory of Labuan from the Revised Non-Competition Undertaking Page 18 of 22 58

60 The Revised Non-Competition Undertaking does not preclude or restrict the Group or the Latitude Tree Malaysia Group from carrying on or undertaking any manufacture or sale of dried sawn timber, laminated board, wooden furniture and parts and components in Sabah, Sarawak and the Federal Territory of Labuan. (e) Interested Person Transactions We set out in the table below the aggregate value of all interested person transactions between Grob Holz and the Group conducted under the Company s shareholders mandate pursuant to Rule 920 of the Rules of Catalist (excluding transactions less than S$100,000). FY2009 FY2010 FY2011 Purchase of raw materials and furniture components by the Group from Grob Holz (S$ 000) As a percentage of Grob Holz s revenues for the respective financial years (%) 1,682 1, % 14.6% 9.5% Source: The Company s annual reports. The purchase of raw materials and furniture components by the Group from Grob Holz has been declining over the three most recent financial years. Coupled with the increase in the revenue of the Group, this implies that the Group has been reducing its reliance on Grob Holz. Despite the declining orders from the Group, the revenue of Grob Holz has increased from THB155.8 million in FY2009 to THB247.3 million in FY2011 as set out in paragraph 6.1 of this Letter. This is in line with one of the rationales of the Proposed Acquisition, being generating new revenue streams for the Group. Following Completion, the Group may from time to time enter into transactions for the sale (instead of purchase of) raw materials and semi-finished products including dried sawn timber, laminated board, wooden furniture parts and components to the Latitude Tree Malaysia Group. Such transactions will continue to fall under the ambit of the shareholders mandate which was renewed at the annual general meeting of the Company held on 28 October (f) Risk Factors The Company has set out certain risk factors relating to Grob Holz and the Proposed Acquisition in section 4 of the Circular, we recommend that the Independent Directors advise the Shareholders to read the section carefully. In particular, we note that Grob Page 19 of 22 59

61 Holz has not fully complied with the terms and conditions of the Promoted Business Licence and: (i) (ii) In the event Grob Holz s application for the BOI Approval of Commencement of Operations is approved by the BOI, the BOI has the right to impose new conditions in the Promoted Business Licence or a financial penalty on Grob Holz by reducing the Tax Exemption Period granted to Grob Holz by up to one year. Such penalty, if imposed, will have an adverse financial effect on Grob Holz by subjecting such of its profit before tax to taxation which may otherwise be tax-exempt under the original Tax Exemption Period. The Company understands from its legal counsel in Thailand that the BOI has the right to impose a financial penalty on Grob Holz for its failure or delay to obtain the prior approval of the BOI for the Mortgage by reducing the Tax Exemption Period granted to Grob Holz by up to one year, which may be aggregated with the possible reduction of the Tax Exemption Period by up to one year for not complying with the requirement to obtain the BOI Approval of Commencement of Operations as mentioned in the paragraph above We also noted that since commencing operations in June 2006, Grob Holz has not submitted the quarterly Environmental Reports and Budget Reports to the Industrial Office of Songkhla and: (iii) The Company also understands from its legal counsel in Thailand that the penalty for failing to submit the Environmental Reports is a fine of up to THB200,000 for the failure to submit each environmental quality and each air pollution quality report. The Company also understands from its legal counsel in Thailand that although the failure to submit the Budget Reports will not attract a fine per se, the officer from the Industrial Office of Songkhla can make an order for Grob Holz to furnish such Budget Reports. A failure by Grob Holz to obey such an order will result in a maximum fine of THB200,000. Although the Company will be submitting the Environmental Reports and the Budget Reports by mid December 2011, there is no assurance that the authorities will not impose the above fines for past breaches of Grob Holz under the Environmental Act and the Factory Operation Act. As the breaches have been ongoing since 2006, any fines imposed by the authorities in Thailand, if aggregated, may be substantial, and may have a material adverse financial effect on Grob Holz. (g) Call Option Agreement KKSB had on 14 November 2011 entered into a call option agreement (the Call Option Agreement ) with the Company pursuant to which KKSB had granted the Company a call option whereby the Company shall be entitled (but not obliged) to purchase from KKSB 352,500 Grob Holz Shares (the Call Option ), representing 15% of the issued and paid-up share capital of Grob Holz as at the Latest Practicable Date, at any time and from time to time from 1 July 2013 to 30 June 2014 at a consideration to be mutually agreed between the Company and KKSB on a willing- Page 20 of 22 60

62 buyer and willing-seller basis after arms length negotiations prior to the exercise of the Call Option. Further details of the Call Option Agreement is set out in section 2.5 of the Circular. 7. OPINION Having regard to our terms of reference, in arriving at our opinion, we have taken into account a range of factors which we consider to be pertinent and have a significant bearing on our assessment of the Proposed Acquisition. We have carefully considered as many factors as we deem essential and balanced them before reaching our opinion. Accordingly, it is important that our IFA Letter, in particular, all the considerations and information we have taken into account, be read in its entirety. We have set out below a summary of the key factors we have taken into our consideration: (a) (b) (c) (d) (e) (f) (g) the audited financial statements of Grob Holz; the purchase consideration is a discount of 5.0% to the Adjusted NTA of Grob Holz; the P/NAV ratio of Grob Holz, as implied by the purchase consideration and based on the adjusted NAV, is within the range of the Selected Comparable Companies; the P/NTA ratio of Grob Holz, as implied by the purchase consideration and based on the Adjusted NTA, is within the range of the Selected Comparable Companies; based on the latest available audited financial statements of Grob Holz at the point in time of the Acquisition from SIPL, the cash consideration paid by GHSB for the Acquisition from SIPL represented a P/NTA of 1.40 times which is higher than the P/NTA of the Proposed Acquisition of 0.95 times; the Proposed Acquisition values each ordinary share of Grob Holz at THB74.37, which represents a 25.6% discount to the THB100 paid per new ordinary share of Grob Holz during the Subscription; and other considerations including the Revised Non-Competition Undertaking, the Call Option Agreement as well as the risk factors relating to the Promoted Business Licence and the acquisition of a controlling interest in Grob Holz. Accordingly, after taking into account the above factors, we are of the opinion as of the date hereof that the Proposed Acquisition is on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders. Shareholders should note that trading in the Shares is subject to possible market fluctuations and, accordingly, our opinion on the Proposed Acquisition does not and cannot take into account the trading activities or patterns of the Shares or the price levels beyond the Latest Practicable Date. Page 21 of 22 61

63 This IFA Letter is addressed to the Independent Directors for their benefit, in connection with and for the purpose of their consideration of the financial terms of the Proposed Acquisition, and the recommendation made by them to the Shareholders shall remain the responsibility of the Independent Directors. Whilst a copy of this IFA Letter may be reproduced in the Circular, neither the Company nor the Directors may reproduce, disseminate or quote this IFA Letter (or any part thereof) for any other purpose at any time and in any manner without the prior written consent of Asiasons WFG Capital in each specific case. This opinion is governed by, and construed in accordance with, the laws of Singapore, and is strictly limited to the matters stated herein and does not apply by implication to any other matter. Yours truly For and on behalf of ASIASONS WFG CAPITAL PTE LTD ALEX TAN KAH KOON EXECUTIVE DIRECTOR PAULINE SIM POI LIN HEAD OF CORPORATE FINANCE Page 22 of 22 62

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