INDOFOOD AGRI RESOURCES LTD.

Transcription

1 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 OFFER INFORMATION STATEMENT This document is important. If you are in any doubt as to the action you should take, you should consult your legal, financial, tax or other professional adviser. Unless otherwise stated, capitalised terms on this cover and pages i to vi hereafter are defined in this Offer Information Statement under the section entitled Definitions. INDOFOOD AGRI RESOURCES LTD. This is the proposed international placement of new Consolidated Shares in the capital of Indofood Agri Resources Ltd. (formerly known as CityAxis Holdings Limited ) (the Company ) to investors, including institutional and other investors in Singapore and outside the United States in reliance on Regulation S under the Securities Act in connection with the Placement. The Company is proposing to offer the Placement Shares for subscription at the Placement Price on the terms and subject to the conditions of the Placement Agreement. All information in this Offer Information Statement relating to the number of Placement Shares is expressed using the Assumed Placement Size, unless otherwise stated or the context otherwise requires. The placement price for each Placement Share (the Placement Price ) is currently expected to be within the Estimated Price Range. In this Offer Information Statement, the Placement Price has been assumed to be the lowest point of the Estimated Price Range (the Assumed Placement Price ). All information in this Offer Information Statement relating to, or expressed or presented herein with a reference to, the Placement Price for the Placement Shares is expressed using or with a reference to the Assumed Placement Price, unless otherwise stated or the context otherwise requires. The Estimated Price Range, the Assumed Placement Size and the Assumed Placement Price used in this Offer Information Statement are for illustrative purposes only. The Placement Price may not necessarily be set within the Estimated Price Range. The number of Placement Shares and the Placement Price will be determined following a book-building process by agreement between the Joint Bookrunners and the Company. An SGXNET announcement will be posted on the internet at the website after the number of the Placement Shares and the Placement Price have been determined on the Determination Date. Allocation of the Placement Shares to investors will be based on the Placement Price announced on the Determination Date. A copy of this Offer Information Statement has been lodged with the Monetary Authority of Singapore (the Authority ). The Authority assumes no responsibility for the contents of this Offer Information Statement. Lodgment of this Offer Information Statement with the Authority does not imply that the Securities and Futures Act, Chapter 289 of Singapore, or any other legal or regulatory requirements, have been complied with. The Authority has not, in any way, considered the merits of the Placement Shares being offered for investment. Placement Shares is not to be taken as an indication of the merits of the Placement, the Placement Shares, the Consolidated Shares, the Company or its subsidiaries. The Placement Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act ) and, subject to certain exceptions, may not be offered to or sold within the United States or to, or for the benefit of, U.S. persons (as defined under Regulation S under the Securities Act ( Regulation S )). The Placement Shares are being offered and sold outside of the United States in reliance on Regulation S. The Placement is expected to be completed within one month from 23 January It should be noted that where the Placement is not or is unable to be carried out within that time period so as to meet the applicable shareholding spread and distribution requirements of the Listing Manual of the SGX-ST, the Consolidated Shares (including the Placement Shares and the Consideration Shares) may not be listed. No securities shall be allotted or allocated on the basis of this Offer Information Statement later than six (6) months after the date of lodgement with the Authority of this Offer Information Statement. INDOFOOD AGRI RESOURCES LTD. (Formerly known as CityAxis Holdings Limited) (Incorporated in the Republic of Singapore on 5 October 2001) (Company Registration Number G) PROPOSED OFFER AND PLACEMENT OF UP TO 338,000,000 NEW CONSOLIDATED SHARES IN THE CAPITAL OF INDOFOOD AGRI RESOURCES LTD. Global Co-ordinator in respect of the Placement An application has been made to the Singapore Exchange Securities Trading Limited (the SGX-ST ) for the listing of and quotation for the Placement Shares on the Official List of the SGX-ST. Approval in-principle has been granted by the SGX-ST to the Company for the listing of and quotation for the Placement Shares on the Official List of the SGX-ST subject to, inter alia, compliance with the shareholding spread requirements and distribution guidelines in the Listing Manual of the SGX-ST. The approval in-principle granted by the SGX- ST to the Company for the listing of and quotation for the CIMB-GK Securities Pte. Ltd. (Incorporated in the Republic of Singapore) (Company Registration Number D) Joint Bookrunners in respect of the Placement This Offer Information Statement has been prepared solely in relation to the above transactions and shall not be relied upon by any other person and for any other purpose. Date of Lodgement with the Authority: 25 January 2007

2 OUR BUSINESS A vertically integrated agribusiness model with principal activities that span from research & development, oil palm seed breeding, oil palm cultivation and milling to the refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivative products. Has significant market share and leading brands in cooking oils, margarine and shortening. Also a producer of Crude Coconut Oil ( CNO ) in Indonesia. Research & Development Plantations Palm Oil / Copra Refineries End Products Oil Palm Seed Breeding Cooking Oil Margarine Shortening Coconut Oil OUR COMPETITIVE STRENGTHS 1. One of the best managed integrated plantation companies Estates Planning & Design Estates Development & Cultivation R&D Breeding R&D Services Plantation Management Milling Corporate & Social Responsibility HR Development System & Operating Procedures 2. Strategically located plantations and production facilities PLANTATIONS REFINERY & CRUSHING PLANTS TANK FARMS Notes: * In MTPY ** Excludes 229 ha of plantation land used for oil palm seed breeding *** Includes acquisition in process of 85,541 hectares in aggregate

3 3. Significant market positions and leading brands Products under Bimoli, Simas and Palmia Brands Market IndoAgri market share Branded Cooking Oil (Market Share By Volume) Others 58% IndoAgri 42% Source : Company estimate, June 2006 Branded Margarine (Market Share By Volume) Others 41% IndoAgri 59% Source : Company estimate, June 2006 Branded Oil & Fats (2004 Market Share By Retail Value) Others 62% IndoAgri 38% Brand Awards Source : Euromonitor, January 2006 Market leading brands such as Bimoli, Simas and Palmia. Brand leadership recognised by independent agencies (Superbrand International, MARS). Superbrand Indonesia ( ) Indonesia Best Brand ( ) 4. Diversified end-user markets Revenue (FY2005) 6. Strong support & parentage through PT Indofood Consumer Pack Industrial Pack 5% 17% 22% 45% 22% Consumer Pack Indonesia s largest instant noodles manufacturer. Indonesia s largest flour milling facilities and amongst the largest in the world. 19% Cooking Oil Margarine & Shortening 14% Other intermediate & by - products Copra-based products FY: Financial year ended 31 December 3% 20% Semi- Consumer Pack Industrial Type Group-wide negotiations enhances bargaining power. Potential for joint marketing improves efficiencies. Captive customer (28% of Proforma Group s FY2005 sales) provides base demand. Utilise PT Indofood s stock point distribution system to increase penetration. 5. Extensive Distribution Network Established network of 110 distributors and direct sales channels serve 230,000 retail outlets in Indonesia, enabling deeper market penetration. Leverage on PT Indofood s stock point distribution system. Extensive stock point distribution system IndoAgri able to pro-actively monitor and react to customer and market trends. REGION I : 20 Distributors REGION II : 31 Distributors REGION III : 59 Distributors 110 Distributors

4 KEY PROFORMA FINANCIAL HIGHLIGHTS 10M2006: 10-month Period ended 31 October 2006 FY2003 FY2004 FY M2006 S$m S$m S$m S$m Revenue Gross profit EBITDA Gains arising from changes in fair value of biological assets (39.4) (1.1) Profit from operations Net profi t before minority interest Net profi t after minority interest Gross margin 17.8% 29.0% 30.0% 22.7% EBITDA margin 12.1% 24.3% 24.3% 17.8% Operating profit margin 5.7% 22.0% 24.4% 29.4% Net profi t after minority interest margin 5.0% 14.1% 15.1% 15.8% Return on assets 5.9% 20.2% 19.0% 20.1% (2) Return on equity 10.5% 23.4% 25.6% 22.4% (2) Notes: 1) Financial fi gures stated in the table above were converted to S$ based on the exchange rate of S$1 : Rp5,851 2) Based on annualised fi gures OUR STRATEGY AND FUTURE PLANS Expanding Oil Palm Plantations Expected to be one of the largest plantation owners in Indonesia (landbank >224,000 ha). Long term objective of 250,000 ha planted by about New planting of 70,000 ha by Further acquisitions to increase planted acreage. Increase technical expertise to improve product quality. Expand distribution network and logistical processes to achieve deeper market penetration and coverage. Continue optimizing operating efficiency and productivity Enhance level of integration in operations. Plantation Maturity Profile* 4 to 6 years, 13.1% <3 years, 3.4% <3 years 4 to 6 years 7 to 18 years >18 years Improve cultivation, production, marketing and logistics for greater cost efficiencies, productivity, economies of scale and effective service delivery. Raise standard of managerial and technical skills and staff productivity. >18 years, 19.7% Note:- *Based on planted area of 63,552 hectares 7 to 18 years, 63.8% Expand Production Capacity Modernize and relocate the Jakarta refinery to new location in the vicinity of the Jakarta Port. Decrease energy costs using alternative energy sources. GROWTH PROSPECTS Growth in Indonesian branded edible oils and fats market Potential growth in Indonesia edible oil and fats market Potential migration from unbranded to branded products Increase annual capacity of refinery, fractionation and margarine processing plants in Medan by about 120,000 MT, 60,000 MT and 30,000 MT respectively by Maintain Market Position in Indonesia Undertake innovative marketing and promotion activities to maintain consumer loyalty for leading brands such as Bimoli. Develop new brands and products as well as product extensions to meet changing consumer preferences. Indonesia cooking oil market Company s Internal Estimate Unbranded cooking oil 83% Branded cooking oil 17%

5 THIS OFFER INFORMATION STATEMENT HAS BEEN PREPARED SOLELY IN RELATION TO THE SUBSCRIPTION OF THE PLACEMENT SHARES BY THE PLACEES TO BE IDENTIFIED BY THE JOINT BOOKRUNNERS AND SHALL NOT BE RELIED UPON BY ANY OTHER PERSON AND FOR ANY OTHER PURPOSE. A COPY OF THE CIRCULAR TO THE SHAREHOLDERS OF THE COMPANY DATED 11 DECEMBER 2006 (THE CIRCULAR ) IN CONNECTION WITH, INTER ALIA, THE ACQUISITION IS ATTACHED TO THIS OFFER INFORMATION STATEMENT AS APPENDIX A. SAVE FOR THE INFORMATION IN THE CIRCULAR WHICH IS SPECIFICALLY REFERRED TO IN THIS OFFER INFORMATION STATEMENT, THE CIRCULAR DOES NOT CONSTITUTE A PART OF THIS OFFER INFORMATION STATEMENT AND NONE OF THE JOINT BOOKRUNNERS IS MAKING ANY REPRESENTATION TO ANY PERSON REGARDING THE ACCURACY AND COMPLETENESS OF THE INFORMATION SET OUT IN THE CIRCULAR. Persons wishing to subscribe for the Placement Shares offered by this Offer Information Statement should, before deciding whether to do so, carefully read this Offer Information Statement in its entirety in order to make an informed assessment of the assets and liabilities, profits and losses, financial position, risk factors, performance and prospects of the Company, the Group and the rights and liabilities attaching to the Placement Shares. They should also make their own independent enquiries and investigations of any bases and assumptions, upon which financial projections, if any, are made or based and carefully consider this Offer Information Statement in the light of their personal circumstances (including financial and taxation affairs). It is recommended that such persons seek professional advice from their legal, financial, tax or other professional adviser before deciding whether to subscribe for any of the Placement Shares. No person has been authorised to give any information or to make any representations, other than those contained in this Offer Information Statement, in connection with the Placement or the issue of the Placement Shares and, if given or made, such information or representations must not be relied upon as having been authorised by the Company or any of the Joint Bookrunners. Save as may be expressly stated in this Offer Information Statement, nothing contained herein is, or may be relied upon as, a promise or representation as to the future performance or policies of the Company or the Group. Neither the delivery of this Offer Information Statement nor the offer or issue of the Placement Shares shall, under any circumstances, constitute a continuing representation, or give rise to any implication, that there has been no change in the affairs of the Company, the Group or any of the information contained herein since the date hereof. Where such changes occur after the date hereof and are material, or are required to be disclosed by law and/or the SGX-ST, the Company may make an announcement of the same to the SGX-ST and, if required, lodge a supplementary or replacement offer information statement with the Authority. Neither the Company nor any of the Joint Bookrunners is making any representation or warranty to any person regarding the legality of an investment in the Placement Shares and/or the Shares, by such person under any investment or any other laws or regulations. No information in this Offer Information Statement should be considered to be business, legal or tax advice. Each prospective subscriber of the Placement Shares should consult his own professional or other adviser for business, legal or tax advice regarding an investment in the Placement Shares and/or the Shares. None of the Joint Bookrunners makes any representation, warranty or recommendation whatsoever as to the merits of the Placement Shares, the Company, the Group or any other matter related thereto or in connection therewith. Nothing in this Offer Information Statement or its accompanying documents shall be construed as a recommendation to subscribe for the Placement Shares. Prospective subscribers of the Placement Shares should rely on their investigation of the financial condition and affairs of, and appraisal and determination of the merits of investing in, the Company and the Group and shall be deemed to have done so. This Offer Information Statement and its accompanying documents have been prepared solely for the purpose of subscription of the Placement Shares under the Placement and may not be relied upon by any persons other than prospective subscribers of the Placement Shares to whom it is despatched by the Company, or for any other purpose. i

6 No action has been or will be taken in any jurisdiction that would permit a public offering of the Placement Shares being offered for placement outside of Singapore, or the possession, circulation or distribution of this document or any other material relating to the Company, the Group or the Shares, in any jurisdiction where action for such purpose is required. Accordingly, the Placement Shares may not be offered or sold, directly and indirectly, and neither this Offer Information Statement nor any other offering material or advertisements in connection with the Placement Shares may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. This Offer Information Statement is not an offer for sale of securities in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act. The Company does not intend to register any portion of the Placement Shares in the United States or to conduct an offering of Placement Shares in the United States. The distribution of this Offer Information Statement and/or its accompanying documents and the offering of the Placement Shares in certain jurisdictions may be restricted by the relevant laws in such jurisdictions. Persons who may come into possession of this Offer Information Statement are required by the Company and the Joint Bookrunners to inform themselves about, and to observe and comply with, any such restrictions at their own cost and expense and without liability to the Company and the Joint Bookrunners. Persons to whom a copy of this Offer Information Statement has been despatched shall not circulate to any other person, reproduce or otherwise distribute this Offer Information Statement or any information herein for any purpose whatsoever nor permit or cause the same to occur. Selling Restrictions United States The Placement Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an effective registration statement or in accordance with an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Each Joint Bookrunner has agreed that, except as permitted by the Placement Agreement, it will not offer or sell the Placement Shares within the United States or to, or for the account or benefit of, U.S. persons, except in accordance with Rule 903 of the Securities Act. In addition, until the expiration of 40 days after the later of the commencement of the Placement and the latest closing date with respect to any Placement Shares to be offered in the Placement, an offer or sale of Shares within the United States by a dealer that is not participating in the Placement may violate the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S. Hong Kong Each Joint Bookrunner has represented and agreed that: (i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Placement Shares other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and (ii) it has not issued or have in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Placement Shares, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Placement Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance. ii

7 Malaysia No prospectus or other offering material or document in connection with the offer and sale of the Placement Shares has been or will be registered with the Securities Commission of Malaysia pursuant to the Securities Commission Act, 1993 as the offer for purchase of, or invitation to purchase, the Placement Shares is meant to qualify as an excluded offer or excluded invitation or excluded issue within the meaning of Sections 38 and 39 of the Securities Commission Act, Accordingly, each Joint Bookrunner has represented and agreed that it will not circulate or distribute this Offer Information Statement, nor has it made nor will it make any invitation or offer, directly or indirectly, of the Placement Shares to any persons other than to persons specified in Schedules 2 and 3 of the Securities Commission Act, Each Joint Bookrunner has acknowledged that this Offer Information Statement has not been and will not be registered as a prospectus with the Malaysian Securities Commission under the Securities Commission Act, 1993 but will be deposited as an information memorandum with the Malaysian Securities Commission in accordance with the Securities Commission Act, European Economic Area In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each a Relevant Member State ), an offer to the public of the Placement Shares may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any Placement Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:- legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than E43,000,000 and (iii) an annual net turnover of more than E50,000,000 as shown in the last annual or consolidated accounts; by the Joint Bookrunners to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the Global Coordinator for any such offer; or in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Placement Shares shall result in a requirement for the publication by the Company or any Joint Bookrunner of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purpose of this provision, the expression an offer to the public in relation to any Placement Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the Placement to be offered so as to enable an investor to decide to subscribe and pay for the Placement Shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Member State; and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measures in each Relevant Member State. United Kingdom Each of the Joint Bookrunners has represented and agreed that:- it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 ( FSMA ) with respect to anything done by it in relation to the Placement Shares in, from or otherwise involving the United Kingdom; and it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received by it in connection with the issue or sale of any Placement Shares in circumstances in which FSMA section 21(1) does not apply to the Company and the Joint Bookrunners. iii

8 This Offer Information Statement is for distribution only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Financial Promotion Order ), (ii) are persons falling within Article 49(2)(a) to (d) ( high net worth companies, unincorporated associations etc ) of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) in connection with the issue or sale of any Placement Shares may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as relevant persons ). This Offer Information Statement is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this Offer Information Statement relates is available only to relevant persons and will be engaged in only with relevant persons. In connection with the Placement, the Joint Bookrunners are not acting for anyone other than the Company and will not be responsible to anyone other than the Company for providing the protections afforded to their clients nor for providing advice in relation to the Placement. Germany The Placement Shares have not been and will not be publicly offered in Germany and, accordingly, no securities prospectus (Wertpapierprospekt) for a public offering of the Placement Shares in Germany in accordance with the Securities Prospectus Act of 22 June 2005 (Wertpapierprospektgesetz, the Securities Prospectus Act ), has been or will be published or circulated in the Federal Republic of Germany. Shares will only be offered and sold in the Federal Republic of Germany in accordance with the provisions of the Securities Prospectus Act and any other laws applicable in the Federal Republic of Germany governing the issue, sale and offering of securities. Any resale of the Placement Shares in the Federal Republic of Germany may only be made in accordance with the provisions of the Securities Prospectus Act and any other laws applicable in the Federal Republic of Germany governing the sale and offering of securities. Italy Each Joint Bookrunner acknowledges and agrees that the Placement has not been cleared by the Italian Securities Exchange Commission (Commissione Nazionale per le Società e la Borsa, the CONSOB ) pursuant to Italian securities legislation and, accordingly, acknowledges and agrees that the Placement Shares may not and will not be offered, sold or delivered, nor may or will copies of this Offer Information Statement or any other documents relating to the Placement Shares or this Offer Information Statement be distributed in Italy other than to professional investors (investitori professionali), as defined in Article 31, paragraph 2 of CONSOB Regulation No of July 1, 1998, as amended ( Regulation No ) or pursuant to another exemption from the requirements of Articles 94 and seq. of Legislative Decree No. 58 of February 24, 1998 (the Italian Finance Law ) and CONSOB Regulation No of May 14, 1999 ( Regulation No ). Each Joint Bookrunner acknowledges and agrees that any offer, sale or delivery of the Placement Shares or distribution of copies of this Offer Information Statement or any other document relating to the Placement Shares or this Offer Information Statement in Italy may and will be effected in accordance with all Italian securities, tax, exchange control and other applicable laws and regulations, and, in particular, will be:- made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Legislative Decree No. 385 of September 1, 1993, as amended (the Italian Banking Law ), Legislative Decree No. 58 of February 24, 1998, as amended, CONSOB Regulation No of July 1, 1998, and any other applicable laws and regulations; in compliance with Article 129 of the Italian Banking Law and the implementing guidelines of the Bank of Italy; and in compliance with any other applicable notification requirement or limitation which may be imposed upon the offer of shares by CONSOB or the Bank of Italy. iv

9 Any investor subscribing for the Placement Shares in the Placement is solely responsible for ensuring that any offer or resale of the Placement Shares it subscribed for in the Placement occurs in compliance with applicable laws and regulations. This Offer Information Statement and the information contained herein are intended only for the use of its recipient and are not to be distributed to any third party resident or located in Italy for any reason. No person resident or located in Italy other than the original recipients of this document may rely on it or its content. In addition to the above (which shall continue to apply to the extent not inconsistent with the implementing measures of the Prospectus Directive in Italy), after the implementation of the Prospectus Directive in Italy, the restrictions, acknowledgments and agreements set out under the heading European Economic Area above shall apply to Italy. United Arab Emirates Each Joint Bookrunner will be deemed to have represented and agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, any Placement Shares in the United Arab Emirates, except: such Placement Shares as approved for listing by the Emirates Securities and Commodities Authority, or any other authorized and competent authority appointed with the sole or ancillary role of regulating the financial markets in the UAE, as the case may be; in compliance with all applicable laws and regulations of the United Arab Emirates; and through persons or corporate entities authorized and licensed to provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the United Arab Emirates. France This Offer Information Statement (including any amendment, supplement or replacement thereto) is not being distributed in the context of a public offer in France within the meaning of Article L of the French Monetary and Financial Code (Code monétaire et financier), and thus this Offer Information Statement has not been and will not be submitted to the Autorité des Marchés Financiers for approval in France and accordingly may not and will not be distributed to the public in France. The Placement Shares have not been and will not be offered to the public in France, except to (i) qualified investors (investisseurs qualifiés) and/or a restricted group of investors (cercle restreint d investisseurs), in each case, acting for their own account, all as defined in, and in accordance with, Articles L , L , D and D of the French Monetary and Financial Code and/or (ii) persons licensed to provide the investment service of portfolio management for the account of third parties. This Offer Information Statement is not to be further distributed or reproduced (in whole or in part) in France by the recipients of this Offer Information Statement. This Offer Information Statement has been distributed on the understanding that such recipients will only participate in the issue or sale of the Placement Shares for their own account and undertake not to transfer, directly or indirectly, the Placement Shares to the public in France, other than in compliance with all applicable laws and regulations and in particular with Articles L and L of the French Monetary and Financial Code. The Netherlands Each of the Joint Bookrunners represents and agrees that (a) it is a professional market party ( PMP ) within the meaning of Section 1(e) of the Exemption Regulation of 26 June 2002 in respect of the Act on the Supervision of the Credit System 1992 (Vrijstellingsregeling Wet toezicht kredietwezen 1992), as amended from time to time (the Exemption Regulation ), where applicable, read in conjunction with the policy rules of the Dutch Central Bank (de Nederlandsche Bank N.V.) on key concepts of market access and enforcement of the Act on the Supervision of the Credit System 1992 (Wet toezicht kredietwezen 1992) published on 29 December 2004 (Beleidsregel 2005 kernbegrippen markttoetreding en handhaving Wtk 1992) (the Policy Rules ), and Section 2 of the Policy Rules, as amended, supplemented and restated from time to time, and (b) it has offered or sold and will offer or sell, directly or indirectly, as part of the initial distribution or at any time thereafter, the Placement Shares exclusively to PMPs. v

10 Switzerland The Placement Shares may not and will not be publicly offered, distributed or re-distributed on a professional basis in or from Switzerland and neither this Offer Information Statement nor any other solicitation for investments in the Placement Shares may be communicated or distributed in Switzerland in any way that could constitute a public offering within the meaning of Articles 1156 or 652a of the Swiss Code of Obligations or of Article 2 of the Federal Act on Investment Funds of March 18, This Offer Information Statement may not be copied, reproduced, distributed or passed on to others without the Joint Bookrunners prior written consent. This Offer Information Statement is not a prospectus within the meaning of Articles 1156 and 652a of the Swiss Code of Obligations or a listing prospectus according to article 32 of the Listing Rules of the Swiss Exchange and may not comply with the information standards required thereunder. The Company will not apply for a listing of the Placement Shares on any Swiss stock exchange or other Swiss regulated market and this Offer Information Statement may not comply with the information required under the relevant listing rules. The Placement Shares offered hereby have not and will not be registered with the Swiss Federal Banking Commission and have not and will not be authorized under the Federal Act on Investment Funds of March 18, The investor protection afforded to acquirers of investment fund certificates by the Federal Act on Investment Funds of March 18, 1994 does not extend to subscribers/acquirers of the Placement Shares. vi

11 CONTENTS PAGE DEFINITIONS... 3 CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS... 8 ISSUE STATISTICS RELATING TO THE PLACEMENT... 9 PART II : IDENTITY OF DIRECTORS, ADVISERS AND AGENTS Directors Advisers Registrars and Agents PART III : OFFER STATISTICS AND TIMETABLE Offer Statistics Method and Time-table PART IV : KEY INFORMATION Use of Proceeds from the Offer and Expenses Incurred Information on the Relevant Entity PART V : OPERATING AND FINANCIAL REVIEW AND PROSPECTS Operating Results Financial Position Liquidity and Capital Resources Trend Information and Profit Forecast or Profit Estimate Significant Changes PART VI : THE OFFER AND LISTING Offer and Listing Details Plan of Distribution PART VII : ADDITIONAL INFORMATION Statements by Experts Consents from Issue Managers and Underwriters Other Matters PART VIII : ADDITIONAL INFORMATION REQUIRED FOR OFFER OF DEBENTURES OR UNITS OF DEBENTURES PART IX : ADDITIONAL INFORMATION REQUIRED FOR CONVERTIBLE DEBENTURES PART X : ADDITIONAL INFORMATION REQUIRED FOR OFFER OF SECURITIES BY WAY OF RIGHTS ISSUE DIRECTORS RESPONSIBILITY STATEMENT CIMB-GK S RESPONSIBILITY STATEMENT DISCLAIMERS APPENDIX A : CIRCULAR TO SHAREHOLDERS DATED 11 DECEMBER 2006 APPENDIX B : REPORT ON EXAMINATION OF UNAUDITED CONDENSED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE FOUR-MONTH AND TEN-MONTH PERIODS ENDED 31 OCTOBER 2006 APPENDIX C : MANAGEMENT S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS OF THE PROFORMA GROUP FOR THE FOUR-MONTH AND TEN-MONTH PERIODS ENDED 31 OCTOBER

12 DEFINITIONS In this Offer Information Statement, the following definitions apply throughout unless otherwise stated:- Companies, Organisations and Agencies CDP : The Central Depository (Pte) Limited CIMB-GK : CIMB-GK Securities Pte. Ltd. Company : Indofood Agri Resources Ltd. (formerly known as CityAxis Holdings Limited ) First Pacific : First Pacific Company Limited Group : The Company and its subsidiaries (including the Target Group) as set out on page 38 of the Circular (for the avoidance of doubt, excluding the Plantation Companies) Hong Kong Stock Exchange : The Stock Exchange of Hong Kong Limited IOFPL : Indofood Oil & Fats Pte. Ltd. ISHPL : Indofood Singapore Holdings Pte. Ltd. Proforma Group : The Company and its subsidiaries immediately following the Acquisition, which are named on page 38 of the Circular, treated as if such group structure had been in existence since 1 January 2003 PT ISM : PT Indofood Sukses Makmur Tbk PT SIMP : PT Salim Ivomas Pratama Salim Group : Mr Anthoni Salim and the group of companies controlled by him or, if the context requires, Mr Anthoni Salim SGX Mainboard : Mainboard of the SGX-ST SGX-SESDAQ : SGX-ST Dealing and Automated Quotation System SGX-ST : Singapore Exchange Securities Trading Limited Target Group : IOFPL and the companies which are its subsidiaries as at the Latest Practicable Date, which are named on page 38 of the Circular (for the avoidance of doubt, excluding the Plantation Companies) General Accountants Report : The report of Messrs Ernst & Young on the unaudited proforma consolidated financial information of the Proforma Group for FY2003, FY2004, FY2005, HY2005 and HY2006, set out in Appendix C of the Circular Acquisition : The acquisition by the Company on 23 January 2007 of the entire issued share capital of IOFPL for a consideration of S$392,691,880 which was satisfied by the issue of the Consideration Shares by the Company to ISHPL, details of which are set out in Section 5 of the Circular 2

13 DEFINITIONS Assumed Placement Price : S$0.90 per Placement Share, being the lowest point of the Estimated Price Range Assumed Placement Size : 141,000,000 Placement Shares, being the minimum size of the Placement Authority or MAS : The Monetary Authority of Singapore Books Closure Date : 5.00 p.m. on 7 February 2007, being the time and date at and on which the Register of Members and the Share Transfer Books of the Company will be closed for the Proposed Share Consolidation and to determine Shareholders eligible for the payment (if any) under the Value Assurance Circular : The circular of the Company dated 11 December 2006 to Shareholders in connection with, inter alia, the Acquisition Companies Act : Companies Act, Chapter 50 of Singapore Completion Date : The date of completion of the Placement to be set out in the Placement Agreement Consideration Shares : 9,982,000,000 new Shares (which after the Proposed Share Consolidation shall be 998,200,000 Consolidated Shares) issued to ISHPL in consideration for its sale to the Company of the entire issued share capital of IOFPL under the Acquisition Consolidated Shares : Ordinary shares in the capital of the Company following the Proposed Share Consolidation Determination Date : The date on which the Placement Price and the number of Placement Shares will be determined following a bookbuilding process by agreement between the Company and the Joint Bookrunners. This date is currently expected to be on or about 7 February 2007 but is subject to change Directors : The directors of the Company from time to time Disposals : The First Disposal and the Second Disposal Entitled Shareholders : Shareholders of the Company as at the Books Closure Date (other than holders of the Consideration Shares and the Placees) who are eligible for the Value Assurance EPS : Earnings per Share Estimated Price Range : The estimated Placement Price per Placement Share of between S$0.90 and S$1.25 First Disposal : The disposal by the Company of substantially all of its and its subsidiaries then existing businesses pursuant to a sale and purchase agreement dated 11 July 2006 between the Company and Interior Services Group Plc, which was completed on 30 October

14 DEFINITIONS FP Distribution-in-specie : The proposed distribution in specie by First Pacific of up to 5,070,000 Placement Shares to shareholders of First Pacific in proportion to their respective shareholdings in First Pacific, pursuant to the provisions of Practice Note 15 of the listing rules of the Hong Kong Stock Exchange and as more particularly described in Sections 2.7 and 9 of the Circular FP Placement : The proposed issue to First Pacific of up to 5,070,000 Placement Shares under the Placement at the Placement Price for the purposes of the FP Distribution-in-specie FY : Financial year ended, or as the case may be, ending 31 December Global Co-ordinator : CIMB-GK HY : Half year ended, or as the case may be, ending 30 June Injection Agreement : The conditional Sale and Purchase Agreement dated 23 August 2006 between PT ISM, the Company, Yeunh Oi Siong Alex and Kumpulan CityAxis Sdn. Bhd. in relation to the Acquisition (as amended by a letter agreement between the same parties dated 8 December 2006), including the deed of ratification and accession dated 22 September 2006 signed by ISHPL in favour of the foregoing parties. The Acquisition was completed on 23 January 2007 Joint Bookrunners : CIMB-GK, Credit Suisse (Singapore) Limited and Kim Eng Securities Pte. Ltd., and a reference to a Joint Bookrunner is a reference to each and any one of them Latest Practicable Date : 24 January 2007, being the latest practicable date prior to the lodgement of this Offer Information Statement with the Authority Listing Date : The date on which dealings in respect of the Placement Shares and the Consolidated Shares commence on the Official List of the SGX-ST Listing Manual : The listing manual of the SGX-ST, as amended from time to time Market Day : A day on which the SGX-ST is open for securities trading NAV : Net asset value Offer Information Statement : This document issued by the Company in connection with the Placement (including, where the context admits, any supplementary or replacement document which may be issued by the Company in connection with the Placement) Placee : A person who subscribes for Placement Shares in the Placement Placement : The placement of the Placement Shares by the Company to investors, including institutional and other investors, in accordance with the Placement Agreement, for the purposes 4

15 DEFINITIONS of meeting the shareholding spread and distribution requirements of the SGX-ST and to raise funds for the Group. The FP Placement shall form part of the Placement Placement Agreement : The placement agreement to be entered into between the Company and the Joint Bookrunners in relation to the Placement on the Determination Date Placement Commission : The placement commission payable by the Company to the Joint Bookrunners, being 2.5% (excluding Goods and Services Tax) of the aggregate Placement Price for the Placement Shares Placement Price : The price at which each Placement Share is issued pursuant to the Placement, which is currently expected to be within the Estimated Price Range Placement Shares : Up to 338,000,000 new Consolidated Shares to be offered by the Company pursuant to the Placement Plantation Acquisition : The proposed acquisition by the Target Group of a 60% shareholding interest in the Plantation Companies for an aggregate consideration of Rp125 billion, certain information on which is set out in Section 14.3 of the Circular Plantation Companies : PT Mega Citra Perdana, PT Mentari Subur Abadi and PT Swadaya Bhakti Negaramas, and their respective subsidiaries Proposed Share Consolidation : The proposed consolidation of every ten (10) Shares into one (1) Consolidated Share following the completion of the Acquisition, which is currently expected to be effected on or about 9 February 2007 PT ISM Group Restructuring : The group restructuring exercise undertaken to form the Target Group and completed on 22 January 2007, certain information on which is set out on pages 63 and 64 of the Circular record date : Means in relation to any dividends, rights, allotments or other distributions, the date as at the close of business (or such other time as may have been notified by the Company), on which Shareholders must be registered with the Company or with CDP, as the case may be, in order to participate in such dividends, rights, allotments or other distributions Second Disposal : The disposal by the Company of the businesses of itself and its subsidiaries remaining after the completion of the First Disposal. The Second Disposal was completed on 30 November 2006 Securities Account : Securities account maintained by a Depositor with CDP, but does not include a securities sub-account Securities Act : The United States Securities Act of 1933, as amended Securities and Futures Act or SFA : Securities and Futures Act, Chapter 289 of Singapore 5

16 DEFINITIONS SGXNET : A system network used by listed companies to send information and announcements to the SGX-ST or any other system networks prescribed by the SGX-ST Shareholders : Persons who are registered as holders of Shares in the Register of Members of the Company, or where CDP is the registered holder, the term Shareholders shall, in relation to such Shares, mean the Depositors whose Securities Accounts are credited with Shares Shares : Ordinary shares in the capital of the Company, which expression shall, where the context admits, include the Consolidated Shares Substantial Shareholder : A person who has an interest in one or more voting shares in a company and the total votes attached to such share(s) is not less than 5% of the total votes attached to all the voting shares in the company Underwriting Commitment : The proportion of Placement Shares which each Joint Bookrunner will severally agree on the Determination Date to subscribe and pay for, and/or procure subscriptions and payment for, at the Placement Price for each Placement Share, subject to and on the terms and conditions of the Placement Agreement and this Offer Information Statement United States : United States of America Value Assurance : The compensation in cash to be paid by ISHPL to Entitled Shareholders in the event the Placement Price is less than S$0.75 per Placement Share (equivalent to S$0.075 per Share before the Proposed Share Consolidation), being an amount equivalent to the difference, if any, between S$0.75 and the Placement Price, subject to a maximum compensation of S$0.37 per Consolidated Share, as more particularly described in Sections 5.4(d) and 8.1 of the Circular Currencies, Units and Others Rp or Rupiah : Indonesian Rupiah, the lawful currency of The Republic of Indonesia S$ and cents : Singapore dollars and cents respectively, the lawful currency of The Republic of Singapore E : Euro dollars, the official currency of the European Union member states of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain US$ or United States Dollar, : United States Dollars and cents, respectively, the lawful and US cents currency of the United States % 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 Companies Act. 6

17 DEFINITIONS The term subsidiary shall have the meaning ascribed to it by Section 5 of the Companies Act. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. Words importing persons shall include corporations. Any reference to a time of day or date in this Offer Information Statement shall be a reference to a time of day or date, as the case may be, in Singapore, unless otherwise stated. Any reference in this Offer Information Statement to any statute or enactment is a reference to that statute or enactment as for the time being amended or re-enacted. Any term defined under the Companies Act, the Securities and Futures Act, or any modification thereof and used in this Offer Information Statement shall, where applicable, have the meaning assigned to it under the Companies Act, the Securities and Futures Act, or such modification thereof, as the case may be, unless otherwise provided. Any reference to any agreement or document shall include such agreement or document as amended, modified, varied, novated, supplemented or replaced from time to time. Any discrepancy in the figures included in this Offer Information Statement between the amounts listed and the totals thereof is due to rounding. Accordingly, figures shown as totals in this Offer Information Statement may not be an arithmetic aggregation of the figures that precede them. 7

18 CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS All statements contained in this Offer Information Statement, statements made in the press releases and oral statements that may be made by the Company, ISHPL, their respective related corporations, directors, key executives or employees acting on their behalf, that are not statements of historical fact constitute forward-looking statements. Some of these statements can be identified by words that are biased or by forward-looking terms such as expect, forecast, if, possible, probable, project, believe, plan, intend, estimate, anticipate, may, will, would, could and should or similar words. However, these words are not the exclusive means of identifying forward-looking statements. All statements regarding the Company s and the Group s expected financial position and performance, business strategy, plans and prospects are forward-looking statements. These forward-looking statements, including (but not limited to) statements as to the Company s and the Group s revenue and profitability, cost measures, expected industry trends, prospects, future plans, planned strategy and other matters discussed in this Offer Information Statement regarding matters that are not historical facts, are only predictions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company s and the Group s actual future results, performance or achievements to be materially different from any future results, performance or achievements expected, expressed or implied by such forward-looking statements. These risks, uncertainties and other factors are discussed in more detail in the Circular, in particular, but not limited to, discussions under Section 13 of the Circular. Given the risks and uncertainties that may cause the Group s actual future results, performance or achievements to be materially different than expected, expressed or implied by the forward-looking statements and financial information set out in the Circular and/or this Offer Information Statement, you are advised not to place undue reliance on those statements and information. None of the Company, the Group, ISHPL, the Joint Bookrunners, their respective related corporations or any other person represents or warrants to you that the Company s and the Group s actual future results, performance or achievements will be as discussed in those statements and financial information. The Company s and the Group s actual future results may differ materially from those anticipated in these forward-looking statements as a result of, inter alia, the risks and uncertainties faced by the Company and the Group. Further, the Company, the Group, ISHPL, the Joint Bookrunners and their respective related corporations disclaim any responsibility to update any of those forward-looking statements or publicly announce any revisions to those forward-looking statements to reflect future developments, events or circumstances for any reason, even if new information becomes available or other events occur in the future, subject to compliance with all applicable laws and regulations and/or rules of the SGX-ST and/or any regulatory or supervisory body or agency. This Offer Information Statement may include market and industry data and information that have been obtained from, inter alia, internal studies, where appropriate, as well as market research by Euromonitor International and US Department of Agriculture, and publicly available information such as government statistical and industry reports, and industry publications. Please note that such information is supplied to you for your personal use only. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable but the accuracy and completeness of that information is not guaranteed, and may contain other disclaimers in relation to reliance on their contents. There can therefore be no assurance as to the accuracy or completeness of such information. While reasonable steps have been taken to ensure that the information is extracted accurately, the Company, the Group, ISHPL and the Joint Bookrunners have not independently verified any of the data from third party sources or ascertained the underlying bases or assumptions relied upon therein, nor have the consents of these sources been obtained for the inclusion of such data or information in the Circular and/or this Offer Information Statement. 8

19 ISSUE STATISTICS RELATING TO THE PLACEMENT PLACEMENT PRICE PLACEMENT SIZE NET ASSET VALUE NAV per Consolidated Share as at 31 October :- S$0.90 to S$1.25 Between a minimum of 141,000,000 and a maximum of 338,000,000 new Consolidated Shares (a) (b) before adjusting for the proceeds from the Placement and based on the pre-placement number of 1,011,700,000 issued Consolidated Shares after adjusting for the net proceeds from the Placement based on the Estimated Price Range and the range of Placement size S$0.44 S$0.49 to S$0.63 Premium of Placement Price over the NAV per Consolidated Share as at 31 October :- (a) (b) before adjusting for the proceeds from the Placement and based on the Estimated Price Range and the pre-placement number of 1,011,700,000 issued Consolidated Shares after adjusting for the net proceeds from the Placement based on the Estimated Price Range and the range of Placement size 102.4% to 181.2% 83.2% to 97.4% EARNINGS Historical earnings per Consolidated Share for FY based on the pre-placement number of 1,011,700,000 issued Consolidated Shares PRICE EARNINGS RATIO PER based on the historical EPS for FY and the Estimated Price Range 9.17 cents 9.8 times to 13.6 times GEARING RATIO 3 Gearing ratio as at 31 October :- (a) (b) before adjusting for the proceeds from the Placement and based on the pre-placement number of 1,011,700,000 issued Consolidated Shares after adjusting for the net proceeds from the Placement based on the Estimated Price Range and the range of Placement size to 0.24 MARKET CAPITALISATION Market capitalisation of the Company based on the Estimated Price Range and the range of Placement size ESTIMATED NET PROCEEDS Net proceeds from the Placement based on the Estimated Price Range and the range of Placement size and after deducting the Placement Commission and other estimated expenses S$1,037.4 million to S$1,687.1 million S$116.6 million to S$404.4 million 1 Based on the unaudited proforma consolidated financial information of the Proforma Group as at 31 October 2006 and assuming an exchange rate of Rp5,907:S$1. 2 Based on the unaudited proforma consolidated financial information of the Proforma Group for FY2005 and assuming an exchange rate of Rp5,851:S$1. 3 Gearing is defined as the ratio of the total indebtedness of the Proforma Group to the consolidated shareholders equity of the Proforma Group. 9

20 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 PART II (IDENTITY OF DIRECTORS, ADVISERS AND AGENTS) Directors 1. Provide the names and addresses of each of the directors or equivalent persons of the Company. BOARD OF DIRECTORS Names of Directors Addresses of Directors Lee Kwong Foo Edward : 30 Mount Elizabeth #12-34 Singapore Benny Setiawan Santoso : Jalan Bukit Golf II/PC-7 Pondok Pinang Jakarta Selatan, Indonesia Cesar Manikan dela Cruz : Apartment Dharmawangsa No Jalan Dharmawangsa Raya No. 39 Jakarta Selatan, Indonesia Tjhie Tje Fie : Jalan Alternatif Cibubur Perumahan Raffles Hills E6/9 Harjamukti, Cimanggis Depok Indonesia Mulyawan Tjandra : Taman Modern Blok C.6/33 Cakung, Jakarta Timur Indonesia Gunadi : Jalan Kembang Sakti II D9 No. 11 Jakarta Barat Indonesia Moleonoto Tjang : Citra Garden II C4/19 Kali Deres, Jakarta Barat Indonesia Lim Hock San : 10 Peirce Road Singapore Goh Kian Chee : 9 Tham Soong Avenue Singapore Hendra Susanto : Jalan Buana Biru Besar II/48 Jakarta Indonesia 10

21 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 Advisers 2. Provide the names and addresses of:- (a) (b) (c) the issue manager to the offer, if any; the underwriter to the offer, if any; and the legal adviser for or in relation to the offer, if any Global Co-ordinator in respect of the Placement Joint Bookrunners in respect of the Placement : CIMB-GK Securities Pte. Ltd. 50 Raffles Place #19-00 Singapore Land Tower Singapore : CIMB-GK Securities Pte. Ltd. 50 Raffles Place #19-00 Singapore Land Tower Singapore Credit Suisse (Singapore) Limited 1 Raffles Link #03-01 South Lobby Singapore Kim Eng Securities Pte. Ltd. 9 Temasek Boulevard #39-00 Suntec Tower Two Singapore Legal Adviser to the Acquisition and Placement Legal Adviser to the Joint Bookrunners in relation to the Placement as to Singapore law : Rajah & Tann 4 Battery Road #26-01 Bank of China Building Singapore : WongPartnership One George Street #20-01 Singapore

22 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 Registrars and Agents 3. Provide the names and addresses of the registrars, transfer agents and receiving bankers for the securities being offered, where applicable Share Registrar and Transfer Agent : Lim Associates (Pte) Ltd 3 Church Street #08-01 Samsung Hub Singapore Receiving Banker : Standard Chartered Bank 6 Battery Road #07-00 Singapore

23 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 PART III (OFFER STATISTICS AND TIMETABLE) Offer Statistics 1. For each method of offer, state the number of the securities being offered. Placement : Between 141,000,000 and 338,000,000 new Consolidated Shares, representing approximately 12.2% and 25.0% of the enlarged total number of issued Consolidated Shares of the Company immediately after the completion of the Placement, respectively. To meet the shareholding spread and distribution requirements set out in Rule 210(1) of the Listing Manual, based on the Estimated Price Range, at least 12% of the total number of issued Consolidated Shares of the Company must be held in the hands of at least 1,000 public shareholders in order for the Company to maintain its listing status and have such listing on the SGX Mainboard. The Company also intends to allot and issue up to 5,070,000 Placement Shares under the Placement (representing 1.5% of the maximum number of Consolidated Shares under the Placement) to First Pacific at the Placement Price, for the purposes of the FP Distribution-in-specie (as required by Practice Note 15 of the listing rules of the Hong Kong Stock Exchange). Further details on the FP Placement and FP Distribution-in-specie are set out in Sections 2.7 and 9 of the Circular. An SGXNET announcement will be posted on the internet at the website after the final size of the Placement is determined on the Determination Date. Placement Price : Currently expected to be between S$0.90 and S$1.25. The Placement Price may not necessarily be set within the Estimated Price Range. The Placement Price will be determined following a book-building process by agreement between the Joint Bookrunners and the Company. If for any reason the Placement Price is not agreed between the Joint Bookrunners and the Company, the Placement will not proceed. An SGXNET announcement will be posted on the internet at the website after the Placement Price has been determined on the Determination Date. Allocation of the Placement Shares to investors will be based on the Placement Price announced on the Determination Date. Status of Placement Shares : The Placement Shares will, upon allotment and issue, rank pari passu in all respects with the then existing Consolidated Shares save for any dividends, rights, allotments or other distributions the record date for which falls before the date of issue of the Placement Shares. For the avoidance of doubt, the Placement Shares will not rank for the Value Assurance. PT ISM has undertaken that in the event the Placement Price is less than S$0.75 per Placement Share (equivalent to S$0.075 per Share before the Proposed Share Consolidation), it shall procure that ISHPL shall, subject to completion of the Placement, pay the Entitled Shareholders, 13

24 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 as soon as practicable after completion of the Placement, a compensation amount in cash for each Consolidated Share held by such Entitled Shareholders as at the Books Closure Date equivalent to the difference, if any, between S$0.75 and the Placement Price, subject always to a maximum compensation of S$0.37 per Consolidated Share held. The amount payable shall be rounded down to the nearest whole cent. Trading of the Placement Shares : Upon the listing of, and quotation for, the Placement Shares on the SGX-ST, the Placement Shares will be traded on the SGX Mainboard under the book-entry scripless settlement system. For the purposes of trading on the SGX-ST, each board lot of shares will comprise 1,000 Consolidated Shares. Method and Time-table 2. Provide the information referred to in paragraphs 3 to 7 of this Part to the extent applicable to:- (a) (b) the offer procedure; and where there is more than one group of targeted potential investors and the offer procedure is different for each group, the offer procedure for each group of targeted potential investors. Please see below. 3. State the time at, date on, and period during which the offer will be kept open, and the name and address of the person to whom the purchase or subscription applications are to be submitted. If the exact time, date or period is not known on the date of lodgment of the offer information statement, describe the arrangements for announcing the definitive time, date or period. State the circumstances under which the offer period may be extended or shortened, and the duration by which the period may be extended or shortened. Describe the manner in which any extension or early closure of the offer period shall be made public. As at the Latest Practicable Date, the Placement Agreement has not been executed and the time at, date on, and period during which the offer will be kept open cannot be determined. The Company and the Joint Bookrunners shall, upon agreement on the number of Placement Shares and the Placement Price between themselves and among themselves, enter into the Placement Agreement on the Determination Date pursuant to which the Joint Bookrunners will be appointed as placement agents and to, severally and not jointly, subscribe and pay for and/or procure subscriptions and payment for, the Placement Shares in accordance with their respective Underwriting Commitment, on the terms and conditions of the Placement Agreement. An SGXNET announcement will be posted on the internet at the website after the number of the Placement Shares and the Placement Price have been determined on the Determination Date. Allocation of the Placement Shares to investors will be based on the Placement Price announced on the Determination Date. Under the Placement Agreement, the Company will agree to allot and issue the Placement Shares and the Joint Bookrunners will agree to subscribe and pay for and/or procure subscriptions and payment for, the Placement Shares at the Placement Price in accordance with their respective Underwriting Commitment. The Company also intends to allot and issue up to 5,070,000 Placement Shares under the Placement (representing 1.5% of the maximum number of Consolidated Shares under the Placement) to First Pacific at the Placement Price, for the purposes of the FP Distribution-in-specie (as required by Practice Note 15 of the listing rules of the Hong Kong Stock Exchange). Further details on the FP Placement and FP Distribution-in-specie are set out in Sections 2.7 and 9 of the Circular. Completion of the Placement is expected to be conditional upon, inter alia, the following conditions 14

25 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 having being satisfied:- (a) (b) this Offer Information Statement having been lodged with the Authority; and all conditions contained in the SGX-ST approval-in-principle required to be fulfilled prior to the listing and quotation of the Placement Shares on the Official List of the SGX-ST having been fulfilled, or waived by the SGX-ST and there not having occurred any withdrawal of such approval or any event or condition that would prevent or delay the commencement of trading of the Placement Shares. 4. State the method and time limit for paying up for the securities and, where payment is to be partial, the manner in which, and dates on which, amounts due are to be paid. By no later than the Listing Date, the Global Co-ordinator shall arrange for the payment to the Company of the net subscription monies in respect of the Placement Shares which the Joint Bookrunners have subscribed and paid and/or procured subscriptions and payment for pursuant to the Placement Agreement, representing the aggregate Placement Price of the Placement Shares less the costs and expenses payable to the Global Co-ordinator and the Joint Bookrunners under the Placement Agreement, by bank transfer to such account of the Company with such bank in Singapore as the Company may designate in writing. As at the Latest Practicable Date, the time limit for paying up for the Placement Shares cannot be determined. Placees shall pay for the Placement Shares after the execution of the Placement Agreement but no later than the Listing Date. 5. State, where applicable, the methods of and time limits for (a) (b) the delivery of the documents evidencing title to the securities being offered (including temporary documents of title, if applicable) to subscribers or purchasers; and the book-entry transfers of the securities being offered in favour of subscribers or purchasers. On the Completion Date, the Company shall pursuant to the Placement Agreement deliver to CDP for the account of the Joint Bookrunners or such Placees as the Joint Bookrunners may direct, share certificates in the name of CDP in respect of the Placement Shares for which the Joint Bookrunners have agreed to subscribe and pay and/or procured subscription and payment. As at the Latest Practicable Date, the Completion Date cannot be determined, as the Placement Agreement has not been executed. 6. In the case of any pre-emptive rights to subscribe for or purchase the securities being offered, state the procedure for the exercise of any right of pre-emption, the negotiability of such rights and the treatment of such rights which are not exercised. Not applicable. 7. Provide a full description of the manner in which results of the allotment or allocation of the securities are to be made public and, where appropriate, the manner for refunding excess amounts paid by applicants (including whether interest will be paid). The Joint Bookrunners will identify the Placees pursuant to the Placement Agreement and will advise the Company of these persons. The Company will announce the completion of the Placement by an SGXNET announcement to be posted on the internet at the SGX-ST website 15

26 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 PART IV (KEY INFORMATION) Use of Proceeds from the Offer and Expenses Incurred 1. In the same section, provide the information set out in paragraphs 2 to 7 of this Part. Please see below. 2. Disclose the estimated amount of the proceeds from the offer (net of the estimated amount of expenses incurred in connection with the offer) (referred to in this paragraph and paragraph 3 of this Part as the net proceeds). Where only a part of the net proceeds will go to the relevant entity, indicate the amount of the net proceeds that will be raised by the relevant entity. If none of the proceeds will go to the relevant entity, provide a statement of that fact. Based on the Estimated Price Range and the range of Placement size, upon completion of the Placement, the Company is expected to receive aggregate net proceeds from the issue of the Placement Shares of between approximately S$116.6 million and S$404.4 million after deducting the Placement Commission and other estimated expenses. 3. Disclose how the net proceeds raised by the relevant entity from the offer will be allocated to each principal intended use. If the anticipated proceeds will not be sufficient to fund all of the intended uses, disclose the order of priority of such uses, as well as the amount and sources of other funds needed. Disclose also how the proceeds will be used pending their eventual utilisation for the proposed uses. Where specific uses are not known for any portion of the proceeds, disclose the general uses for which the proceeds are proposed to be applied. Where the offer is not fully underwritten on a firm commitment basis, state the minimum amount which, in the reasonable opinion of the directors or equivalent persons of the relevant entity, must be raised by the offer of securities. The Group intends ultimately to use the net proceeds from the Placement as follows:- (a) (b) (c) (d) to fund the Group s development of approximately 70,000 hectares of its unplanted land bank into oil palm plantations and/or to acquire additional plantations; to fund the modernisation and relocation of the Group s refinery in North Jakarta to a new location in the vicinity of the Jakarta Port; to increase the annual capacity of its refinery, fractionation and margarine processing plants in Medan; and for general working capital purposes. If the net proceeds from the Placement are insufficient to fund all of the above uses, the Group intends to fund the balance through internal resources and/or bank borrowings. Please also see paragraph 4 of this Part IV (Key Information) below. 16

27 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 Upon receipt of the net proceeds from the Placement, such proceeds will be advanced by the Company to IOFPL, of which part will be for IOFPL to repay PT SIMP for the PT SIMP Loan (as defined below). PT SIMP had extended a loan of approximately US$249.7 million (the PT SIMP Loan ) to IOFPL for IOFPL to repay borrowings from CIMB Bank (L) Limited (further described in paragraph 9(h) of this Part IV) to fund its subscription of 90% of the issued share capital of PT SIMP pursuant to the PT ISM Group Restructuring (further information on which is set out in Section 14.3 of the Circular). PT SIMP intends to use such net proceeds for the purposes set out above. Pending the deployment of the net proceeds from the Placement for the purposes set out above, the Group may utilise such net proceeds to settle outstanding balances under short-term revolving credit facilities of PT SIMP (further details of which are set out in paragraph 7 of this Part IV (Key Information) below) and/or place such net proceeds as deposits with banks and financial institutions or invest in short-term money markets or debt instruments or use for any other purpose on a short-term basis, as the Directors may, in their absolute discretion, deem fit from time to time pending the deployment of such proceeds for the purposes set out above. Upon the signing of the Placement Agreement, the Joint Bookrunners shall on a firm commitment basis subscribe and pay for and/or procure subscriptions and payment for the Placement Shares at the Placement Price and on the terms and subject to the conditions set out in the Placement Agreement. 4. For each dollar of the proceeds from the offer that will be raised by the relevant entity, state the estimated amount that will be allocated to each principal intended use and the estimated amount that will be used to pay for expenses incurred in connection with the offer. The Group intends to use the proceeds from the Placement as follows:- (a) (b) (c) (d) approximately 65% of the proceeds from the Placement is intended to be used to fund the Group s development of approximately 70,000 hectares of its unplanted land bank into oil palm plantations and/or to acquire additional plantations; approximately 20% of the proceeds from the Placement is intended to be used to fund the modernisation and relocation of the Group s refinery in North Jakarta to a new location in the vicinity of the Jakarta Port/increase the annual capacity of its refinery, fractionation and margarine processing plants in Medan; between approximately 7% to 11% of the proceeds from the Placement is intended to be used for general working capital purposes; and between approximately 4% to 8% of the proceeds from the Placement is intended to be used to pay for expenses incurred in connection with the Placement (depending on the Placement Price and the number of Placement Shares). Please refer to pages 123 and 124 of the Circular for further information on the material on-going and future capital expenditure plans of the Group. 17

28 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS If any of the proceeds to be raised by the relevant entity will be used, directly or indirectly, to acquire or refinance the acquisition of an asset other than in the ordinary course of business, briefly describe the asset and state its purchase price. If the asset has been or will be acquired from an interested person of the relevant entity, identify the interested person and state how the cost to the relevant entity is or will be determined. Save as disclosed in paragraph 3 of this Part IV (Key Information), the proceeds to be raised by the Company will not be used, directly or indirectly, to acquire or refinance the acquisition of an asset other than in the ordinary course of business. 6. If any of the proceeds to be raised by the relevant entity will be used to finance or refinance the acquisition of another business, briefly describe the business and give information on the status of the acquisition. Please see paragraph 3 of this Part IV (Key Information) above. 7. If any material part of the proceeds to be raised by the relevant entity will be used to discharge, reduce or retire the indebtedness of the relevant entity or, if the relevant entity is the holding company or holding entity of a group, of the group, describe the maturity of such indebtedness and, for indebtedness incurred within the past year, the uses to which the proceeds giving rise to such indebtedness were put. Pending the deployment of the net proceeds from the Placement for the purposes set out in paragraph 3 of this Part IV (Key Information) above, part of such proceeds may, at the Directors discretion, be used to settle outstanding balances under short-term revolving credit facilities of PT SIMP with less than one-year duration. Such credit facilities were used for working capital as well as to refinance other bank loans and borrowings. The Directors expect to maintain such credit facilities and to be able to draw upon them in the future. 8. In the section containing the information referred to in paragraphs 2 to 7 of this Part or in an adjoining section, disclose the amount of discount or commission agreed upon between the underwriters or other placement or selling agents in relation to the offer and the person making the offer. If it is not possible to state the amount of discount or commission, the method by which it is to be determined must be explained. The commission payable by the Company to the Joint Bookrunners is 2.5% (excluding Goods and Services Tax) of the aggregate Placement Price of the Placement Shares for which the Joint Bookrunners shall severally commit to subscribe and pay for and/or procure subscription and payment for based on their respective Underwriting Commitment under the Placement Agreement. Placees may be required to pay a brokerage fee of up to 1% of the Placement Price (and Goods and Services tax of 5% thereon and any other taxes, if applicable) to the relevant Joint Bookrunner. The Company may consider paying an incentive fee to the Joint Bookrunners which, if agreed, will be set out in the Placement Agreement. 18

29 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 Information on the Relevant Entity 9. Provide the following information: Please see below. 9(a) the address and telephone and facsimile numbers of the relevant entity s registered office and principal place of business (if different from those of its registered office) Registered office address : 80 Raffles Place and principal place of business #22-23 UOB Plaza 2 Singapore Telephone number : (65) Facsimile number : (65) (b) the nature of the operations and principal activities of the relevant entity or, if it is the holding company or holding entity of a group, of the group The Company is incorporated in Singapore with its Company registration number being G. The shareholders of the Company approved, inter alia, the Acquisition by a resolution of the shareholders passed at a general meeting held on 5 January Following the approval of the Acquisition and the satisfaction of the other conditions precedent (including the approval of the shareholders of PT ISM and of First Pacific) to the completion of the Injection Agreement (further information on which is set out in Section 5.3 of the Circular), the Company carried into effect the Acquisition and completion of the Acquisition took place on 23 January Immediately thereafter, the Company became the holding company of the Target Group. The nature of the operations and the principal activities of the Group are set out in Sections 11.1, 14 and Appendix D of the Circular. Please also refer to Sections 13, 15, 18.2, 18.3, and 18.4 of the Circular. 9(c) the general development of the business from the beginning of the period comprising the 3 most recent completed financial years to the latest practicable date, indicating any material change in the affairs of the relevant entity or the group, as the case may be, since (i) (ii) the end of the most recent completed financial year for which financial statements of the relevant entity have been published; or the end of any subsequent period covered by interim financial statements, if interim financial statements have been published; Before the completion of the Disposals, the Company and its subsidiaries were previously engaged in the business of providing project management, facilities management, engineering and fitting-out works and services and interior design services. The Company disposed of all of such businesses in October and November

30 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 On 23 October 2006, Shareholders approved a pro rata capital reduction of up to S$10,334,250 (the Capital Reduction ) subject to, inter alia, completion of the Disposals and approval and confirmation by the High Court of the Republic of Singapore. On 13 November 2006, the Company announced that an amount of S$6,750,000 will be returned to Shareholders under the Capital Reduction and that Shareholders will receive S$0.05 per Share in cash for each Share held (the Cash Distribution ) as at a books closure date to be determined. On 19 December 2006, the High Court of the Republic of Singapore granted its approval and confirmation of the Capital Reduction. The Capital Reduction took effect upon the lodgment of the court order sanctioning the same, with the Registrar of Companies on 12 January The books closure date for the Cash Distribution was on 12 January On 24 January 2007, the Company announced its actual financial results for FY2006. Such financial information does not include the effects of the Acquisition or the contribution from the Target Group as the Acquisition was completed after the end of FY2006. Details of the Company s actual FY2006 financial results are available on the internet at the website Upon the completion of the Acquisition, the business of the Group now comprises those of the Target Group. The Target Group is a major vertically-integrated manufacturer of edible oils and fats with significant market share in the branded cooking oil, as well as margarine and shortening segments in Indonesia. The general development of the business of the Target Group from the beginning of the period commencing 1 January 2003 up to 8 December 2006, is set out in Sections 14 and 15 of the Circular and Appendix C of this Offer Information Statement. The material developments in the affairs of the Target Group from the beginning of the period commencing 9 December 2006 to the Latest Practicable Date (both dates inclusive) are set out below:- (i) (ii) on 23 January 2007, the Company released the unaudited proforma financial information of the Proforma Group for the four-month and the ten-month periods ended 31 October 2006 by way of an SGXNET announcement posted on the internet at the website and on 23 January 2007, the Company completed the Acquisition and issued the Consideration Shares to the vendor, ISHPL. 9(d) the equity capital and the loan capital of the relevant entity as at the latest practicable date, showing (i) (ii) in the case of the equity capital, the issued capital; or in the case of the loan capital, the total amount of the debentures issued and outstanding, together with the rate of interest payable thereon; As at the Latest Practicable Date, the share and loan capital of the Company were as follows: Issued and Paid-Up Share Capital : S$401,276,668 comprising 10,117,000,000 Shares immediately after the Acquisition. Loan Capital : Nil The issued and paid-up share capital of the Company would be 1,011,700,000 Consolidated Shares immediately following the Proposed Share Consolidation which is currently expected to be effective as at 9 February

31 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS (e) where (i) (ii) the relevant entity is a corporation, state the number of shares of the relevant entity owned by each substantial shareholder as at the latest practicable date; or the relevant entity is not a corporation, state the amount of equity interests in the relevant entity owned by each substantial interest-holder as at the latest practicable date As at the Latest Practicable Date, the Substantial Shareholders of the Company and the number of Shares in which they have an interest were as follows:- Direct Interest Deemed Interest Number of Number of Shares (1) % Shares (1) % ISHPL 9,982,000, PT ISM (2) 9,982,000, First Pacific and its subsidiaries (3) 9,982,000, Salim Group (4) 9,982,000, Notes: (1) Based on 10,117,000,000 issued Shares as at the Latest Practicable Date. Following the date the Proposed Share Consolidation becomes effective (currently expected to be 9 February 2007), the Substantial Shareholders would have an interest in 998,200,000 Consolidated Shares. (2) PT ISM is a holding company of ISHPL with an interest of approximately 83.84% of the total number of issued shares in ISHPL. Accordingly, PT ISM is deemed to be interested in the Shares held by ISHPL. (3) First Pacific has an interest in 51.5% of the capital of PT ISM through its wholly-owned subsidiaries. Accordingly, First Pacific and such subsidiaries are deemed to be interested in the Shares held by ISHPL in which PT ISM has an interest. Up to 5,070,000 new Consolidated Shares may be issued to First Pacific pursuant to the FP Placement for the purposes of the FP Distribution-in-specie. (4) The Salim Group has an interest in approximately 44.26% of the total number of issued and voting shares in the capital of First Pacific. Accordingly, the Salim Group is deemed to be interested in the Shares held by ISHPL in which First Pacific has an interest. The Salim Group would be entitled to participate in the FP Distribution-in-specie. 9(f) any legal or arbitration proceedings, including those which are pending or known to be contemplated, which may have, or which have had in the 12 months immediately preceding the date of lodgment of the offer information statement, a material effect on the financial position or profitability of the relevant entity or, where the relevant entity is a holding company or holding entity of a group, of the group The legal or arbitration proceedings of the Target Group (now part of the Group), including those which, to the knowledge of the Directors, are pending or known to be contemplated, which may have, or which have had in the 12 months immediately preceding the Latest Practicable Date, a material effect on the financial position or profitability of the Target Group (now part of the Group), are set out in Section 29.3(a) of the Circular. Save for the above, as at the Latest Practicable Date, the Directors are not aware of any legal or arbitration proceedings to which the Group is a party or which is pending or contemplated, which, in the opinion of the Directors, may have or have had in the last 12 months before the date of lodgement of this Offer Information Statement, a material effect on the financial position or profitability of the Group. 21

32 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS (g) where any securities or equity interests of the relevant entity have been issued within the 12 months immediately preceding the latest practicable date (i) (ii) if the securities or equity interests have been issued for cash, state the prices at which the securities have been issued and the number of securities or equity interests issued at each price; or if the securities or equity interests have been issued for services, state the nature and value of the services and give the name and address of the person who received the securities or equity interests; Pursuant to the Injection Agreement, the Company allotted and issued 9,982,000,000 new Shares (which after the Proposed Share Consolidation shall be 998,200,000 Consolidated Shares) at an issue price of S$ each to ISHPL on 23 January Save as disclosed above, the Company has not issued any Shares for cash in the last 12 months immediately preceding the Latest Practicable Date. The Company has not issued any Shares for services during the 12 months immediately preceding the Latest Practicable Date. 9(h) provide a summary of each material contract, other than a contract entered into in the ordinary course of business, to which the relevant entity or, if the relevant entity is the holding company or holding entity of a group, any member of the group is a party, for the period of 2 years immediately preceding the date of lodgment of the offer information statement, including the parties to the contract, the date and general nature of the contract, and the amount of any consideration passing to or from the relevant entity or any other member of the group, as the case may be. The dates of, parties to and general nature of all material contracts entered into by the Group, not being contracts entered into in the ordinary course of business carried on by the Group, for the period of two years before the date of lodgement of this Offer Information Statement are set out in Section 29.2 of the Circular, Section 3 of Appendix D to the Circular and below: (a) facility agreement dated 11 January 2007 between IOFPL (as borrower), CIMB Bank (L) Limited (as arranger), CIMB Bank (L) Limited (as lender) and CIMB Bank (L) Limited (as agent) relating to a bridging loan facility of up to the aggregate principal amount of US$275,000,000 granted by CIMB Bank (L) Limited (as lender) to IOFPL (as borrower). This facility has been repaid. 22

33 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 PART V (OPERATING AND FINANCIAL REVIEW AND PROSPECTS) Operating Results 1. Provide selected data from (a) (b) the audited income statement of the relevant entity or, if the relevant entity is the holding company or holding entity of a group, the audited consolidated income statement of the relevant entity or the audited combined income statement of the group, for each financial year (being one of the 3 most recent completed financial years) for which that statement has been published; and any interim income statement of the relevant entity or, if the relevant entity is the holding company or holding entity of a group, any interim consolidated income statement of the relevant entity or interim combined income statement of the group, for any subsequent period for which that statement has been published. (a) (b) Please refer to Section 15.1 of the Circular and Section A of the Accountants Report for selected data in respect of FY2003, FY2004, FY2005, HY2005 and HY2006 from the unaudited proforma consolidated financial information of the Proforma Group for FY2003, FY2004, FY2005, HY2005 and HY2006. Please refer to Appendix B of this Offer Information Statement for selected data from the unaudited condensed proforma consolidated financial information of the Proforma Group for the four-month and the ten-month periods ended 31 October 2006 (the 10M06 Unaudited Condensed Proforma Financial Information ). In relation to this Part V of this Offer Information Statement, this Offer Information Statement does not contain the audited combined financial statements of the Group for FY2003, FY2004, FY2005 and HY2006 or any data in relation thereto, for the reasons set out in Section 4.2 of the Circular. In addition, it does not include any selected data from the audited consolidated financial statements of the Company and its subsidiaries immediately before the completion of the Acquisition, for the three most recent completed financial years ended 31 December 2006 as such financial statements would not include the Target Group s financial results. Further, whilst the Company has announced its financial results for FY2006, the Target Group s financial results for FY2006 are not available as at the Latest Practicable Date. Accordingly, the Company would not be in a position to prepare the Proforma Group s results for FY2006 as at the Latest Practicable Date. In view of the above, all references to Section 15 of the Circular in this Offer Information Statement are in respect of unaudited proforma consolidated financial information of the Proforma Group for FY2003, FY2004, FY2005, HY2005 and HY2006. The said unaudited proforma consolidated financial statements have been prepared based on the separate statutory audited financial statements of the companies making up the Proforma Group. Additionally:- (i) (ii) (iii) the said unaudited proforma consolidated financial statements have been properly prepared in a manner consistent with the format of the financial statements and the accounting policies of the Proforma Group companies; each and every material adjustment made in the unaudited proforma consolidated financial statements is appropriate for the purpose of preparing such financial statements; and the unaudited proforma consolidated financial statements have been prepared based on a set of assumptions which are set out in the Accountants Report in Appendix C of the Circular. 23

34 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 Please refer to the Accountants Report set out in Appendix C of the Circular for further details of the unaudited proforma consolidated financial information of the Proforma Group for FY2003, FY2004, FY2005, HY2005 and HY2006. The 10M06 Unaudited Condensed Proforma Financial Information has been prepared based on underlying unaudited management accounts of the companies making up the Proforma Group. Please refer to Appendix B of this Offer Information Statement for a report by Messrs Ernst & Young, the reporting accountants appointed by the Company on the 10M06 Unaudited Condensed Proforma Financial Information. 2. The data referred to in paragraph 1 of this Part shall include the line items in the audited income statement, audited consolidated income statement, audited combined income statement, interim income statement, interim consolidated income statement or interim combined income statement, as the case may be, and shall in addition include the following items: (a) (b) (c) dividends declared per share in both the currency of the financial statements and the Singapore currency, including the formula used for any adjustment to dividends declared; earnings or loss per share; and earnings or loss per share, after any adjustment to reflect the sale of new securities. (a) The Company has not declared any dividends between FY2003 and FY2006. In the three financial years ended 31 December 2005, PT SIMP paid dividends of Rp1,500 billion for FY2003, Rp500 billion for FY2004 and Rp1,000 billion for FY2005. (b) The earnings per Consolidated Share (1) for each of FY2003, FY2004, FY2005, HY2005, HY2006 and for the ten months ended 31 October 2006 were Rp239.7, Rp563.5, Rp536.4, Rp284.4, Rp232.7 and Rp489.8 respectively. (c) The earnings per Consolidated Share (2), adjusted for the Assumed Placement Size, for each of FY2003, FY2004, FY2005, HY2005, HY2006 and for the ten months ended 31 October 2006 were Rp210.3, Rp494.5, Rp470.7, Rp249.6, Rp204.3 and Rp429.8 respectively. Notes: (1) The earnings per Consolidated Share for the relevant financial years/periods have been computed based on:- (a) (b) the unaudited proforma consolidated financial information of the Proforma Group for FY2003, FY2004, FY2005, HY2005, HY2006 and the ten-month period ended 31 October 2006; and the Company s enlarged total number of issued shares of 1,011,700,000 Consolidated Shares immediately upon completion of the Acquisition and the Proposed Share Consolidation but before the Placement. (2) The earnings per Consolidated Share for the relevant financial years/periods have been computed based on:- (a) (b) the unaudited proforma consolidated financial information of the Proforma Group for FY2003, FY2004, FY2005, HY2005, HY2006 and the ten-month period ended 31 October 2006; and the Company s enlarged total number of issued shares of 1,152,700,000 Consolidated Shares after the completion of the Acquisition, the Proposed Share Consolidation and the Placement (assuming the Assumed Placement Size). 24

35 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS In respect of (a) (b) each financial year (being one of the 3 most recent completed financial years) for which financial statements have been published; and any subsequent period for which interim financial statements have been published, provide information regarding any significant factor, including any unusual or infrequent event or new development, which materially affected profit or loss before tax of the relevant entity or, if it is the holding company or holding entity of a group, of the group, and indicate the extent to which such profit or loss before tax of the relevant entity or the group, as the case may be, was so affected. Describe any other significant component of revenue or expenditure necessary to understand the profit or loss before tax for each of these financial periods. (a) (b) Please refer to Sections 15.2 and 15.3 of the Circular for a review of the Proforma Group s financial performance between FY2003 and HY2006. Please refer to Appendix C for a review of the Proforma Group s financial performance in respect of the four-month and ten-month periods ended 31 October Financial Position 4. Provide selected data from the balance sheet of the relevant entity or, if it is the holding company or holding entity of a group, the group as at the end of (a) (b) the most recent completed financial year for which audited financial statements have been published; or if interim financial statements have been published for any subsequent period, that period. (a) (b) Please refer to Sections 15.1 and 15.4 of the Circular and Section B of the Accountants Report set out in Appendix C of the Circular for the balance sheet of the Proforma Group as at 31 December 2005 and 30 June Please refer to Appendix B of this Offer Information Statement for the balance sheet of the Proforma Group as at 31 October In the balance sheet of the Proforma Group set out in the 10M06 Unaudited Condensed Proforma Financial Information, the net assets attributable to equity holders of the Company was recorded at approximately Rp2,657 billion which is slightly higher than the corresponding figure of Rp2,531 billion stated under Proforma shareholders equity (excluding minority interests) as at 31 October 2006 in Section 15.6 of the Circular on Capitalisation and Indebtedness. The difference is due mainly to updates made by the Company to the assumptions used in the valuation of the Proforma Group s biological assets as at 31 October 2006 which resulted in an upward revision to the gains on changes in fair value of such biological assets for the ten-month period ended 31 October These updates were reviewed by Messrs Ernst & Young. 25

36 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS The data referred to in paragraph 4 of this Part shall include the line items in the audited or interim balance sheet of the relevant entity or the group, as the case may be, and shall in addition include the following items: (a) (b) (c) number of shares after any adjustment to reflect the sale of new securities; net assets or liabilities per share; and net assets or liabilities per share after any adjustment to reflect the sale of new securities. Based on the Assumed Placement Size and the Assumed Placement Price:- (a) The number of Consolidated Shares, adjusted for the Placement, is 1,152,700,000. (b) The net assets per Consolidated Share (1) as at 31 December 2005, 30 June 2006 and 31 October 2006 were Rp2,096.3, Rp2,342.5 and Rp2,626.1 respectively. (c) The net assets per Consolidated Share (2), adjusted for the Placement, as at 31 December 2005, 30 June 2006 and 31 October 2006 are Rp1,839.9, Rp2,056.0 and Rp2,304.9 respectively. Notes: (1) Based respectively on the unaudited proforma consolidated financial information of the Proforma Group as at 31 December 2005 and 30 June 2006, the 10M06 Unaudited Condensed Proforma Financial Information as at 31 October 2006, and the Company s enlarged total number of issued shares of 1,011,700,000 Consolidated Shares after the Acquisition and the Proposed Share Consolidation but before the Placement. (2) Based respectively on the unaudited proforma consolidated financial information of the Proforma Group as at 31 December 2005 and 30 June 2006, the 10M06 Unaudited Condensed Proforma Financial Information as at 31 October 2006, and the Company s enlarged total number of issued shares of 1,152,700,000 Consolidated Shares after the Acquisition, the Proposed Share Consolidation, and the Placement (assuming the Assumed Placement Size). Liquidity and Capital Resources 6. Provide an evaluation of the material sources and amounts of cash flows from operating, investing and financing activities in respect of (a) (b) the most recent completed financial year for which financial statements have been published; and if interim financial statements have been published for any subsequent period, that period. (a) (b) Please refer to Section 15.5 of the Circular and Section D of the Accountants Report for an evaluation of the material sources and amounts of cash flows of the Proforma Group from operating, investing and financial activities in respect of FY2005 and HY2006. Please refer to the 10M06 Unaudited Condensed Proforma Financial Information set out in Appendix B of this Offer Information Statement for an evaluation of the material sources and amounts of cash flows of the Proforma Group from operating, investing and financial activities in respect of the four-month and the ten-month periods ended 31 October

37 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS Provide a statement by the directors or equivalent persons of the relevant entity as to whether, in their reasonable opinion, the working capital available to the relevant entity or, if it is the holding company or holding entity of a group, to the group, as at the date of lodgment of the offer information statement, is sufficient for present requirements and, if insufficient, how the additional working capital considered by the directors or equivalent persons to be necessary is proposed to be provided. The Directors are of the reasonable opinion that, after taking into account the Group s present credit facilities and cash position, the working capital available to the Group as at the date of lodgement of this Offer Information Statement, is sufficient to meet the Group s present requirements. 8. If the relevant entity or any other entity in the group is in breach of any of the terms and conditions or covenants associated with any credit arrangement or bank loan which could materially affect the relevant entity s financial position and results or business operations, or the investments by holders of securities in the relevant entity, provide (a) (b) (c) a statement of that fact; details of the credit arrangement or bank loan; and any action taken or to be taken by the relevant entity or other entity in the group, as the case may be, to rectify the situation (including the status of any restructuring negotiations or agreement, if applicable). As at the Latest Practicable Date, the Directors are not aware of any breach by any entity in the Group of any of the terms and conditions or covenants associated with any credit arrangement or bank loan which could materially affect the Company s financial position and results or business operations, or the investments by holders of securities in the Company. Trend Information and Profit Forecast or Profit Estimate 9. Discuss, for at least the current financial year, the business and financial prospects of the relevant entity or, if it is the holding company or holding entity of a group, the group, as well as any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on net sales or revenues, profitability, liquidity or capital resources, or that would cause financial information disclosed in the offer information statement to be not necessarily indicative of the future operating results or financial condition. If there are no such trends, uncertainties, demands, commitments or events, provide an appropriate statement to that effect. Please see Sections 13, 14.23, and of the Circular. In addition, please also note the following risks faced by the Group:- Corporate disclosure and accounting standards in Singapore may vary from those in other jurisdictions The nature and extent of publicly available information about companies listed on the SGX-ST, such as the Company, may differ from public companies in other jurisdictions. These differences include the timing and content of disclosure of beneficial ownership of equity securities of officers, directors and significant shareholders, officer certification of disclosure and financial statements in periodic public reports, accounting standards and practices and disclosure of off-balance sheet transactions in management s discussion of results of operations in periodic public reports. 27

38 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 The Placement Price may not be indicative of the prices for the Shares that will prevail in the trading market, and these prevailing market prices may be volatile The Placement Price will be determined following a book-building process by agreement between the Joint Bookrunners and the Company, and may not be indicative of prices for the Shares that will prevail in the trading market. Placees of the Placement Shares may not be able to resell their Placement Shares at a price that is attractive to them. The trading prices of the Shares could be subject to fluctuations in response to variations in the Group s results of operations, changes in general economic conditions, changes in accounting principles or other developments affecting the Group, its customers or its competitors, changes in financial estimates by securities analysts, the operating and stock price performance of other companies and other events or factors, many of which are beyond its control. Volatility in the price of the Shares may be caused by factors outside the Company s control or may be unrelated or disproportionate to its results of operations. In addition, it may be difficult to assess the Company s performance against either domestic or international benchmarks. Market and economic conditions may affect the market price and demand for the Shares, including the Placement Shares Movements in domestic and international securities markets, economic conditions, foreign exchange rates and interest rates may affect the market price and demand for the Shares. The price for the Shares will depend in part upon general trends in the securities markets. During general economic downturns, investors tend to sell off their shares or refrain from purchasing new shares, and demand for the Shares may be negatively affected, harming its share price. These general economic and market factors are beyond the Company s control but could have a material adverse effect on the price of its Shares. Overseas Shareholders may not be able to participate in future rights offerings or certain other equity issues made by the Company If the Company offers or causes to be offered to holders of its Shares rights to subscribe for additional Shares or any right of any other nature, it will have discretion as to the procedure to be followed in making such rights available to holders of its Shares or in disposing of such rights for the benefit of such holders and making the net proceeds available to such holders. The Company may choose not to offer such rights to the holders of its Shares having an address in a jurisdiction outside Singapore. For instance, it may not offer such rights to the holders of its Shares who are U.S. persons (as defined under Regulation S) or have a registered address in the United States. The Company shall have no obligation to prepare or file any registration statement under the Securities Act. Accordingly, Shareholders who are U.S. persons (as defined in Regulation S) or have a registered address in the United States may be unable to participate in rights offerings and may experience a dilution in their holdings as a result. The writing-off of goodwill at the end of FY2007 may materially affect the income statement/financial position of the Group The Acquisition will result in goodwill being recognised in the financial statements of the Group in FY2007. The goodwill represents the difference between the fair value of the Company and the fair value of its identifiable net assets (comprising cash of not less than S$5 million) at the completion of the Acquisition. For the purpose of determining the goodwill, the fair value of the Company could be based either on the market price of its Shares or other acceptable bases. The goodwill will be accounted for in accordance with the accounting policies of the Company. The accounting policies of the Company require goodwill to be tested for impairment on an annual basis. This assessment is likely to lead to an impairment charge to be recorded in the profit and loss accounts of the Group in FY2007. Any impairment charge against the goodwill could have a material negative impact on the profits of the Group to be reported in respect of FY2007. The calculation of the goodwill arising from the Acquisition has not been finalised as at the Latest Practicable Date. 28

39 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 The valuation of the Proforma Group s biological assets is based on a set of management assumptions The value of the Proforma Group s biological assets set out in the Accountants Report and the 10M06 Unaudited Condensed Proforma Financial Information is based on a set of management assumptions including those which are set out in Note 13 to the Accountants Report, as set out in Appendix C of the Circular. These management assumptions however, may change, resulting in a different valuation of such biological assets which may be lower than what was previously reported. These in turn may negatively affect the reported profits of the Group. The unaudited proforma consolidated financial information of the Proforma Group because of their nature, may not give a true picture of the Proforma Group s actual financial results, financial position, changes in equity and cash flows The unaudited proforma consolidated financial information of the Proforma Group for FY2003, FY2004, FY2005, HY2005 and HY2006 as set out in the Accountants Report in Appendix C of the Circular and the four-month and ten-month periods ended 31 October 2006 set out in the 10M06 Unaudited Condensed Proforma Financial Information have been prepared for illustrative purposes only and based on certain assumptions and after making certain adjustments to show what:- (i) the financial results and changes in equity of the Proforma Group for FY2003, FY2004, FY2005, HY2005, HY2006 and the four-month and ten-month periods ended 31 October 2006 would have been if the Proforma Group structure (as described in Note 2 to Section E of the Accountants Report) had been in place on 1 January 2003; (ii) the financial position of the Proforma Group as at 31 December 2005, 30 June 2006 and 31 October 2006 would have been if the Proforma Group structure had been in place on that date; and (iii) the consolidated cash flow of the Proforma Group for FY2005, HY2006 and the four-month and ten-month periods ended 31 October 2006 would have been if the Proforma Group structure had been in place since 1 January Such unaudited proforma consolidated financial information, because of their nature, may not give a true picture of the Proforma Group s actual financial results, financial position, changes in equity and cash flows. 10. Where a profit forecast is disclosed, state the extent to which projected sales or revenues are based on secured contracts or orders, and the reasons for expecting to achieve the projected sales or revenues and profit, and discuss the impact of any likely change in business and operating conditions on the forecast. Not applicable, as no profit forecast is disclosed. 11. Where a profit forecast or profit estimate is disclosed, state all principal assumptions, if any, upon which the directors or equivalent persons of the relevant entity have based their profit forecast or profit estimate, as the case may be. Not applicable, as no profit forecast or profit estimate is disclosed. 29

40 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS Where a profit forecast is disclosed, include a statement by an auditor of the relevant entity as to whether the profit forecast is properly prepared on the basis of the assumptions referred to in paragraph 11 of this Part, is consistent with the accounting policies adopted by the relevant entity, and is presented in accordance with the accounting standards adopted by the relevant entity in the preparation of its financial statements. Not applicable, as no profit forecast is disclosed. 13. Where the profit forecast disclosed is in respect of a period ending on a date not later than the end of the current financial year of the relevant entity, provide in addition to the statement referred to in paragraph 12 of this Part (a) (b) a statement by the issue manager to the offer, or any other person whose profession or reputation gives authority to the statement made by him, that the profit forecast has been stated by the directors or equivalent persons of the relevant entity after due and careful enquiry and consideration; or a statement by an auditor of the relevant entity, prepared on the basis of his examination of the evidence supporting the assumptions referred to in paragraph 11 of this Part and in accordance with the Singapore Standards on Auditing or such other auditing standards as may be approved in any particular case by the Authority, to the effect that no matter has come to his attention which gives him reason to believe that the assumptions do not provide reasonable grounds for the profit forecast. Not applicable, as no profit forecast is disclosed. 14. Where the profit forecast disclosed is in respect of a period ending on a date after the end of the current financial year of the relevant entity, provide in addition to the statement referred to in paragraph 12 of this Part (a) (b) a statement by the issue manager to the offer, or any other person whose profession or reputation gives authority to the statement made by him, prepared on the basis of his examination of the evidence supporting the assumptions referred to in paragraph 11 of this Part, to the effect that no matter has come to his attention which gives him reason to believe that the assumptions do not provide reasonable grounds for the profit forecast; or a statement by an auditor of the relevant entity, prepared on the basis of his examination of the evidence supporting the assumptions referred to in paragraph 11 of this Part and in accordance with the Singapore Standards on Auditing or such other auditing standards as may be approved in any particular case by the Authority, to the effect that no matter has come to his attention which gives him reason to believe that the assumptions do not provide reasonable grounds for the profit forecast. Not applicable, as no profit forecast is disclosed. 30

41 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 Significant Changes 15. Disclose any event that has occurred from the end of (a) (b) the most recent completed financial year for which financial statements have been published; or if interim financial statements have been published for any subsequent period, that period, to the latest practicable date which may have a material effect on the financial position and results of the relevant entity or, if it is the holding company or holding entity of a group, the group, or, if there is no such event, provide an appropriate negative statement. Meaning of published 16. In this Part, published includes publication in a prospectus, in an annual report or on the SGXNET. Save as disclosed in this Offer Information Statement, the Circular and in all public announcements made by the Company, the Directors are not aware of any event which has occurred from 31 October 2006 up to the Latest Practicable Date which may have a material effect on the financial position and results of the Proforma Group and the Group from that set forth in the 10M06 Unaudited Condensed Proforma Financial Information. 31

42 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 PART VI (THE OFFER AND LISTING) Offer and Listing Details 1. Indicate the price at which the securities are being offered and the amount of any expense specifically charged to the subscriber or purchaser. If it is not possible to state the offer price at the date of lodgement of the offer information statement, the method by which the offer price is to be determined must be explained. The Placement Price is currently expected to be within the Estimated Price Range of between S$0.90 to S$1.25. The Placement Price may not necessarily be set within the Estimated Price Range. The Placement Price will be determined following a book-building process by agreement between the Joint Bookrunners and the Company. An SGXNET announcement will be posted on the internet at the website after the Placement Price has been determined on the Determination Date. The commission payable by the Company to the Joint Bookrunners is 2.5% (excluding Goods and Services Tax) of the aggregate Placement Price of the Placement Shares for which the Joint Bookrunners shall severally commit to subscribe and pay for and/or procure subscription and payment for according to their respective Underwriting Commitment under the Placement Agreement. Placees of the Placement Shares may be required to pay a brokerage fee of up to 1% of the Placement Price (and Goods and Services Tax of 5% thereon and any other taxes, if applicable) to the relevant Joint Bookrunner. No expense incurred by the Company in respect of the Placement will be specifically charged to the Joint Bookrunners or the subscribers to be procured by the Joint Bookrunners. 2. If there is no established market for the securities being offered, provide information regarding the manner of determining the offer price, the exercise price or conversion price, if any, including the person who establishes the price or is responsible for the determination of the price, the various factors considered in such determination and the parameters or elements used as a basis for determining the price. Not applicable. 3. If (a) (b) any of the relevant entity s shareholders or equity interest-holders have pre-emptive rights to subscribe for or purchase the securities being offered; and the exercise of the rights by the shareholder or equity interest-holder is restricted, withdrawn or waived, indicate the reasons for such restriction, withdrawal or waiver, the beneficiary of such restriction, withdrawal or waiver, if any, and the basis for the offer price. Not applicable. 4. If securities of the same class as those securities being offered are listed for quotation on any securities exchange (a) in a case where the first-mentioned securities have been listed for quotation on the securities exchange for at least 12 months immediately preceding the latest practicable date, disclose the highest and lowest market prices of the first-mentioned securities 32

43 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 (i) (ii) for each of the 12 calendar months immediately preceding the calendar month in which the latest practicable date falls; and for the period from the beginning of the calendar month in which the latest practicable date falls to the latest practicable date; or (b) in a case where the first-mentioned securities have been listed for quotation on the securities exchange for less than 12 months immediately preceding the latest practicable date, disclose the highest and lowest market prices of the first-mentioned securities (i) (ii) for each calendar month immediately preceding the calendar month in which the latest practicable date falls; and for the period from the beginning of the calendar month in which the latest practicable date falls to the latest practicable date; (c) (d) disclose any significant trading suspension that has occurred on the securities exchange during the 3 years immediately preceding the latest practicable date or, if the securities have been listed for quotation for less than 3 years, during the period from the date on which the securities were first listed to the latest practicable date; and disclose information on any lack of liquidity, if the securities are not regularly traded on the securities exchange. (a) The price range of the Shares traded on the SGX-ST for each of the twelve (12) months immediately preceding the Latest Practicable Date and for 1 January 2007 to the Latest Practicable Date, are as follows: Price Range High Low (S$) (S$) Month January February March April May June July August September October November December January 2007 to 24 January 2007 (the Latest Practicable Date) Source: Bloomberg LP Note: (1) The market prices have not been adjusted for the Proposed Share Consolidation. (b) Not applicable. The Shares have been listed for quotation on SGX-SESDAQ for more than 12 months immediately preceding the Latest Practicable Date. 33

44 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 (c) (d) There has not been any significant trading suspension of the Shares that has occurred on the SGX-SESDAQ during the three years immediately preceding the Latest Practicable Date save that trading in the Shares is expected to be suspended from 25 January 2007, being the second Market Day following the completion of the Acquisition, which suspension will continue during the period allowed for the Placement. The SGX-ST has granted the Company a one-month period to carry out the Placement. In the case where the Placement is unable to be carried within the one-month period or such other period of time as may be permitted by the SGX-ST, trading of the Shares (and the Consolidated Shares, as the case may be) may continue to be suspended. Based on the information set out in the table above, the Shares were regularly traded on the SGX-SESDAQ. 5. Where the securities being offered are not identical to the securities already issued by the relevant entity, provide (a) (b) a statement of the rights, preferences and restrictions attached to the securities being offered; and an indication of the resolutions, authorisations and approvals by virtue of which the entity may create or issue further securities, to rank in priority to or pari passu with the securities being offered. The Placement Shares are to be issued by the Company free from all claims, charges, liens and other encumbrances whatsoever and shall rank pari passu in all respects with the then existing Consolidated Shares save for any dividends, rights, allotments or other distributions the record date for which falls before the date of issue of the Placement Shares. The Placement Shares shall not rank for the Value Assurance. Pursuant to the Value Assurance, PT ISM has undertaken that in the event the Placement Price is less than S$0.75 per Placement Share (equivalent to S$0.075 per Share before the Proposed Share Consolidation), it shall procure that ISHPL shall, subject to completion of the Placement, pay the Entitled Shareholders, as soon as practicable after completion of the Placement, a compensation amount in cash for each Consolidated Share held by such Entitled Shareholders as at the Books Closure Date equivalent to the difference, if any, between S$0.75 and the Placement Price, subject always to a maximum compensation of S$0.37 per Consolidated Share held. The amount payable shall be rounded down to the nearest whole cent. Approval from Shareholders for the Placement was obtained on 5 January Shareholders also granted Directors a general mandate to issue Consolidated Shares at the extraordinary general meeting held on 5 January 2007 (further details of which are set out in Section 8.2 of the Circular). Plan of Distribution 6. Indicate the amount, and outline briefly the plan of distribution, of the securities that are to be offered otherwise than through underwriters. If the securities are to be offered through the selling efforts of any broker or dealer, describe the plan of distribution and the terms of any agreement or understanding with such entities. If known, identify each broker or dealer that will participate in the offer and state the amount to be offered through each broker or dealer. Please see Paragraph 7, Part VI (The Offer and Listing) of this Offer Information Statement. 34

45 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 The Company has obtained Shareholders approval at the extraordinary general meeting held on 5 January 2007, to allot and issue up to 1.5% of the maximum number of Placement Shares (which is equivalent to up to 5,070,000 Placement Shares under the Placement) to First Pacific at the Placement Price, for the purposes of the FP Distribution-in-specie (as required by Practice Note 15 of the listing rules of The Stock Exchange of Hong Kong Limited). The FP Placement will form part of the Placement and will be offered through the Joint Bookrunners. Further details on the FP Placement and FP Distribution-in-specie are set out in Sections 2.7 and 9 of the Circular. 7. Provide a summary of the features of the underwriting relationship together with the amount of securities being underwritten by each underwriter. The Company and the Joint Bookrunners are expected, upon agreement on the number of Placement Shares and the Placement Price between themselves and among themselves, to enter into the Placement Agreement on the Determination Date pursuant to which the Joint Bookrunners will be appointed as placement agents and to, severally and not jointly, subscribe and pay for and/or procure subscriptions and payment for, the Placement Shares in accordance with their respective Underwriting Commitment, on the terms and conditions of the Placement Agreement. In consideration of the agreement of the Joint Bookrunners to subscribe and pay for and/or procure subscriptions and payment for the Placement Shares, the Company has agreed to pay to the Joint Bookrunners a commission of 2.5% (excluding Goods and Services Tax) of the aggregate Placement Price of the Placement Shares. The number of Placement Shares and the Placement Price will be determined by agreement among the Company and the Joint Bookrunners on the Determination Date and will be announced through a SGXNET announcement posted on the internet at the SGX-ST website on the Determination Date. 35

46 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 PART VII (ADDITIONAL INFORMATION) Statements by Experts 1. Where a statement or report attributed to a person as an expert is included in the offer information statement, provide such person s name, address and qualifications. The reporting accountants to the Company in respect of the Acquisition are Messrs Ernst & Young (Certified Public Accountants of Singapore) of One Raffles Quay, North Tower Level 18, Singapore The auditors of PT SIMP (as described in the Circular) are Purwantono, Sarwoko & Sandjaja (Registered Public Accountants in Indonesia and a member of Ernst & Young Global), of The Jakarta Stock Exchange Building Tower 2, 7th Floor, Sudirman Central Business District, Jalan Jenderal Sudirman Kav Jakarta 12190, Indonesia. The independent financial adviser to the Independent Directors in respect of the IPT Mandate and the Proposed Whitewash Resolution (each term as defined in the Circular), whose reports are set out in Appendices A and B of the Circular, is Deloitte & Touche Corporate Finance Pte Ltd ( DTCF ) of 6 Shenton Way, #32-00 DBS Building Tower Two, Singapore Where the offer information statement contains any statement (including what purports to be a copy of, or extract from, a report, memorandum or valuation) made by an expert (a) (b) (c) state the date on which the statement was made; state whether or not it was prepared by the expert for the purpose of incorporation in the offer information statement; and include a statement that the expert has given, and has not withdrawn, his written consent to the issue of the offer information statement with the inclusion of the statement in the form and context in which it is included in the offer information statement. (a) The Accountants Report as set out in Appendix C of the Circular was issued on 11 December 2006 and was prepared for the purpose of incorporation in the Circular. (b) (c) (d) Messrs Ernst & Young s report on the 10M06 Unaudited Condensed Proforma Financial Information as set out in Appendix B of this Offer Information Statement was issued on 25 January 2007 and was prepared for the purposes of incorporation in this Offer Information Statement. The letter from DTCF to the Independent Directors of the Company in respect of the Proposed Whitewash Resolution as set out in Appendix A of the Circular, was issued on 11 December 2006 and was prepared for the purposes of incorporation in the Circular. The letter from DTCF to the Independent Directors of the Company in respect of the IPT Mandate as set out in Appendix B of the Circular, was issued on 11 December 2006 and was prepared for the purposes of incorporation in the Circular. 36

47 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 (e) Each of Messrs Ernst & Young and DTCF has given and has not withdrawn its written consent to the issue of this Offer Information Statement with the inclusion of their respective statements in Appendix A and Appendix B of this Offer Information Statement in the form and context in which they are included in Appendix A and Appendix B of this Offer Information Statement. 3. The information referred to in paragraphs 1 and 2 of this Part need not be provided in the offer information statement if the statement attributed to the expert is a statement to which the exemption under regulation 26(2) or (3) applies. Not applicable. Consents from Issue Managers and Underwriters 4. Where a person is named in the offer information statement as the issue manager or underwriter (but not a sub-underwriter) to the offer, include a statement that the person has given, and has not withdrawn, his written consent to being named in the offer information statement as the issue manager or underwriter, as the case may be, to the offer. CIMB-GK has given and has not withdrawn its written consent to being named in this Offer Information Statement as the Global Co-ordinator for the Placement and a Joint Bookrunner to the Placement. Credit Suisse (Singapore) Limited has given and has not withdrawn its written consent to being named in this Offer Information Statement as a Joint Bookrunner to the Placement. Kim Eng Securities Pte. Ltd. has given and has not withdrawn its written consent to being named in this Offer Information Statement as a Joint Bookrunner to the Placement. Other Matters 5. Include particulars of any other matters not disclosed under any other paragraph of this Schedule which could materially affect, directly or indirectly (a) (b) the relevant entity s business operations or financial position or results; or investments by holders of securities in the relevant entity. The Directors are not aware of any other matter not disclosed under any other paragraph of this Offer Information Statement which could materially affect, directly or indirectly:- (a) (b) the Company s business operations or financial position or results; or investments by holders of securities in the Company. 37

48 SIXTEENTH SCHEDULE OF THE SECURITIES AND FUTURES (OFFERS OF INVESTMENTS) (SHARES AND DEBENTURES) REGULATIONS 2005 PART VIII (ADDITIONAL INFORMATION REQUIRED FOR OFFER OF DEBENTURES OR UNITS OF DEBENTURES) Not applicable. PART IX (ADDITIONAL INFORMATION REQUIRED FOR CONVERTIBLE DEBENTURES) Not applicable. PART X (ADDITIONAL INFORMATION REQUIRED FOR OFFER OF SECURITIES BY WAY OF RIGHTS ISSUE) Not applicable. DIRECTORS RESPONSIBILITY STATEMENT The Circular has been seen and approved by the Directors who collectively and individually accept full responsibility for the accuracy of the information given therein, and confirm that, having made all reasonable enquiries, to the best of their knowledge and belief the facts stated and opinions expressed in the Circular in respect of the Target Group and the Proforma Group (after the Disposals and the Proposed Cash Distribution (as defined in the Circular) have been effected) are fair and accurate in all material respects as at 8 December 2006 (being the latest practicable date prior to the printing of the Circular) and that there are no material facts the omission of which would make any statement in the Circular misleading in any material respect as at 8 December 2006 (being the latest practicable date prior to the printing of the Circular). CIMB-GK S RESPONSIBILITY STATEMENT CIMB-GK confirms, having made reasonable enquiries, that to the best of its knowledge and belief, and based on information provided by or on behalf of the Company and PT ISM, the Circular constitutes full and true disclosure of all material facts with regard to the Proposed Transactions (as defined in the Circular), the Target Group and the Proforma Group (after the Disposals and the Proposed Cash Distribution have been effected) as at 8 December 2006 (being the latest practicable date prior to the printing of the Circular), and that CIMB-GK is not aware of any material facts, the omission of which would make any statement in the Circular (other than Appendix A, B and C in the Circular) misleading in any material respect as at 8 December 2006 (being the latest practicable date prior to the printing of the Circular). Where information has been extracted from published or publicly available sources, the sole responsibility of CIMB-GK has been to ensure that such information has been accurately and correctly extracted from such sources. DISCLAIMERS Each of Rajah & Tann, WongPartnership, Lim Associates (Pte) Ltd and Standard Chartered Bank has given and has not withdrawn its written consent to the issue of this Offer Information Statement with the inclusion of their respective names and all references thereto in the form and context in which they respectively appear in this Offer Information Statement. Each of them does not make, or purport to make, any statement in this Offer Information Statement or any statement upon which a statement in this Offer Information Statement is based and make no representation express or implied regarding, and, to the maximum extent permitted by law, expressly disclaim and take no responsibility for, any statements, information or opinions in or any omissions from this Offer Information Statement. None of the abovementioned parties has authorised or caused the issue of this Offer Information Statement. 38

49 Dated this 25 th day of January 2007 For and on behalf of Indofood Agri Resources Ltd. Lee Kwong Foo Edward Director Benny Setiawan Santoso Director Cesar Manikan dela Cruz Director Tjhie Tje Fie Director Mulyawan Tjandra Director Gunadi Director Moleonoto Tjang Director Lim Hock San Director Goh Kian Chee Director Hendra Susanto Director 39

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51 APPENDIX A : CIRCULAR TO SHAREHOLDERS DATED 11 DECEMBER 2006

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53 FOR INFORMATION ONLY CIRCULAR DATED 11 DECEMBER 2006 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 STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT, TAX ADVISER OR OTHER PROFESSIONAL ADVISER IMMEDIATELY. Unless otherwise stated, capitalised terms on this cover are defined in this Circular under the section entitled DEFINITIONS. The Singapore Exchange Securities Trading Limited ( SGX-ST ) assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular. Approval in-principle has been granted by the SGX-ST to CityAxis Holdings Limited ( Company ) for the listing and quotation of the Consideration Shares, the Consolidated Shares and the Placement Shares on the SGX Mainboard subject to certain conditions. The Company may in its absolute discretion waive any of the said conditions in the event that the SGX-ST waives compliance of the same. Approval in-principle granted by the SGX-ST to the Company for the admission, listing and quotation of the Consideration Shares, the Consolidated Shares and the Placement Shares on the SGX Mainboard are not to be taken as an indication of the merits of any of the Proposed Transactions, the Placement, the FP Placement, the General Share Issue Mandate, the IPT Mandate, the Target Group, the Group or the Shares (including the Consideration Shares, the Consolidated Shares and the Placement Shares). If you have sold or transferred all your Shares, you should forward this Circular, the Notice of Extraordinary General Meeting and the attached Proxy Form immediately to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. YOUR ATTENTION IS DRAWN TO THE SECTION ENTITLED RISK FACTORS OF THIS CIRCULAR WHICH YOU SHOULD REVIEW CAREFULLY. CITYAXIS HOLDINGS LIMITED (Formerly known as ISG Asia Limited) (Incorporated in the Republic of Singapore on 5 October 2001) (Company Registration No G) CIRCULAR TO SHAREHOLDERS in relation to A. The Proposed Transactions by the Company comprising :- (i) The proposed acquisition by the Company of the entire issued share capital of Indofood Oil & Fats Pte. Ltd. from Indofood Singapore Holdings Pte. Ltd. for a consideration of approximately S$ million to be satisfied by the allotment and issue of 9,982,000,000 new Shares in the capital of the Company at S$ per new Share; (ii) The proposed whitewash resolution for the waiver by Independent Shareholders of their rights to receive upon the completion of the Proposed Acquisition, a mandatory take-over offer for their Shares from PT Indofood Sukses Makmur Tbk, Indofood Singapore Holdings Pte. Ltd. and parties acting in concert with them; (iii) The proposed consolidation of every ten (10) Shares into one (1) Consolidated Share; (iv) The proposed appointment of new directors of the Company; and (v) The proposed change of name of the Company to Indofood Agri Resources Ltd.. B. The proposed issue of up to 435,000,000 new Consolidated Shares pursuant to the Placement (including the FP Placement). C. The proposed issue of up to 6,525,000 new Consolidated Shares under the FP Placement. D. The proposed general mandate for the issue by the Company of new Consolidated Shares. E. The proposed Shareholders mandate for certain ongoing or recurrent interested person transactions. Financial Adviser to CityAxis Holdings Limited CIMB-GK Securities Pte. Ltd. (Incorporated in the Republic of Singapore) (Company Registration No D) Independent Financial Adviser to the Independent Directors in respect of the IPT Mandate and the Proposed Whitewash Resolution Deloitte & Touche Corporate Finance Pte Ltd (Incorporated in the Republic of Singapore) (Company Registration No N) IMPORTANT DATES AND TIMES Last date and time for lodgement of Proxy Form : Wednesday, 3 January 2007 at 4.00 p.m. Date and time of Extraordinary General Meeting : Friday, 5 January 2007 at 4.00 p.m. Place of Extraordinary General Meeting : Kingfisher, Level 4, Grand Copthorne Waterfront Hotel Singapore 392 Havelock Road Singapore

54

55 CORPORATE INFORMATION BOARD OF DIRECTORS : Yeunh Oi Siong, Alex Chief Executive Officer Tjhie Tje Fie Non-Executive Director Moleonoto Tjang Non-Executive Director Huang Yuan Chiang Independent Director Yeo Wee Kiong Independent Director COMPANY SECRETARY : Lee Siew Jee, Jennifer, FCIS REGISTERED OFFICE : 1A Lorong Telok Singapore FINANCIAL ADVISER TO THE COMPANY AND GLOBAL CO-ORDINATOR FOR THE PLACEMENT REPORTING ACCOUNTANTS TO THE COMPANY : CIMB-GK Securities Pte. Ltd. 50 Raffles Place #19-00 Singapore Land Tower Singapore : Ernst & Young Certified Public Accountants of Singapore One Raffles Quay North Tower, Level 18 Singapore AUDITORS OF PT SIMP : Purwantono, Sarwoko & Sandjaja (a member of Ernst & Young Global) Registered Public Accountants in Indonesia The Jakarta Stock Exchange Building Tower 2, 7 th Floor Sudirman Central Business District Jalan Jenderal Sudirman Kav Jakarta 12190, Indonesia SOLICITORS TO THE PROPOSED ACQUISITION AND PLACEMENT LEGAL ADVISERS TO THE COMPANY ON INDONESIAN LAW : Rajah & Tann 4 Battery Road #26-01 Bank of China Building Singapore : Ali Budiardjo, Nugroho, Reksodiputro Graha Niaga, 23rd - 24th Floor Jalan Jenderal Sudirman Kav. 58 Jakarta 12190, Indonesia AUDITORS TO THE COMPANY : Nexia Tan & Sitoh Certified Public Accountants of Singapore 5 Shenton Way #23-03 UIC Building Singapore REGISTRAR AND SHARE TRANSFER AGENT INDEPENDENT FINANCIAL ADVISER IN RESPECT OF THE IPT MANDATE AND THE PROPOSED WHITEWASH RESOLUTION : Lim Associates (Pte) Ltd 10 Collyer Quay #19-08 Ocean Building Singapore : Deloitte & Touche Corporate Finance Pte Ltd 6 Shenton Way #32-00 DBS Building Tower Two Singapore

56 CORPORATE INFORMATION PRINCIPAL BANKERS TO THE TARGET GROUP : PT Bank Central Asia Tbk Wisma BCA I, 11th Floor Jalan Jenderal Sudirman Kav Jakarta 12920, Indonesia PT Bank Rabobank International Indonesia Plaza 89, 9th Floor Jalan H.R. Rasuna Said Kav Jakarta 12910, Indonesia Citibank N.A., Jakarta Branch Citibank Tower Jalan Jenderal Sudirman Kav Jakarta 12190, Indonesia 2

57 CONTENTS DEFINITIONS... 5 GLOSSARY OF TECHNICAL TERMS CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS EXCHANGE RATES INDICATIVE TIMETABLE LETTER TO SHAREHOLDERS INTRODUCTION SUMMARY OF PROPOSALS FINANCIAL EFFECTS OF THE PROPOSED TRANSACTIONS APPROVALS FROM THE SGX-ST PROPOSED ACQUISITION DISPOSALS AND PROPOSED CASH DISTRIBUTION PROPOSED WHITEWASH RESOLUTION PLACEMENT AND SHARE ISSUE MANDATES PROPOSED FP PLACEMENT AND FP DISTRIBUTION-IN-SPECIE RATIONALE FOR THE PROPOSED ACQUISITION SHAREHOLDING AND GROUP STRUCTURE ON COMPLETION OF THE PROPOSED TRANSACTIONS MORATORIUM RISK FACTORS INFORMATION ON THE TARGET GROUP MANAGEMENT S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE PROFORMA GROUP DIVIDEND POLICY PROPOSED MANAGEMENT AFTER COMPLETION OF THE PROPOSED TRANSACTIONS INTERESTED PERSON TRANSACTIONS CORPORATE GOVERNANCE ADMINISTRATIVE PROCEDURES FOR THE PROPOSED SHARE CONSOLIDATION ADVICE OF DTCF TO THE INDEPENDENT DIRECTORS IN RESPECT OF THE GENERAL MANDATE FOR INTERESTED PERSON TRANSACTIONS ADVICE OF DTCF TO THE INDEPENDENT DIRECTORS ON THE PROPOSED WHITEWASH RESOLUTION INTERESTS OF THE DIRECTORS AND CONTROLLING SHAREHOLDERS Page 3

58 CONTENTS 24. DIRECTORS RECOMMENDATIONS EXTRAORDINARY GENERAL MEETING ACTION TO BE TAKEN BY SHAREHOLDERS DIRECTORS AND ISHPL S RESPONSIBILITY STATEMENTS FINANCIAL ADVISER S RESPONSIBILITY STATEMENT GENERAL INFORMATION ADDITIONAL INFORMATION APPENDIX A - LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION... A-1 APPENDIX B - LETTER FROM DTCF IN RESPECT OF THE IPT MANDATE... B-1 APPENDIX C - REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE C-1 APPENDIX D - ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP... D-1 APPENDIX E - SUMMARY OF RELEVANT LAWS AND REGULATIONS... E-1 APPENDIX F - SUMMARY OF TERMS OF ESOS... F-1 APPENDIX G - TAXATION... G-1 APPENDIX H - CONDENSED FINANCIAL INFORMATION OF PT ISM AND ITS SUBSIDIARIES FOR THE NINE MONTHS ENDED 30 SEPTEMBER H-1 NOTICE OF EXTRAORDINARY GENERAL MEETING... I-1 PROXY FORM 4

59 DEFINITIONS The following definitions shall apply throughout unless otherwise stated in this Circular:- Companies, Organisations and Agencies ASL : Asian Synergies Limited BPN : Badan Pertanahan Nasional, the Indonesian National Land Agency CDP : The Central Depository (Pte) Limited CIMB-GK : CIMB-GK Securities Pte. Ltd. Company : CityAxis Holdings Limited (formerly known as ISG Asia Limited) First Pacific : First Pacific Company Limited Group : The Company and its subsidiaries for the time being Hong Kong Stock Exchange : The Stock Exchange of Hong Kong Limited IFA or DTCF : Independent Financial Adviser to the Independent Directors in respect of the IPT Mandate and the Proposed Whitewash Resolution, namely Deloitte & Touche Corporate Finance Pte Ltd IOFPL : Indofood Oil & Fats Pte. Ltd. ISG Plc : Interior Services Group Plc ISHPL : Indofood Singapore Holdings Pte. Ltd. KCA : Kumpulan CityAxis Sdn. Bhd. Proforma Group or Proforma Group Companies : The Company and its subsidiaries immediately following the completion of the Proposed Acquisition (for the avoidance of doubt, excluding the Plantation Companies) named on page 38 of this Circular, treated for the purpose of this Circular as if such group structure had been in existence since 1 January 2003 PT ASP : PT Agrosubur Permai PT BML : PT Bitung Menado Oil Industry (dissolved pursuant to the PT ISM Group Restructuring) PT CKS : PT Citra Kalbar Sarana PT CNIS : PT Citranusa Intisawit PT CTP : PT Cibaliung Tunggal Plantations PT GA : PT Gentala Artamas (dissolved pursuant to the PT ISM Group Restructuring) PT GMR : PT Gunung Mas Raya PT GS : PT Gunta Samba 5

60 DEFINITIONS PT IBS : PT Intiboga Sejahtera (dissolved pursuant to the PT ISM Group Restructuring) PT IIP : PT Indoagri Inti Plantation PT IP : PT Perusahaan Perkebunan, Industri dan Dagang Indriplant PT ISM : PT Indofood Sukses Makmur Tbk PT ISM Group : PT ISM and such of its subsidiaries that are not a part of the Target Group PT JS : PT Jake Sarana PT KGP : PT Kebun Ganda Prima PT KMS : PT Kebun Mandiri Sejahtera PT MBP : PT Manggala Batama Perdana PT MCP : PT Mega Citra Perdana PT MPI : PT Multi Pacific International PT MSA : PT Mentari Subur Abadi PT PTB : PT Pelayaran Tahta Bahtera PT PU : PT Pratiwimba Utama (dissolved pursuant to the PT ISM Group Restructuring) PT RAP : PT Riau Agrotama Plantation PT SAIN : PT Sarana Inti Pratama PT Sawit Malinda : PT Sawit Malinda Edible Oil Industries PT SBN : PT Swadaya Bhakti Negaramas PT SIMP : PT Salim Ivomas Pratama PT SOG : PT Sawitra Oil Grains (dissolved pursuant to the PT ISM Group Restructuring) PT SP : PT Perusahaan Dagang Perkebunan dan Industri Serikat Putra RHL : Rascal Holdings Limited Salim Group : Mr Anthoni Salim and the group of companies controlled by him or, if the context requires, Mr Anthoni Salim SGX Mainboard : Mainboard of the SGX-ST SGX-SESDAQ : SGX-ST Dealing and Automated Quotation System SGX-ST : Singapore Exchange Securities Trading Limited 6

61 DEFINITIONS SIC : Securities Industry Council of Singapore SIL : Silveron Investments Limited Target Group : IOFPL and the companies which will be its subsidiaries upon the completion of the PT ISM Group Restructuring and in this Circular references to the Target Group include, where the context admits, its successor companies General Accountants Report : The report of Messrs Ernst & Young, on the unaudited proforma consolidated financial information of the Proforma Group, set out in Appendix C of this Circular AGM : Annual General Meeting Alex Yeunh : Yeunh Oi Siong, Alex Articles : The Articles of Association of the Company Board : The board of directors of the Company from time to time Books Closure Date : The books closure date to be determined by the Board for the Proposed Share Consolidation and to determine Shareholders eligible for the payment (if any) under the Value Assurance CEO : Chief Executive Officer Circular : This circular dated 11 December 2006 to Shareholders Code : The Singapore Code on Take-overs and Mergers, as amended from time to time Companies Act : Companies Act, Chapter 50 of Singapore Consideration Shares : 9,982,000,000 new Shares (which after the Proposed Share Consolidation shall be 998,200,000 Consolidated Shares) to be issued to ISHPL or as it or PT ISM may direct at the Issue Price in consideration for the sale of the IOFPL Shares under the Proposed Acquisition Consolidated Shares : Ordinary shares in the capital of the Company following the Proposed Share Consolidation Controlling Shareholder : In relation to the Company means: (a) (b) a person who has an interest in the voting Shares of the Company and exercises control over the Company; or a person who has an interest in the voting Shares of the Company of an aggregate of 15% or more of the total votes attached to all the voting Shares in the Company 7

62 DEFINITIONS Corporate Governance Code : Code of Corporate Governance issued by the Committee on Corporate Governance from time to time CPF : Central Provident Fund Directors : The directors of the Company as at the date of this Circular Disposals : The First Disposal and the Second Disposal EGM : The Extraordinary General Meeting of the Company, notice of which is given on pages I-1 to I-4 of this Circular Entitled Shareholders : Shareholders of the Company as at the Books Closure Date (other than holders of the Consideration Shares and the placees under the Placement) who are eligible for the Value Assurance, if any EPS : Earnings per Share ESOS or Scheme : The CityAxis Share Option Scheme 2002 Existing Major Shareholders : Alex Yeunh and KCA First Disposal : The disposal by the Company of substantially all of its and its subsidiaries existing businesses pursuant to a sale and purchase agreement dated 11 July 2006 between the Company and ISG Plc which was completed on 30 October 2006 FP Distribution-in-specie : The proposed distribution in specie by First Pacific of up to 6,525,000 new Consolidated Shares to shareholders of First Pacific in proportion to their respective shareholdings in First Pacific, pursuant to the provisions of Practice Note 15 of the listing rules of the Hong Kong Stock Exchange and as more particularly described in Sections 2.7 and 9 of this Circular FP Placement : The proposed issue to First Pacific of up to 6,525,000 new Consolidated Shares under the Placement at the Placement Price for the purposes of the FP Distribution-in-specie, certain information on which is set out in Sections 2.7 and 9 of this Circular FY : Financial year ended, or as the case may be, ending 31 December General Share Issue Mandate : The general mandate to be sought from Shareholders to grant the Board the authority to issue new Consolidated Shares following the completion of the Proposed Transactions, as described in Section 8.2 of this Circular HY : Half year ended, or as the case may be, ending 30 June Independent Directors : The independent directors of the Company for the purpose of making the recommendation to Shareholders in respect of the resolutions set out in the Notice of EGM on pages I-1 to I-4 of this Circular, namely, Mr Alex Yeunh, Mr Huang Yuan Chiang and Mr Yeo Wee Kiong 8

63 DEFINITIONS Independent Shareholders : Shareholders other than (i) PT ISM and ISHPL, (ii) parties acting in concert with PT ISM and ISHPL, and (iii) parties not independent of the persons mentioned in (i) and (ii) of this definition for the purpose of the Proposed Whitewash Resolution Injection Agreement : The conditional Sale and Purchase Agreement dated 23 August 2006 between PT ISM, the Company and the Existing Major Shareholders in relation to the Proposed Acquisition, including the deed of ratification and accession dated 11 September 2006 signed by ISHPL in favour of the foregoing parties IOFPL Shares : The entire issued share capital of IOFPL which is to be acquired by the Company under the Injection Agreement IPT Mandate : The mandate to be sought from independent Shareholders under Chapter 9 of the Listing Manual for, inter alia, the entry by the Group and its associated companies which are entities at risk into ongoing or recurrent transactions with, inter alia, PT ISM Group and/or the Salim Group which are of a revenue or trading nature and/or are necessary for the Group s day-to-day operations after the completion of the Proposed Acquisition, as described in Section 18.3 of this Circular Issue Price : The issue price of S$ for each Consideration Share Latest Practicable Date : 8 December 2006, being the latest practicable date prior to the printing of this Circular Listing Manual : The listing manual of the SGX-ST, as amended from time to time Market Day : A day on which the SGX-ST is open for securities trading NAV : Net asset value Notice of EGM : The Notice of EGM as set out on pages I-1 to I-4 of this Circular NTA : Net tangible assets Period Under Review : The period commencing on the beginning of the three most recent completed financial years (being FY2003, FY2004 and FY2005) up to 31 December 2005 and the period from 1 January 2006 up to the Latest Practicable Date Placement : The proposed issue of new Consolidated Shares by the Company for the purposes of meeting the shareholding spread and distribution requirements of the SGX-ST and to raise funds for the enlarged Group, certain information on which is set out in Section 8.1 of this Circular. The FP Placement shall form part of the Placement Placement Price : The price at which the Placement Shares are issued pursuant to the Placement 9

64 DEFINITIONS Placement Shares : New Consolidated Shares to be issued by the Company pursuant to the Placement Plantation Acquisition : The proposed acquisition by the Target Group of a 60% shareholding interest in the Plantation Companies for an aggregate consideration of Rp125 billion, certain information on which is set out in Section 14.3 of this Circular Plantation Companies : PT MCP, PT MSA and PT SBN, and (where the context admits) their subsidiaries Plasma Programme : The programme initiated by the Indonesian government to encourage the development of smallholders plantations with the assistance and cooperation of certain oil palm plantation owners, such as the Target Group Proposed Acquisition : The proposed acquisition by the Company of the entire issued share capital of IOFPL for a consideration of S$392,691,880 to be satisfied by the issue of the Consideration Shares by the Company to ISHPL or as it or PT ISM may direct Proposed Cash Distribution : The proposed distribution by the Company to its Shareholders of cash by way of a capital reduction and/or dividend(s), so that immediately prior to the completion of the Proposed Acquisition, the Company shall have NTA comprising cash of not less than S$5 million and its NTA per Share shall be not less than S$0.037 Proposed Change of Name : The proposed change of name of the Company to Indofood Agri Resources Ltd. on completion of the Proposed Acquisition Proposed Consideration Shares Issue : The proposed issue of the Consideration Shares to ISHPL or as it or PT ISM may direct pursuant to the Proposed Acquisition Proposed New Directors : The new directors proposed to be appointed to the Company s board of directors on completion of the Proposed Acquisition, namely Mr Cesar Manikan dela Cruz, Mr Mulyawan Tjandra and Mr Gunadi as executive directors, Mr Benny Setiawan Santoso as non-executive director, Mr Lee Kwong Foo Edward as lead independent director, and Mr Lim Hock San, Mr Goh Kian Chee and Mr Hendra Susanto as independent directors Proposed New Key Executives : The new key executives who will form the Company s management on completion of the Proposed Acquisition, who are named in Section 17(c) of this Circular Proposed Share Consolidation : The proposed consolidation of every ten (10) Shares into one (1) Consolidated Share following the completion of the Proposed Acquisition 10

65 DEFINITIONS Proposed Transactions : The Proposed Acquisition, including the Proposed Consideration Shares Issue, the Proposed Whitewash Resolution, the Proposed Share Consolidation, the appointment of the Proposed New Directors and the Proposed Change of Name Proposed Whitewash Resolution : The resolution proposed as ordinary resolution number 2 in the Notice of EGM appended to this Circular, which if passed by the Independent Shareholders would result in a waiver by the Independent Shareholders of their rights to receive a mandatory take-over offer from PT ISM, ISHPL and parties acting in concert with them in connection with the issue of the Consideration Shares under the Proposed Acquisition PT ISM Group Restructuring : The group restructuring exercise undertaken to form the Target Group, certain information on which is set out on pages 63 and 64 of this Circular PT ISM Nominee Directors : Mr Tjhie Tje Fie and Mr Moleonoto Tjang, being nominees of PT ISM s subsidiary, ISHPL, appointed to the Board on 8 December 2006 and who are, as at the date of this Circular, non-executive Directors Second Disposal : The disposal by the Company of the remaining existing businesses of the Company and its subsidiaries, which is a condition precedent to the completion of the Proposed Acquisition. Please refer to paragraphs 3(l), 3(n) and 3(o) of Appendix D of this Circular for a description of the agreements entered into by the Company for such disposal Securities Account : Securities account maintained by a Depositor with CDP but does not include a securities sub-account SFA : Securities and Futures Act, Chapter 289 of Singapore SFA Regulations : Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 SGXNET : A system network used by listed companies to send information and announcements to the SGX-ST or any other system networks prescribed by the SGX-ST Shareholders : Persons who are registered as holders of Shares in the Register of Members of the Company, or where CDP is the registered holder, the term Shareholders shall, in relation to such Shares, mean the Depositors whose Securities Accounts are credited with Shares Shares : Ordinary shares in the capital of the Company, which expression shall, where the context admits, include the Consolidated Shares Substantial Shareholder : A person who has an interest in one or more voting shares in a company and the total votes attached to such share(s) is not less than 5% of the total votes attached to all the voting shares in the company 11

66 DEFINITIONS Value Assurance : The compensation in cash to be paid by ISHPL to Entitled Shareholders in the event the Placement Price is less than S$0.75 per Placement Share (equivalent to S$0.075 per Share before the Proposed Share Consolidation), being an amount equivalent to the difference, if any, between S$0.75 and the Placement Price, subject to a maximum compensation of S$0.37 per Consolidated Share, as more particularly described in Sections 5.4(d) and 8.1 of this Circular YOY : Year on year Countries, currencies, units, and others BVI : British Virgin Islands China : The People s Republic of China Indonesia : Republic of Indonesia Mauritius : Republic of Mauritius US : United States of America ha : Hectare (equivalent to 10,000 square metres) MT : Metric tonne MTPY : Metric tonne per year RM or Ringgit : Malaysian Ringgit, the lawful currency of Malaysia Rp or Rupiah : Indonesian Rupiah, the lawful currency of The Republic of Indonesia S$ and cents : Singapore dollars and cents respectively, the lawful currency of The Republic of Singapore US$ or United States Dollar, and US cents : United States Dollars and cents, respectively, the lawful currency of the United States of America % : Per centum or percentage The expressions Depositor, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Companies Act. The term subsidiary shall have the meaning ascribed to it by Section 5 of the Companies Act. The terms associate, associated company, entity at risk, interested person, and interested person transaction shall have the meanings ascribed to them respectively in the Listing Manual. The expression acting in concert shall have the meaning ascribed to it in the Code. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. Words importing persons shall include corporations. Any reference in this Circular to Rule or Chapter is a reference to the relevant rule or chapter in the Listing Manual as for the time being amended. 12

67 DEFINITIONS Any reference in this Circular to any statute or enactment or the Listing Manual is a reference to that statute or enactment or the Listing Manual as for the time being amended or re-enacted. Any word defined under the Companies Act, the SFA, the SFA Regulations or the Listing Manual or any amendment thereof, and used in this Circular shall, where applicable, have the meaning assigned to it under the Companies Act, the SFA, the SFA Regulations or the Listing Manual or such modification thereof, as the case may be, unless otherwise provided. Any reference to a time of day in this Circular shall be a reference to Singapore time unless otherwise stated. 13

68 GLOSSARY OF TECHNICAL TERMS This glossary provides a description of certain technical terms and abbreviations used in this Circular in connection with the business of the Target Group. These terms, and their assigned meanings, may not correspond to standard industry usage or common meanings, as the case may be, of these terms:- CNO : Crude coconut oil Copra : Coconut meat used to produce coconut oil CPO : Crude palm oil Edible oils : Vegetable and seed oils such as palm oil, palm kernel oil, soya bean oil, peanut oil, coconut oil, cotton oil, sunflower oil, rapeseed oil, sesame oil, corn oil and olive oil FFB : Fresh fruit bunches of oil palm Fractionation : Process through which palm oil is cooled under controlled conditions and separated into its liquid and solid fractions Laurics : Coconut oil and palm kernel oil, both of which contain a high content of lauric acid Olein : Liquid oil obtained after the process of fractionation Palm fatty acid distillate : A by-product derived from the process of refining CPO. It is generally used in the manufacture of soap and oleochemicals RBD : Refined, Bleached and Deodorised, being the terms for the three different purification steps commonly carried out when crude oils are processed into finished oils Shortening : Semi-solid fat used in food preparation, especially baked goods. It is more commonly a hydrogenated vegetable oil that is solid at room temperature with 100% fat content, compared to approximately 80% for margarine Stearine : Solid oil obtained after the process of fractionation Trans-fatty acid : Unsaturated fatty acid containing one or more double bonds arranged in trans-configuration. Examples of trans-fatty acids include sorbic acid, elaidic acid, vaccenic acid and alphaeleostearic acid. Trans-fatty acid is usually found in the hydrogenation process 14

69 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS All statements contained in this Circular, statements made in the press releases, announcements and oral statements that may be made by the Company, ISHPL, the Target Group or their respective related corporations, directors or key executives or employees acting on their behalf that are not statements of historical fact constitute forward-looking statements. Some of these statements can be identified by words that are biased or by forward-looking terms such as expect, forecast, if, possible, probable, project, believe, plan, intend, estimate, anticipate, may, will, would, could and should or similar words. However, these words are not the exclusive means of identifying forward-looking statements. All statements regarding the Company s, the Target Group s and the Proforma Group s expected financial position and performance, business strategy, plans and prospects are forward-looking statements. These forward-looking statements, including (but are not limited to) statements as to the Company s, the Target Group s and the Proforma Group s revenue and profitability, cost measures, expected industry trends, prospects, future plans, planned strategy and other matters discussed in this Circular regarding matters that are not historical facts, are only predictions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company s, the Target Group s and the Proforma Group s actual future results, performance or achievements to be materially different from any future results, performance or achievements expected, expressed or implied by such forward-looking statements. These risks, uncertainties and other factors are discussed in more detail in this Circular, in particular, but not limited to, discussions under Section 13 of this Circular. Given the risks and uncertainties that may cause the Company s, the Target Group s and the Proforma Group s actual future results, performance or achievements to be materially different than that expected, expressed or implied by the forward-looking statements and financial information set out in this Circular, you are advised not to place undue reliance on those statements and information. None of the Company, ISHPL, the Target Group, CIMB-GK, their respective related corporations or any other person represents or warrants to you that the Company s, the Target Group s and the Proforma Group s actual future results, performance or achievements will be as discussed in those statements and financial information. The Company s, the Target Group s and the Proforma Group s actual future results may differ materially from those anticipated in these forward-looking statements as a result of, inter alia, the risks and uncertainties faced by the Company, the Target Group and the Proforma Group. Further, the Company, ISHPL, the Target Group, CIMB-GK and their respective related corporations disclaim any responsibility to update any of those forward-looking statements or publicly announce any revisions to those forward-looking statements to reflect future developments, events or circumstances for any reason, even if new information becomes available or other events occur in the future, subject to compliance with any applicable laws and regulations and/or rules of the SGX-ST and/or any regulatory or supervisory body or agency. This Circular may include market and industry data and information that have been obtained from, inter alia, internal studies, where appropriate, as well as market research by Euromonitor International and US Department of Agriculture, and publicly available information such as government statistical and industry reports, and industry publications. Please note that such information is supplied to you for your personal use only. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable but the accuracy and completeness of that information is not guaranteed, and may contain other disclaimers in relation to reliance on their contents. There can therefore be no assurance as to the accuracy or completeness of such information. While reasonable steps have been taken to ensure that the information is extracted accurately, the Company, ISHPL, the Target Group and CIMB-GK have not independently verified any of the data from third party sources or ascertained the underlying bases or assumptions relied upon therein, nor have the consents of these sources been obtained for the inclusion of such data or information in this Circular. 15

70 EXCHANGE RATES For the translation of the unaudited proforma consolidated profit and loss accounts and the unaudited proforma consolidated balance sheet of the Proforma Group disclosed in this Circular, the Indonesian Rupiah has been converted into Singapore Dollar(s) at the exchange rate of Rp5,851 to S$1.00 and Rp5,907 to S$1.00, respectively. For ease of reference, the exchange rate between the Indonesian Rupiah against the Singapore Dollar as at the Latest Practicable Date is Rp5,882 to S$1.00. The table below sets forth the highest and lowest exchange rates between the Indonesian Rupiah against the Singapore Dollar for each month for the past six calendar months prior to the Latest Practicable Date. The table indicates the amount of Indonesian Rupiah required to buy one Singapore Dollar. Rp/S$ exchange rate High Low June ,984 5,818 July ,856 5,718 August ,809 5,739 September ,840 5,733 October ,866 5,776 November ,956 5,795 The following table sets forth, for the financial periods indicated, the average and closing exchange rates between the Indonesian Rupiah against the Singapore Dollar. The average exchange rates are calculated using the average of the closing exchange rates on the last day of each month during each financial period. The table indicates the amount of Indonesian Rupiah required to buy one Singapore Dollar. Rp/S$ exchange rate Average Rate Closing Rate FY2003 4,907 4,959 FY2004 5,337 5,681 FY2005 5,862 5,910 HY2005 5,732 5,790 HY2006 5,719 5,852 The above monthly and yearly exchange rates have been extracted from published information by Bloomberg LP. The above exchange rates have been presented solely for information purposes and should not be construed as representations that those Indonesian Rupiah amounts actually represent such Singapore Dollar amounts or can be converted into Singapore Dollar(s) at the rate indicated or at any other rate and vice versa. 16

71 INDICATIVE TIMETABLE The following indicative timetable assumes that approval for all the resolutions proposed at the EGM is obtained and completion of the Proposed Acquisition takes place on 23 January EGM : 5 January 2007 Expected date of completion of Proposed Acquisition : 23 January 2007 Expected date of suspension of trading of the Shares : 25 January 2007 Books Closure Date : 7 February 2007 at 5.00 p.m. Proposed Share Consolidation effective date : 9 February 2007 Expected date of completion of the Placement : 15 February 2007 Expected date of lifting of suspension of trading in the Consolidated Shares : 16 February 2007 Payment of Value Assurance (if applicable) : 21 February 2007 Please note that the above timetable is indicative only and may be subject to change. Where any of the events cannot take place on the dates specified or changes are required thereto, an appropriate announcement stipulating an alternative date will be made by the Company prior thereto through a SGXNET announcement to be posted on the internet at the SGX-ST website, Please refer to future announcement(s) by the Company and/or the SGX-ST for the actual dates of these events. 17

72 LETTER TO SHAREHOLDERS CITYAXIS HOLDINGS LIMITED (Incorporated in the Republic of Singapore on 5 October 2001) (Company Registration No G) Directors Registered Office Yeunh Oi Siong, Alex 1A Lorong Telok Tjhie Tje Fie Singapore Moleonoto Tjang Huang Yuan Chiang Yeo Wee Kiong 11 December 2006 To: The Shareholders of CityAxis Holdings Limited Dear Sir / Madam A. The Proposed Transactions by the Company comprising:- (i) (ii) (iii) (iv) (v) The Proposed Acquisition, including the Proposed Consideration Shares Issue; The Proposed Whitewash Resolution; The Proposed Share Consolidation; The appointment of the Proposed New Directors; and The Proposed Change of Name. B. The proposed Placement. C. The proposed FP Placement. D. The proposed General Share Issue Mandate. E. The proposed IPT Mandate. 1. INTRODUCTION 1.1 Purpose of this Circular On 23 August 2006, the Company announced, inter alia, that it has entered into the Injection Agreement and proposes to undertake the Proposed Transactions subject to, inter alia, the approval of Shareholders. The purpose of this Circular is to provide Shareholders with information pertaining to the abovecaptioned matters for which the approval of the Shareholders will be sought at the EGM. Specifically, approval for all the abovecaptioned matters will be sought by way of ordinary resolutions, except for the Proposed Change of Name for which approval shall be sought by way of a special resolution. This Circular has been prepared solely for the purposes set out herein and may not be relied upon by any persons (other than the Shareholders to whom this Circular is despatched to by the Company) or for any other purpose. 18

73 LETTER TO SHAREHOLDERS 2. SUMMARY OF PROPOSALS 2.1 Proposed Acquisition The Proposed Acquisition On 23 August 2006, the Company entered into the Injection Agreement whereby the Company agreed to purchase from ISHPL the entire issued share capital of IOFPL for a consideration of S$392,691,880 to be satisfied entirely by the issue to ISHPL (or to such persons as it or PT ISM may direct) of 9,982,000,000 Consideration Shares at the Issue Price of S$ each. Based on the audited consolidated financial statements of the Group for FY2005 and the unaudited proforma consolidated financial information of the Target Group for FY2005, the relative figures for the Proposed Acquisition computed on the bases set out in Rules 1006 (a) to (d) of the Listing Manual are as follows:- (a) (b) (c) (d) NAV of the Target Group as at 31 December 2005 as compared with the Group s NAV as at 31 December 2005 Net profits attributable to the Target Group for FY2005 as compared with the Group s net profit for FY2005 Aggregate value of the consideration for the Proposed Acquisition as compared with the Company s market capitalisation as at 22 August 2006, being the Market Day immediately preceding the date of the Injection Agreement The number of Consideration Shares to be issued by the Company as consideration for the Proposed Acquisition, as compared with the number of equity securities of the Company previously in issue Not applicable 11,592% 2,529% 7,394% In addition, as ISHPL will hold approximately 98.67% of the enlarged total number of issued Shares of the Company immediately upon completion of the Proposed Acquisition, a change in control of the Company will arise as a result. As the relative figures under Rules 1006 (b) to (d) of the Listing Manual exceed 100.0%, and given that completion of the Proposed Acquisition will result in a change in control of the Company, the Proposed Acquisition constitutes a Very Substantial Acquisition or Reverse Takeover Transaction as defined in Chapter 10 of the Listing Manual. Accordingly, the Proposed Acquisition is subject to the approval of Shareholders and the SGX-ST pursuant to Rule 1015 of the Listing Manual. Information on the Proposed Acquisition and the Target Group is set out in Sections 5 and 14 of this Circular. Proposed Consideration Shares Issue The issue of the Consideration Shares pursuant to the Proposed Acquisition requires Shareholders approval by way of an ordinary resolution under Section 161 of the Companies Act. The issue of the Consideration Shares to ISHPL will also transfer a controlling interest in the Company to it, and therefore requires Shareholders approval pursuant to Rule 803 of the Listing Manual. Under the Injection Agreement, Shareholders approval of the Proposed Consideration Shares Issue is one of the conditions precedent to the completion of the Proposed Acquisition. The Consideration Shares are to be listed on the SGX Mainboard. Please see Section 5.2 of this Circular for further information on the Proposed Consideration Shares Issue. 19

74 LETTER TO SHAREHOLDERS 2.2 Proposed Whitewash Resolution On completion of the Proposed Acquisition but before the Placement, ISHPL and/or its nominee(s) will own an aggregate of 9,982,000,000 Shares, representing approximately 98.67% of the enlarged total number of issued Shares of the Company. Pursuant to Rule 14 of the Code, PT ISM, ISHPL and parties acting in concert with them will be obliged to make a general offer for the remaining Shares not owned, controlled or agreed to be acquired by them and parties acting in concert with them at the highest price paid by them for the Shares in the six months preceding the acquisition of the Consideration Shares. However, the SIC has on 4 October 2006 granted PT ISM, ISHPL and parties acting in concert with them a waiver of the aforesaid requirement subject to, inter alia, a majority of Independent Shareholders approving a separate resolution at the EGM, by way of a poll, to waive their rights to receive a general offer from PT ISM, ISHPL and parties acting in concert with them. Under the Injection Agreement, approval of the Proposed Whitewash Resolution by Independent Shareholders is one of the conditions precedent to the completion of the Proposed Acquisition. Accordingly, the approval of Independent Shareholders for the Proposed Whitewash Resolution will be sought at the EGM. Information on the Proposed Whitewash Resolution is set out in Section 7 of this Circular. 2.3 Proposed Share Consolidation In conjunction with the Proposed Acquisition, the Company proposes to consolidate every ten (10) existing Shares into one (1) Consolidated Share following completion of the Proposed Acquisition. As at the Latest Practicable Date, the issued share capital of the Company is S$15,334,788 divided into 135,000,000 Shares. Immediately following the completion of the Proposed Acquisition and the Proposed Share Consolidation, the Company will have an issued share capital of approximately S$397.7 million divided into 1,011,700,000 Consolidated Shares. If approved, the Proposed Share Consolidation is proposed to be implemented immediately after the Books Closure Date. 2.4 Appointment of the Proposed New Directors The Company proposes to make certain changes to the Board following the completion of the Proposed Acquisition. Apart from Mr Moleonoto Tjang and Mr Tjhie Tje Fie who will remain in the new Board as an executive director and as a non-executive director, respectively, the other members of the current Board will resign on completion of the Proposed Acquisition. The new directors proposed to be appointed on completion of the Proposed Acquisition are Messrs Lee Kwong Foo Edward, Benny Setiawan Santoso, Cesar Manikan dela Cruz, Mulyawan Tjandra, Gunadi, Lim Hock San, Goh Kian Chee and Hendra Susanto. Information on the new Board is set out in Section 17 of this Circular. 2.5 Proposed Change of Name In view of the Proposed Acquisition, the Company is seeking the approval of Shareholders to change the name of the Company to Indofood Agri Resources Ltd. to reflect the new business structure and ownership of the Company on completion of the Proposed Acquisition. Subject to the completion of the Proposed Acquisition, the change of name will take effect upon the issue by the Registrar of Companies of a notice of incorporation of the Company under the new name. In line with the Proposed Change of Name, the Company also intends to adopt a new corporate logo as shown below:- 20

75 LETTER TO SHAREHOLDERS 2.6 Placement On completion of the Proposed Acquisition, ISHPL and/or its nominee(s) will own approximately 98.67% of the enlarged total number of issued Shares of the Company, which would not meet the shareholding spread and distribution requirements set out in Rule 210(1) of the Listing Manual. To meet such shareholding spread and distribution requirements, (depending on the number of Placement Shares and assuming the Placement is undertaken at a price of S$0.75 per Consolidated Share) at least 12.0% or 15.0% of the total number of issued Shares of the Company must be held in the hands of at least 1,000 public Shareholders in order for the Company to maintain its listing status and have such listing on the SGX Mainboard. Please see Section 2.10 of this Circular on the proposed transfer of the Company s listing to the SGX Mainboard. Accordingly, the completion of the Proposed Acquisition is conditional upon the Company and PT ISM being reasonably satisfied that no later than 30 days after completion of the Proposed Acquisition there shall be entered into a placement agreement between the Company and placement agent(s) in respect of the Placement ( Placement Agreement ), to place such number of new Consolidated Shares to investors to, inter alia, meet the shareholding spread and distribution requirements set out in Rule 210(1) of the Listing Manual. Completion of the Placement is intended to take place within one month after the completion of the Proposed Acquisition or such period of time as may be permitted by the SGX-ST. The issue of the new Consolidated Shares pursuant to the Placement is subject to Shareholders approval at the EGM. It is also proposed that up to 6,525,000 new Consolidated Shares be issued to First Pacific under the Placement, further details of which are set out in Section 2.7 below. Under and subject to the terms of the Injection Agreement, PT ISM has undertaken to procure that ISHPL compensates Entitled Shareholders in the event the Placement Price under the Placement is less than S$0.75 per Consolidated Share. Further information on this and the Placement is set out in Sections 5.4(d) and 8.1 of this Circular. 2.7 Proposed FP Placement The completion of the Injection Agreement is conditional upon, inter alia, all necessary waivers, consents and/or approvals of the shareholders of First Pacific in general meeting, the Hong Kong Stock Exchange and/or the Listing Committee of the Hong Kong Stock Exchange having been obtained, to the extent required by and in accordance with the listing rules of the Hong Kong Stock Exchange, for the transactions contemplated by the Injection Agreement (including but not limited to the Proposed Acquisition and the Placement). On completion of the Proposed Acquisition, the Company will become a subsidiary of PT ISM. First Pacific has a shareholding interest of approximately 51.5% in the capital of PT ISM and will therefore become an indirect substantial shareholder of the Company on completion of the Proposed Acquisition. As completion of the Proposed Acquisition will result in a separate listing of the Target Group on the SGX-SESDAQ and subsequently the SGX Mainboard, the provisions of Practice Note 15 ( PN 15 ) of the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange ( Hong Kong Listing Rules ) will apply. The Target Group and the Company upon completion of the Proposed Acquisition will fall within the definition of a major subsidiary (as the term is defined in the Hong Kong Listing Rules) of First Pacific. Upon the completion of the Placement, there would be a material dilution of PT ISM s interest in the Company under PN 15 and the Hong Kong Listing Rules, thereby requiring the approval of the shareholders of First Pacific pursuant to PN 15. Further, PN 15 requires First Pacific to pay due regard to the interests of its existing shareholders by providing them with an assured entitlement to shares in the Company, either by way of a distribution in specie of Shares or by way of preferred application in any offering of existing or new Shares in the Company. To comply with PN 15, First Pacific is required to provide its shareholders with an assured entitlement to shares in the Company, and intends to do so, subject to approval being obtained from the Hong Kong Stock Exchange, by subscribing for up to 6,525,000 new Consolidated Shares under the Placement and thereafter effecting a distribution in specie of such new Consolidated Shares to its shareholders. Details of the assured entitlement to be provided to First Pacific s 21

76 LETTER TO SHAREHOLDERS shareholders are subject to approval of the Hong Kong Stock Exchange. For this purpose, the Company is seeking the approval of Shareholders to allot and issue up to 6,525,000 new Consolidated Shares (representing 1.5% of the maximum number of Consolidated Shares under the Placement) to First Pacific at the Placement Price pursuant to Rule 812 of the Listing Manual. 2.8 Proposed General Share Issue Mandate Shareholders approval is also sought for the grant of a general mandate to the Board for the issue of new Consolidated Shares (in addition to the Placement Shares) pursuant to Section 161 of the Companies Act and subject to the thresholds permitted by the SGX-ST pursuant to Rule 806(1) of the Listing Manual. Information on the General Share Issue Mandate is set out in Section 8.2 of this Circular. 2.9 Proposed IPT Mandate Upon the completion of the Proposed Acquisition, PT ISM and the Salim Group would be Controlling Shareholders and therefore interested persons of the Company. It is envisaged that from time to time there may be certain transactions between, inter alia, the enlarged Group and members of the PT ISM Group and/or the Salim Group which are recurrent or necessary for the day-to-day operations of the enlarged Group after the completion of the Proposed Acquisition. In conjunction with the Proposed Acquisition, it is proposed that the Company obtains a Shareholders general mandate under Chapter 9 of the Listing Manual for the enlarged Group and its associated companies which are entities at risk to enter into certain ongoing or recurrent interested person transactions with, inter alia, members of the PT ISM Group and/or the Salim Group after the completion of the Proposed Acquisition. Information on the IPT Mandate is set out in Section 18.3 of this Circular The proposed transfer of the Company s listing from SGX-SESDAQ to SGX Mainboard In conjunction with the Proposed Acquisition, the Company has made an application to the SGX- ST for the transfer of its listing from SGX-SESDAQ to SGX Mainboard contingent upon the completion of the Proposed Transactions and the Placement. The transfer of the Company s listing to the SGX Mainboard is commensurate with the significantly enhanced market capitalisation and scale of the Company s business after the completion of the Proposed Acquisition and the Placement. The SGX-ST has in its letter dated 8 December 2006 given in-principle approval to transfer the listing of the Company to the SGX Mainboard subject to certain conditions, information on which is set out in Section 4.1 of this Circular Suspension in trading of the Shares Under Rule 724 of the Listing Manual, the SGX-ST may suspend trading of the Shares if less than 10% of the Shares are held in the hands of the public. As ISHPL and/or its nominee(s) will hold approximately 98.67% of the enlarged total number of issued Shares of the Company immediately upon the completion of the Proposed Acquisition, trading in the Shares or Consolidated Shares will be suspended at that time pending completion of the Placement Disposals and Proposed Cash Distribution It is a condition precedent to the completion of the Proposed Acquisition that the disposal of the entire existing businesses of the Company and its subsidiaries shall have been completed and that the Proposed Cash Distribution shall have taken effect. On 11 July 2006, the Company announced the First Disposal for a cash consideration of S$13.6 million. The First Disposal was completed on 30 October The Second Disposal was completed on 30 November 2006 and on 1 December 2006, the Company announced the completion of the same for an aggregate consideration of approximately RM1.5 million. The Company intends to distribute to Shareholders cash by way of the Proposed Cash Distribution, prior to completion of the Proposed Acquisition. Immediately following the Proposed Cash Distribution, the NTA of the Company shall comprise cash of not less than S$5 million and the NTA per Share shall be not less than S$ Please see Section 6 of this Circular for further information. 22

77 LETTER TO SHAREHOLDERS 2.13 Indicative Timetable An indicative timetable for certain of the events relating to the Proposed Transactions and the Placement is set out on page 17 of this Circular. 3. FINANCIAL EFFECTS OF THE PROPOSED TRANSACTIONS 3.1 Bases and Assumptions The unaudited proforma financial effects of the Proposed Transactions on the Group are set out below. The objective of the financial effects analysis is to illustrate what the historical information of the Group might have been had such transactions been completed at an earlier date. However, such information is not necessarily indicative or a projection of the financial performance and financial position of the Group after the completion of the Proposed Transactions. For purposes of illustration, the financial effects set out below are based on, inter alia, the following key assumptions:- (a) (b) (c) (d) (e) (f) (g) The Proposed Cash Distribution will result in the Company having an issued share capital and NTA comprising solely of cash of S$5 million immediately prior to the completion of the Proposed Acquisition; The financial effects on the Group s earnings and EPS are computed assuming that the Disposals, Proposed Cash Distribution and the Proposed Transactions were completed on 1 January The financial effects on the Group s NTA and gearing are computed assuming that the Disposals, Proposed Cash Distribution and the Proposed Transactions were completed on 31 December 2005; The proforma consolidated financial statements of the Target Group are reported in Indonesian Rupiah and have been translated, in respect of profit and loss items using the average exchange rate of Rp5,851 per S$1.00 over the 12 months ended 31 December 2005, and in respect of balance sheet items using the closing exchange rate of Rp5,907 per S$1.00 as at 31 December The proforma consolidated financial statements of the Target Group for FY2005 are based on the assumption that the PT ISM Group Restructuring has been completed and have been adjusted to comply with the Financial Reporting Standards (as described and prescribed in the Companies (Accounting Standards) Regulations) for the purpose of this Circular; The fair market value of each Share is assumed to be the same as the NAV per Share and, accordingly, no goodwill arises as a result of the Proposed Acquisition. On completion of the Proposed Acquisition, the deemed consideration for the Proposed Acquisition for accounting purposes will be based on the fair market value of each Share at the date of completion of the Proposed Acquisition. As the final goodwill will have to be determined at the completion of the Proposed Acquisition, the actual goodwill could be materially different from the assumption used above. Any goodwill arising thereon from the Proposed Acquisition will be accounted for in accordance with the accounting policies of the Company; 9,982,000,000 Consideration Shares were issued to ISHPL pursuant to the Proposed Acquisition and after the Proposed Share Consolidation, will result in 998,200,000 Consolidated Shares; There are no outstanding share options under the ESOS; and The analysis does not take into account the financial effects of the Placement on the Company. 23

78 LETTER TO SHAREHOLDERS 3.2 Financial effects on issued and paid-up share capital No. of Shares Share Capital (S$ 000) Issued and paid-up share capital as at the Latest Practicable Date 135,000,000 15,335 (1) Effect of Disposals and Proposed Cash Distribution (10,335) Issued and paid-up share capital immediately prior to the Proposed Acquisition 135,000,000 5,000 Issue of Consideration Shares pursuant to the Proposed Acquisition 9,982,000, ,692 Issued and paid-up share capital immediately after the Proposed Acquisition 10,117,000, ,692 Issued and paid-up share capital immediately after the Proposed Transactions 1,011,700, ,692 Note: (1) Share capital includes share premium reserve which had become part of the Company s share capital on 30 January Financial effects on NTA and NTA per Share Before the Proposed Transactions (Adjusted for Immediately Before the the Disposals after the Proposed and Proposed Proposed Transactions Cash Distribution) Transactions Consolidated NTA as at 31 December 2005 (S$ 000) 11,188 5, ,798 (1) Number of issued Shares ( 000) 135, ,000 1,011,700 (2) Consolidated NTA per Share (cents) Notes: (1) Translated into S$ using the closing exchange rate of Rp5,907 to S$1.00 as at 31 December (2) Refers to number of Shares after the Proposed Share Consolidation. 3.4 Financial effects on earnings and EPS Before the Proposed Transactions (Adjusted for Immediately Before the the Disposals after the Proposed and Proposed Proposed Transactions Cash Distribution) Transactions Consolidated net earnings for FY2005 (S$ 000) 1,021 92,742 (1) Number of issued Shares ( 000) 135, ,000 1,011,700 (2) Consolidated EPS (cents) Notes: (1) Translated into S$ using the average exchange rate of Rp5,851 to S$1.00 in FY2005. (2) Refers to number of Shares after the Proposed Share Consolidation. 24

79 LETTER TO SHAREHOLDERS 3.5 Financial effects on gearing Before the Proposed Transactions (Adjusted for Immediately Before the the Disposals after the Proposed and Proposed Proposed Transactions Cash Distribution) Transactions Consolidated borrowings as at 31 December 2005 (S$ 000) 1,884 65,468 (1) Consolidated cash and cash equivalents as at 31 December 2005 (S$ 000) 8,958 5,000 46,512 (1) Consolidated shareholders funds as at 31 December 2005 (S$ 000) 14,507 5, ,037 (1) Gross Gearing (2) as at 31 December 2005 (times) Net Gearing (3) as at 31 December 2005 (times) 0.05 Notes: (1) Translated into S$ using the closing exchange rate of Rp5,907 to S$1.00 as at 31 December (2) Computed as the ratio of consolidated borrowings to consolidated shareholders funds. (3) Computed as the ratio of consolidated borrowings less consolidated cash and cash equivalents to consolidated shareholders funds. 4. APPROVALS FROM THE SGX-ST 4.1 Listing Approvals On 8 December 2006, the SGX-ST granted in-principle approval to the Company for the Proposed Acquisition, the transfer of the listing of the Company to the SGX Mainboard, the FP Placement and the listing and quotation of the Consideration Shares, the Consolidated Shares and the Placement Shares on the SGX Mainboard subject to, inter alia, the following conditions:- (a) (b) (c) (d) (e) (f) Shareholders approval being obtained at the EGM in respect of the Proposed Transactions, the Placement, the FP Placement and the IPT Mandate; compliance with the SGX-ST s listing requirements, compliance with Rules 113(2) and 210(5)(a) of the Listing Manual in relation to sponsorship and director disclosure; disclosure of the basis of recognising the fair value of the Group s biological assets and gains/losses from changes thereof in all financial results annoucements where such figures have not been reviewed by independent valuers and external auditors; compliance with the shareholding spread requirements and distribution guidelines; and compliance with the moratorium undertakings as set out in Section 12 of this Circular. It should be noted that the above in-principle approval granted by the SGX-ST to the Company is in no way reflective of the merits of any of the Proposed Transactions, the IPT Mandate, the General Share Issue Mandate, the Placement, the FP Placement, the Target Group, the Group or the Shares (including the Consideration Shares, the Consolidated Shares or the Placement Shares). 4.2 Waiver of Requirement to Include Audited Combined Financial Statements This Circular does not contain the audited combined financial statements of the Proforma Group for FY2003, FY2004, FY2005, HY2005 and HY2006. The purpose of audited combined financial statements is to enable companies under common control to provide audited group financial statements, notwithstanding that they did not exist as a legal group during the relevant period under review. 25

80 LETTER TO SHAREHOLDERS Messrs Ernst & Young, the reporting accountants appointed by the Company in respect of the Proposed Acquisition, is of the view that it is technically not practicable to provide audited combined financial statements in the case of the Proposed Acquisition as the Proforma Group is not a legal group of companies prior to completion of the Proposed Acquisition. In order to qualify for audited combined financial statements, these entities must be formed as a group prior to the completion of the Proposed Acquisition. Accordingly, in the case of the Proposed Acquisition, there are no audited combined financial statements that can be issued as no group has been formed comprising the relevant entities to be acquired prior to the completion of the Proposed Acquisition. In view of the above, the Company is presenting unaudited proforma consolidated financial information of the Proforma Group for the three most recent completed financial years, namely FY2003, FY2004 and FY2005 and the half years ended 30 June 2005 and 2006 as if the Proposed Acquisition was completed on 1 January The unaudited proforma consolidated financial statements have been prepared based on the separate statutory audited financial statements of the companies making up the Proforma Group. Additionally:- (i) (ii) (iii) the said unaudited proforma consolidated financial statements have been properly prepared in a manner consistent with the format of the financial statements and the accounting policies of the Proforma Group; each and every material adjustment made in the unaudited proforma consolidated financial statements is appropriate for the purpose of preparing such financial statements; and the said unaudited proforma consolidated financial statements have been prepared based on a set of assumptions which are set out in Appendix C of this Circular. The unaudited proforma consolidated financial statements of the Proforma Group have been prepared in a manner that represents what the historical information would have been had the Proforma Group structure been in existence since 1 January The unaudited proforma consolidated financial statements are prepared in a manner similar to the pooling of interest method as if the Proforma Group had been in place throughout the relevant periods. Such manner of presentation reflects the economic substance of the companies to be acquired by the Company pursuant to the Proposed Acquisition, which were under common control throughout the relevant periods, as a single economic enterprise, although the legal parent-subsidiary relationships have not been established. Please see Appendix C of this Circular for further information on the preparation of the unaudited proforma consolidated financial statements of the Proforma Group. The Company is of the view that the manner of presentation (as described above) adequately reflects the economic substance of the Proforma Group, and is of the view that the unaudited proforma consolidated financial statements will allow the Shareholders to make an informed assessment of the Proforma Group and the non-inclusion of audited combined financial statements will not be materially prejudicial to the interests of the Shareholders. The SGX-ST has waived the requirement for inclusion in this Circular of the audited combined financial statements of the Proforma Group for FY2003, FY2004, FY2005, HY2005 and HY PROPOSED ACQUISITION 5.1 Sale and Purchase On 23 August 2006, the Company entered into the Injection Agreement pursuant to which the Company agreed to purchase from ISHPL and PT ISM agreed to procure the sale by ISHPL of the IOFPL Shares for a consideration of S$392,691,880. The IOFPL Shares are to be acquired by the Company free from all encumbrances and together with all rights and advantages attaching as at completion and on the other terms and conditions of the Injection Agreement. Prior to the completion of the Proposed Acquisition, IOFPL is to acquire interests in the Target Group pursuant to the PT ISM Group Restructuring (information on which is set out in Section 14.3 of this Circular). Immediately following the completion of the PT ISM Group Restructuring, IOFPL will be the holding company of the entities in the Target Group set out on page 38 of this Circular. 26

81 LETTER TO SHAREHOLDERS ISHPL is a 83.84%-owned subsidiary of PT ISM, which is listed on the Jakarta and Surabaya Stock Exchanges. PT ISM is one of Indonesia s largest processed food companies and is in turn a subsidiary of First Pacific, a Hong Kong-based investment and management company holding assets in Indonesia and the Philippines, with principal business interests relating to consumer products and telecommunications, and which is listed on the Hong Kong Stock Exchange. 5.2 Consideration The consideration for the Proposed Acquisition is S$392,691,880 and was arrived at after negotiations, on a willing buyer and willing seller basis, taking into account, inter alia, the NAV, earnings and businesses of the Target Group. The consideration translates to a historical price-to-earnings ratio of approximately 4.2 times of the Target Group s FY2005 proforma consolidated net profit after tax and minority interests and a historical price-to-nav ratio of the Target Group as at 31 December 2005 of approximately 1.1 times. The consideration shall be satisfied entirely by the allotment and issue to ISHPL (or to such persons as it or PT ISM may direct) of 9,982,000,000 Consideration Shares at the Issue Price of S$ each, which after the Proposed Share Consolidation shall be 998,200,000 Consolidated Shares. In addition, subject to the terms and conditions of the Injection Agreement, Entitled Shareholders will be entitled to receive the Value Assurance, if any, certain information on which is set out in Sections 5.4(d) and 8.1 of this Circular. The Consideration Shares, when allotted and issued, shall rank pari passu in all respects with the then existing Shares, save that the Consideration Shares will not rank for the Value Assurance. On the basis that the Company s NTA after the Disposals and the Proposed Cash Distribution shall comprise solely of cash of S$5 million, the Issue Price represents a premium of approximately 6.2% over the theoretical NAV per Share immediately prior to the completion of the Proposed Acquisition. 5.3 Conditions Precedent The completion of the Injection Agreement is conditional upon, inter alia:- (a) the approval of the Shareholders being obtained at a general meeting for:- (i) (ii) (iii) (iv) (v) (vi) the Proposed Acquisition including the issue of the Consideration Shares to ISHPL (or as it or PT ISM may direct); the Proposed Share Consolidation and the grant of the General Share Issue Mandate; the appointment of nominees of PT ISM and/or ISHPL as new directors of the Company; the change of the Company s name to Indofood Agri Resources Ltd. or such other name as ISHPL and/or PT ISM may decide; the adoption of the IPT Mandate; and the issue of the Placement Shares under the Placement; (b) the approval of the Independent Shareholders being obtained at a general meeting for the Proposed Whitewash Resolution; 27

82 LETTER TO SHAREHOLDERS (c) (d) (e) (f) (g) (h) (i) (j) (k) the approval of the SGX-ST for the Proposed Acquisition and if such approval is subject to conditions, such conditions being reasonably acceptable to the Company and PT ISM and/or ISHPL, and such approval remaining in full force and effect; the approval in-principle of the SGX-ST for the transfer of the Company s listing from SGX- SESDAQ to the SGX Mainboard on completion of the Proposed Acquisition and the Placement, and for the listing and quotation of the Consideration Shares, the Consolidated Shares and the Placement Shares on the SGX Mainboard (on conditions, if any, reasonably acceptable to PT ISM and/or ISHPL and the Company) having been obtained and such approval remaining in full force and effect; the SIC having granted PT ISM, ISHPL and parties acting in concert with them, and such grant remaining in full force and effect, a waiver of their obligation to make a general offer under Rule 14 of the Code for the Shares not owned or controlled by PT ISM, ISHPL or parties acting in concert with them and from having to comply with the requirements of Rule 14 of the Code, subject to the passing of the Proposed Whitewash Resolution and such other conditions that the SIC may impose which are reasonably acceptable to the Company and PT ISM and/or ISHPL; the approval of the shareholders of PT ISM in general meeting for or in connection with the Proposed Acquisition having been obtained; all necessary waivers, consents and/or approvals of the shareholders of First Pacific in general meeting, the Hong Kong Stock Exchange and/or the Listing Committee of the Hong Kong Stock Exchange having been obtained, to the extent required by and in accordance with the listing rules of the Hong Kong Stock Exchange, for the transactions contemplated by the Injection Agreement (including but not limited to the Proposed Acquisition and the Placement); the completion of the PT ISM Group Restructuring; PT ISM and/or ISHPL and the Company having undertaken and completed their respective due diligence investigations in respect of the Group and the Target Group and the results of such due diligence investigations being in the relevant party s reasonable opinion, satisfactory; all material approvals, consents, licences, permits, waivers and exemptions (collectively, Approvals ) for the Proposed Acquisition and the transactions contemplated under the Injection Agreement and all Approvals which are material for the carrying on of the business of the Company and its subsidiaries immediately after the completion of the Proposed Acquisition being granted by third parties including all authorities (including but not limited to the approval of the Indonesian Investment Coordinating Board (BKPM)) and where such Approvals are subject to conditions, such conditions being reasonably acceptable to PT ISM, ISHPL and/or the Company as the case may be, and such Approvals remaining in full force and effect; the unaudited proforma consolidated net profit after tax and minority interests of PT SIMP and its subsidiaries for the financial year ended 31 December 2005 (on the basis that the PT ISM Group Restructuring was completed on 1 January 2003) being an amount not less than Rp602.9 billion; (l) the completions of the First Disposal and the Second Disposal on or before 31 October 2006 and 30 November 2006, respectively; and (m) the Proposed Cash Distribution having taken effect in accordance with the provisions of the Companies Act. 28

83 LETTER TO SHAREHOLDERS If any of the conditions precedent is not fulfilled or waived in accordance with the Injection Agreement on or before 31 March 2007 (or such other date as PT ISM and/or ISHPL and the Company may agree in writing), the Injection Agreement shall lapse and the parties thereto will have no claim against the other save as provided in the Injection Agreement. Completion of the Proposed Acquisition is to take place within seven (7) business days after the last in time of the conditions precedent is satisfied or waived or such other date as the Company, PT ISM and/or ISHPL may agree. The Existing Major Shareholders, who in aggregate own and have an interest in Shares representing approximately 37.22% of the total number of issued Shares as at the Latest Practicable Date, have undertaken to vote, and procure the voting of all such Shares, in favour of the resolutions to be proposed at the EGM. In respect of the condition in Section 5.3(f) above, First Pacific which has a shareholding interest of approximately 51.5% of the capital of PT ISM via its subsidiaries, has undertaken that it will procure its subsidiaries to vote all their shares in PT ISM in favour of the resolutions which are to be proposed at the extraordinary general meeting of the shareholders of PT ISM to approve the transactions contemplated by the Injection Agreement (including the Proposed Acquisition) if, inter alia, it is permitted to do so under the listing rules of the Hong Kong Stock Exchange. The extraordinary general meeting of PT ISM in connection with the Proposed Acquisition has been convened to be held on 22 December In respect of the condition in Section 5.3(g) above, members of the Salim Group, who hold in aggregate approximately 44.26% of the capital of First Pacific, have undertaken, inter alia, to the extent permitted by listing rules of the Hong Kong Stock Exchange to vote their respective shares in First Pacific in favour of the resolutions which are to be proposed at the special general meeting of the shareholders of First Pacific to approve the transactions contemplated by the Injection Agreement (including the Proposed Acquisition and the Placement). It is currently expected that the said special general meeting of the shareholders of First Pacific will be held in January Certain Other Terms of the Injection Agreement (a) Disposals Under the Injection Agreement, completion of the Disposals is a condition precedent to the completion of the Proposed Acquisition. Please refer to Section 6 of this Circular for certain information on the Disposals. (b) (c) Moratorium PT ISM has undertaken, inter alia, to provide and to procure that ISHPL provides such moratorium undertaking(s) (including not to dispose of any of the Consideration Shares issued or to be issued to ISHPL) as may be required under the relevant rules of the Listing Manual. Information on the moratorium undertakings provided by ISHPL and PT ISM is set out in Section 12 of this Circular. Placement Completion of the Proposed Acquisition is conditional upon PT ISM and the Company being reasonably satisfied that no later than 30 days after completion of the Proposed Acquisition, the Company will enter into a placement agreement with placement agent(s) to place such number of new Consolidated Shares, to be determined by the Company, to meet the shareholding spread and distribution requirements set out in Rule 210(1) of the Listing Manual and raise funds for the enlarged Group. Completion of the Placement is intended to take place within one month of the completion of the Proposed Acquisition or such period of time as may be permitted by the SGX-ST. Information on the Placement is set out in Section 8.1 of this Circular. 29

84 LETTER TO SHAREHOLDERS (d) (e) (f) Value Assurance PT ISM has undertaken, subject to the terms of the Injection Agreement, that in the event the Placement Price is less than S$0.75 per Placement Share (equivalent to S$0.075 per Share before the Proposed Share Consolidation), it shall procure that ISHPL shall, subject to completion of the Proposed Acquisition and completion of the Placement, pay to the Entitled Shareholders, as soon as practicable after completion of the Placement, a compensation amount in cash for each Consolidated Share held by such Entitled Shareholders as at the Books Closure Date equivalent to the difference, if any, between S$0.75 and the Placement Price subject always to a maximum compensation of S$0.37 per Consolidated Share held. The amount payable shall be rounded down to the nearest whole cent. Appointment of nominees of ISHPL as Directors Pursuant to the terms of the Injection Agreement and to facilitate the Proposed Acquisition, the Board has appointed two representatives of ISHPL, namely, Mr Tjhie Tje Fie and Mr Moleonoto Tjang as non-executive directors of the Company. As representatives of ISHPL, these Directors shall abstain from the decision-making process of the Board on matters relating to the Proposed Transactions. Expenses relating to the Proposed Acquisition In the event that completion of the Proposed Acquisition does not take place for any reason whatsoever, subject to the provisions of the Injection Agreement, (a) all fees, costs and expenses relating to the Company s appointment of legal advisers, financial advisers and reporting accountants in connection with the Proposed Transactions and of the IFA (in relation to the IPT Mandate) shall be borne by ISHPL; and (b) all fees, costs and expenses relating to the appointment of the IFA (in relation to the Proposed Whitewash Resolution), the submission to the SGX-ST and the printing of this Circular shall be borne by the Company. In the event that the Proposed Acquisition is completed, all fees, costs and expenses referred to above shall be borne by the Company. (g) Indemnity by the Existing Major Shareholders Under the terms of the Injection Agreement, the Existing Major Shareholders have provided certain undertakings to indemnify the Company, PT ISM and/or ISHPL, as the case may be, against, inter alia, any actions, proceedings, claims, liabilities, losses, costs and expenses which they may incur as a result of liabilities arising out of any transaction, event, act, omission, circumstance or matter prior to the completion of the Proposed Acquisition, subject to the terms and conditions of the Injection Agreement (including the liability of the Existing Major Shareholders under such indemnity not exceeding the current percentage of their aggregate shareholding interest in the Company (namely, 37.22%) under certain circumstances). 5.5 Proposed Change of Auditors at the next AGM of the Company The present auditors of the Company are Messrs Nexia Tan & Sitoh, appointed at the AGM held on 26 April Messrs Ernst & Young have, on 6 December 2006, consented to act as auditors of the Company with effect from the date of the next AGM of the Company, subject to the completion of the Proposed Acquisition. It is currently intended that Messrs Ernst & Young be appointed as auditors of the Company in place of Messrs Nexia Tan & Sitoh with effect from the date of the next AGM of the Company, subject to the approval of Shareholders at such AGM, given that the unaudited proforma consolidated financial statements of the Proforma Group have been prepared by Messrs Ernst & Young. The proposed change of auditors of the Company is intended to take place only at the next AGM so as to enable Messrs Nexia Tan & Sitoh to complete the audit of the Company for FY

85 LETTER TO SHAREHOLDERS 6. DISPOSALS AND PROPOSED CASH DISTRIBUTION Under the Injection Agreement, it is a condition precedent to the completion of the Proposed Acquisition that the disposal of the entire existing businesses of the Company and its subsidiaries is completed and the Proposed Cash Distribution has taken effect. On 11 July 2006, the Company announced, in relation to the First Disposal, its entry into an agreement with ISG Plc for the disposal of substantially all of the Company s interests in its existing businesses of providing project management, facilities management, engineering and fitting-out works and services, and interior design services for a cash consideration of S$13.6 million. The First Disposal was completed on 30 October The Second Disposal was completed on 30 November 2006 and on 1 December 2006, the Company announced the completion of the same for an aggregate consideration of approximately RM1.5 million. Subject to receipt of the requisite approval(s), the Company intends to distribute to Shareholders cash by way of the Proposed Cash Distribution. Immediately following the Proposed Cash Distribution, the NTA of the Company will comprise cash of not less than S$5 million and the NTA per Share will be not less than S$ To effect the Proposed Cash Distribution, the approval of Shareholders for a pro rata capital reduction of up to S$10,334,250 ( Capital Reduction ) was obtained on 23 October On 13 November 2006, the Company announced that an amount of S$6,750,000 will be returned to Shareholders under the Capital Reduction. Subject to the sanction of the Singapore Courts, the Capital Reduction will take effect upon the lodgment of the court order sanctioning the same, with the Registrar of Companies in accordance with the Companies Act. The Company presently expects the Capital Reduction to take effect on or about 22 December The actual aggregate amount to be distributed under the Proposed Cash Distribution will depend on, inter alia, the available cash balances and funding requirements of the Company pending the completion of the Proposed Acquisition. The exact amount and timing of any other cash to be distributed under the Proposed Cash Distribution will be announced by the Company in due course. 7. PROPOSED WHITEWASH RESOLUTION As at the Latest Practicable Date, other than pursuant to the Injection Agreement, PT ISM, ISHPL and parties acting in concert with them do not hold any Shares or instruments convertible into, rights to subscribe for and options in respect of Shares. On completion of the Proposed Acquisition but before the Placement, ISHPL and/or its nominees will hold 9,982,000,000 Shares, representing approximately 98.67% of the enlarged total number of issued Shares of the Company. Pursuant to Rule 14.1 of the Code, PT ISM, ISHPL and parties acting in concert with them would be required to make a general offer for the remaining Shares not owned, controlled or agreed to be acquired by PT ISM, ISHPL and parties acting in concert with them at the highest price paid or agreed to be paid by any of them for the Shares in the six months preceding the acquisition of the Consideration Shares. PT ISM and ISHPL have sought a waiver from the SIC of their obligations to make a general offer for the Shares. The SIC has on 4 October 2006 granted PT ISM, ISHPL and parties acting in concert with them a waiver of the requirement to make a mandatory general offer for the Shares under Rule 14 of the Code arising from the issue of the Consideration Shares under the Proposed Acquisition subject to, inter alia, the following conditions:- (a) (b) (c) a majority of holders of voting rights of the Company approving at a general meeting, before the issue of the Consideration Shares to ISHPL or parties acting in concert with it, a resolution by way of a poll, to waive their rights to receive a general offer from PT ISM, ISHPL and parties acting in concert with them; the Proposed Whitewash Resolution being separate from other resolutions; PT ISM, ISHPL, parties acting in concert with them and parties not independent of them abstaining from voting on the Proposed Whitewash Resolution; 31

86 LETTER TO SHAREHOLDERS (d) PT ISM, ISHPL and parties acting in concert with them not having purchased and are not to purchase, as the case may be, any Shares, (i) during the period between the announcement of the Proposed Acquisition on 23 August 2006 (the Announcement ) and the date Shareholders approval is obtained for the Proposed Whitewash Resolution; and (ii) in the 6 months prior to the Announcement but subsequent to negotiations, discussions or the reaching of understandings or agreements with the directors of the Company in relation to the proposed issue of the Consideration Shares; (e) (f) the Company appointing an independent financial adviser to advise its Independent Shareholders on the Proposed Whitewash Resolution; the Company setting out clearly in this Circular:- (i) (ii) (iii) (iv) (v) details of the proposed issue of the Consideration Shares to ISHPL or parties acting in concert with it; the dilution effect to existing Shareholders of issuing the Consideration Shares to ISHPL or parties acting in concert with it; the total voting rights to be issued to ISHPL or parties acting in concert with it pursuant to the Proposed Acquisition; specific and prominent reference to the fact that the Proposed Acquisition would result in PT ISM, ISHPL and parties acting in concert with them owning Shares carrying over 49% of the voting rights of the Company, and the fact that they will be free to acquire further Shares without incurring any obligation under Rule 14 of the Code to make a general offer for the Company; and that Independent Shareholders, by voting for the Proposed Whitewash Resolution, are waiving their rights to a general offer from PT ISM, ISHPL and parties acting in concert with them at the highest price paid by them for the Shares in the past 6 months preceding the acquisition of the Consideration Shares; (g) (h) (i) this Circular stating that the waiver granted to PT ISM, ISHPL and parties acting in concert with them from the requirement to make a general offer for the Company under Rule 14 of the Code is subject to the conditions stated in paragraphs (a) to (f) above; PT ISM, ISHPL and parties acting in concert with them obtaining the SIC s approval of this Circular in advance; and the acquisition of the Consideration Shares by ISHPL or parties acting in concert with it under the Proposed Acquisition being completed within three months of the approval of the Proposed Whitewash Resolution. Immediately after the Proposed Transactions, but before the Placement, existing Shareholders shareholdings in the Company will be diluted from 135,000,000 Shares, representing 100% of the total number of issued Shares of the Company as at the Latest Practicable Date, to 13,500,000 Consolidated Shares, representing approximately 1.33% of the enlarged total number of issued Shares of the Company. Shareholders should note that the Proposed Acquisition is conditional, inter alia, upon the passing of the Proposed Whitewash Resolution by Independent Shareholders. Independent Shareholders should also note that by voting in favour of the Proposed Whitewash Resolution, they will be waiving their rights to receive a general offer for all their Shares 32

87 LETTER TO SHAREHOLDERS from PT ISM, ISHPL and parties acting in concert with them at the highest price paid by them in the six months preceding the acquisition of the Consideration Shares. If Independent Shareholders do not vote in favour of the Proposed Whitewash Resolution, the Proposed Acquisition will not take place. Shareholders should further note that as PT ISM, ISHPL and parties acting in concert with them will own Shares carrying over 49.0% of the voting rights of the Company as a result of the Proposed Acquisition (if completed), PT ISM, ISHPL and parties acting in concert with them will thereafter be free to acquire further Shares without incurring any obligation under Rule 14 of the Code to make a general offer for the Company. DTCF has been appointed as the IFA to the Independent Directors in relation to the Proposed Whitewash Resolution. The letter from DTCF to the Independent Directors containing their advice is set out in Appendix A of this Circular. Independent Shareholders are asked to vote on a poll on the Proposed Whitewash Resolution at the EGM. 8. PLACEMENT AND SHARE ISSUE MANDATES 8.1 Placement and Share Issue Mandate for Placement Shares Upon the completion of the Proposed Acquisition but before the Placement, ISHPL and/or its nominee(s) will hold 9,982,000,000 new Shares representing approximately 98.67% of the enlarged total number of issued Shares of the Company. Under Rule 210(1) of the Listing Manual, (depending on the number of Placement Shares and assuming the Placement is undertaken at a price of S$0.75 per Consolidated Share) at least 12.0% or 15.0% of the total number of issued Shares of the Company must be held in the hands of at least 1,000 public Shareholders in order for the Company to maintain its listing status and to have such listing transferred to the SGX Mainboard. Further, under Rule 724 of the Listing Manual, the SGX-ST may suspend trading of the Shares if less than the required 10% of the Shares are held in the hands of the public. The SGX-ST may allow the Company a period of three months, or such longer period as it may agree, to raise the percentage of the Shares held in the hands of the public to at least 10%. The Company intends to issue new Consolidated Shares during the Placement to raise funds for the expansion of the Target Group s business. It is expected that the Placement will take place within one month of the completion of the Proposed Acquisition or such period of time as may be permitted by the SGX-ST. It is proposed that the placees for the Placement may comprise institutional investors, retail investors, and/or existing Shareholders so long as such placees are acceptable to the SGX-ST for the purposes of fulfilling the above free float requirements. As stated in Section 2.7 of this Circular, the Company proposes to allot and issue up to 6,525,000 new Consolidated Shares under the Placement to First Pacific for the purposes of the FP Distribution-in-specie (as required by PN 15 of the listing rules of the Hong Kong Stock Exchange). Please see Sections 2.7 and 9 of this Circular for further information on the FP Placement. On the second Market Day following the completion of the Proposed Acquisition, trading in the Shares on the SGX-ST will be suspended which suspension will continue during the period allowed for the Placement. In the case where the Placement is not or is unable to be carried out within the period permitted by the SGX-ST, trading of the Shares (and the Consolidated Shares, as the case may be) may continue to be suspended. It is expected that the Placement Shares, if and when issued, will rank pari passu in all respects with the then existing Consolidated Shares save for any dividends, rights, allotments or other distributions the record date for which falls before the date of issue of the Placement Shares. For the avoidance of doubt, the Placement Shares will not rank for the Value Assurance. 33

88 LETTER TO SHAREHOLDERS The approval of the Shareholders is sought at the EGM for the issue of the Placement Shares in view of Section 161 of the Companies Act. Specifically, approval from the Shareholders is sought for, inter alia, authority to be given to the Board to:- (i) (aa) allot and issue Consolidated Shares; and/or (bb) make or grant offers, agreements or options that might or would require the Placement Shares to be issued during the continuance of such authority or thereafter, at any time and upon such terms and conditions (including the Placement Price), for the purposes of the Placement, and to such persons as the directors of the Company may, in their absolute discretion, deem fit; and (ii) issue the Placement Shares in pursuance of any offer, agreement or option made or granted by the Board while such authority was in force (notwithstanding that such issue of the Consolidated Shares pursuant to the offer, agreement or option may occur after the expiration of such authority), provided that the aggregate number of Placement Shares to be issued pursuant to such authority (whether on a pro-rata basis to the then existing Shareholders or otherwise) shall not exceed 435,000,000 Placement Shares, representing approximately 30% of the enlarged total number of issued Shares of the Company immediately after the completion of the Placement. The authority to the Board shall (unless revoked or varied by the Company in general meeting) continue in force 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 Placement Price is to be determined after taking into consideration, inter alia, prevailing market conditions and estimated market demand for the Placement Shares determined through a book building process. PT ISM has undertaken, subject to the terms of the Injection Agreement, that in the event the Placement Price is less than S$0.75 per Placement Share (equivalent to S$0.075 per Share before the Proposed Share Consolidation), it shall procure that ISHPL shall, subject to completion of the Proposed Acquisition and completion of the Placement, pay the Entitled Shareholders, as soon as practicable after completion of the Placement, a compensation amount in cash for each Consolidated Share held by such Entitled Shareholders as at the Books Closure Date equivalent to the difference, if any, between S$0.75 and the Placement Price, subject always to a maximum compensation of S$0.37 per Consolidated Share held. The amount payable shall be rounded down to the nearest whole cent. Only Entitled Shareholders will be entitled to the Value Assurance, if any, described above. Accordingly, in order to be entitled to the Value Assurance, an investor who purchases Shares must ensure that the purchase transaction is completed and his name is included in the Register of Members of the Company or the Depository Register prior to or on the Books Closure Date. The Value Assurance may be sent by ordinary post at the risk of the Entitled Shareholders to their registered addresses with the Company or the CDP, as the case may be. 8.2 General Share Issue Mandate The approval of Shareholders is sought at the EGM for the grant of a general mandate for the issue of Consolidated Shares pursuant to Section 161 of the Companies Act. This is in addition to the authorisation (to be sought) for the issue of Placement Shares pursuant to the Placement set out above. Specifically, approval from Shareholders will be sought for, inter alia, authority to be given to the Board to:- (i) (aa) allot and issue the Consolidated Shares whether by way of rights, bonus or otherwise; and/or 34

89 LETTER TO SHAREHOLDERS (bb) make or grant offers, agreements or options (collectively, Instruments ) that might or would require Consolidated Shares to be issued during the continuance of such authority or thereafter, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into Consolidated Shares, at any time and upon such terms and conditions and for such purposes and to such persons as the directors of the Company may, in their absolute discretion, deem fit; and (ii) issue Consolidated Shares in pursuance of any Instrument made or granted by the Board while such authority was in force (notwithstanding that such issue of the Consolidated Shares pursuant to the Instruments may occur after the expiration of such authority). The aggregate number of the Consolidated Shares to be issued pursuant to such authority (including the Consolidated Shares to be issued in pursuance of Instruments made or granted pursuant to such authority), shall not exceed 50% of the total number of issued Consolidated Shares of the Company (calculated as described below). Further, where Shareholders with registered addresses in Singapore are not given the opportunity to participate in the same on a pro-rata basis, then the Consolidated Shares to be issued under such circumstances (including the Consolidated Shares to be issued in pursuance of Instruments made or granted pursuant to such authority) shall not exceed 20% of the total number of issued Consolidated Shares of the Company (calculated as described below). Subject to such manner of calculation as may be prescribed by the SGX-ST, for the purpose of determining the aggregate number of the Consolidated Shares that may be issued, the percentage of the issued Consolidated Shares shall be based on the issued Shares of the Company at the time such authority was conferred, after adjusting for:- (aa) (bb) (cc) (dd) new Shares arising from the Proposed Consideration Shares Issue and new Consolidated Shares arising from the Placement; new Consolidated Shares arising from the conversion or exercise of any convertible securities; new Consolidated Shares arising from exercising share options or the vesting of share awards which are outstanding or subsisting at the time such authority was conferred; and any subsequent consolidation or subdivision of the Consolidated Shares. The authority to the Board shall (unless revoked or varied by the Company in general meeting) continue in force 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. 9. PROPOSED FP PLACEMENT AND FP DISTRIBUTION-IN-SPECIE As stated in Section 2.7 of this Circular, the Company proposes to allot and issue up to 6,525,000 new Consolidated Shares under the Placement (representing 1.5% of the maximum number of Consolidated Shares under the Placement) to First Pacific at the Placement Price, for the purposes of the FP Distribution-in-specie (as required by PN 15 of the listing rules of the Hong Kong Stock Exchange). First Pacific will become a Controlling Shareholder of the Company following the completion of the Proposed Acquisition. Its shareholding in the Company immediately after the Proposed Transactions is set out in Section 11.2 of this Circular. Assuming the issue of the maximum 6,525,000 new Consolidated Shares to First Pacific at S$0.75 for each Consolidated Share, the total consideration will be S$4,893,750, representing approximately 1.2% of the NTA of the Proforma Group as at 30 June

90 LETTER TO SHAREHOLDERS Pursuant to Rule 812(1) of the Listing Manual, the Company is seeking the prior approval of the Shareholders at the EGM for the allotment and issue of up to 6,525,000 new Consolidated Shares to First Pacific. The SGX-ST has, on 8 December 2006, granted approval for the FP Placement conditional upon shareholder approval having been obtained for the FP Placement. As First Pacific and its associates do not and will not be holding any Shares before the Proposed Transactions, they will not be voting on the resolution approving the FP Placement at the EGM. 10. RATIONALE FOR THE PROPOSED ACQUISITION The Directors believe that the Proposed Acquisition is in the interests of the Company for the following key reasons:- (a) (b) Preserve listing status of the Shares Following the completion of the Disposals, the assets of the Company currently comprise substantially of cash. As such, pursuant to Rule 1018 of the Listing Manual, trading in the Shares may be suspended by the SGX-ST until such time the Company has a business which is able to satisfy the SGX-ST s requirements for a new listing. The SGX-ST may remove the Company from the Official List of the SGX-ST if the Company is unable to meet the requirements for a new listing within 12 months of the trading suspension of the Shares. In view of the above, the Company proposes to undertake the Proposed Transactions to provide the Company with a new business which would enable the Company to both preserve and capitalise on its listing status thereby enhancing the value of Shareholders equity interests in the Company. Invest in a profitable enterprise with significant market share If it proceeds to completion, the Proposed Acquisition will enable the Company to own an established major vertically-integrated producer of edible oils and fats in Indonesia. Based on information provided by the PT ISM Group, the Directors regard the Target Group as an attractive investment opportunity taking into consideration, inter alia, the following:- (i) (ii) (iii) (iv) (v) The Target Group has an established operating history of more than 20 years and has consistently achieved profits in its three financial years ended 31 December The Target Group achieved an unaudited proforma consolidated net profit after tax and minority interests of approximately S$92.7 million based on an exchange rate of S$1:Rp5,851 in FY2005. The Target Group is a major producer of edible oils and fats with an estimated market share of approximately 38.2% of Indonesia s market for branded edible oils and fats by retail value in Please refer to Section 14.2(a)(iii) of this Circular, for more information. The Target Group s stable of brands has gained wide acceptance and recognition in the Indonesian market. The Target Group also has an extensive distribution network supplying approximately 230,000 retail outlets throughout Indonesia. The Target Group is vertically-integrated with its operations spanning oil palm seed breeding, cultivation of oil palm, production and refining of CPO and coconut oil, marketing of end products and brand management. With its sizeable economies of scale and industry knowledge, the Target Group enjoys significant cost advantages as well as market penetration. The consumption of branded edible oils and fats in Indonesia has potential to grow together with the country s rising consumer affluence. In particular, the bulk of cooking oil currently consumed in Indonesia is unbranded. With increasing purchasing power, the consumption of cooking oil by the general population in Indonesia is expected to shift increasingly towards the better-quality branded products such as those produced 36

91 LETTER TO SHAREHOLDERS by the Target Group. As a key player in the industry, the Target Group is well positioned to participate in the growth of Indonesia s branded edible oils and fats market. Other potential areas of growth for the Target Group include expanding its export markets and increasing its production and sale of CPO through the planting of its undeveloped plantation land. (vi) As part of one of Indonesia s largest processed food companies listed on both the Jakarta and Surabaya Stock Exchanges, the Target Group is able to tap the PT ISM Group s market knowledge, management expertise, collective bargaining strength and business infrastructure. These provide the Target Group with important operational efficiencies and competitive advantages. (c) Enhance investment profile of the Shares If completed, the Proposed Transactions together with the Placement have the potential to significantly increase the market capitalisation of the Company to over S$1 billion and to widen the investor base for the Shares. This in turn should enable the Company to attract more extensive analyst coverage, leading to an overall increase in investor interest and trading liquidity in the Shares. Upon the completion of the Proposed Transactions and the Placement, the Consolidated Shares will present investors an avenue to gain an investment exposure to the edible oils and fats industry in Indonesia on the SGX-ST. 11. SHAREHOLDING AND GROUP STRUCTURE ON COMPLETION OF THE PROPOSED TRANSACTIONS The Group was previously engaged in the business of providing project management, facilities management, engineering and fitting-out works and services and interior design services. Following completion of the Disposals, the Company s assets currently comprise mainly of cash. Upon the completion of the Proposed Transactions, the business of the Group will comprise those of the Target Group. The Target Group is a major vertically-integrated manufacturer of edible oils and fats with significant market share in the branded cooking oil, as well as margarine and shortening segments in Indonesia. Further information on the business of the Target Group is set out in Section 14 of this Circular Group Structure As at the Latest Practicable Date, the Company does not have any subsidiaries or associated companies. The following diagram depicts the structure of the Group following the completion of the Proposed Transactions. 37

92 LETTER TO SHAREHOLDERS After completion of the Proposed Transactions Indofood Agri Resources Ltd. IOFPL 100.0% PT SIMP 90.0% 100.0% SIL 99.0% 93.4% 70.0% 100.0% 60.0% 60.0% 60.0% PT IIP PT KMS PT SAIN PT MBP PT MCP PT MSA PT SBN 100.0% 100.0%* 99.0% 99.0% 99.0% 99.0% 100.0%* 100.0%* 100.0%* ASL PT KGP PT SP PT CTP PT IP PT GMR 100.0%* 100.0%* 100.0%* 99.5% PT RAP PT CKS PT JS PT MPI PT GS PT ASP PT CNIS Proposed to be acquired pursuant to the Plantation Acquisition IOFPL : Indofood Oil & Fats Pte. Ltd. PT SIMP : PT Salim Ivomas Pratama SIL : Silveron Investments Limited ASL : Asian Synergies Limited PT KGP : PT Kebun Ganda Prima PT CNIS : PT Citranusa Intisawit PT IIP : PT Indoagri Inti Plantation * Less one share PT SP : PT Perusahaan Dagang Perkebunan dan Industri Serikat Putra PT CTP : PT Cibaliung Tunggal Plantations PT IP : PT Perusahaan Perkebunan, Industri dan Dagang Indriplant PT GMR : PT Gunung Mas Raya PT KMS : PT Kebun Mandiri Sejahtera PT SAIN : PT Sarana Inti Pratama PT RAP : PT Riau Agrotama Plantation PT CKS : PT Citra Kalbar Sarana PT JS : PT Jake Sarana PT MBP : PT Manggala Batama Perdana PT MCP : PT Mega Citra Perdana PT MPI : PT Multi Pacific International PT GS : PT Gunta Samba PT MSA : PT Mentari Subur Abadi PT ASP : PT Agrosubur Permai PT SBN : PT Swadaya Bhakti Negaramas 38

93 LETTER TO SHAREHOLDERS Information on the subsidiaries of the enlarged Group immediately after the completion of the Proposed Acquisition is set out below:- Name of company and its principal place of business Country of Incorporation Principal Activities Issued and Paidup/Registered Capital Approximate Percentage effective ownership interest held by the Company PT Salim Ivomas Pratama (PT SIMP) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan Silveron Investments Limited (SIL) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan Asian Synergies Limited (ASL) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan PT Citranusa Intisawit (PT CNIS) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan PT Kebun Ganda Prima (PT KGP) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan PT Indoagri Inti Plantation (PT IIP) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan PT Perusahaan Dagang Perkebunan dan Industri Serikat Putra (PT SP) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan PT Cibaliung Tunggal Plantations (PT CTP) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan Indonesia Ownership of oil palm Rp253,061,000, % (1) plantations, mills and production of cooking oil, margarine, fats and other related products Mauritius Investment holding US$5,905, % BVI Investment holding US$2,541, % Indonesia Ownership of oil palm plantations Rp38,637,000, % and mills Indonesia Ownership of oil palm plantations Rp107,662,000, % Indonesia Investment holding, management Rp153,000,000, % services and transportation Indonesia Ownership of oil palm plantations Rp35,000,000, % and mills Indonesia Ownership of oil palm plantations Rp19,000,000, % 39

94 LETTER TO SHAREHOLDERS Name of company and its principal place of business Country of Incorporation Principal Activities Issued and Paidup/Registered Capital Approximate Percentage effective ownership interest held by the Company PT Perusahaan Perkebunan, Industri dan Dagang Indriplant (PT IP) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan PT Gunung Mas Raya (PT GMR) Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan PT Kebun Mandiri Sejahtera (PT KMS) Jalan Veteran No. 7C, Jakarta Pusat PT Sarana Inti Pratama (PT SAIN) Plaza Sentral 2nd Floor, Jalan Jenderal Sudirman Kav. 47, Karet Semanggi, Setiabudi, Jakarta Selatan PT Riau Agrotama Plantation (PT RAP) Jalan Gambir No. 5 Pekanbaru PT Citra Kalbar Sarana (PT CKS) Jalan Arengka Komplek Ruko SKA Blok E No. 58, Pekanbaru PT Jake Sarana (PT JS) Jalan Gambir No. 5 Pekanbaru PT Manggala Batama Perdana (PT MBP) Jalan Jembatan Tiga Blok F&G, Kelurahan Penjaringan, Jakarta Utara Indonesia Ownership of oil palm plantations Rp53,000,000, % and mill Indonesia Ownership of oil palm plantations Rp43,000,000, % and mills Indonesia Ownership of rubber plantations Rp152,355,000, % Indonesia Research and development, oil Rp51,700,000, % palm seed breeding and ownership of oil palm plantations Indonesia Ownership of oil palm plantations Rp31,617,000, % Indonesia Ownership of oil palm plantations Rp14,362,000, % Indonesia Ownership of oil palm plantations Rp1,000,000, % Indonesia Investment company Rp250,000, % 40

95 LETTER TO SHAREHOLDERS Plantation Companies proposed to be acquired by the Target Group pursuant to the Plantation Acquisition Name of company and its principal place of business Country of Incorporation Principal Activities Issued and Paidup/Registered Capital Approximate Percentage effective ownership interest to be held by the Company assuming completion of the Proposed Acquisition PT Mega Citra Perdana (PT MCP) Jalan Abdullah Syafei No.15 Manggarai Selatan, Tebet, Jakarta Selatan PT Multi Pacific International (PT MPI) Jalan Tanjung Duren Raya No. 11 Tanjung Duren Utara, Jakarta Barat PT Gunta Samba (PT GS) Jalan Gajahmada 3-5. Kompleks Duta Merlin, Blok B-22-23, Jakarta Pusat PT Mentari Subur Abadi (PT MSA) Gedung Plaza Central 18th Floor Jalan Jenderal Sudirman Kav. 47, Jakarta Selatan PT Agrosubur Permai (PT ASP) Wisma Indosemen 11th Floor Jalan Jenderal Sudirman Kav , Jakarta Selatan PT Swadaya Bhakti Negaramas (PT SBN) Wisma Indomobil, 6th Floor, Jalan Letjen M.T. Haryono Kav. 8, Bidara Cina, Jakarta Timur Indonesia Investment holdings Rp103,000,000, % (2) Indonesia Ownership of oil palm plantations Rp3,000,000, % Indonesia Ownership of oil palm plantations Rp100,000,000, % Indonesia Ownership of oil palm plantations Rp3,549,000, % (3) Indonesia Ownership of oil palm plantations Rp205,000, % Indonesia Ownership of oil palm plantations Rp850,000, % (4) Notes: (1) The PT ISM Group directly holds approximately 8.4% of PT SIMP. The balance of approximately 1.6% of PT SIMP is held by unrelated third parties based on the relevant shareholder registers. (2) In the event the Plantation Acquisition is completed, the Company s interest in PT MCP would be held through PT SIMP, which would hold 60% of PT MCP. The Salim Group would hold 40% of PT MCP. (3) In the event the Plantation Acquisition is completed, the Company s interest in PT MSA would be held through PT SIMP, which would hold approximately 60% of PT MSA. The Salim Group would hold approximately 40% of PT MSA. (4) In the event the Plantation Acquisition is completed, the Company s interest in PT SBN would be held through PT SIMP, which would hold 60% of PT SBN. The Salim Group would hold 40% of PT SBN. 41

96 LETTER TO SHAREHOLDERS Research & Development Plantation Palm Oil Mill Refineries End Product Teknologi REFINERY PT SAIN Breeding PT SAIN PT SIMP (1), PT IP, PT GMR, PT SAIN, PT CTP, PT SP, PT KGP, PT CNIS, PT RAP, PT CKS, PT JS PT SIMP (1),PT IP, PT GMR, PT SP, PT CNIS Notes: (1) PT SIMP is also engaged in the production of copra-based products such as CNO. PT SIMP (1) Refinery Division PT SIMP (1) Refinery Division (2) Subsidiaries of the enlarged Group not included in the diagram above are as follows: PT IIP : Investment holding, management services and transportation SIL, ASL, PT MBP : Investment holding PT KMS : Rubber plantations 42

97 LETTER TO SHAREHOLDERS 11.2 Shareholding Structure As at the Latest Practicable Date, no share options are outstanding under the ESOS. The principal terms of the ESOS are summarised in Appendix F of this Circular. As at the Latest Practicable Date, the Company s shareholders and their respective shareholdings before and immediately after the Proposed Transactions are summarised below:- Before the Proposed Transactions Immediately after the Proposed Transactions Direct Interest Deemed Interest Direct Interest Deemed Interest Number of Number of Number of Number of Shares % Shares % Shares (1) % Shares (1) % Existing Directors (2) Mr Alex Yeunh (3) 645, ,597, , ,959, Mr Tjhie Tje Fie Mr Moleonoto Tjang Mr Huang Yuan Chiang 100, ,000 n.m. (9) Mr Yeo Wee Kiong 100, ,000 n.m. (9) Proposed New Directors Mr Lee Kwong Foo Edward Mr Benny Setiawan Santoso Mr Cesar Manikan dela Cruz Mr Mulyawan Tjandra Mr Gunadi Mr Lim Hock San Mr Goh Kian Chee Mr Hendra Susanto Substantial Shareholders (Other than Existing Directors and Proposed New Directors) KCA 49,500, ,950, Loke Tan Chung (4) 27,040, ,704, ISHPL 998,200, PT ISM (5) 998,200, First Pacific and its subsidiaries (6) 998,200, Salim Group (7) 998,200, Public shareholders (8) 57,615, ,761, Total 135,000, ,011,700, (10) Pursuant to the Placement, up to 435,000,000 new Consolidated Shares, representing up to approximately 30% of the Company s enlarged total number of issued Shares after the Placement, may be issued by the Company. The issue of any new Consolidated Shares by the Company pursuant to the Placement would dilute the shareholding of the Shareholders in the Company on completion of the Placement. Notes: (1) Based on Consolidated Shares. (2) It is envisaged that all the existing Directors (save for Mr Moleonoto Tjang and Mr Tjhie Tje Fie) will resign with effect from the completion of the Proposed Acquisition. (3) Mr Alex Yeunh is a director of and holds 80% of the issued share capital of KCA as at the Latest Practicable Date and is deemed to be interested in the Shares held by KCA. He is also deemed to be interested in the 97,000 Shares held by his spouse. (4) On 30 October 2006, Mr Loke Tan Chung acquired 27,000,000 Shares representing 20.0% of the Company s total number of issued Shares from ISG Plc. 43

98 LETTER TO SHAREHOLDERS (5) PT ISM is a holding company of ISHPL with an interest of approximately 83.84% of the total number of issued shares in ISHPL. Accordingly, PT ISM is deemed to be interested in the Shares held by ISHPL. (6) First Pacific has an interest in 51.5% of the capital of PT ISM through its wholly-owned subsidiaries. Accordingly, First Pacific and such subsidiaries are deemed to be interested in the Shares held by ISHPL in which PT ISM has an interest. Up to 6,525,000 new Consolidated Shares may be issued to First Pacific pursuant to the FP Placement. (7) The Salim Group has an interest in approximately 44.26% of the total number of issued and voting shares in the capital of First Pacific. Accordingly, the Salim Group is deemed to be interested in the Shares held by ISHPL in which First Pacific has an interest. The Salim Group would be entitled to participate in the FP Distribution-in-specie. (8) Shares held by Mr Alex Yeunh, his spouse, KCA, Mr Huang Yuan Chiang, Mr Yeo Wee Kiong and Mr Loke Tan Chung would also be considered as publicly held after the completion of the Proposed Transactions. (9) n.m. denotes not meaningful as it is less than 0.01%. (10) The discrepancy between the figures stated above and the total thereof is due to rounding. The Directors, Proposed New Directors and Substantial Shareholders named above who have an interest in Shares do not have voting rights different from other Shareholders. Save as disclosed above and to the extent known to the Company, the Company is not directly or indirectly owned or controlled, whether severally or jointly, by any person or government, as at the Latest Practicable Date. Save for the Proposed Acquisition including the Proposed Consideration Shares Issue, the Directors are not aware of any arrangement, the operation of which may, at a subsequent date, result in a change in the control of the Company. There has not been any public take-over offer, by a third party in respect of any of the Shares or by the Company in respect of the shares of another corporation or the units of a business trust, which has occurred between the beginning of the most recent completed financial year and the Latest Practicable Date. 12. MORATORIUM ISHPL has agreed with CIMB-GK, that during the period of 6 months commencing from the date of completion of the Proposed Acquisition, it will not transfer, sell or otherwise dispose of any part of its shareholdings in the Company (the Locked-up Securities ) or publicly announce any intention to do anything which is contrary to its aforesaid obligation, without, in each case, the prior written consent of CIMB-GK. PT ISM has agreed with CIMB-GK, that during the period of 6 months commencing from the date of completion of the Proposed Acquisition, it will not transfer, dispose or realise any part of its shareholdings in ISHPL or publicly announce any intention to do anything which is contrary to its aforesaid obligation, without, in each case, the prior written consent of CIMB-GK. 13. RISK FACTORS An investment in the Shares following the completion of the Proposed Transactions 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 Target Group s business. Shareholders should evaluate carefully the following considerations and the other information in this Circular before deciding how to cast their votes at the EGM. Some of the following considerations relate principally to the industry in which the Target Group operates and its business in general. Other considerations relate principally to general economic, political and regulatory conditions. These are not the only risks which the Target Group faces. Some risks are not yet known to the Company, ISHPL and the Target Group and there may be others which they currently believe are not material but may subsequently turn out to be so. The following should not be construed as a comprehensive listing of all the risk factors. 44

99 LETTER TO SHAREHOLDERS If any of the following considerations, risks and uncertainties develops into actual events, the financial position, financial performance, cash flow, business operations and prospects of the Target Group (collectively referred to as Business in this section) could be, directly or indirectly, materially and adversely 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 faced by the Target Group described below and elsewhere (including in Section 15) in this Circular Risks relating to Indonesia All of the Target Group s assets are located in Indonesia. The Target Group also conducts substantially all of its operations in Indonesia and a significant proportion of its revenue is derived from Indonesia. Accordingly, the Target Group s business is significantly influenced by the economic, political, and social developments in Indonesia, as well as certain actions and policies which the Indonesian government may, or may not, take or adopt. Certain factors affecting Indonesia and which could adversely affect the Target Group s Business are set out below. Economic risks in Indonesia The economic crisis which affected Southeast Asia, including Indonesia, in the late 1990s was characterised in Indonesia by, amongst others, currency depreciation, negative economic growth, high interest rates, social unrest and extraordinary political developments. A re-occurrence of these conditions or a loss of investor confidence in the financial systems of Indonesia or of emerging and other markets may cause increased volatility in the Indonesian financial markets and a slowdown or negative growth in the country. These may in turn adversely affect the Target Group s Business. In March and October 2005, the Indonesian government reduced the subsidy on fuel in line with its intention to reduce the Indonesian budget deficit. The increase in fuel prices affected production costs as well as freight costs. Any further reduction in the fuel subsidy by the Indonesian government could have significant impact on the Target Group s cost of production. Political and social risks in Indonesia Since 1998, political changes in Indonesia have brought about a shift of power from the central government to the regional government pursuant to which the government of each region is empowered to administer many of the region s affairs without central government interference. This shift in power is a process that may take many years and is likely to have a major impact on the political, economic and regulatory landscape of the country. There is no assurance that events, some of which may lead to political, social and civil disturbances, will not occur in the future and on a wide scale, or that any of those disturbances will not, directly or indirectly, have a material adverse effect on the Business of the Target Group. During the past few years, several bombing incidents took place in Indonesia, significantly in Bali in October 2002 and October Other bombing incidents have also been committed in Indonesia on a number of occasions over the past few years, including at shopping centres and places of worship. In April 2003, a bomb exploded outside the main United Nations building in Jakarta, and in the same month, a bomb exploded at the domestic terminal at Jakarta International Airport. In August 2003, a bomb exploded at the JW Marriott Hotel in Jakarta and on 9 September 2004, a bomb exploded outside the Australian Embassy in Jakarta. Terrorist acts may occur in the future. Terrorist acts may, for example, be directed at foreigners in Indonesia. Violent acts arising from, and leading to, instability and unrest have in the past had, and may continue to have, a material adverse effect on investment and confidence in, and the performance of, the Indonesian economy, and may have a material adverse effect on the Business of the Target Group. 45

100 LETTER TO SHAREHOLDERS Legal risks in Indonesia As Indonesia is a developing market, its legal and regulatory regime may be less certain than in more developed markets and may be subject to unforeseen changes. At times, the interpretation or application of laws and regulations may be unclear and the content of applicable laws and regulations may not be immediately available to the public. Under such circumstances, consultation with the relevant authority in Indonesia may be necessary to obtain better understanding or clarification of applicable laws and regulations. For example, Indonesia s legal system is a civil law system based on written statutes. Judicial decisions in Indonesia, in particular those rendered by the Supreme Court, are persuasive. However, they are not systematically and immediately published as in developed countries. The application of many Indonesian laws and regulations depends, in large part, upon subjective criteria such as the good faith of the parties to the transaction and principles of public policy. Indonesian judges operate in an inquisitorial legal system and Indonesian court decisions may omit express articulation of the legal and factual analysis of the issues presented in a case. As a result, administration and enforcement of laws and regulations by Indonesian courts and governmental agencies may be subject to uncertainty and considerable discretion. The Target Group s businesses are subject to various licences and regulatory requirements of the Indonesian government. The breach of any law and regulations in Indonesia by the Target Group may have a material adverse effect on its Business. Labour laws in Indonesia Under Article 108 of Law No. 13/2003 concerning Manpower dated 25 March 2003, save for companies in respect of which a collective labour agreement is in force, a company with ten or more employees is required to maintain company regulations, approved by the Indonesian Minister of Manpower or other authorised officials, setting out its employment policies and benefits. Accordingly, any future restructuring of the Target Group which involves the redundancy of a significant number of its workers, may involve significant costs due to the terms of such collective labour agreements and company regulations. This may impede the ability of the Target Group to undertake restructuring of its business or increase the costs of such restructuring. Certain information on the Target Group s collective labour agreements is set out in Appendix E of this Circular. Anti-monopoly legislation in Indonesia In 1999, Indonesia enacted anti-monopoly legislation which prohibits a variety of practices considered to be anti-competitive or monopolistic. The legislation focuses on the behaviour of competitors within a market and the structural characteristics of a market. Although market share is considered one of the indicators that a monopoly or unfair competition exists, it is not the only factor and there is uncertainty in the interpretation of markets and market shares. The Target Group has a significant share of the domestic market for branded edible oils and fats in Indonesia. However, branded edible oils and fats constitute only a small proportion of the total edible oils and fats consumed in Indonesia. The Indonesian authority may also focus on the vertical integration of the Target Group s operations which it may deem to create an unfair advantage. As at the Latest Practicable Date, the Indonesian authority has not taken any action against the Target Group for breach of any anti-monopoly legislation nor is the Target Group aware of any such action which is threatened or pending against it. However, there is no assurance that the Target Group would not be subject to actions by the Indonesian authority to enforce (in whatever form) its anti-monopoly legislation on the Target Group s business. If any proceeding were taken or threatened against the Target Group under this legislation, the Target Group may incur significant legal and other costs in defending against such actions and any unfavourable ruling against the Target Group in this respect could adversely affect its Business. 46

101 LETTER TO SHAREHOLDERS The Target Group may be affected by the outbreak of infectious diseases An outbreak of infectious disease in Indonesia such as avian influenza (bird flu) and severe acute respiratory syndrome ( SARS ) may adversely affect the Business of the Target Group. If a significant portion of the Target Group s employees contract an infectious disease or refuse to work for fear of contracting an infectious disease, the Target Group may be compelled to suspend its operations for an extended period of time. Any extensive outbreak of diseases such as avian influenza or SARS in the world may also affect general consumer sentiment and spending and demand for products of the Target Group. This could in turn affect the Business of the Target Group Risks relating to the PT ISM Group The Target Group is dependent on its major shareholder, PT ISM and its subsidiaries The Target Group derived approximately 19.5%, 26.5% and 28.0% of its revenue in FY2003, FY2004 and FY2005 from its sales to the PT ISM Group, respectively. It is expected that PT ISM will have an interest in excess of 50% of the enlarged total number of issued Shares of the Company immediately upon the completion of the Proposed Transactions and the Placement. The Target Group does not have any formal long term agreement to supply the PT ISM Group. If the Target Group is unable to maintain its business relationships with the PT ISM Group, or if there is a substantial reduction in the amount of business that the Target Group is able to secure from the PT ISM Group, the Target Group s Business may be adversely affected. Any significant change in the business or business prospects of the PT ISM Group could result in a material adverse impact on the Business of the Target Group. Please refer to the Section Transactions with the PT ISM Group on pages 138 to 141 of this Circular for more information Risks relating to the business of the Target Group and its industry The Target Group may experience a decline in profits in FY2006 Between the start of FY2006 and the Latest Practicable Date, the Target Group s gross profit margin has been negatively affected by rising operating costs and raw material costs which were not fully passed on to its customers, as well as by the appreciation of the Indonesian Rupiah against the US$, which reduced the Target Group s export revenue. In addition, the Target Group expects its interest expense to rise in FY2006 due to its higher average level of borrowings. These factors may cause the Target Group s profit for FY2006 to be lower than that recorded in FY2005. In HY2006, the Proforma Group achieved a net profit attributable to equity holders of the Company of approximately Rp235 billion as compared to approximately Rp288 billion in HY2005. Further information on the recent trends in the Proforma Group s financial performance is set out in Section of this Circular. The Target Group is vulnerable to fluctuations in the prices of certain key materials Raw materials accounted for approximately 50.4% of the total cost of sales of the Target Group in FY2005. The key materials used in the Target Group s operations include CPO, copra and packing materials. The Target Group depends on external suppliers for about half its CPO requirements and on third party suppliers for all of its other key materials. The factors that may affect the prices of such materials and products include changes in global demand and supply for these materials, availability of other substitute products, the state of the world economy, environmental regulations, tariffs, natural disasters, forest fires, weather conditions and labour unrest. Any significant price fluctuation of such materials may result in a corresponding fluctuation in the Target Group s cost of sales, which may in turn adversely affect its Business. The Target Group is dependent on the Indonesian market The Target Group is dependent on the Indonesian market, which accounted for approximately 65.5% of its revenue in FY2005. Any adverse changes in the economic conditions, for whatever reason, in Indonesia will affect the Indonesians consumer spending patterns and purchasing 47

102 LETTER TO SHAREHOLDERS power. This, in turn, may have a negative impact on the demand for the Target Group s products and may require the Target Group to review its marketing strategies and its future expansion plans. In such event, the Business of the Target Group may be adversely affected. The Target Group has risks relating to its indebtedness The Proforma Group s total indebtedness as at 31 October 2006 stood at approximately Rp1,191 billion (comprising bank borrowings and loans from shareholders), representing a net gearing ratio (defined as total net indebtedness to equity attributable to equity holders of the company) of 0.38 times. These borrowings were undertaken mainly to finance the capital expenditure and working capital requirements of the Target Group. Any significant increase in the interest rates on the Target Group s borrowings will increase its financing expense and have a material adverse impact on the Business of the Target Group. The Target Group s borrowings may also limit its ability to, inter alia, pay dividends, undertake major capital expenditure or divestments, raise additional capital or pursue its growth plan. Whilst the Target Group s operating cash flows and re-financing activities have in the past been sufficient to meet and/or service its debt repayment obligations, there is no assurance that they will continue to be able to do so in the future. The Target Group is subject to volatility in freight costs and disruptions in transportation The Target Group depends on ships, trucks and other modes of transportation provided in part by external parties to transport materials between its plantations and refineries as well as to deliver its end products to its customers. Disruption of these transportation services arising from, inter alia, poor weather, labour unrest or other events could impair the Target Group s production process and its ability to supply its products to its customers or, in the case of shipping, could result in incurring demurrage claims by ship owners for loading and unloading delays and thus could adversely affect the demand for its products and its Business. Freight and handling expenses incurred in the transportation of materials and end products are critical factors in its customers purchasing decisions and it accounted for approximately 33.9% of the Target Group s total selling and distribution costs in FY2005. Increases in freight and transportation related costs, including cost increases due to an escalation of oil and diesel prices, and the reduction of subsidies thereof, could increase the Target Group s cost of production and make its products less competitive, which may in turn have a material adverse effect on its Business. The Target Group is dependent on the services of its key personnel The Target Group is dependent on the contribution and experience of its key management and operational personnel who are familiar with its business and understand the needs and requirements of its customers. The continued success of the Target Group s business is therefore dependent, to a large extent, on its ability to retain and motivate such key management and operational personnel. The loss of the services of such key management personnel, without suitable and timely replacements will adversely affect the Business of the Target Group. The Target Group is exposed to foreign currency exchange risks The Target Group s functional and reporting currency is the Indonesian Rupiah. The Target Group faces foreign exchange risk as it has borrowings denominated in United States Dollars. As such, any appreciation in the United States Dollar against the Indonesian Rupiah will result in the Target Group incurring foreign exchange losses. As at 30 June 2006, approximately 60% and 40% of its total borrowings were denominated in United States Dollars and Indonesian Rupiah, respectively. Further, most of the Target Group s export sales are denominated in United States Dollars and the costs of certain of the Target Group s key purchases, in particular, CPO, copra, fertilizers, heavy equipment and machinery, being international commodities or products, are significantly influenced by their benchmark price movements in foreign currencies (mainly United States Dollars) as quoted on international markets. To the extent that the revenue and purchases of the Target Group are 48

103 LETTER TO SHAREHOLDERS denominated in currencies other than Indonesian Rupiah, and are not evenly matched in terms of quantum and/or timing, the Target Group has a foreign currency exposure which may have an adverse impact on its Business. Accordingly, any fluctuation in the exchange rates may have an impact on the Target Group s financial performance. The Target Group will be adversely affected by any prolonged or significant disruption to its production facilities Any prolonged and/or significant disruption to the Target Group s production facilities (whether for repair, maintenance or servicing) will adversely affect the Business of the Target Group. Further, in the event of any major or sustained disruptions in the supply of utilities such as natural gas, water or electricity or any fire, flood, earthquake or other natural calamities resulting in significant damage to the Target Group s production facilities or inventories, or leading to significant disruption to its operations, its Business will be adversely affected. Recent increase in usage of natural gas in Indonesia has increased the risk of shortages and the frequency of disruption of natural gas supply to certain industries including those of the Target Group. As operations at the Target Group s refineries are dependent on natural gas supply, a prolonged shortage of natural gas will affect the Target Group s ability to meet production targets and consequently affect its Business. Although it is possible to convert these refineries to operate on diesel, this would involve a significant increase in costs. The Target Group needs to effectively manage its expansion and growth The Target Group intends to expand its production and oil palm plantation operations, access new markets, broaden its product mix, increase its economies of scale and lower its production costs. Over the longer term, the Target Group may also explore diversifying, for example, into other agrirelated businesses including higher value downstream products. These expansion plans, including those described in Section of this Circular, involve various risks which could adversely affect its Business, including planting, engineering, construction, regulatory, financial and other significant risks that may delay or prevent the successful completion or operation of these projects or significantly increase costs. There is no assurance that any new business initiatives of the Target Group will contribute positively to its business. For instance, the following events may occur, which may adversely affect the Target Group s expansion plans:- the Indonesian government policies could limit the Target Group s ability to obtain additional land suitable for plantations; insufficient availability of good quality oil palm seeds; new or expanded plantations may not be able to produce crops at expected production levels or may cost more to cultivate and harvest than expected; the Target Group may not be able to complete the expansion projects on time or within budget; its expanded refinery and processing plants may not be able to operate at expected production levels or may cost more to operate than expected; and it may not be able to sell additional production output at competitive prices. The Target Group may require additional funding in the future The Target Group may, from time to time, come across and pursue business opportunities that it deems favourable to its future growth and prospects. To the extent that funds generated from operations have been exhausted, the Target Group may need to obtain additional debt or equity funding to finance the pursuit of such opportunities. The Target Group s working capital and capital expenditure needs may also vary materially from those presently planned and this may also result in the need for substantial new capital. 49

104 LETTER TO SHAREHOLDERS Further issues of securities after the completion of the Proposed Transactions and the Placement may lead to a dilution in the equity interests of Shareholders in the Company. Further debt financing may, apart from increasing gearing and interest expense, contain restrictions on dividend payments, future fund raising ability and other financial and operational matters. Additionally, there can be no assurance that the Target Group will be able to obtain any additional funding, whether equity or debt, at commercially reasonable terms, or at all. The Target Group is subject to government export taxes, import policies and tariffs As the Target Group exports a portion of its products to countries outside Indonesia, it is affected by export taxes levied by the Indonesian government as they increase the costs of its export sales, whilst tariffs and government import policies of its export markets affect the cost of materials to the foreign customers that the Target Group serves. As at the Latest Practicable Date, the export tax rate imposed in Indonesia for CPO, RBD palm oil and RBD palm stearine was 1.5%, 0.3% and 0.3% respectively. Any material changes in the Indonesian export policies or the import policies of its export markets such as an export/import ban or an increase in export/import taxes or other similar actions imposed by the relevant governments would adversely affect the price competitiveness of the Target Group s export products and its Business. Labour activism and strikes, or failure to maintain satisfactory labour relations may adversely affect the Target Group The Target Group s plantations and refineries are labour intensive with most of the Target Group s employees being members of labour unions. Labour unrest and activism could disrupt the Target Group s operations and have a material adverse effect on its Business. Although the operations of the Target Group have not been materially affected by any significant labour dispute in the last three financial years ended 31 December 2005, there is no assurance that it will not, in the future, experience labour unrest, activism, disputes or actions, some of which may be significant and could adversely and materially affect its Business. The Target Group is exposed to the credit risks of its customers The Target Group extends credit terms to certain of its customers (including its distributors) in the ordinary course of business and these subject the Target Group to the risks of default and/or late payment by such customers. Although the Target Group regularly reviews its credit exposure to its clients, default risk may nevertheless arise from, inter alia, events or circumstances that may be difficult to anticipate, detect or control. Any major default on trade receivables owing to the Target Group by its customers will have a material adverse impact on the Business of the Target Group. Further information on the Target Group s credit management is set out in Section of this Circular. The Target Group may face prohibitions and constraints in its ownership and acquisition of plantation land As at 30 June 2006, the Target Group owns and operates an aggregate of approximately 138,771 hectares of plantation land and has, on 16 August 2006 entered into a conditional agreement to acquire approximately 85,541 hectares of mostly undeveloped plantation land pursuant to the Plantation Acquisition. With respect to the ownership of the plantation lands owned by PT SIMP and its subsidiaries (the PT SIMP Group ), the Company has received Indonesian legal advice from Messrs Ali Budiardjo, Nugroho, Reksodiputro, Indonesian counsellors at law ( ABNR ), that each member of the PT SIMP Group has individually obtained location permit(s) for plantation land of not more than 20,000 hectares and has further obtained the required plantation business licence ( IUP ) in accordance 50

105 LETTER TO SHAREHOLDERS with the Letter of the State Minister of Agrarian Affairs/Head of the National Land Agency No dated 10 February 1999, being the cover letter for Regulation No. 2/1999 ( Regulation No.2/1999 ), which provides that a company established in the framework of investment (perusahaan dalam rangka penanaman modal) that intends to acquire a plot of land must first obtain a location permit. The purpose of this requirement is to give directions as well as to control such companies in their land acquisition. Regulation No. 2/1999 provides that the holder of the location permit is permitted to arrange the clearance of the intended land from all of its existing legal relationship with third parties who own or have interest over such land, in accordance with the prevailing regulations, and that after the completion of the relinquishment of the intended land by parties who had rights and interests over it, the holder of the location permit may be given a right over such land (as evidenced by the land certificate), which right will authorize the holder to use the land. ABNR has also stated that as of the date of their advice, the PT SIMP Group has ownership/control over certificated land of approximately 92, hectares and un-certificated land of approximately 46,525.1 hectares (in which the land certificates are in process for approximately hectares and location permits have been issued for approximately 45, hectares). The total plantation land area currently owned by the PT SIMP Group is 138, hectares. On 9 November 1998, the Minister of Forestry and Plantation issued Decree No. 728/Kpts-II/1998 ( Decree No. 728/1998 ) on the maximum area for forest exertion and the release of forest area for plantation cultivation to 20,000 hectares for one province and 100,000 hectares for the entire Indonesia, for a company or group of companies. On 10 February 1999, the State Minister of Agrarian Affairs/Head of the National Land Agency issued Regulation No. 2/1999 with the same restrictions for plantation businesses conducted on a large scale with the Hak Guna Usaha title. On 23 May 2002, the Minister of Agriculture of Indonesia issued Decree No. 357/Kpts/HK.350/5/2002 on guidelines for licensing plantation business ( Decree No. 357/2002 ) with the same restrictions on the size of land-plots for the business of plantation cultivation. However, on 11 August 2004, the Indonesian government enacted Law No. 18 of Year 2004 on Plantation ( Law 18/2004 ), which provides, inter alia, that as regards the case of land for a plantation business, the minister in charge of and responsible for managing the plantation sector ( Relevant Minister ) shall stipulate the land s maximum area and minimum area of use, while the agency in charge of land affairs shall issue the land titles. Law 18/2004 further provides that in determining such maximum and minimum area, the Relevant Minister shall be guided by the types of plants, the land availability in view of the agro-climatic conditions, the capital, the factory s capacity, the population density, the business development pattern, the geographical condition and technological development (the Relevant Factors ). ABNR has advised the Company that:- (i) (ii) (iii) Law 18/2004, which is aimed at promoting the development of the plantation business sector, provides the Relevant Minister with a broader room for determining the maximum and minimum allowable land areas for plantation development purposes; the determination of the maximum and minimum land area allowable for plantation businesses must take into consideration the capability of the Indonesian citizens in building and developing a good and solid plantation business; under the Indonesian legal system, the rank of law is above that of ministerial decrees. Ministerial decrees must follow the law. Pursuant to Article 10 paragraph (1) of Law 18/2004, the Relevant Minister will determine the maximum and minimum land areas for the plantation business with the consideration of the Relevant Factors. Therefore, the Relevant Minister will need to issue a new decree to make such determination. This is in line with ABNR s current research, whereby the Ministry of Agriculture has verbally advised them that a bill for a new Ministerial decree is currently being discussed to determine the land areas allowable for the plantation business based on the Relevant Factors. In ABNR s view, none of Law 18/2004, Decree No. 357/2002, Regulation No. 2/1999 and Decree No. 728/1998 provides any sanction if a company has exceeded the maximum plantation land ownership limit; 51

106 LETTER TO SHAREHOLDERS (iv) (v) despite PT ISM s disclosures made available to the public that its total area of plantation land ownership has exceeded 100,000 hectares, as of the date of ABNR s legal advice, none of PT ISM or the PT SIMP Group has received any notification or warning from or encountered any problem with the relevant Indonesian government authority for the reason that the certificated land and land with location permits have exceeded the maximum plantation land ownership limit under Decree No. 728/1998, Regulation No. 2/1999 and Decree No. 357/2002. In addition, despite PT ISM s disclosure to the public that the long term target of PT ISM is to increase its plantation land ownership up to approximately 250,000 hectares and that PT ISM will soon acquire the Plantation Companies which own a total of approximately 85,000 hectares of plantation land, none of PT ISM or the PT SIMP Group or the Plantation Companies has received any notification or warning or question from the relevant Indonesian government authority in relation to such long term target or the intention of PT ISM to acquire approximately 85,000 hectares of plantation land through the acquisition of the Plantation Companies; and after the enactment of Law 18/2004, it can be argued that the provisions in Decree No. 728/1998, Regulation No. 2/1999 and Decree No. 357/2002, which determine the allowable maximum land areas in a group of companies, have no longer been enforced on PT ISM or the PT SIMP Group, including the Plantation Companies proposed to be acquired. On this basis, after Law 18/2004 was enacted, unless determined otherwise by the Relevant Minister in accordance with Law 18/2004, for the purposes of its plantation business the PT SIMP Group including the Plantation Companies proposed to be acquired can own land of more than 100,000 hectares throughout Indonesia. However, Shareholders should note that if the Relevant Minister applies the limitations on the maximum size of land allowable for plantation business as stipulated in the Decrees and/or the Relevant Minister determines limitation(s) which are less than the size of land-plots owned by the Target Group, although the Decrees are silent on the action which the Indonesian government may take, in practice, there is no assurance that the Target Group may continue to own all of its plantation land. In particular, the Target Group may be required to return or sell part of its land to reduce its land ownership, in which case it may suffer loss on disposal should such land be confiscated or force-sold. In addition, the Target Group may also be limited from expanding its plantation business and CPO production, which would in turn affect its ability to implement its business strategies. The Ijin Lokasi (Location Permit) of certain of the Target Group s property is revocable As at 30 June 2006, the Target Group holds approximately 45, hectares of plantation land in Indonesia for which the Ijin Lokasi (Location Permit) granted by the Indonesian government has been obtained. This represents approximately 32.9% of the total plantation land held by the Target Group in Indonesia. The Ijin Lokasi allows the Target Group to acquire the title with respect to the land covered by the Ijin Lokasi in accordance with the prevailing laws and regulations and upon the completion of the acquisition of such land, the Target Group would be entitled to occupy and cultivate such land. Such Ijin Lokasi may be revoked by the Indonesian government if the Target Group fails to acquire the title over the land within the stipulated validity period (or any extension thereof) of the said Ijin Lokasi. In such an event, the Target Group may lose their rights granted by the Indonesian government under the Ijin Lokasi to acquire the title with respect to the land covered by the Ijin Lokasi and the Business of the Target Group may be adversely affected. The Target Group is presently taking steps to obtain title over land in respect of such Ijin Lokasi. For more information, please refer to Appendix E of this Circular. The Target Group may be adversely affected by the imposition and enforcement of more stringent environmental regulations and the actions of environmental groups The Target Group is subject to a variety of laws and regulations that promote environmentally and socially sound operating practices. The Target Group s principal environmental concerns relate to the discharge of effluent resulting from the milling of FFB and the refining of edible oils, and land and forest clearance for plantation development. Its principal social concern relates to possible 52

107 LETTER TO SHAREHOLDERS conflicts with local communities around its plantations. Any environmental claims or the failure to comply with any present or future regulations could result in the assessment of damages or the imposition of fines, the suspension or a cessation of the Target Group s operations. Environmental regulations and social practices in Indonesia tend to be less stringent than in developed countries. It is possible that these regulations could become more stringent in the future and compliance with them may involve incurring significant costs. This may consequently have an adverse effect on the Business of the Target Group. Any failure to comply with the laws and regulations could subject the Target Group to liabilities. The Target Group is adversely affected by downturns in the harvesting of FFB due to adverse weather conditions, natural disasters and other factors The production of CPO and other palm oil derivative products are highly dependent upon a sufficient supply of FFB. As FFB are agricultural products, the occurrence of unfavourable weather conditions, fires, droughts, floods, earthquakes, volcanic activity, pestilence or other natural disasters will affect its supply. The FFB are also susceptible to theft. A material shortage in the supply of FFB will affect the production operations of the Target Group and have an adverse effect on its Business. The Target Group may be exposed to the risk of smallholders defaulting on repayment of the loans extended or guaranteed by the Target Group under the Plasma Programme Under the Plasma Programme, certain information on which is set out in Section 14.5(e) of this Circular, smallholders are required to sell their FFB to the Target Group, and a portion of the amounts payable by the Target Group to the smallholders for such FFB are (i) paid directly by the Target Group to the banks which have provided financing to such smallholders for the financing of the development cost of their plantations, to reduce or repay the outstanding amounts; and (ii) applied to offset outstanding amounts under the unsecured loans provided by the Target Group to such smallholders after full repayment of the outstanding amounts to the banks has been made. There is no assurance that the smallholders will not default on their obligation to sell FFB to the Target Group and this may result in them defaulting on their loan repayments to the banks and the Target Group. In such event, guarantees which have been provided by the Target Group to the banks to secure the loans of the smallholders may be called upon by the banks. The Target Group has provided such guarantees amounting to an aggregate amount of approximately Rp684 billion as at 30 June As at 30 June 2006, the Target Group has committed to provide loans of up to Rp25.7 billion to the smallholders and as at 30 June 2006, approximately Rp3.7 billion of such loans have been drawn down. In addition, the Target Group has advanced cash to smallholders to fund the cost of development and cultivation of their plantations. As at 30 June 2006, the combined balance of both loans and advances amounted to approximately Rp26 billion. Any material default by such smallholders on their obligations to the banks and/or the Target Group would have a material adverse impact on the Business of the Target Group. The Target Group may have insufficient insurance coverage or no insurance coverage for certain contingencies and certain assets The Target Group maintains insurance cover for its equipment, machinery, storage tanks, oil palm plantations, mills, refineries and other infrastructure. However, as at 30 June 2006, the insurance coverage against plantation fires in the oil palm plantations and other risks covers only an aggregate area of approximately 56,005 hectares (out of a planted area of approximately 63,552 hectares) for up to approximately Rp278 billion. In addition, the Target Group does not have full insurance coverage against any losses arising from business interruption or from other natural disasters including volcanic eruptions and tsunamis, poor weather, crop disease or expropriation. The Target Group also does not maintain insurance for its employee housing and road tankers. As a result, the insurance coverage of the Target Group may be insufficient to cover losses should these losses arise. Any such losses not otherwise covered by insurances may adversely affect the Target Group s Business. 53

108 LETTER TO SHAREHOLDERS The Target Group is dependent on its product brands The development of the brands used by the Target Group, in particular the Bimoli brand, is critical in attracting new customers to its products and maintaining the loyalty of its existing customers. If the quality and reputation of the Target Group s current products deteriorates, then the value of its brands could be diminished and this would have a material adverse effect on its Business. The Target Group has registered or applied for the registration of its trademarks and designs (see Section 9 of Appendix D to this Circular). As at the Latest Practicable Date, the Target Group has not received any claims from third parties in respect of the use of such trademarks or designs. The Target Group s success will depend on its awareness of and its ability to prevent third parties from using its current and future brands, its intellectual property rights therein, and its trademarks or designs, without its consent. In this connection, the Target Group could incur substantial costs in pursuing such claims or protecting its trademarks and/or designs and may have to divert significant effort of its technical and management personnel. Failure to do so could result in loss of the Target Group s rights to develop or make certain products or require it to pay monetary damages or royalties to license proprietary rights from third parties. Issues relating to intellectual property rights can be complicated and there is no assurance that disputes will not arise or will be resolved in the Target Group s favour. The Target Group also relies on trade secrets, such as the formulae for its products and proprietary know-how not protected by patents or trademarks, and continuing technological innovation that it seeks to protect, in part by confidentiality agreements with suppliers, employees and consultants. In addition, access to the Target Group s trade secrets and formulae is strictly restricted to top management. The Target Group cannot assure that its trade secrets and proprietary know-how will not be compromised as a result of breaches of confidentiality agreements or otherwise become known or be independently developed by its competitors or that it will be able to maintain the confidentiality of information relating to new products arising from its research. The Target Group is dependent on its customers and distributors Under the Target Group s normal trading arrangements, the Target Group does not require its customers to purchase any minimum quantum of its products on a recurrent basis. There is no assurance that the Target Group will be able to retain its customers or continue to receive orders from them at current levels in the future. Any material cancellation, reduction in and/or cessation of orders for whatever reasons by any of the Target Group s customers without suitable and timely replacement would adversely affect its Business. In addition, the Business of the Target Group is dependent on the retail growth and penetration rate of its products. The Target Group distributes its products mainly through distributors, and operators of chain convenience stores, hypermarkets and supermarkets, over which it has limited control. Hence, the Target Group is dependent on the distribution channels of its customers to expand the reach of its products geographically. Should these distributors and chain operators be unable to maintain and/or expand their distribution channels in any material respect, the Business of the Target Group would be adversely affected. The Target Group is exposed to changes in consumer dietary preferences and significant competition from other companies and substitute products The edible oils and fats business is highly competitive. The Target Group s competitors include companies of various sizes some of whom may have greater financial resources and/or have been in the edible oils and fats business for a longer time. Certain competitors have relationships with some of the Target Group s current or potential customers, making it more difficult for the Target Group to increase its sales base. Should the Target Group s existing market share be reduced or should its margins be lowered as a result of competition, its Business could be adversely affected. 54

109 LETTER TO SHAREHOLDERS There exists various types of edible oils and fats which are competing substitutes to the products manufactured by the Target Group. At the same time, the edible oils and fats industry is characterised by frequent changes in consumer preferences. Consumers in the markets which the Target Group serves are increasingly health-conscious and select cooking oil and margarine based on considerations other than price and taste. The Target Group s profitability will depend on its ability to anticipate and respond to the competitive factors affecting the edible oils and fats industry, including the introduction of new products, pricing policies of its competitors, changing consumer preferences, the prices of alternative edible oils and fats, and regional and local economic conditions. Accordingly, there is no assurance that the Target Group will be able to compete effectively or that the level of existing and future competition would not adversely affect its Business. The Target Group s tank farms and refineries are built, or will be built, on leased properties and such leases may be terminated and/or such refineries may have to be relocated at the end of their lease period The Target Group s tank farms in Jakarta and Medan, its refinery at Surabaya, and the new refinery which it intends to build at Tanjung Priok, are built or will be built (as the case may be) on land which have been leased from the Indonesian Port Authority, and these leases expire in However, the Indonesian Port Authority has full discretion to terminate such leases before their expiry. There is no assurance that such leases will not be terminated or that an extension for such leases will be granted, or granted on no less favourable terms, when the application for such extensions is made. If such leases are terminated or if the Target Group is unable to extend such leases on the expiry of the existing term, it would have to relocate such infrastructure at a significant cost. The business of the Target Group is dependent on the Halal-certification of its edible products and raw materials purchased from its suppliers As at the Latest Practicable Date, all of the Target Group s edible products are Halal-certified and are acceptable for consumption by Muslims. In Indonesia, Halal status has to be certified by the relevant national Islamic authorities and the certification audit is performed annually. The Target Group also requires suppliers of its raw materials to be Halal-certified at all times. There is no assurance that the Halal-certification of the Target Group s products or that of its major suppliers will not be revoked, or that the extension and renewal of such Halal-certification will be granted when the application for such extension and/or renewal is made. In such an event, the Target Group may be unable to sell its products in Indonesia and the Business of the Target Group will be materially and adversely affected. The Target Group must comply with the requisite health and hygiene standards As the Target Group is primarily engaged in the production of edible oils and fats, its operations have to comply with the relevant health and hygiene standards of, and are subject to periodic inspection by, the relevant Indonesian authorities. In the event that the Target Group is unable to comply with or maintain the requisite health and hygiene standards set by the relevant regulatory authorities, it may be subject to, inter alia, penalties and fines, suspension of production activities or revocation of its production licences. The occurrence of such events may tarnish the Target Group s brand image and businesses, and/or may result in substantial monetary losses, which would materially and adversely impact its Business. In addition, in the event of any food poisoning cases or food scares related to the Target Group, it may face a loss in customer confidence which may lead to significant cancellation of orders. Further, the requirements set by the above authorities are subject to change and new requirements may be imposed from time to time. This may increase the cost of compliance to the Target Group and may result in production delays or halts which prevent it from meeting customers orders as well as cancellation of customers orders. There is also no assurance that the requirements set by the authorities will be met at all times which could result in the suspension or revocation of the Target Group s licences, permits or approvals. These may have a material adverse impact on the Business of the Target Group. 55

110 LETTER TO SHAREHOLDERS The Target Group is exposed to risks of stock obsolescence and product returns The shelf-life of the cooking oil and margarine manufactured by the Target Group is approximately two years and eight months, respectively. The Target Group is exposed to risks of stock obsolescence and inventory write-down when the shelf-life of its products has expired. The Target Group is required to recall unsold products which have expired. Any increase in the Target Group s level of stock obsolescence, slow-moving products or product returns may require additional provisions to be made in its financial statements thereby adversely affecting its financial performance. Information on the Target Group s inventory management policy and analysis of its inventory obsolescence and inventory write-down/off for the past three financial years ended 31 December 2005 are disclosed in Section of this Circular. The Target Group may be susceptible to the availability of counterfeit products The Target Group is dependent on the reputation and goodwill generated by its brand equity, in particular the Bimoli brand. It is possible that other manufacturers may attempt to pass off their merchandise under the various brand names of the Target Group or those similar to them. The Target Group may not be able to prevent the sale of counterfeit products under its brand names. Should such counterfeit products be of inferior quality to its products and cause harm to end-users, the goodwill generated by the Target Group s brand equity may be eroded and its reputation and Business may be materially and adversely affected. The Target Group may be affected by complaints from consumers and negative publicity The Target Group may be the subject of complaints from consumers with regard to its products which comprise mainly edible products. Its products may be rejected by customers if they do not meet their quality requirements. The Business of the Target Group may be adversely affected by negative publicity resulting from the publication of industry findings, research reports or health concerns concerning its products or similar products and/or negative publicity relating to the various brand names, in particular the Bimoli brand. The Target Group may also be subject to hostile acts such as tampering or sabotage of its products and the spread of groundless rumours about its products. Such negative publicity, regardless of their validity, may affect the sales of its products. There is no assurance that such negative publicity will not occur in the future, in which event, the Business of the Target Group may be adversely affected. The Target Group may be adversely affected by potential product liability claims The Target Group is engaged in the production of edible products, and it handles such products in processed and unprocessed form. These food products are ultimately consumed by the end consumers. In the event that the edible products of the Target Group are found to be unfit for consumption as a result of, for example, negligence or omission or wilful action or sabotage, it may be subject to lawsuits and product liability claims for any injury or death to any person as a result of consuming its products. In such event, the Target Group s brand image, reputation and Business will be adversely affected. The Target Group does not have any product liability insurance and it may be liable if the consumption of any of its products causes injury, illness or death. The Target Group may also have to recall its products if they become contaminated, damaged or are mislabelled. Any significant product liability finding against the Target Group or a widespread product recall will have a material adverse effect on its Business. Hypermarkets and supermarkets may limit the sales volume of the Target Group s products The Target Group believes that supermarkets and hypermarkets will become increasingly popular with consumers in Indonesia and become a major distribution channel for edible products in the country. Accordingly, the Target Group anticipates that the proportion of its direct product sales to such supermarkets and hypermarkets will increase and that it will be more reliant on such sales. Hypermarkets and supermarkets are usually operated by large corporations with relatively stronger 56

111 LETTER TO SHAREHOLDERS bargaining powers in dealing with suppliers such as the Target Group. Such supermarkets and hypermarkets may from time to time limit the sales volume of the Target Group s products to, for example, limit their reliance on the Target Group, and in such event, the Business of the Target Group may be adversely affected. The Indonesian government may intervene to ensure stability in the market price for cooking oil The sale of cooking oil is the single largest source of revenue for the Target Group. The prices of cooking oil are substantially influenced by the price of CPO, the principal raw material in the production process. As cooking oil is considered a basic consumer good in Indonesia, the Indonesian government may from time to time intervene to ensure stability in the market price for cooking oil. Actions which the Indonesian government has taken in the past include the imposition of export tariffs on CPO. If the Indonesian government exercises regulatory control over the price of cooking oil, this may adversely affect the Target Group s Business Risks relating to the ownership of Shares after completion of the Proposed Acquisition There is no assurance that the Placement will be successfully carried out; the issue of new Consolidated Shares pursuant to such Placement would dilute the shareholdings of the Shareholders in the Company Following the completion of the Proposed Acquisition but before the Placement, ISHPL and/or its nominee(s) will own approximately 98.67% of the enlarged total number of issued Shares of the Company. Under Rule 210(1) of the Listing Manual, (depending on the number of Placement Shares and assuming the Placement is undertaken at a price of S$0.75 per Consolidated Share) at least 12.0% or 15.0% of the total number of issued Shares of the Company must be held in the hands of at least 1,000 public Shareholders in order for the Company to maintain its listing status and have such listing on the SGX Mainboard. Accordingly, for the purposes, inter alia, of meeting the shareholding spread and distribution requirements set out in the Listing Manual, the Placement is proposed to be undertaken. It is envisaged that the trading in the Company s Shares (or the Consolidated Shares, as the case may be) on the SGX-ST will be suspended on the second Market Day following the completion of the Proposed Acquisition and such suspension will continue during the period allowed for the Placement. There is no assurance that the Placement will be successfully carried out. In the case where the Placement is not or is unable to be carried out within the period permitted by the SGX- ST (being, presently, one month after the completion of the Proposed Acquisition), trading of the Shares (or the Consolidated Shares, as the case may be) may continue to be suspended and the SGX-ST may require the Shares to be de-listed. The issue of new Consolidated Shares pursuant to the Placement is subject to Shareholders approval to be obtained at the EGM and any such issue would dilute the shareholdings of the Shareholders in the Company. ISHPL is expected to control more than 50% of the enlarged total number of issued Shares of the Company on completion of the Proposed Acquisition and Placement On completion of the Proposed Acquisition and the Placement, it is expected that ISHPL will beneficially own more than 50% of the enlarged total number of issued Shares of the Company. As a result, ISHPL will be able to significantly influence matters requiring Shareholders approval (other than the approval of transactions for which ISHPL and its associates may be prohibited from voting) in a manner which may or may not be in the interests of other Shareholders, including the election of directors, the timing and payment of dividends, transactions such as the sale of all or substantially all of the Company s assets, the Company s merger or consolidation with another entity, capital restructuring and business ventures. 57

112 LETTER TO SHAREHOLDERS The Target Group s holding company structure and/or other factors and restrictions may impede its ability to service its debt obligations or pay dividends The Target Group operates under a holding company structure. As a holding company, the level of IOFPL s income and its ability to service its debt obligations and to pay dividends may depend upon receipt of dividends and distributions from its subsidiaries, associated corporations and equity investments. The payment of dividends by its subsidiaries, associated corporations and equity investments is contingent upon many factors, including their earnings and cash flows, and may be subject to legal, contractual and/or tax and accounting requirements in the relevant jurisdiction and other restrictions on the payment of dividends under the terms of certain agreement(s). In the event that the Target Group acquires a minority stake in an investee company in the future, it may not be able to control the amount or timing of dividend payments or distributions from such investee company. Any such restrictions may impede the Target Group s ability to service its debt obligations or to pay dividends. Please refer to the Sections Exchange Controls in Appendix E of this Circular and Taxation in Appendix G of this Circular, for certain information relating to exchange controls and taxation, respectively, in, inter alia, Indonesia. The Company may not pay dividends in the future The Company s ability to pay dividends to its Shareholders is directly affected by, inter alia, its financial condition and the ability of companies in the Target Group to pay the Company dividends. There is no assurance that the Company will be able to pay dividends to Shareholders after the completion of the Proposed Transactions. In the event that any member of the Group enters into any loan agreements in the future, covenants therein may limit when and how much it can declare and pay. The Target Group s reporting currency is Indonesian Rupiah while the Shares are traded in Singapore Dollars The Shares are currently quoted in Singapore Dollars and this is expected to continue after the completion of the Proposed Transactions. However, it is contemplated that the reporting currency of the Company will be converted to Indonesian Rupiah upon the completion of the Proposed Transactions. This is to be in line with the functional and reporting currency of the Target Group which will then become the Company s new dominant business. Accordingly, any fluctuation in the exchange rates between the Singapore Dollar and the Indonesian Rupiah may have an impact on the value of the Company s reported earnings, NAV and other financial measures in Singapore Dollar terms. This, in turn, may affect the market price of the Shares. Future sales of securities by the Company or Shareholders may adversely affect the price of the Shares Following the completion of the Proposed Transactions but before the Placement, ISHPL will hold 9,982,000,000 Shares (or 998,200,000 Consolidated Shares), representing approximately 98.67% of the enlarged total number of issued Shares of the Company. Following completion of the Placement, it is expected that ISHPL will hold more than 50% of the enlarged total number of issued Shares of the Company. Although the Shares of ISHPL are subject to moratorium, any sale of significant amounts of such Consolidated Shares after the expiration of the applicable moratorium period or any permitted sales during the applicable moratorium period by ISHPL or the perception that such sales may occur, could materially and adversely affect the market price of the Shares and may thereby also affect the Group s ability to raise funds through issuance of equity or other forms of securities. 58

113 LETTER TO SHAREHOLDERS Negative publicity may adversely affect the price of the Shares Any negative publicity or announcement, whether justifiable or not, relating to the Company or the Target Group or any of its associates or future joint venture partners may adversely affect the price of the Shares. Such negative publicity or announcement may include involvement in insolvency proceedings, litigation suits and failed attempts in joint ventures or takeovers. 14. INFORMATION ON THE TARGET GROUP In certain Sections of this Circular, including this Section 14, the write-up on the Target Group proceeds on the basis that the PT ISM Group Restructuring has been completed Business Overview The Target Group is one of Indonesia s major vertically-integrated manufacturers of edible oils and fats with a significant market share in the branded cooking oil, as well as the margarine and shortening segments in Indonesia. Its business operations range from oil palm cultivation and milling to the refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivative products. The Target Group also has undeveloped plantation land which can be developed to increase its production of CPO. It is also a leading producer of CNO in Indonesia. (a) Plantations and CPO Production The Target Group is involved in oil palm cultivation and milling. It cultivates its own oil palm plantations through its ownership of an aggregate of approximately 130,012 hectares of plantation land in Indonesia (excluding land under the Plasma Programme, land used for oil palm seed breeding and rubber plantation land), of which approximately 63,552 hectares are planted with oil palms as at 30 June The Target Group also holds land rights to approximately 8,530 hectares of rubber plantation of which approximately 5,015 hectares were under cultivation as at 30 June In addition, the Target Group has an oil palm seed breeding and research company (which owns approximately 229 hectares of plantation land) that provides services to oil palm estates. To increase its land bank, the Target Group has entered into a conditional agreement to acquire approximately 85,541 hectares of mostly undeveloped plantation land pursuant to the Plantation Acquisition. The Target Group also administers approximately 25,000 hectares of oil palm plantation land under the Plasma Programme in Indonesia (this excludes approximately 5,000 hectares of land earmarked for the Plasma Programme which have not been administered) as at 30 June Please refer to Section 14.5(e) of this Circular for certain information on the Plasma Programme. The Target Group has six operational mills located at the Riau province with the capacity to process up to 315 MT of FFB/hour. Another mill in West Kalimantan with a projected capacity of 45 MT of FFB/hour is currently under construction and is expected to be completed before the end of In FY2005, the Target Group s oil palm plantations produced approximately 299,000 MT of CPO, most of which were supplied to other subsidiaries of the Target Group mainly for the manufacture of cooking oil, margarine and shortening. By-products from the FFB milling process such as palm kernel which are not required for the Target Group s refining needs are generally sold to external parties. (b) Refining of CPO into cooking oil, margarine, shortening and other palm oil derivative products The Target Group also owns and operates four strategically located refineries in the Indonesian cities of Jakarta, Surabaya, Bitung and Medan. The Surabaya and Bitung refineries are located near deep draft ports which are logistically advantageous for transportation. 59

114 LETTER TO SHAREHOLDERS These refineries process CPO, first into RBD palm oil which is then fractionated into RBD palm olein and RBD palm stearine. These in turn are processed and/or packaged into the Target Group s own brands of cooking oil, margarine and shortening for sale in the domestic market, as well as for export purposes. The Target Group undertakes its own packaging of products. As at the Latest Practicable Date, the Target Group s refineries have a cumulative capacity to process approximately 2,950 MT of CPO daily. The Target Group s key products comprise cooking oil, margarine and shortening for both the industrial and consumer segments. For the latter, the Target Group s products are sold to end consumers in Indonesia under its own brands of Bimoli, Bimoli Spesial, Delima, Happy Salad Oil and Mahakam for cooking oil and Simas Margarine Dapur, Simas Spesial and Amanda for consumer margarine. Industrial margarine and shortening are sold under the Palmia, Simas and Amanda brands. The Target Group currently enjoys a significant market share of the branded cooking oil, margarine and shortening segments in Indonesia where its products are sold through approximately 230,000 retail outlets. The Target Group distributes its products throughout Indonesia through national, regional and district distributors as well as through direct sales. In FY2005, approximately 81.2% of the Target Group s revenue from its cooking oil and fats division was derived in Indonesia with the balance from export sales to customers in more than 50 countries, including China, India, Sri Lanka, the Philippines, Russia and Papua New Guinea. Approximately 60.0% of the Target Group s revenue from its cooking oil and fats division in FY2005 was attributed to the sale of products under its own brands with the balance derived from sales to the industrial segment and other third party brands. The Target Group also produces and sells a small amount of other palm oil derivative and by-products such as RBD palm stearine and palm fatty acid distillate. (c) Manufacture of Coconut Oil and related products The Target Group also owns and operates two strategically located copra crushing plants in Indonesia, namely in Bitung in North Sulawesi and Moutong in Central Sulawesi, which are engaged in the manufacture and export of crude and RBD coconut oil and its by-products to third parties. The Target Group does not own any coconut plantations and purchases its copra from external sources. In FY2005, the Target Group sold approximately 84,400 MT of CNO/RBD CNO and approximately 30,200 MT of copra pellets. In FY2005, nearly all of the CNO and its derivative products were exported by the Target Group to oleochemical plants located in the United States, Europe and South Korea. By-products such as copra pellets were sold mainly to animal feed markets in South Korea. The Target Group believes that operating as an integrated agribusiness group provides a resilient business model with significant economies of scale and cost advantages. This in turn increases the Target Group s competitiveness Industry Overview (a) Overview of Edible Oils and Fats Market in Indonesia According to Bank Indonesia, Indonesia s Gross Domestic Product ( GDP ) by expenditure at current prices reached approximately Rp2,729.7 trillion in Household consumption (current prices) in 2003, 2004 and 2005 amounted to Rp1,372.1 trillion, Rp1,532.9 trillion and Rp1,785.6 trillion, respectively. 60

115 LETTER TO SHAREHOLDERS Edible oils and fats consumed in Indonesia include palm oil, coconut oil, corn oil, soya bean oil, sunflower oil, olive oil, butter and margarine. Vegetable oils in particular, are considered essential food items in Indonesia as they are widely used as cooking oil and in food preparation. The Target Group estimates that the total Indonesian market for cooking oil in 2005 was approximately 2.2 million MT. The Target Group believes that the majority of cooking oil sold in Indonesia are unbranded and these are mainly sold in traditional markets (such as wet markets and provision shops), catering mainly to lower-income consumers. The Target Group estimates that approximately 17% of cooking oil consumed in Indonesia is marketed under brand names. In contrast, margarine and shortening are generally marketed under brand names in Indonesia. The following are selected industry estimates by Euromonitor International published in its report titled Oils and fats in Indonesia dated January 2006:- (i) Vegetable and seed oils (comprising palm oil, coconut oil, corn oil, soya bean oil and sunflower oil) Retail sales of branded vegetable and seed oils in Indonesia will reach 372,200 MT in 2005 with a retail value of Rp3,502 billion. This represents a compounded annual growth rate of approximately 9.2% between 2000 and 2005 in terms of volume. Vegetable and seed oils accounted for approximately 75.7% and 64.4% of total retail volume and retail value of branded oils and fats consumed in Indonesia in 2005, respectively. Of these, palm oil and coconut oil made up about 88% and 3.5% of total retail value of branded vegetable and seed oils consumed, respectively. (ii) Margarine (used for cooking, baking and as bread spread) Retail sales of branded margarine in Indonesia will reach 115,100 MT in 2005 with a retail value of approximately Rp1,672 billion. This represents a compounded annual growth rate of approximately 7.7% between 2000 and 2005 in terms of volume. Margarine accounted for about 23.4% and 30.7% of total retail volume and retail value of branded edible oils and fats consumed in Indonesia in 2005, respectively. (iii) Key market players and brands The Target Group, PT SMART Corp Tbk and PT Unilever Indonesia Tbk dominate the market with an estimated combined market share of almost 70% of total retail value of branded oils and fats sold in Indonesia in The two leading brands of oils and fats in Indonesia in 2004 were the Bimoli brand of vegetable oil from the Target Group and the Blue Band brand of table margarine from PT Unilever Indonesia Tbk. In 2004, the Target Group has an estimated 38.2% share of the Indonesian market for branded edible oils and fats by retail value. This includes the Target Group s Bimoli brand with an estimated market share of 24.8%. The vegetable and seed oils market in Indonesia is characterised by many products emphasizing the health benefits in advertisements and the majority of brands are marketed as being cholesterol-free in addition to other health benefits. 61

116 LETTER TO SHAREHOLDERS (b) Overview of Palm Oil Market Palm oil and its various derivative products are consumed in large quantities all over the world as ingredients in the manufacture of numerous products across a wide range of industries including the food, personal care products, detergent, animal feed and chemicals industries. Commercial cultivation of palm oil is only possible in low-land areas near the equator with Southeast Asia (in particular, Malaysia and Indonesia) being the dominant producers. As a heavily consumed and essential raw material with extensive applications, palm oil and its derivative products are widely traded on international commodities markets. According to its reports titled Oilseeds: World Markets and Trade dated June 2006 and Indonesia Oilseeds and Products Annual 2006 dated 8 February 2006, the United States Department of Agriculture stated that:- Global palm oil consumption in 2003/04, 2004/05 and 2005/06 was approximately 29.7 million MT, 33.1 million MT and 35.3 million MT, respectively. For 2006/07, global palm oil consumption is forecast to reach a record 37.3 million MT accounting for a dominant 31.1% of worldwide major vegetable oil consumption. The trend of strong growth in palm oil consumption continues in 2006/07 as food use and industrial use are forecast to increase 4.5% (1.2 million MT) and 8.9% (710,000 MT), respectively. The larger food consumption forecast is driven primarily by increased palm oil demand in China and India while growth in industrial use comes as Malaysia, China and the European Union expand their palm oil biofuels programs. Indonesia s palm oil production has risen from 9.2 million MT in 2001/02 to an estimated 15 million MT in 2005/06. In 2006/07, Indonesia is expected to overtake Malaysia to become the world s largest producer of palm oil with production in excess of 16 million MT. In terms of market structure, smallholders, state-owned companies and private companies manage 28%, 12% and 60% respectively, of palm oil production areas in Indonesia History and Development of the Target Group Certain members of the Target Group have an operational history which dates back to the early 1970s (in the case of its cooking oil and fats division) and the early 1980s (in the case of its plantation division). In 1997, PT ISM acquired equity interests in several companies engaged in palm oil related businesses. Since 1997, the Target Group has expanded its business operations to become one of Indonesia s major vertically-integrated manufacturers of edible oils and fats with three key business divisions, namely the plantation division, cooking oil and fats division as well as the commodities division. Certain key milestones of the Target Group are as follows: : Various companies and businesses in the Target Group were established (either as joint ventures or were held directly) or acquired by the Salim Group. These companies, such as PT SIMP, PT IIP, PT IBS, PT SOG and PT BML, engaged in plantation ownership, the manufacture of cooking oil, coconut oil and related products : PT ISM acquired 80.0% of the issued share capital of PT SIMP, PT IBS, PT SOG and PT BML from the Salim Group : The Target Group ceased trading of spot and forward contracts on palm oil-based commodities in domestic and foreign markets as one of its core activities as it decided to focus on its plantation and cooking oil and fats divisions as well as its copra-based business. The Target Group also decided to dedicate the bulk of its CPO output for its own manufacturing purposes, so as to ensure a sufficient quantity of high quality CPO used internally to produce its own cooking oil, margarine and shortening. 62

117 LETTER TO SHAREHOLDERS 2005 : PT ISM acquired the remaining 20% of the issued share capital of each of PT IBS, PT SOG and PT BML. Commenced accumulation of plantation land as its then existing plantations in Riau Province of approximately 56,005 hectares were fully planted. As such in that year, it acquired a 100% interest (less one share) in two companies, PT KGP and PT CNIS, for Rp175 billion. These companies owned an aggregate land bank of approximately 27,000 hectares in West Kalimantan. PT SIMP also acquired 93.4% equity interest in PT KMS for Rp75 billion. This company owns a land bank of approximately 8,530 hectares in East Kalimantan with approximately 5,015 hectares planted with rubber : PT SIMP acquired an equity interest of approximately 70% in PT SAIN via the exercise of convertible bonds purchased at an aggregate consideration equivalent to Rp160 billion. PT SAIN is a research and development and oil palm seed breeding company that owns three plantation companies, with an aggregate land bank in West Kalimantan of approximately 42,000 hectares. The PT ISM Group completed the merger of certain of its subsidiaries in connection with the PT ISM Group Restructuring, certain information on which is provided on pages 63 and 64 of this Circular. PT SIMP entered into a conditional sale and purchase agreement to acquire a 60% shareholding interest in the Plantation Companies from the Salim Group, for an aggregate consideration of Rp125 billion. These companies and their subsidiaries own an aggregate land bank of approximately 85,541 hectares in East and Central Kalimantan and South Sumatra, of which approximately 2,844 hectares have already been planted with oil palm. The Plantation Companies also own approximately 2.3 million oil palm seedlings. Please see Section (d) of this Circular for further information. The Plantation Acquisition is subject, inter alia, to the approval of the independent shareholders of PT ISM and regulatory approval in Indonesia. Approval for the Plantation Acquisition was obtained from the independent shareholders of PT ISM at an extraordinary general meeting held on 16 October Subject to the satisfaction of other conditions precedent including regulatory approval in Indonesia being obtained, the Plantation Acquisition is expected to be completed in the first quarter of The consideration for the Plantation Acquisition is proposed to be funded from internal resources of the Target Group. PT SIMP and its subsidiaries have become one of Indonesia s major vertically-integrated manufacturers of edible oils and fats with a significant market share in the branded cooking oil, margarine and shortening segments in Indonesia. Its business operations range from oil palm cultivation and milling to the refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivative products. It is also a leading producer of CNO in Indonesia. As at 30 June 2006, the Target Group owns and operates an aggregate of approximately 130,012 hectares of plantation land located at several locations in Riau Province and West Kalimantan (excluding land under the Plasma Programme, land used for oil palm seed breeding and rubber plantation land). Of this, approximately 63,552 hectares are planted with oil palm and approximately 59,235 hectares of the planted area are mature areas where the oil palm trees produce commercial harvests. The Target Group also has undeveloped plantation land bank which can be developed to increase its production of CPO. The PT ISM Group Restructuring The PT ISM Group s internal restructuring (the PT ISM Group Restructuring ) involves, inter alia, the merger of PT IBS, PT SOG, PT GA, PT PU and PT BML (the Merged Entities ) into PT SIMP, with effect from 1 June These six companies were Indonesian-incorporated subsidiaries of 63

118 LETTER TO SHAREHOLDERS PT ISM carrying on the business of processing palm oil-based products and its derivatives, processing and exporting CNO and its derivatives and ownership of storage tank facilities in several cities in Indonesia, or were investment holding companies. Another subsidiary of PT ISM, namely PT Argha Giri Perkasa, which was previously engaged in copra extraction and processing of CNO, was not included in the PT ISM Group Restructuring as it had ceased its operations since October Pursuant to the merger, all rights, assets, liabilities, obligations and operations of PT IBS, PT SOG, PT GA, PT PU and PT BML were transferred by law to PT SIMP as the surviving entity, and the Merged Entities were dissolved without being liquidated. The merger has been completed, and its effective date was 1 June As announced by PT ISM on 16 August 2006, the business and operations of PT SIMP, PT IBS, PT BML and PT SOG represented an integrated value chain and the merger was an alternative to improve efficiency, effectiveness and productivity. In September 2006, in connection with the PT ISM Group Restructuring, IOFPL was incorporated in Singapore as an investment holding company. IOFPL is wholly-owned by ISHPL, which was also incorporated in Singapore in September PT ISM holds approximately 83.84% of the total number of issued shares of ISHPL as at the Latest Practicable Date. Subject to receipt of relevant approvals including the approval of the shareholders of PT ISM in general meeting and the approval of the relevant Indonesian authorities, it is proposed that prior to completion of the Proposed Acquisition, IOFPL shall acquire 90% of the issued share capital of PT SIMP via an issue of new shares to IOFPL by PT SIMP. Such subscription is to be paid for by IOFPL in cash financed by bank borrowings. It is proposed that subsequent to the subscription, PT SIMP extends a loan of approximately US$247.6 million to IOFPL for it to repay its borrowings. Following such issue, in addition to its interest in PT SIMP via IOFPL, the PT ISM Group will also directly hold approximately 8.4% of the issued share capital of PT SIMP. PT ISM has convened an extraordinary general meeting to be held on 22 December 2006 to seek its shareholders approval for or in connection with the Proposed Acquisition. Upon the completion of the PT ISM Group Restructuring, IOFPL will directly own 90% of the issued share capital of PT SIMP which in turn will own the various operating businesses and subsidiaries engaged in the oil palm plantation and edible oils and fats businesses. Please refer to the chart on page 38 of this Circular which shows the subsidiaries of IOFPL on completion of the PT ISM Group Restructuring Products The Target Group currently derives a majority of its revenue from the manufacture and sale of cooking oil, margarine, shortening and copra-based products. The Target Group also produces and merchandises a small amount of intermediate and by-products such as CPO, palm kernel, palm kernel oil, palm fatty acid distillate, RBD palm stearine and palm kernel meal. The Target Group also sells a small amount of FFB and rubber. (a) Cooking Oil The Target Group manufactures three categories of palm oil-based liquid cooking oil, namely (i) branded consumer pack; (ii) branded semi-consumer pack; and (iii) unbranded industrial type. Branded consumer pack cooking oil is targeted at consumers in retail outlets and are sold in packages of up to five litres. Branded semi-consumer pack cooking oil is sold in containers of 15 kilograms to 18 kilograms and is generally targeted at merchants which resell the cooking oil to end-users. Unbranded industrial type cooking oil is sold mainly to PT ISM Group and other industrial users for their manufacturing purposes. In FY2005, approximately 57.0% of the Target Group s sales volume of cooking oil was to industrial users. With the exception of industrial cooking oil, all products are sold under brand names. The Target Group s consumer brands for cooking oil include Bimoli, Bimoli Spesial, Delima, Happy Salad Oil and Mahakam. Approximately 95.3% of the Target Group s domestic cooking oil sales value of consumer and semi-consumer packs for FY2005 was 64

119 LETTER TO SHAREHOLDERS under the Bimoli and Bimoli Spesial brand names. The years in which certain of the Target Group s major consumer brands were introduced are set out below:- Brands Year of introduction Bimoli : 1978 Bimoli Spesial : 1993 Delima : 1996 Mahakam : 1997 Happy Salad Oil : 1993 (A soya-based cooking oil) In FY2005, approximately 95.0% of the Target Group s sales value of cooking oil was derived from the domestic Indonesian market. In addition, the Target Group markets a small amount of its cooking oil mainly under the Bimoli brand name for export purposes to the Philippines, Papua New Guinea and Timor Leste. (b) Margarine and shortening To cater to the increasing demand for higher value-added downstream edible products, the Target Group also produces margarine and shortening for the consumer and industrial segments. The Target Group also produces a small amount of specialty fats such as cocoa butter substitutes. In FY2005, industrial pack margarine and shortening constituted approximately 83.2% of the Target Group s sales volume of margarine and shortening. The Target Group packs and markets its consumer pack margarine under its own Simas Spesial, Simas Margarine Dapur and Amanda brand names, and industrial pack margarine and shortening are sold under the Palmia, Simas and Amanda brands. Consumer pack margarine is sold by the Target Group in sachets or tubs of between 100 grams and 250 grams and in tin or box packaging of less than 5 kilograms. Industrial pack margarine and shortening which are targeted at bakeries, biscuits and bread manufacturers and confectioneries are sold by the Target Group in tin cans of between 5 to 20 kilograms. The years in which certain major brands of the Target Group were introduced are set out below:- Brands Year of introduction Simas : 1979 Simas Margarine Dapur : 1989 Palmia : 1990 Amanda : 1990 Approximately 65.5% of the Target Group s margarine and shortening sales value for FY2005 were under the Simas, Simas Margarine Dapur, Palmia and Amanda brand names. In FY2005, approximately 61.3% of the Target Group s sales value of margarine and shortening was derived from the domestic Indonesian market. The Target Group also produces industrial pack and consumer pack margarine under third party brand names for export mainly to China. (c) Copra-based Products The Target Group is a leading producer of CNO in Indonesia. In FY2005, almost all of the CNO and its derivative products were exported by the Target Group to oleochemical plants located in the United States, Europe and South Korea. The Target Group also manufactures a small amount of RBD coconut oil. Copra by-products such as copra pellets are sold to the animal feeds industry in overseas markets such as South Korea. 65

120 LETTER TO SHAREHOLDERS (d) Intermediate products, by-products and other products The Target Group also sells intermediate products, by-products derived from the FFB milling process and the CPO refining process, such as CPO, palm kernel, palm kernel oil, palm fatty acid distillate, RBD palm stearine and other products. Palm kernel is crushed to produce crude palm kernel oil. Crude palm kernel oil has high proportions of lauric acid and is sold to external parties for the production of specialty fats used in the oleochemical industries to make products such as soaps and detergents, cosmetics, shampoos, plastics, lubricants and pharmaceutical products. Palm fatty acid distillate is sold to external parties for use in the manufacture of soap and animal feed, and as a raw material for the oleochemical industries. RBD palm stearine is sold to external parties for the manufacture of margarine and shortening, whilst palm kernel meal is sold to external parties for use as animal feed. Up to 2003, all CPO produced by the Target Group s plantation division was sold to third party buyers. Starting from 2004, the Target Group decided to dedicate the bulk of its CPO output for its own manufacturing purposes, so as to ensure a sufficient quantity of high quality CPO used internally to produce its own cooking oil, margarine and shortening. (e) Revenue contribution by product categories The following table sets out the revenue contribution of product categories to the Target Group in the three financial years ended 31 December 2005 and the 6-month period ended 30 June 2006:- FY2003 FY2004 FY2005 HY2006 (Rp billion) % (Rp billion) % (Rp billion) % (Rp billion) % Cooking Oil Consumer pack Semi-consumer pack Industrial type Sub-total Cooking Oil 1, , , Margarine and Shortening Consumer pack Industrial pack Sub-total - Margarine and Shortening Copra-based products Intermediate products, by-products and other products (1) 2, , Total 4, , , , Note: (1) These include CPO and other palm oil-based intermediate and by products. 66

121 LETTER TO SHAREHOLDERS 14.5 Plantations The Target Group s oil palm plantations are strategically located in the various regions of Indonesia where the climatic conditions are suitable for planting of oil palms. As at 30 June 2006, the Target Group held approximately 130,012 hectares of plantation land (excluding land under the Plasma Programme, land used for oil palm seed breeding and rubber plantation land), of which approximately 63,552 hectares are under cultivation. In addition, the Target Group also holds land rights to approximately 8,530 hectares of rubber plantation, of which approximately 5,015 hectares were under cultivation as at 30 June In addition to the foregoing, the Target Group has entered into a conditional agreement to acquire approximately 85,541 hectares of mostly undeveloped plantation land pursuant to the Plantation Acquisition. As at 30 June 2006, approximately 25,000 hectares of oil palm plantation land are administered by the Target Group under the Plasma Programme (this excludes approximately 5,000 hectares of land earmarked for the Plasma Programme which have not been administered). Please refer to Section 14.5(e) of this Circular for certain information on the Plasma Programme. As at 30 June 2006, PT CKS and PT RAP own approximately 2,100 hectares of planted oil palm plantation land which are to be mortgaged to PT Bank Mandiri (Persero) Tbk pursuant to Credit Investment Agreements entered into between each of them as borrowers, and PT Bank Mandiri (Persero) Tbk as lender. Please refer to Section 10 of Appendix D of this Circular for certain information on such Credit Investment Agreements. The following table sets out information on the key locations of the Target Group s plantations and the land area under cultivation at each location (i) as at 30 June 2006 and (ii) assuming the Plantation Acquisition is completed:- Approximate Total Approximate Plantation Land Area Planted Area Location of plantation (in hectares) (in hectares) As at 30 June 2006 Riau 60,755 56,005 West Kalimantan 69,257 7,547 Oil Palm Plantation Land Area 130,012 63,552 East Kalimantan (Rubber) 8,530 5, ,542 68,567 Assuming the Plantation Acquisition is completed South Sumatra 33,000 Central Kalimantan 16,500 East Kalimantan 36,041 2,844 Total Plantation Land Area 224,083 71,411 The figures above exclude approximately 229 hectares of plantation land used for oil palm seed breeding and land administered under the Plasma Programme. (a) FFB yield from oil palm plantations The FFB yield from oil palm plantations is dependent on a variety of factors, including the quality of the oil palm seeds, soil and climatic conditions, quality of management of the plantation as well as the timely harvesting and processing of FFB. The Target Group also uses the effluent, the empty bunches and solids from its oil palm mills as an organic fertilizer as this increases the yield from its oil palm plantations. 67

122 LETTER TO SHAREHOLDERS The typical commercial life span of an oil palm is approximately 25 years. After the selection of seeds, the seed suppliers usually deliver germinated seeds to the Target Group s prenurseries at its plantations. After approximately 12 months, the oil palms are transferred to the fields. The young oil palms are generally planted approximately nine metres apart, which results in approximately 128 to 143 trees per hectare. Harvesting of the oil palm begins when it reaches maturity at approximately three years after being planted in the field. As the oil palm continues to mature, its yield increases and it generally reaches peak production between the seventh to eighteenth year of growth. The yield of an oil palm generally starts to gradually decrease after 18 years. From planting in the fields to commercial maturity, effective maintenance of the young oil palm is essential. Through its plantation management system, the Target Group seeks to ensure:- careful selection of seeds; the area surrounding each young oil palm is free from other vegetation (which may compete with the tree for fertiliser, water and sunlight); leguminous cover crop is established (to discourage the growth of competing plant life); oil palms are fertilised efficiently and correctly; and the oil palms are protected from pests and disease. To reduce the Target Group s reliance on seed suppliers, it has implemented a scheme for the breeding of oil palm seedlings. As the yield of an oil palm generally starts to gradually decrease after eighteen years, the Target Group from time to time removes matured oil palm trees which are reaching the end of their economic lives, then clears the land upon which they are planted, and replants such areas. The following table sets out the area and age profile of the Target Group s oil palm plantations and those it administers under the Plasma Programme as at 30 June The Target Group measures these time periods from the time the oil palms are planted in the plantation fields. Average age profile of oil palm plantations Total area planted Up to 3 4 to 6 7 to 18 Above 18 (in hectares) years years years years Total By the Target Group 2,160 8,317 40,546 12,529 63,552 Under Plasma Programme 3,706 14,727 2,200 20,633 Total 5,866 23,044 42,746 12,529 84,185 Percentage of total area planted 7% 27% 51% 15% 100% The following table sets out the Target Group s production of FFB per hectare for the three financial years ended 31 December 2005 and the 6-month period ended 30 June 2006 (excluding the FFBs produced under the Plasma Programme):- FY2003 FY2004 FY2005 HY2006 Total matured planted area (hectares) 52,816 (Riau) 53,542 (Riau) 53,971 (Riau)/ 54,147 (Riau)/ 2,968 (W.Kalimantan) 5,088 (W.Kalimantan) Total output of FFB ( 000 MT) 1,319 1,381 1,294 (Riau)/ 555 (Riau)/ 1 (W.Kalimantan) 1 (W.Kalimantan) FFB (MT) per hectare (Riau)/ 10.3 (Riau) / 0.3 (W.Kalimantan) 0.3 (W.Kalimantan) 68

123 LETTER TO SHAREHOLDERS There was no significant FFB production from the oil palm plantations in West Kalimantan because these plantations were only acquired and rehabilitated in the second half of FY2005. The Target Group places significant emphasis on its research and development activities. Further information on the research and development undertaken by the Target Group in relation to the business of its plantation division is set out in Section of this Circular. (b) Harvesting and milling The Target Group harvests the FFB only when an appropriate quantity of palm fruitlets becomes detached from the FFB, indicating peak ripeness. The ripeness of FFB harvested is critical in maximising the quality and quantity of palm oil extraction. Loose palm fruit are collected together with the harvested FFB to increase CPO and palm kernel extraction rates. The harvested palm fruit are transported by truck to the processing mills located at the Target Group s plantations and are typically processed within 24 hours after harvesting to minimise the build-up of fatty acids, which reduces the quality of CPO extracted. Fully mature oil palms generally produce approximately 18 to 30 MT of FFB per hectare per annum. Generally, the Target Group s CPO extraction rate is approximately 23% of the FFB by weight. The Target Group s palm kernel extraction rate is approximately 5% of the FFB by weight. The Target Group principally produces high quality CPO with less than 3% free fatty acid. The table below sets out the production of the Target Group s oil palm mills for the periods indicated:- FY2003 FY2004 FY2005 HY2006 FFB processed ( 000 MT) 1,323 1,394 1, CPO output ( 000 MT) CPO extraction rate (%) Palm kernel output ( 000 MT) Palm kernel extraction rate (%) The increase in FFB processed in FY2004 as compared to FY2003 was primarily due to favourable climatic conditions and an increase in the harvested area. In FY2005, there was a decrease in FFB processed as compared to FY2004 due primarily to less rainfall and the aging of palm trees resulting in lower FFB production. The amount of CPO produced from FY2003 to FY2005 corresponded with the amount of FFB processed. The CPO extraction rate in FY2005 was higher than prior years due to greater efficiency from the usage of new machinery. The Target Group has sufficient capacity to process all its FFB harvested during the peak harvesting period which runs from August to November. (c) Oil palm seed breeding and research Since 1997, PT SAIN has been cooperating with oil palm seed producers in Africa and South America on its oil palm seed breeding program. The purpose of such program is for the Target Group to: (i) be self-sufficient in terms of oil palm seedlings for its planting purposes; (ii) be able to control the genetic profile of the seedlings planted; and (iii) increase the volume of oil palm seedlings available for sale. As a result of its oil palm seed breeding program, the Target Group is now able to control the pedigree, production profile, height growth profile and diseases resistance of the oil palm seedlings which it breeds. It is expected that when such seedlings become mature, their annual potential production and extraction rate will improve from current levels. 69

124 LETTER TO SHAREHOLDERS Please refer to Section of this Circular for certain information on the other research conducted by the Target Group s plantation division. (d) Land rights The following table sets out the land rights and licences held by the Target Group (i) as at 30 June 2006 and (ii) assuming the Plantation Acquisition is completed:- Type of Land South Central West East Total Expiry Right /Licence Sumatra Riau Kalimantan Kalimantan Kalimantan Area Period In hectares (approximate) Hak Guna Usaha Between 2023 ( Right to Cultivate ) 58, , ,530 90, and 2039 In the process of obtaining Hak Guna Usaha Hak Guna Bangunan Between 2033 ( Right to Build ) and 2034 In the process of obtaining Hak Guna Bangunan Hak Pakai Between 2029 ( Right of Use ) 2, , and 2030 In the process of obtaining Hak Pakai Ijin Lokasi Between 2007 ( Location Permit ) 45, , and 2008 Sub-Total 60, , , , Assuming the Plantation Acquisition is completed Ijin Lokasi 33,000 16,500 36,041 85, Grand Total 33,000 60, ,500 69, , , More than 95% of the Target Group s planted area is on certificated land. The Target Group intends to obtain certification for its uncertificated land. Upon the completion of the Proposed Acquisition, disclosure will be made in the Company s annual reports of the status of its applications for the certification for its uncertificated land until such time that the relevant certification has been obtained for all such land. In Indonesia, the government holds title to all land under the Basic Agrarian Law of Land rights from the Indonesian government must be obtained in order to establish an oil palm plantation. The land rights granted by the Indonesian government have a fixed duration that may be extended. The right to cultivate (referred to in Indonesian as Hak Guna Usaha ( HGU or Hak Guna Usaha )) gives its holder the right to exploit/use or to cultivate the land. This right is usually given for agricultural purposes (agribusiness) for an initial fixed period not exceeding 35 years and may be extended for 25 years. After the expiration of this term, the holder may apply for a further renewal of the land title for a further 35 years at the maximum. The Right to Use (referring to the Indonesian Hak Pakai ( HP )) gives its holder the right to use the respective land. The Hak Pakai may be created over State land or over the Indonesian Hak Pengelolaan (Right to Manage) or the Hak Milik (Ownership Title). If a Hak Pakai is created over State land, the government will issue a decision letter that stipulates the special purpose of the use of that land. If a Hak Pakai is to be created over a Hak Pengelolaan or Hak Milik, the holder of the Hak Pengelolaan or the Hak Milik and the applicant of the Hak Pakai must enter into an agreement concerning the use of such land. 70

125 LETTER TO SHAREHOLDERS This agreement is then submitted to the respective government instance which will use it as the legal ground for the issuance of the Hak Pakai being applied for. It is worth noting that generally the Hak Pakai is granted by the State in respect of land that is State land. It may be granted for a period of up to 25 years, which period is extendable up to 20 years. In Target Group s case, the Hak Pakai relates to land that is used for plantation purposes. The right to build (referred to in Indonesian as Hak Guna Bangunan ( HGB )) is a right in land which allows its holder to utilise the land and anything previously or thereafter built upon the land on an exclusive basis for that period. HGB could be granted either by the State, if it is granted over State land, or such persons holding Hak Pengelolaan in respect of the land. Under Indonesian law, the certificate of HGB is issued by BPN for a period of up to 30 years. The initial 30-year period may be extended upon request submitted by the HGB holder to BPN for a period of up to 20 years. After the expiration of this term, the holder may apply for a further renewal of the land title for a further 30 years at the maximum. In relation to the Target Group, HGB relates to its use of land for mills and housing. For more information on such land rights and licences, please refer to Appendix E of this Circular. (e) Plasma Programme In Indonesia, large oil palm plantation owners, such as the Target Group, are encouraged by the Indonesian government to develop the surrounding smallholders plantations when applying for land rights for oil palm plantations. Once developed, these smallholders plantations are operated under the supervision of the developer. This form of assistance to and cooperation with the surrounding smallholders plantations is known as the Plasma Programme. The Target Group is committed to developing the land of the smallholders and to purchasing all of the FFB produced by the smallholders plantations at prices set by a price committee on which the Target Group is normally represented. The smallholders obtain loans from certain Indonesian banks to finance up to 100% of the development cost of these plantations. These bank loans are secured by receivables from the smallholders arising from sales of FFB, the land rights over the smallholders oil palm plantations and by a corporate guarantee from the Target Group. In some cases, the Target Group provides financing of up to 20% of the development cost of the plantations by way of unsecured loans to the smallholders. Under the Plasma Programme, the smallholders sell their FFB to the Target Group, and a portion of the amounts payable by the Target Group to the smallholders for such FFB are (i) paid directly by the Target Group to the banks which have provided financing to such smallholders for the financing of the development cost of their plantations, to reduce or repay the outstanding amounts and; (ii) applied to offset outstanding amounts under the unsecured loans provided by the Target Group to such smallholders after full repayment of the outstanding amounts to the banks has been made. Prior to maturity and during the grace period of the relevant loans, interest on these loans accrue at rates ranging from 12% to 16.5% per annum. After the grace period, the principal amount of the loans accrues interest at rates ranging from 14% to 18.5% per annum and is payable every one to three months over a period of 8 to 16 years. As at 30 June 2006, the Target Group administered approximately 25,000 hectares of plantation land under the Plasma Programme (this excludes approximately 5,000 hectares of land earmarked for the Plasma Programme which have not been administered), of which approximately 20,633 hectares have been cultivated. The Target Group has committed to provide loans of up to Rp25.7 billion under the Plasma Programme and as at 30 June 2006, approximately Rp3.7 billion of such loans have been drawn down. In addition to the 71

126 LETTER TO SHAREHOLDERS foregoing, the Target Group has advanced cash to smallholders to fund the cost of the development and cultivation of the smallholders plantations. As at 30 June 2006, the combined balance of both loans and advances amounted to approximately Rp26 billion. As at 30 June 2006, the Target Group has also provided guarantees for bank facilities of approximately Rp684 billion under the Plasma Programme. If the smallholders default on the repayment of their loans, and the banks claim on the guarantees provided by the Target Group, Target Group will be entitled under Indonesian law to be subrogated in relation to the security held by the banks over the debts of the smallholders Manufacturing Facilities and Capacity As at the Latest Practicable Date, the Target Group owns and operates the following manufacturing facilities:- Manufacturing facilities Number of units Location Palm oil mill (1) 6 Riau Province Palm kernel crushing plant 1 Bitung, North Sulawesi Copra crushing plant 2 Bitung, North Sulawesi (2) Moutong, Central Sulawesi Refineries (3) - Refinery plant 4 Medan, Jakarta, Surabaya, Bitung - Fractionation plant 4 Medan, Jakarta, Surabaya, Bitung - Margarine processing plant 2 Jakarta, Surabaya Notes: (1) The Target Group is currently completing the construction of a new mill in West Kalimantan which is expected to be completed before the end of (2) The Target Group is in the process of relocating part of the Bitung copra crushing plant to Tobelo, North Maluku. (3) The Target Group s refinery plant in Medan became operational in January The Target Group s manufacturing facilities are spread throughout the Indonesian archipelago, and are mainly situated in locations that have easy access to the requisite raw materials, including FFB from its own plantations, and are within close proximity to transportation infrastructures and its customers. Such proximity enables the Target Group to enjoy significant efficiencies in terms of transportation costs and facilitates the penetration of its products throughout the Indonesian domestic market. All of the Target Group s key operational processing facilities are located on certificated land. The Target Group also owns and operates two tank farms in Belawan (Medan) and Tanjung Priok (Jakarta). These tank farms have a total capacity of approximately 96,000 MT and are used mainly for storage of CPO. 72

127 LETTER TO SHAREHOLDERS The table below provides certain information with respect to the capacity and utilisation rate of the manufacturing facilities of the Target Group. The production capacity and utilisation rates are presented according to manufacturing process. The Target Group believes that this method of presentation is more representative of its business and reflects its high level of vertical integration. Manufacturing Capacity and Utilisation Rate FY2003 FY2004 Actual Actual Products Annual Amount Utilisation Annual Amount Utilisation Processed Capacity (1) Processed Rate Capacity (1) Processed Rate (Approximate thousands of MT, except percentages) Palm oil milling plant FFB 1,701 1,323 (2) 78.1% 1,701 1,394 (2) 81.9% Palm kernel crushing plant Palm kernel % % Copra crushing plant Copra (3) 53.7% (3) 45.2% Refineries - Refinery plant CPO, CNO, crude palm kernel oil (4) 74.3% (4) 67.4% - Fractionation plant RBD palm oil % (5) 68.9% - Margarine processing plant Hydrogenated or refined palm oil % 311 (6) % 73

128 LETTER TO SHAREHOLDERS FY2005 HY2006 Actual Actual Products Annual Amount Utilisation Annual Amount Utilisation Processed Capacity (1) Processed Rate Capacity (1) Processed Rate (Approximate thousands of MT, except percentages) Palm oil milling plant FFB 1,701 1,294 (2) 76.1% 1, % Palm kernel crushing plant Palm kernel % % Copra crushing plant Copra (3) 48.5% % Refineries - Refinery plant CPO, CNO, crude palm kernel oil (7) 550 (4) 66.0% 885 (7) % - Fractionation plant RBD palm oil 492 (7) 327 (5) 66.5% 545 (7) % - Margarine processing plant Hydrogenated or refined palm oil 329 (6) % % Notes: (1) The annual production capacity has been calculated based on the Target Group s facilities operating 300 days a calendar year. (2) The fluctuation in FFB processed in FY2003, FY2004 and FY2005 arose because of the varying amounts of FFB harvested in each of those years. (3) As copra is obtained from third party suppliers on a competitive basis, the amount of copra available to the Target Group varies from year to year. As a result this affected the amount copra processed over the last three financial years. (4) The decrease in CPO processed over the last three financial years ended 31 December 2005, can be attributed mainly to the cessation of the Target Group s trading of physical contracts on palm oil-based commodities as one of its core activities in FY2004, as a certain portion of such trading activities involved refined products. (5) The amount of RBD palm oil processed decreased from 339,000 MT in FY2004 to 327,000 MT in FY2005 because the Target Group decided to refocus its target market segment. (6) The annual capacity of the Target Group s margarine processing plant increased from 311,000 MT in FY2004 to 329,000 MT in FY2005 due to the addition of a plant in Jakarta with a processing capacity of 60 MT per day. (7) The annual capacity of the Target Group s refinery plants and fractionation plants between FY2003 and FY2005 excludes the annual capacity of the Target Group s new Medan refinery plant and fractionation plant as these were only fully operational in January

129 LETTER TO SHAREHOLDERS To cater for future growth in its sales volume, the Target Group:- (a) (b) (c) is currently completing the construction of a new mill in West Kalimantan with a capacity of 45 MT FFB/hour, which is expected to be completed before the end of 2006; intends to increase the annual capacity of its refinery, fractionation and margarine processing plants by approximately 120,000 MT, 60,000 MT and 30,000 MT by 2008, respectively by expanding its facility located in Medan; and intends to relocate its refinery in North Jakarta to a more strategic location in the vicinity of the Jakarta port, which is targeted to commence operation in early The new refinery is expected to have an annual refining capacity of approximately 420,000 MT, which is an increase over the existing refinery s annual capacity of approximately 247,500 MT. The existing refinery will cease production and the lease in respect of the land on which it is situate will be surrendered to the Salim Group which owns the land. The relocation of the refinery closer to the Jakarta port is expected to lower the Target Group s inland transportation costs. Please refer to Section 15.7 of this Circular for information on the above capital expenditure plans of the Target Group and material capital expenditure by the Target Group in the period from 1 January 2003 up to 31 October

130 LETTER TO SHAREHOLDERS TARGET GROUP FACILITIES & CAPACITY REFINERY & CRUSHING PLANTS PLANTATION Moutong * Copra Mill 90,000 East Kalimantan 8,530 Ha West Kalimantan 69,257 Ha 45 ton FFB/hour (Under Construction) Riau ** 60,755 Ha 315 ton FFB/hour TANK FARM Belawan 18 units of tanks 26,703 MT Tanjung Priok 23 unit of tanks 69,280 MT Belawan Riau West Riau East Kalimantan Kalimantan Tanjung Priok West Kalimantan East Kalimantan Moutong Bitung Bitung * Refinery 210,000 Fractionation 90,000 PK Crushing 45,000 Copra Mill 180,000 Medan * Refinery 52,500 Fractionation 52,500 Surabaya * Refinery 375,000 Fractionation 216,000 Margarine 150,000 Jakarta * Refinery 247,500 Fractionation 186,000 Margarine 178,500 Plantation Refinery & Crushing Plants Note: as of June 2006 * in MTPY ** excluding approx. 229 ha of plantation land used for oil palm seed breeding Tank Farm Supply Line 76

131 LETTER TO SHAREHOLDERS 14.7 Manufacturing Processes and Quality Control (a) Manufacturing Processes The flow-chart below sets out the key manufacturing processes and palm oil-based products produced through these processes:- Fresh Palm Fruit Bunches Milling Empty Fruit Bunches and Liquid Waste Crude Palm Oil Palm Kernel Refining Palm Kernel Meal Crushing RBD Palm Oil Palm fatty acid distillate Crude Palm Kernel Oil Fractionating and filtration RBD Palm Stearin Lauric Oil RBD Palm Olein Packaging Hydrogen Margarine Plant Hydrogenated RBD Palm Olein Cooking Oil Blending Flavourings & Vitamins Blending Mixing Tank Chilling Water & salt Nitrogen gas Mixing Tank Chilling Packaging Packaging Shortening Margarine 77

132 LETTER TO SHAREHOLDERS (i) Processing FFB into CPO and palm kernel The processing procedure at the mills is designed to minimise palm oil waste. In addition, most of the waste material is reused in either the planting or milling process. The process begins with the harvesting of FFB with selected ripeness and the FFB are usually processed within 24 hours after being harvested. FFB are first transferred to the palm oil mills, which are generally strategically located at the plantations itself, for sterilisation by applying high-pressure steam whereupon the palm oil fruits are enzyme deactivated and separated from the palm bunches. After the steaming process, the palm fruitlets are crushed in a pressing machine to obtain CPO and palm kernel. Waste and water are then cleared and separated from the CPO by means of a centrifuge. The cleared CPO emerging from the centrifuge is sent for refining while the palm kernel nut is sent for crushing. The empty fruit bunches and liquid waste arising from the process are used as fertiliser in the plantations. (ii) (iii) Processing palm kernel into crude palm kernel oil The palm kernel nut is fractured, causing the palm kernel within the shell to contract from the shell. The shell is separated from the kernel through a clay bath where it is used as fuel in the boiler room. The palm kernel is further crushed to produce palm kernel oil and palm kernel meal. Refining process to obtain RBD palm oil To produce refined oil, CPO is processed through three refining stages, namely degumming, bleaching and deodorising. In degumming, the gum in the CPO is separated along with other impurities such as trace minerals, copper and iron by the application of phosphoric acid. In bleaching, the oil is mixed with bentonite calcium in a vacuum room to remove impurities and colour pigments in the palm oil. In deodorising, the fatty acid, odour and taste of the oil is removed when the oil is sparged through steam at high temperatures of between 255ºC to 270ºC and then cooled to room temperature. (iv) Fractionating process to produce RBD palm stearine and RBD palm olein RBD palm stearine and RBD palm olein are obtained by the fractionation of RBD palm oil. Through a process known as crystallisation, RBD palm oil is cooled until crystals are formed. The crystallised oil in the crystalliser is then filtered through a membrane to separate RBD palm olein and RBD palm stearine. RBD palm olein is usually packaged and sold as cooking oil and the RBD palm stearine is further processed and packaged into products such as margarine and shortening. To manufacture margarine, the raw materials, RBD palm olein and RBD palm stearine, are blended with hydrogen, lauric oil, salt water, emulsifiers and other ingredients. To manufacture shortening, the raw materials, RBD palm oil, RBD palm stearine and lauric oil are blended and added with nitrogen. The mixture of either margarine or shortening is then stirred and chilled to a solid or semi-solid state which is then packaged. (v) Packaging The Target Group operates packaging facilities at its factories in Jakarta and Surabaya. The bottling plants manufacture polypropylene and polyethylene bottles as well as high density polyethylene caps and handles. The Target Group also purchases plastic refill pouches, cans and tins from external sources which are labelled, filled and capped at these plants. 78

133 LETTER TO SHAREHOLDERS (vi) Inbound and outbound logistics The Target Group s inbound logistics involve:- transportation of FFB from the plantations to the mills by trucks owned by the Target Group and external parties; transportation of CPO from the mills to the tank farms at the port of departure by road tankers owned by the Target Group and external parties; transportation of the CPO from tank farms at the port of departure to the tank farms at the port of arrival by a fleet of vessels owned by the PT ISM Group and external parties; and transportation of the CPO from tank farms at the port of arrival to the refineries by road tankers owned by the Target Group and external parties. As for the Target Group s end-product out-bound logistics, to manage lead time and transportation costs for the delivery of its products, the Target Group transports its products:- to western Indonesia, including West Java from its Jakarta plant; to eastern Indonesia from its Surabaya plant; to Ambon and Irian Jaya, from its Bitung plant; and to Riau, North Sumatra and Aceh, from its Medan plant. The Target Group currently out-sources its outbound transportation of products to external third party logistics service providers. In FY2005, approximately 60.8% of the Target Group s land transportation requirement was outsourced to third party logistics service providers. The Target Group also owns and operates certain jetties and ports. (vii) Manufacturing process of copra-based products The flow chart below sets out the key manufacturing process of copra-based products. Copra is first cracked in hammer mills and cracking rolls, and is then flaked in flacking mills. Thereafter it is heated and water is added to the copra in a conditioner unit. The copra is further processed in the screw press to produce unfiltered crude CNO and copra meal. Unfilitered crude CNO from the screw press is filtered and stored in storage tanks. As the copra meal still contains approximately 16% of oil, it is cracked, flaked, and sent to a solvent extraction plant for further extraction of about 13% of the oil in the copra meal. The copra meal with a remaining oil content of about 3% is sent to a pelletizing plant to produce pellets for animal feed meal. 79

134 LETTER TO SHAREHOLDERS Copra Hammer mill Cracking Roll Flaker Cooker Screw Press Unfiltered CNO Copra Meal Cracking Roll Filter Press Flaker Solver Extraction Plant Pellet Mill CNO Pellet (b) (i) Quality Control The Target Group believes that quality control is important to the conduct of its business, and therefore it implements strict quality control procedures at all stages of its business process to ensure that the quality of its products meets the expectations of each customer and achieves maximum customer satisfaction. From the sourcing and procurement of raw materials to the delivery of its finished goods, the Target Group is required to comply with ISO 9001:2000 quality standards. The Target Group obtained an ISO 9001:1994 certification from the SGS Yarsley, the relevant ISO certification body, for its Jakarta and Surabaya refinery plants in 1997, and an ISO 9001:2000 certification in Quality control in the procurement of raw materials The raw materials required by the Target Group in its production process comprise mainly FFB, CPO, palm kernel and copra. 80

135 LETTER TO SHAREHOLDERS In the plantations, harvesters harvest the FFB only when appropriate quantities of fruitlets become detached from the FFB, which indicates ripeness for harvesting. The Target Group has established procedures with the aim of ensuring that, to the extent possible, harvesters collect all loose fruitlets. The quality of FFB is visually checked for ripeness and readiness for processing upon receipt of raw material at its milling plants. Palm fruits that do not meet the quality criteria are rejected. To ensure the quality of the CPO extracted, the FFB are processed within 24 hours of harvesting to minimise the build-up of fatty acids. In addition, the quality control inspection teams at each of the CPO processing facilities monitor the quality of the products, the efficiency of the production process and the oil loss during the extraction process. The Target Group s quality control department also inspects and tests all key incoming materials and incoming materials that do not meet the quality criteria will be rejected and returned to suppliers. (ii) (iii) (iv) Quality control during processing Processing is conducted under stringent conditions to prevent contamination of its products from external impurities. The Target Group s quality control inspection team also monitors and conducts random sample checks on the quality of its products at various stages. This includes monitoring and checking the level of moisture, fatty acid, heavy metal and colour during the various stages of the process. Random samples drawn from semi-finished products are sent for quality testing to ensure that the products adhere to quality standards. For semi-finished products that fail the quality testing, necessary remedial measures such as restarting the production process are undertaken. Quality control on finished products The Target Group s commitment to quality control extends beyond the production process. Prior to the delivery of its products, the Target Group conducts another round of quality inspections to ensure that only products which pass its quality testing and comply with its customers requirements are allowed to be delivered to its customers. The inspection and testing include cleanliness of the packaging of the finished product and accurate reflection of the expiry date (where applicable). Quality Assurance Department The Target Group s Quality Assurance Department at its refineries in Jakarta and Surabaya are responsible for ensuring that all production process standards are followed, and that the Target Group s Quality System and Food Safety System are implemented in order to adhere to international industry standards such as ISO, Good Manufacturing Practices, Hazard, Analysis and Critical Control Point, Good Distribution Practice and Good Laboratory Practice. This monitoring needs to be done in order to ensure that the Target Group meets the satisfactory requirements of customers including international fast food chains and food makers such as Kentucky Fried Chicken, McDonalds, Arnott s and San Miquel Pure Food, specifically in relation to such customers audit of the Target Group production process. In addition, to ensure that its products are safe for consumption by the Muslim community which constitutes a majority of the Indonesian population, the Quality Assurance Department ensures that the Target Group s Halal certification is valid at all times. The Target Group also audits its internal production process for the purpose of its Halal certification as well as that of its suppliers. 81

136 LETTER TO SHAREHOLDERS 14.8 Marketing and Distribution (a) Sales in Indonesia Distribution Channel The Target Group categorises its end-user markets in Indonesia according to specific market segments such as (i) traditional food markets (i.e., wet markets and provision shops); (ii) hotels, restaurants and caterers; (iii) modern trades (e.g., up-market outlets, supermarkets and hypermarkets); and (iv) industrial users. These market segments are either served directly by the Target Group or through its existing network of approximately 110 distributors where the products sold to these distributors are in turn distributed throughout the Indonesian archipelago. The distribution channel of the Target Group in Indonesia can be represented by the following diagram:- The Target Group Distributors Direct sales Traditional food markets Hotels, restaurants and caterers Modern trade Industrial users The table below sets out each market segment s contribution to the Target Group s sales of cooking oil as well as margarine and shortening by sales volume in Indonesia in the financial year ended 31 December 2005:- Percentage Margarine and Percentage Cooking Oil of sales Shortening of sales Market Segment (000 MT) (%) (000 MT) (%) Traditional food markets (1) Hotels, restaurants and caterers Modern trade Industrial users Total Note : (1) The Target Group s industrial pack margarine and shortening are also sold through traditional markets (such as wet markets and provision shops). The Target Group supports its distributors by way of regular product promotion and a flexible product return policy which allows for slow moving products to be returned to the Target Group for transfer to regions where products experience higher sales volume and turnover. The Target Group also provides cash discounts, quantity discounts and rewards to distributors for purchases above specified quantities. The Target Group does not stipulate fixed retail prices for its products. The Target Group monitors the performance of distributors through dedicated teams of sales representatives and has full discretion over the termination 82

137 LETTER TO SHAREHOLDERS of all distribution arrangements. Generally, credit terms of between 30 to 45 days are extended to distributors. In FY2005, approximately 12.5% of the Target Group s revenue was from sales to distributors that are majority-owned by PT ISM. The Target Group usually enters into distribution agreements with its distributors to specify the products covered, distribution region (i.e., at national, regional or district level), terms of payment, collateral requirements and sales targets. Regional and district level distributors generally operate in areas where there are no competing distributors of the Target Group s products. Together with the Target Group s direct sales channels, these distributors serve approximately 230,000 retail outlets throughout Indonesia. These distributors are chosen by the Target Group based on, inter alia, the following criteria:- (a) (b) (c) their experience of managing and distributing fast moving consumer goods; the Target Group s evaluation of their management team and their physical distribution network (specifically with regard to the adequacy of their warehousing, depot and logistical capability); and their information systems in relation to their ability to monitor product levels and track the movement of products. The Target Group believes that it has the most extensive network of distributors amongst the producers of palm oil-based products and producers of cooking oil and margarine and shortening in Indonesia. Towards the end of 2005, PT Indomarco Adi Prima ( Indomarco ) (PT ISM s subsidiary and a national distributor) embarked on a new distribution system with the opening of stock points. These stock points were in selected kecamatan or sub-districts in Java with high customer density or located near traditional markets. The Target Group believes that Indomarco s stock point distribution system is the most extensive distribution network in the Indonesian archipelago. In HY2006, the Target Group has leveraged on this distribution system by utilising approximately 600 Indomarco stock points in Indonesia. The Target Group intends to continue to leverage on Indomarco to further penetrate the domestic Indonesian markets. Marketing Strategy For the consumer segment, the Target Group believes that its end-consumers can be broadly categorised into (i) the quality-conscious consumer segment; (ii) the value-conscious consumer segment; and (iii) the price-conscious consumer segment. It has adopted a marketing and sales strategy of targeting each consumer segment with specific products according to its preference. The table below sets out the different consumer segments, the brands targeted to such consumer sentiment and the marketing strategy adopted by the Target Group for such consumer segment in relation to its cooking oil and margarine businesses:- Consumer Target Consumer Segment Segment Brand Type of marketing strategy Quality-conscious Middle to up-market Cooking Oil consumers Bimoli Spesial Intensive advertising and publicity so as to increase brand and value recognition. Value-conscious Middle market Cooking Oil consumers Bimoli Margarine Simas Margarine Dapur Affordable price and maximising availability so as to facilitate the ease of obtaining these products. 83

138 LETTER TO SHAREHOLDERS Consumer Target Consumer Segment Segment Brand Type of marketing strategy Price-conscious Middle to budget Cooking Oil consumers market Delima Margarine Amanda Products are sold ex-factory to lower costs. It is also often sold as a package together with the Target Group s other high end products. Competitive pricing and product availability For the industrial segment, the Target Group has adopted a four-pronged marketing strategy of (i) providing technical assistance to customers; (ii) customising products for customers; (iii) increasing customer awareness of its products through the organisation of forums; and (iv) regular visits and interaction with its customers. The Target Group has three dedicated marketing teams that are responsible for the brand management, advertising and promotion policy of its margarine products, cooking oil products and certain high value brands. These marketing teams formulate advertising strategies to defend market share, develop new businesses and products, and increase market share in high growth product categories. The Target Group utilise media such as newspapers, magazines, television and radio to assist in their marketing efforts. The Target Group also has 21 regional marketing offices with a total manpower strength of about 100 persons as at the Latest Practicable Date. Such marketing teams are responsible for co-ordinating and motivating the Target Group s network of distributors, sales monitoring and merchandising. Generally the Target Group appoints a key area manager to manage and supervise the distributors in his/her area. The table below sets out the Target Group s expenditure on advertising and promotion activities in the three financial years ended 31 December FY2003 FY2004 FY2005 Target Group s expenditure on advertising and promotion activities (Rp billion) (b) Export Sales The Target Group sells and distributes its edible oils products, such as CNO, cooking oil and margarine and shortening, globally. The table below sets out the products exported and the countries to which such products are exported. Product Cooking Oil Margarine and Shortening CNO Others Country/Region Timor Leste, Papua New Guinea, The Philippines China, Benin, Russia USA, Europe India, South Korea As at the Latest Practicable Date, the export tax rate imposed in Indonesia for CPO, RBD palm oil and RBD palm stearine was 1.5%, 0.3% and 0.3% respectively. 84

139 LETTER TO SHAREHOLDERS Export sales are effected through more than 15 foreign importers and traders located in each of the countries to which products are exported. For sales of CNO, the Target Group s preference is to sell to first-class buyers, such as the Cargill Group, Kuok Oils and Grains and other similar multinational companies. The Target Group currently does not maintain any foreign offices. Going forward, the Target Group intends to grow its export market through a two-step process of first developing a deeper understanding the potential markets it intends to focus on, and secondly, increasing the level of marketing in those markets Major Customers The Target Group s major customers include distributors, industrial food producers, importers and hypermarkets. The customer(s) which accounted for 5% or more of the Target Group s total revenue during each of the three financial years ended 31 December 2005 were as follows:- As a percentage (%) of total revenue Name of customer Products FY2003 FY2004 FY2005 PT ISM Group Cooking oil and margarine Cargill BV CPO and other palm oil-based derivative products, and CNO Aavanti Industries CPO and other palm oil-based Pte Ltd derivative products The decline in sales contribution from Cargill BV and Aavanti Industries Pte Ltd between FY2003 and FY2005 was mainly due to the cessation of the Target Group s trading of palm oil-based commodities as a core activity in FY2004 and the Target Group s decision to dedicate the bulk of its CPO output for internal use. The Target Group sells to the PT ISM Group industrial cooking oil (for its direct use), as well as consumer cooking oil, margarine and shortening for distribution in Indonesia. The Target Group does not have any formal long term agreement to supply the PT ISM Group. Please refer to Section (a) of this Circular for information on the Target Group s sale transactions with the PT ISM Group. None of the independent directors of the new Board of the Company immediately after the completion of the Proposed Acquisition is related in any material respect to the abovenamed customers, and none of the remaining members of the new Board and Controlling Shareholders of the Company immediately after the completion of the Proposed Acquisition is related in any material respect to the abovenamed customers other than the PT ISM Group Major Suppliers The key purchases of the Target Group in its business operations comprise mainly CPO, fuel and other materials ( Key Materials and Supplies ). In FY2005, approximately half of the Target Group s CPO processed in its refineries was sourced from external suppliers with the balance supplied from its own plantations. As for the other materials, these are mainly purchased from external sources. In its selection of third party suppliers and the allocation of purchase orders amongst these suppliers, the Target Group usually takes into consideration, inter alia, reliability and prices quoted by these suppliers, delivery time and credit terms provided by the supplier, consistency in the quality of raw materials and services provided. Currently there are no long term supply agreements between the Target Group and its third party suppliers. 85

140 LETTER TO SHAREHOLDERS The table below sets out the list of suppliers of the Target Group who accounted for 5% or more of its total purchases of Key Materials and Supplies. As a percentage (%) of total Key Materials purchases of Key Materials Name of Suppliers and Supplies and Supplies PT Unggul Widya Teknologi Lestari CPO 12.0% 8.1% 14.7% PT Pertamina (Persero) Fuel 4.0% 4.6% 10.1% PT Tamaco Graha Krida CPO 2.6% 4.8% 9.9% PT Sinar Kencana Inti Perkasa CPO 0.0% 0.0% 8.3% PT Dimex Selaras CPO 1.3% 1.8% 5.9% PT Hardaya Inti Plantations CPO 3.4% 3.0% 5.3% PT Hindoli CPO 6.1% 4.1% 2.1% PT Gawi Makmur Kalimantan CPO 5.5% 1.3% 0.0% PT Kurnia Tunggal Nugraha CPO 6.2% 2.9% 0.0% PT Laguna Mandiri CPO 7.3% 5.5% 0.0% PT Langgeng Muara Makmur CPO 10.1% 1.1% 0.0% PT Sawit Malinda CPO 8.9% 1.6% 0.0% Except for PT Pertamina (Persero) which is a national utility company in Indonesia, the Target Group is not materially dependent on any single supplier for any Key Materials and Supplies for the manufacture of its products. Save as disclosed below in relation to the Salim Group, none of the members of the new Board and Controlling Shareholders of the Company immediately after the completion of the Proposed Acquisition is related in any material respect to the abovenamed suppliers. PT Sawit Malinda is a member of the Salim Group and has ceased operations in FY Brands and Intellectual Property The Target Group owns certain leading brand names in the cooking oil, margarine and shortening segments, namely, Bimoli, Palmia and Simas, and extensions of such brands. In FY2005, approximately 60.0% of the Target Group s revenue from its cooking oil and fats division was attributed to the sale of branded products under its own labels. Each brand has its own market positioning and consumer proposition, which includes its price, product quality and packaging characteristics. The Target Group believes that such brand names enable the Target Group to improve customer loyalty and increase profit margins. The Target Group also believes that the price of, and demand for, these higher value-added products and branded products are more resilient compared to unbranded products. The Target Group intends to develop from time to time additional brands to maintain its market position. As at the Latest Practicable Date, all of the Target Group s major trademarks have been registered or are in the process of being renewed in Indonesia. The list of trademarks registered by the Target Group as at the Latest Practicable Date is set out in Appendix D of this Circular. Save for the above, the Target Group s business and profitability are not materially dependent on any patent or intellectual property licence Research and Development The Target Group places emphasis on its research and development activities. Its continued research and development activities are focused on the improvement of its plantation, cultivation, refining and production processes. 86

141 LETTER TO SHAREHOLDERS For the plantation division, the Target Group has a dedicated team of researchers to carry out research and development activities that focuses on, inter alia:- Breeding of oil palm seedlings with characteristics that could lead to improved FFB yields and self-sufficiency in terms of oil palm seedlings. Please refer to Section 14.5(c) of this Circular for certain information on this aspect of research conducted by the Target Group s plantation division. Optimising biological methods of pest and palm tree disease control. The research team has developed an owl management system for rodent control. As a result, since 2001 all planted areas in PT SIMP and its subsidiaries plantations in Riau Province have been free of rat poison use. The research team has produced viruses against worm pests, and fungus for use against Ganoderma disease and white-rooted fungi disease in rubber trees. Plantation mechanisation. The research team performs regular techno-economic analysis of the methods and mechanisms of work undertaken at its oil palm plantations with the aim of increasing efficiency and productivity. Research on fertilizer usage and usage of by-products derived from the FFB milling process as organic fertilizers. The research team performs trials on responses to fertilizer use and provides recommendations on fertilizing activity (i.e., whether to use inorganic fertilizers (chemical) and/or organic fertilizer) for its oil palm and rubber plantations taking into consideration, inter alia, soil and leaf analysis, site visits, its historical production database and rainfall patterns. The research team also monitors the usage of its by-products as fertilizers and monitors the dosage of fertilizing per tree block. The plantation division has utilised satellite technology in the preparation of a geographic information system map (i.e., physical map) of its plantations for the purpose of computing the number of palm trees planted, and has also undertaken a global positioning system survey of its plantations for tree block mapping purposes. The plantation division also maintains its own analytic chemistry laboratory which conducts chemical analysis on leaf, soil, land, water and effluent samples as well as monitors the quality of CPO produced. For the cooking oil and fats division, the Target Group employs a team of experienced researchers with the capability to improve and develop new ranges of products needed in different applications by industry and consumers. The Target Group has a specialty fats simulation laboratory that is capable of producing various kinds of specialty fats for research and development purposes. The Target Group is currently conducting research and development in the following areas:- to improve the quality and consistency of its products; to develop specialty fat products for use in cakes, bread, confectioneries and other bakery products; and to develop new packaging materials and designs to reduce costs. Through its research and development efforts, the Target Group aims to further enhance its competitiveness by improving its cultivation and processing technologies, and introducing additional edible oils and fats products. The following table sets out the research and development expenses of the Target Group in the three financial years ended 31 December

142 LETTER TO SHAREHOLDERS FY2003 FY2004 FY2005 Research and Development Expenses (Rp billion) Research and Development Expenses (as a percentage of net sales or revenue of the Target Group) 0.2% 0.3% 0.1% The reduction of research and development expenses in FY2005 was partly due to a lesser amount paid for certain research and development services as the Target Group gained more experience in the relevant area of research and development Environmental Compliance The Target Group s principal environmental concerns relate to the discharge of effluent and waste resulting from the milling of FFB and the refining of edible oils, and land and forest clearance for plantation development. The Target Group adopts mechanical methods to fell trees and stacks them by heavy equipment in order to create planting rows and intends to apply such methods, on a best efforts basis, in relation to the development of its existing plantation land as well as plantation land to be acquired by it in the future. The Target Group has a zero burning policy for clearing its plantation land and intends, on a best efforts basis, to maintain and/or promote such policy in its future acquisition and development of plantation land. The Target Group considers environmental compliance to be an important factor in the conduct of its operations and it is committed to achieving high standards of environmental management. Each of the Target Group s oil palm plantations and processing plants has implemented environmental management plans to help reduce the environmental impact of its operations and to monitor the production and the disposal of waste products. All of the Target Group s oil palm plantations are located in Indonesia where the responsibility for environmental regulation and supervision lies with the Local Environmental Impact Management Agency (or Badan Pengendalian Dampak Lingkungan Daerah) ( BAPEDALDA ). The Indonesian government has the power to take action against Indonesian companies for failure to comply with its environmental and forestry regulations. The Indonesian government can impose fines and revoke licences and concessions. The Target Group s internal environmental and social development policies emphasise or include the following elements:- commitment towards compliance with environmental and pollution standards; commitment towards clearing forest land for its oil palm plantations in accordance with Indonesian regulations including an active no-burn policy; building medical clinics, schools and places of worship for its plantation workers and their families; commitment towards managing its oil palm operations in a manner consistent with internationally recognised management practices; and commitment towards improving community and social relations. As a processor of palm oil, the Target Group s operations are subject to various regulations by governmental agencies in Indonesia relating to production processes, waste removal procedures, storage and distribution. All of the Target Group s processing plants have waste treatment equipment and internal environmental personnel to help monitor compliance with environmental standards and identify opportunities for improvement. Please refer to Appendix E of this Circular for certain information on the environmental regulations in Indonesia. 88

143 LETTER TO SHAREHOLDERS Licences The Target Group is subject to various regulatory licensing requirements governing its business of oil palm cultivation and milling, refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivative products. These include licences such as the Plantation Business Licences ( IUP ), Ijin lokasi (Location Permit) and the permanent business licences issued by the Capital Investment Coordinating Board (referred to in Indonesian as Badan Koordinasi Penanaman Modal ( BKPM )). The Target Group is also subject to regulatory licensing requirements in relation to the operation of its copra crushing plant. A list of the material licences issued to the Target Group in order for it to carry out its operations, apart from those pertaining to general business registration requirements, is set out in Appendix D Insurance The Target Group maintains insurance coverage for its oil palm trees, buildings (other than employee housing), machinery, furniture and fixtures, vehicles (other than road tankers), storage tanks, inventory as well as money in safe and in transit. As at 30 June 2006, an aggregate area of approximately 56,005 hectares, which constitutes 88.1% of the Target Group s approximately 63,552 hectares of plantation land planted with oil palms is covered against losses from fire, lightning, explosion, and plane crash with a combined coverage amounting to approximately Rp278 billion with a maximum limit of liability in aggregate of Rp12 billion for any one year period. The Target Group is currently in the process of making the necessary arrangements to insure its remaining oil palm plantations which are located in West Kalimantan. The Target Group s buildings, machinery, furniture and fixtures, storage tanks and inventory are covered under Property All Risks ( PAR ) and earthquake insurance policies. The risks coverage under PAR include fire, lightning, explosion, impact of aircraft, riots, strikes, malicious damage, civil commotion, vehicle impact, flood, typhoon, water damage, machinery breakdown and landslide. The earthquake insurance policies cover earthquakes, volcanic eruptions and tsunamis. As for the Target Group s vehicle insurance coverage, the risks coverage includes accidents, riots, strikes and malicious damage, civil commotion, acts of God, theft, fire and lightning. The Target Group s coverage for money in safe and in transit includes theft and robbery. All the main assets of the Target Group have been or are in the process of being covered by insurance policies. The Target Group believes that its insurance coverage is consistent with oil palm and other plantation and refining industry standards in Indonesia. The Target Group does not maintain third party liability insurance or product liability insurance which it believes is consistent with industry practice in Indonesia. In relation to the Target Group s employee insurance coverage, the Target Group contributes to the Indonesian manpower social security program known as Jaminan Sosial Ketenagakerjaan or JAMSOSTEK. JAMSOSTEK is a protection scheme for employees under which employees receives compensation in cash or remuneration for a portion of income which was lost or reduced due to work accident, illness, pregnancy, giving birth, old age and death. Further information on the JAMSOSTEK program is set out in Appendix E of this Circular. In addition to the JAMSOSTEK program, the Target Group also provides additional insurance coverage for its employees at its own cost. 89

144 LETTER TO SHAREHOLDERS Awards and Certifications The Target Group has been conferred with awards and certifications including the following major awards:- Award in relation to Name of Award Granted By Year of Award Brand Indonesian Best Brand Award SWA Annually from MARS 2002 to 2006 Indonesian Golden Brand Award SWA 2002 to 2005 MARS Superbrand Indonesia Superbrand 2003/2004 International 2005/2006 Customer Satisfaction Indonesian Customer Satisfaction SWA 2000 to 2005 Award Frontier Indonesian Golden Customer SWA 2000 to 2004 Satisfaction Award Frontier Packaging Packaging Consumer Indonesian Brand Branding Award Identity Summit 2005 GOLD (Bimoli) SILVER (Simas) Product & Service Quality Highest Points for Quality KFC 1999 & 2001 Assessment Indonesia Most Improved Score of Non KFC 2005 Chicken Supplier of the Year Indonesia KFC Supplier of the Year KFC Indonesia 2006 Certificate in relation to Name of Certificate Granted By Year of Certification Quality Management System ISO 9001 : 1994 SGS Yarsley 1997 ISO 9001 : 2000 SGS Yarsley 2001 Halal Certification Halal for Minyak Nabati MUI 2005 to 2007 Halal for Specialty Oil MUI 2005 to 2007 Halal for Cooking Oil MUI 2005 to 2007 Halal for Margarine MUI 2005 to 2007 Halal for Shortening MUI 2005 to 2007 Halal for Minyak Goreng Sawit MUI 2005 to 2007 Notes: MARS Frontier SWA MUI Independent Research Agency Independent Research Agency Business Magazine Majelis Ulama Indonesia (Islamic Scholar Council of Indonesia) Fixed Assets and Properties A list of the material tangible fixed assets and material properties (including land rights and location permits) owned by the Target Group as at the Latest Practicable Date, is set out in Appendix D Seasonality The Target Group usually experiences an increase in sales volumes in the months leading up to Lebaran (the end of the Muslim fasting period) celebrations, Christmas and Chinese New Year. In addition, the production of FFB in the Target Group s oil palm plantations tends to increase in the second half of the year, as a result of the rainfall patterns in Riau where most of the Target Group s planted oil palm plantations are located. 90

145 LETTER TO SHAREHOLDERS Inflation In March and October 2005, the Indonesian government reduced the subsidy on fuel in line with its intention to reduce the Indonesian budget deficit. The resulting increase in fuel prices affected, inter alia, production costs as well as freight costs of raw materials and finished products and significantly increased inflation in Indonesia. The chart below shows inflation in Indonesia in the last three years YOY. Inflation in Indonesia would adversely affect the Target Group s net income and cash flow to the extent it is unable to increase its revenue to cover any material increases in its operating expenses resulting from inflation. The Target Group may be constrained in its ability to raise prices of its products in response to inflation because of consumer price resistance, government intervention and competitive pressures, amongst other factors. % Oct.03 May.04 Dec.04 Jul.05 Feb.06 Sep.06 Source : Bank Indonesia Competition There are a large number of producers of palm oil-based products and producers of cooking oil and margarine and shortening operating in Indonesia. The Target Group s competitors are mainly local conglomerates and multinational corporations. In particular, the Target Group considers the following companies and their product(s) to be its competitors:- Estimated Market Share of Indonesia s branded oil and fats market in 2004 according to Brand Company Euromonitor International (% retail value rsp) Palm Boom PT SMART Corp Tbk 2.2 Sania PT Sari Agrotama Persada 5.1 Tropical PT Bina Karya Prima 10.3 Filma PT SMART Corp Tbk 13.5 Blue Band PT Unilever Indonesia Tbk 14.6 The Target Group estimates that as at 30 June 2006 its market share in Indonesia by volume for branded cooking oil is approximately 42% and approximately 59% for branded industrial pack margarine and shortening, which makes the Target Group the market leader in both segments. In its report titled Oils and fats in Indonesia dated January 2006, Euromonitor International estimated that the Target Group has an estimated 38.2% share of the Indonesian market for branded oils and fats by retail value in 2004 including its Bimoli brand with an estimated market share of 24.8%. 91

146 LETTER TO SHAREHOLDERS The Target Group believes that competition in its business is largely based on, amongst others, quality, price, product range, customer service and timely delivery. To compete effectively, the Target Group has to source its raw materials at competitive prices, manage its manufacturing, marketing and distribution facilities efficiently, conceptualise and implement appropriate pricing strategies and, establish and develop branded products Management and Employees (a) Management It is envisaged that all the Directors (save for Mr Moleonoto Tjang and Mr Tjhie Tje Fie) will resign with effect from the completion of the Proposed Acquisition and eight new directors are proposed to be appointed to the new Board. Please see Section 17(b) of this Circular for information on the Proposed New Directors. It is also envisaged that all the present key executives will resign with effect from the completion of the Proposed Acquisition. In replacement, the Company will appoint the Proposed New Key Executives. Please see Section 17(c) of this Circular for information on the Proposed New Key Executives. (b) Employees The following table sets out, as at the dates indicated, a breakdown of the number of the employees of the Target Group by function:- As at 31 December As at 30 June Department Management and Administration 941 (1) 779 (1) Marketing 230 (1) 157 (1) Factory/Mills 3,515 3,446 3,201 3,275 Plantation 11,140 10,979 11,313 10,995 Total 15,826 15,361 15,479 15,153 Note: (1) The decrease in the number of marketing, management and administrative employees was a result of the cessation of the Target Group s trading of spot and forward contracts on palm oil-based commodities in domestic and foreign markets as one of its core activities in FY2004. The Target Group benefits from a workforce of approximately 15,153 permanent employees as at 30 June 2006, which has helped to drive the Target Group s performance. The Target Group seeks to cultivate its managers business skills, foster innovation and increase productivity. The Target Group believes that a high-quality work environment which emphasizes strong teamwork results in increased employee satisfaction and loyalty. The Target Group conducts in-house training and workshops and external seminars at its oil palm plantations and refineries in Indonesia to improve the skills and technical expertise of its employees. The Target Group also trains its employees in oil palm plantation management and agronomics. As at the Latest Practicable Date, almost all of the employees of the Target Group in Indonesia were represented by the Serikat Pekerja Seluruh Indonesia (Labour Union). The Target Group believes that it has established good working relationships with its employees. As such, although there is generally high labour activism in Indonesia, and the Target Group experiences such activism from time to time in the form of protests and intermittent work stoppage, there has not been any major strikes or prolonged work stoppages by the employees of the Target Group leading to major production disruption or government intervention during the Period Under Review. 92

147 LETTER TO SHAREHOLDERS The Target Group s plantation division has defined contribution retirement plans covering its qualified permanent employees. The Target Group s contributions to the funds are computed at 10% and 7% of the basic pensionable income for staff and non-staff employees, respectively. Total pension cost amounted to approximately Rp8.3 billion, Rp8.9 billion and Rp9.5 billion in FY2003, FY2004 and FY2005, respectively. Further, in addition to the benefits provided under the aforesaid defined contribution retirement plans, the Target Group provides provisions for employee service entitlements in order to meet the minimum benefit required to be paid to qualified employees, as required under the Indonesian Labour Law No.13/2003. These employee benefits amounted to approximately Rp40.9 billion, Rp50 billion and Rp66.2 billion, in FY2003, FY2004 and FY2005, respectively. As at the Latest Practicable Date, there are no arrangements with any of the directors or employees of the Target Group that involve the issue or grant of options or shares or any other securities of the Company. The employment relationship in Indonesia is regulated by Law No. 13 of 2003 concerning Manpower which was introduced on 25 March Law No. 13 of 2003 serves as an umbrella legislation to all labour related matters in Indonesia. Other employment laws and regulations are Law No. 2 of 2004 concerning Industrial Relationship Dispute Settlement, Law No. 3 of 1992 concerning Social Security, Law No. 2 of 2004 which provides guidelines on the settlement of industrial relation disputes, and Law No. 3 of 1992 which obligates employers to cover their employees under a social security program. For more information on employment laws in Indonesia, please refer to Appendix E of this Circular Competitive Strengths The Target Group believes that its business benefits from the following competitive strengths which have contributed to its position as one of Indonesia s major vertically-integrated agribusiness groups:- (a) The Target Group has strong brand recognition and loyalty in Indonesia As one of the earliest domestic mass producers of branded edible oils and fats in Indonesia, the Target Group has over the years developed a deep appreciation and intimate understanding of the Indonesian consumer market including its consumer tastes, culinary, spending and other preferences. This has enabled the Target Group to develop effective production, pricing, distribution and marketing strategies to achieve strong brand recognition and deep market penetration for its products as borne out by its strong market share in the country. The Target Group believes that its products and brands have developed a high degree of consumer trust, and loyalty in Indonesia. These attributes provide the Target Group with a competitive advantage in terms of, amongst others, its ability to:- (i) (ii) (iii) (iv) maintain its customer base and the selling price of its products as consumers are less inclined to switch to newer unknown brands; promote and grow new products or extensions of existing products as consumers are more prepared to experiment with new products from a trusted brand; avoid having to incur a disproportionate amount of advertising and promotion expenses ( A&P expenses ) as the brands are already well known; and negotiate selling terms with existing distributors and attract more distributors with the desired network and abilities given the popularity of the products with end-consumers. 93

148 LETTER TO SHAREHOLDERS (b) The Target Group s plantation division has a considerable land bank which is mostly contiguous and can be developed to increase its future production of CPO As at 30 June 2006, the Target Group has a land bank of approximately 138,542 hectares (excluding land under the Plasma Programme and land used for oil palm seed breeding). Of this, approximately 63,552 hectares are planted with oil palm which are mostly contiguous and provide the benefits of being easier to manage, better security and lower costs. Approximately 59,235 hectares out of the planted area are mature areas where the oil palm trees produce commercial harvests. The Target Group thus has considerable undeveloped plantation land which can be developed to increase its future production of CPO. The Target Group plans to increase its planted oil palm area from approximately 63,552 hectares as at 30 June 2006 to 250,000 hectares by about 2015 through the acquisition and development of additional plantation land. In this connection, the Target Group is currently in the process of increasing its undeveloped plantation land bank by approximately 85,541 hectares through the Plantation Acquisition. The Target Group intends to increase its planted oil palm area with the primary aim of becoming self-sufficient in high quality CPO for its own production needs. It will also enable the Target Group to consider direct sales of excess CPO in the future. (c) The Target Group has an established research and development programme For the plantation division, the Target Group has a dedicated team of researchers to carry out research and development activities that focuses on (i) breeding of oil palm seedlings with characteristics that could lead to improved FFB yields and self-sufficiency in terms of oil palm seedlings; (ii) improving harvesting practices to optimise collection of FFB; (iii) preventive maintenance programs for all mills; (iv) optimising biological methods of pest and palm tree disease control; (v) plantation mechanisation; and (vi) the usage of organic fertilizers. The Target Group believes the above efforts will assist it to achieve high production yields and cost efficiencies. (d) The Target Group is vertically integrated The Target Group has established a vertically integrated agribusiness model that spans from oil palm cultivation and milling to the refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivative products. The Target Group believes that the high degree of vertical integration and the large scale of its operations provide it with various synergies and competitive benefits in the form of cost efficiencies and stronger relative bargaining position. These include the following:- (i) (ii) The Target Group s oil palm plantations cultivate and principally produce high quality CPO with less than 3% free fatty acid (FFA). Such plantations supply approximately half of the Target Group s internal CPO requirements in FY2005. This provides the Target Group with an assured supply of its key raw material and reduces the Target Group s exposure to unfavourable changes or volatility in CPO prices. The Target Group owns its own integrated refining and fractionating facilities which are built close to one another for operating efficiency and have the capacity to meet the processing requirements of the Target Group. Therefore, the Target Group is not reliant on external refineries. Further, the Target Group s large business volume enables such facilities to operate at high utilisation rates which generate the desired economies of scale. The Target Group also reduces its production costs by using certain waste products from its production as fuel. 94

149 LETTER TO SHAREHOLDERS (iii) Many of the Target Group s production facilities are strategically located near sources of raw materials and near deep draft ports to minimise its transportation costs for the obtaining of raw materials and to facilitate the shipping of its products. The Target Group also owns and operates its own jetties, ports and fleet of trucks and road tankers to meet a portion of its transportation requirements. The Target Group undertakes its own branding and marketing of products which involve extensive market data collection to increase understanding of consumer preferences and needs. This enables the Target Group to manufacture products which effectively satisfy consumer demands in various segments thereby building brand loyalty. The Target Group has also deployed its market knowledge to develop a wide product range to cater to various customer segments in Indonesia. (v) By owning much of its entire production chain, the Target Group is better able to achieve greater coordination and efficiency in terms of planning, logistics, production and merchandising. The Target Group is also better placed to control and maintain the quality and image of its products. (e) The Target Group has an established distribution network Given the size and geographically dispersed nature of the Indonesian market, the Target Group distributes its products mainly through external distributors. The Target Group currently has approximately 110 distributors which together with the Target Group s own direct sales channels serve approximately 230,000 retail outlets throughout Indonesia. These include the extensive sales distribution network established by its controlling shareholder, PT ISM. The Target Group supports its distribution network by providing, inter alia, (i) a reliable supply of products; (ii) commercially sound sales, credit and returns policies; and (iii) extensive consumer marketing strategies involving advertising and promotion as well as caring and responsible community involvement. This extensive sales and distribution network enables the Target Group to serve the vast Indonesian consumer market in nearly all localities and segments in an efficient and effective manner. It also enables the Target Group to sustain high production levels and to be less reliant on any single province or geographical area within Indonesia. (f) (g) The Target Group has an experienced management, marketing and technical team The Target Group has an experienced management, marketing and technical team which has over the years demonstrated the ability to build and integrate the various activities of the Target Group, develop a complementary mix of products, build brand recognition and loyalty, establish distribution networks in Indonesia and abroad, manage price volatilities, reap costs savings from economies of scale and efficiencies, and identify new business opportunities including sourcing for suitable sites for the cultivation of oil palm and the establishment of refineries and processing plants. The Target Group believes that the quality of its management team is vital in sustaining and growing the success of Target Group s business in the midst of increasing competition in the market. The Target Group has a strong shareholder base The Target Group s major shareholder, PT ISM, is one of Indonesia s largest processed food companies, with leading domestic market shares for most of its products, including instant noodles, wheat flour, baby foods and snack foods. PT ISM also produces food seasoning products. Currently, PT ISM is Indonesia s largest instant noodles manufacturer and its flour milling facilities is Indonesia s largest and amongst the biggest in the world, with installed capacities of approximately 13 billion packs and approximately 3.8 million MT per annum, respectively. The PT ISM Group also has an extensive distribution network in Indonesia. As part of the PT ISM group of companies, the Target Group is able to tap PT ISM s market knowledge, management expertise, collective bargaining strength and business infrastructure. These provide the Target Group with important operational efficiencies and 95

150 LETTER TO SHAREHOLDERS competitive advantages. In particular, the Target Group intends to leverage on PT ISM to further penetrate the domestic Indonesian markets through PT ISM s stock point distribution system. The Target Group also intends to leverage on PT ISM in identifying and exploring new business opportunities and implementing best practices relating to risk management, environmental and social responsibilities Prospects The following discussion about the Target Group s prospects includes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those that may be projected or implied in these forward-looking statements. Please see Cautionary Note Regarding Forward-Looking Statements on page 15 of this Circular. Please also see Trends in Section on page 129 of this Circular. Prospects for the Branded Edible Oils and Fats Market in Indonesia In 2005, the Indonesian economy ended the year with an overall GDP growth of 5.6% which was the highest rate achieved by the country in nine years. In its report titled Indonesia : Economic and Social Update published in March 2006, the World Bank projected that Indonesia s GDP growth rate in 2006 will moderate to 5.5% and will accelerate to above 6% in The Target Group believes that the consumption of branded edible oils and fats in Indonesia will continue to rise with the country s economic growth. Considering that the bulk of the edible oils and fats currently consumed in Indonesia is unbranded, the Target Group believes that the rising level of consumer affluence in the country brought about by its GDP growth will lead to greater demand for higher quality branded edible oils and fats such as those manufactured by the Target Group. In its report titled Oils and fats in Indonesia dated January 2006, Euromonitor International estimated that:- Between 2005 and 2010, retail sales of branded vegetable and seed oils in Indonesia is projected to grow at a compounded annual growth rate of approximately 6.2% (in terms of volume) to reach 501,800 MT worth Rp4,522 billion. Between 2005 and 2010, retail sales of branded margarine (including spreadable oils and fats) in Indonesia is projected to grow at a compounded annual growth rate of approximately 6.3% (in terms of volume) to reach 156,400 MT worth approximately Rp2,167 billion. The Target Group is well positioned to participate in the growth of Indonesia s branded edible oils and fats market given its status as one of the leading players and brand owners in the industry. Euromonitor International estimates that in 2004, the Target Group had a market share of approximately 38.2% of the branded oils and fats market by retail value in Indonesia. The Target Group also believes that its strategy of vertical integration, development of its overseas markets, brand management and product development will enable it to maintain a strong market position in Indonesia s growing branded edible oils and fats market as well as to grow its export revenues. Please refer to Section of this Circular for further information of the Target Group s strategy. Prospects for the Palm Oil Market According to the United States Department of Agriculture (report titled Oilseeds: World Markets and Trade dated June 2006), global palm oil consumption grew by approximately 19% over the last three years (i.e., 2003/04 to 2005/06) and is forecast to grow a further 5.4% in 2006/07 to reach a record 37.3 million MT. Indonesia s palm oil production rose by 30.4% during the last three years and is expected to become the world s largest producer in 2006/07 with production exceeding 16 million MT. 96

151 LETTER TO SHAREHOLDERS The Target Group believes that the growth in global palm oil consumption and palm oil production in Indonesia can be attributed to the following factors:- Versatility Low cost Dietary benefits China and India Biofuel programs Suitable conditions Palm oil is used in an increasingly wide range of applications ranging from food items to personal care products to oleo-chemicals. As a renewable energy source, palm oil is also increasingly gaining importance as a biofuel in many countries. Oil palm is the highest yielding oil crop in the world on a per hectare basis which provides it a cost advantage over other vegetable oil crops. In particular, the increase in the price of soybean oil (a major substitute to palm oil) in recent years has widened the price spread between palm oil and soybean oil and increased the competitiveness of palm oil in the market. Similarly, the rising costs of crude oil will increase the attractiveness of palm oil as an alternative fuel to petroleum. Palm oil appeals to the increasingly health conscious public as it contains no cholesterol and is regarded as a healthier substitute to other edible oils and animal fats. As it is non-genetically modified and trans-fat free, demand for palm oil from US food manufacturers is expected to grow with the inclusion of trans-fatty acids in nutritional labeling imposed in the US in China and India have emerged as major importers and consumers of palm oil owing to rising levels of consumer affluence and insufficient domestic oilseed production in these two populous emerging economies. Demand from China is expected to grow with the phasing out of import quotas on vegetable oils in January Palm oil usage is expected to grow in the European Union and certain countries such as Malaysia and Indonesia, which have designated it as one of the biofuels to reduce the use of fossil fuels and to protect the environment under the Kyoto Protocol. Under the European Parliament s Directive 2003/30/EC, the European Union requires the energy content of renewable sources in all its transport petrol and diesel fuel to be increased from 2% to 5.75% by end Under Malaysia s proposed Biodiesel Act expected to be fully implemented in 2008, the palm biofuel blend will comprise 5% of processed palm oil mixed with diesel and will use 500,000 MT of palm oil per annum. Indonesia has become a leading producer of palm oil as a result of its high availability of suitable agricultural land, plantation workers, favourable climate and government encouragement for oil palm cultivation. The reduction in export taxes on palm oil in recent years has also increased the export competitiveness of Indonesian palm oil in international markets. The Target Group believes that the above factors will support the long-term growth in demand for palm oil in the foreseeable future. The Target Group intends to step up its plantation acquisition and planting program in the coming years to achieve up to 250,000 hectares under cultivation by about The Target Group believes that this will both increase its self sufficiency of CPO and cater for potential external sales of CPO in the future. These in turn can potentially further reduce the Target Group s production costs for cooking oil, margarine and shortening as well as increase the Target Group s sources of revenue in the future. 97

152 LETTER TO SHAREHOLDERS Strategy and Future Plans The objective of the Target Group is to continue expanding its business by building on its position as one of Indonesia s major vertically-integrated agribusiness groups. The Target Group aims to achieve this objective by focusing on the following key strategies:- (a) Expanding its planted area of oil palm The Target Group plans to increase its planted oil palm area from approximately 63,552 hectares as at 30 June 2006 to 250,000 hectares by about 2015 through the acquisition and development of additional plantation land. In this connection, the Target Group has entered into a conditional agreement to acquire approximately 85,541 hectares of mostly undeveloped plantation land pursuant to the Plantation Acquisition. The Target Group intends to increase its planted oil palm area with the primary aim of becoming self-sufficient in CPO for its own production needs. It will also enable the Target Group to consider direct sales of excess CPO in the future. The Target Group is optimistic that demand for palm oil will continue to rise in coming years driven by, inter alia, rising consumption in emerging economies like China and India as well as the use of palm oil in new applications like biofuels. For the period up to FY2009, the Target Group presently intends to invest approximately US$160 million to develop approximately 70,000 hectares of its unplanted land bank into oil palm plantations. In general, developing oil palm plantations from raw land to a mature plantation requires approximately four years and to develop oil palm plantations (including the related palm oil mills) is estimated to require funding of about US$4,000 per hectare. As at the Latest Practicable Date, the Target Group has not determined the exact funding method for such plans which may include a combination of equity fund raising, bank borrowings and internal resources. In this respect, the Target Group will have regard, inter alia, to its cash flow, market conditions and available credit facilities at the relevant times. A portion of the proceeds from the Placement may be deployed towards the above. (b) Expansion of production capacity The Target Group plans to invest approximately US$60 million from FY2006 to FY2008 to expand its production capacity to cater for future increases in the Target Group s sales volume, to be funded through a combination of internal resources, bank borrowings and equity fund raising. These include the following:- (i) (ii) (iii) The Target Group intends to increase the annual capacity of its refinery, fractionation and margarine processing plants in Medan by approximately 120,000 MT, 60,000 MT and 30,000 MT by 2008, respectively, at a cost of approximately Rp90 billion. The Target Group also intends to relocate its refinery in North Jakarta to a new location in the vicinity of the Jakarta port at a cost of approximately US$40 million, which is targeted to commence operations in early The new refinery is expected to have an annual refining capacity of approximately 420,000 MT, which is an increase over the existing refinery s annual capacity of approximately 247,500 MT. The relocation of the refinery closer to the Jakarta port is expected to lower the Target Group s inland transportation costs. The Target Group also expects its new mill in West Kalimantan with a capacity of 45MT FFB/hour to be completed before the end of 2006 at a total cost of approximately Rp65 billion. The mill will process the FFB to be produced by the Target Group s plantations in the area. 98

153 LETTER TO SHAREHOLDERS (c) Maintaining its market position in Indonesia and growing its export sales The Target Group intends to maintain its leading position in the cooking oil, margarine and shortening segments in Indonesia through, inter alia, the following:- (i) (ii) (iii) (iv) continue to undertake various innovative marketing and promotion activities to maintain consumer loyalty for its leading brands such as Bimoli ; development of new brands, new products and product extensions to meet changing consumer preferences and to create new market segments in which the Target Group can have an advantage; increase its technical expertise to improve the quality, consistency, shelf life and overall content of its products; and expand its distribution network and logistical processes to achieve deeper market penetration and coverage. Besides Indonesia, the Target Group intends to increase its sales volumes in its existing overseas markets and develop new emerging markets such as Africa and the Middle East. To raise its competitiveness in this respect, the Target Group intends to increase its market knowledge of the export countries by strengthening the export sales and marketing team, sourcing for credible distribution channels and promoting the Target Group s own brands in selected markets. (d) (e) Expansion into higher value added products The Target Group intends to broaden its product range to include more higher value-added products, catering in particular to the high-end market which generally carry higher profit margins, such as those which emphasise attributes like health benefits and modern lifestyle. Such products are complementary to the Target Group s product range as the Target Group s processing facilities are capable of producing them. Optimise operating efficiency and productivity The Target Group intends to continue enhancing the level of integration in its operations and improving on its cultivation, production, marketing and logistical processes so as to achieve greater cost efficiencies, productivity, economies of scale and effective service delivery. These include investment in information technology to enhance the pace and accuracy of information gathering, processing and dissemination throughout the organisation. The Target Group also intends to raise the standard of managerial and technical skills as well as staff productivity throughout the organisation by focusing on leadership and staff training. The Target Group intends to decrease its energy costs by replacing its diesel boilers at its Surabaya and Bitung refineries with coal boilers. 99

154 LETTER TO SHAREHOLDERS 15. MANAGEMENT S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE PROFORMA GROUP The following discussion of the results of operations and financial condition of the Proforma Group should be read in conjunction with the Accountants Report as set out in Appendix C of this Circular. The discussion is prepared on the basis that the Proforma Group has been in existence since 1 January 2003 and throughout the periods under review. Please also refer to Section 13 of this Circular for a detailed account of other risk factors affecting the business activities as well as the strategy and future plans of the Proforma Group Selected Financial Information on the Proforma Group The unaudited pro forma consolidated profit and loss accounts of the Proforma Group in respect of the three financial years ended 31 December 2003, 2004 and 2005 and the six-month periods ended 30 June 2005 and 2006 are set out below (1) : FY2003 FY2004 FY2005 HY2005 HY2006 (Rp million) (Rp million) (Rp million) (Rp million) (Rp million) Revenue 4,886,637 4,032,089 3,589,609 1,559,625 1,693,214 Cost of sales (4,015,829) (2,861,697) (2,510,807) (1,053,746) (1,362,467) Gross profit 870,808 1,170,392 1,078, , ,747 (Losses)/gains arising from changes in fair value of biological assets (230,316) (6,157) 100,001 94, ,224 Other operating income 11,028 21,680 40,983 11,464 21,243 Selling and distribution costs (149,467) (131,100) (155,089) (63,113) (60,165) General and administrative expenses (182,402) (153,132) (180,958) (75,812) (78,314) Other operating expenses (42,485) (12,994) (6,475) (6,847) (7,473) Profit from operations 277, , , , ,262 Financial income 197,618 66,874 16,919 10,174 4,195 Financial expenses (65,598) (40,752) (42,768) (14,078) (45,231) Profit before taxation 409, , , , ,226 Tax expense (133,970) (274,534) (243,855) (140,134) (158,866) Profit for the year/period 275, , , , ,360 Attributable to:- - Equity holders of the Company 242, , , , ,453 - Minority interests 32,752 70,231 64,928 34,644 27, , , , , ,360 Earnings per Consolidated Share (Rp) (2) Notes: (1) The results of the Proforma Group for the years/periods under review have been prepared on the basis that the group structure of the Proforma Group had been in place since 1 January (2) Earnings per Consolidated Share for the years/periods under review have been computed based on the net profit attributable to equity holders of the Company and the Company s enlarged issued share capital of 1,011,700,000 Consolidated Shares immediately upon completion of the Proposed Acquisition but before the Placement. 100

155 LETTER TO SHAREHOLDERS For illustration purpose, the table below sets out the summary unaudited pro forma consolidated profit and loss accounts of the Proforma Group in respect of the three financial years ended 31 December 2003, 2004 and 2005 and the six-month periods ended 30 June 2005 and 2006 in S$ term, based on the exchange rate of S$1: Rp5,851: FY2003 FY2004 FY2005 HY2005 HY2006 (S$ million) (S$ million) (S$ million) (S$ million) (S$ million) Revenue Gross profit Profit from operations Profit before taxation Profit for the year/period Attributable to:- - Equity holders of the Company Minority interests Earnings per Consolidated Share (Singapore cents)

156 LETTER TO SHAREHOLDERS The unaudited pro forma consolidated balance sheets of the Proforma Group as at 31 December 2005 and 30 June 2006 are set out below (1) : As at As at 31 December June 2006 (Rp million) (Rp million) Non-current assets Biological assets 1,661,523 2,207,830 Property, plant and equipment 733, ,642 Prepaid land premiums and deferred land right acquisition costs 158, ,223 Assets not used in operations 160,088 Investment in convertible bonds 50,300 Advance for convertible bonds 145,792 Goodwill 36,852 39,034 Claims for income tax refund 53, ,855 Deferred tax assets 73,864 72,601 Other non-current assets 53,448 77,529 Total non-current assets 3,128,599 3,501,714 Current assets Inventories 535, ,156 Trade and other receivables 351, ,198 Prepaid value added tax 45, ,609 Advances to suppliers 70,802 47,266 Available-for-sale investments 212, ,563 Cash and cash equivalents 274, ,228 Total current assets 1,490,443 1,541,020 Total assets 4,619,042 5,042,734 Current liabilities Trade payables and accruals 1,054, ,176 Advances from customers 9,291 2,787 Interest-bearing loans and borrowings 185, ,335 Income taxes payable 10,191 17,596 Total current liabilities 1,259, ,894 Non-current liabilities Interest-bearing loans and borrowings 201, ,819 Other payables 25,263 17,319 Estimated liabilities for employee benefits 66,245 76,987 Deferred tax liabilities 443, ,731 Total non-current liabilities 736,371 1,159,856 Total liabilities 1,995,805 2,072,750 Net assets 2,623,237 2,969,984 Attributable to equity holders of the Company Share capital 26,285 26,285 Share premium 9,191 9,191 Reserves 2,085,357 2,334,454 2,120,833 2,369,930 Minority interests 502, ,054 Total equity 2,623,237 2,969,984 Net tangible assets per Consolidated Share (Rp) (2) 2,060 2,

157 LETTER TO SHAREHOLDERS Notes: (1) The financial position of the Proforma Group as at 31 December 2005 and 30 June 2006 have been prepared on the basis that the group structure of the Proforma Group had been in place as at that date. (2) Net tangible assets is defined as net assets attributable to equity holders of the Company net of goodwill. Net tangible assets per Consolidated Share have been computed based on the Company s enlarged issued share capital of 1,011,700,000 Consolidated Shares immediately upon completion of the Proposed Acquisition but before the Placement. For illustration purpose, the table below sets out the summary unaudited pro forma consolidated balance sheet of the Proforma Group as at 31 December 2005 and 30 June 2006 in S$ term, based on the exchange rate of S$1: Rp5,907: As at As at 31 December June 2006 (S$ million) (S$ million) Non-current assets Current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Attributable to equity holders of the Company Minority Interests Total equity Net tangible assets per Consolidated Share (S$)

158 LETTER TO SHAREHOLDERS Selected Operating Data Revenue (Rp billion) FY2003 FY2004 FY2005 HY2005 HY2006 Plantations Division (1) - CPO Others (2) Cooking Oil and Fats Division - Cooking oil 1,374 1,618 1, Margarine and shortening By-products (3) Commodities Division - Copra-based products (4) Palm oil-based products (5) 1, Sales volume (000 MT) Plantations Division (1) - CPO n.m. (6) 6 - Others (2) Cooking Oil and Fats Division - Cooking oil Margarine and shortening Commodities Division - Copra-based products (4) Palm oil-based products (5) Average selling price (Rp million per MT) - CPO (excluding commodities division) Cooking oil Margarine and shortening Copra-based products (4) Notes: (1) Prior to FY2004, all the CPO and other products produced by the plantations division were sold to external parties. In FY2004, the Proforma Group decided to dedicate the majority of its CPO production for its own cooking oil and fats manufacturing needs. The aggregate of the division s external sales and inter-segment sales amounted to Rp1,312 billion and Rp1,167 billion in FY2004 and FY2005 respectively. (2) Others include mainly FFB, palm kernel and other products. (3) By-products comprise mainly palm fatty acid distillate and RBD palm stearine. (4) Copra-based products comprise mainly CNO, RBD CNO, pellets and other derivative products. (5) Palm oil-based products comprise mainly CPO, palm kernel oil, RBD palm oil and RBD palm stearine. (6) n.m. denotes not meaningful as the sales volume is less than 500 MT. 104

159 LETTER TO SHAREHOLDERS 15.2 Overview Revenue The Proforma Group is one of Indonesia s major vertically-integrated manufacturers of edible oils and fats with a significant market share in the branded cooking oil as well as margarine and shortening segments in Indonesia. It derives its revenue mainly from the following three business divisions: Plantations Division The plantations division contributed approximately 22.0%, 6.9%, 6.3%, 4.2% and 5.6% to the total revenue of the Proforma Group in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. The plantations division is primarily engaged in the commercial cultivation of oil palm and derives its revenue primarily from the sale of CPO (which forms the bulk of the division s output), FFB and other by-products such as palm kernel, palm kernel oil and palm kernel meals. The Proforma Group also produces and sells a small amount of natural rubber from a small rubber plantation. Prior to FY2004, all the CPO and other products produced by the plantations division were sold to external parties through the Proforma Group s commodities division acting as selling agent. In FY2004, in order to ensure the consistency in its product quality and to increase its self-sufficiency in CPO, the Proforma Group decided to dedicate the majority of its CPO production for its own cooking oil and fats manufacturing needs. In FY2005, more than 90% of the division s CPO production was supplied to the Proforma Group s cooking oil and fats division while all of its palm kernel related products were sold to external parties. Please refer to Sections 14.5 and 14.6 of this Circular for details of the Proforma Group s plantations and mills. Cooking Oil and Fats Division The cooking oil and fats division contributed approximately 44.9%, 62.7%, 70.7%, 72.6% and 71.8% to the total revenue of the Proforma Group in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. The cooking oil and fats division is primarily engaged in the manufacture and sale of palm oil-based cooking oil, margarine and shortening for both the Indonesian and overseas markets. It also markets a small amount of soya-based cooking oil in Indonesia and produces a small amount of intermediate products such as palm fatty acid distillate and RBD palm stearine for sale in both the Indonesian and overseas markets. For the Indonesian market, the division s consumer pack products (such as cooking oil, margarine and shortening) are distributed nationwide mainly through distributors to traditional retailers, supermarkets and hypermarkets under its own stable of brands. Its industrial pack cooking oil is mainly sold, on an unbranded basis, to the PT ISM Group and other industrial food manufacturers, while its industrial pack margarine and shortening are marketed under its own brands to confectionaries, bakeries and other food manufacturers. In FY2005, approximately 60.0% of the division s revenue was attributed to the sale of the Proforma Group s own brands of products. The Proforma Group s products are exported to more than 50 countries, including China, India, Sri Lanka, the Philippines, Russia and Papua New Guinea. In FY2005, approximately 81.2% of the division s revenue was derived in Indonesia with the balance derived from export sales. Please refer to Section 14.4 of this Circular for details of the Proforma Group s products. Commodities Division The commodities division contributed approximately 33.1%, 30.4%, 23.0%, 23.2% and 22.6% to the total revenue of the Proforma Group in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. The commodities division is primarily engaged in the production of 105

160 LETTER TO SHAREHOLDERS copra-based products for sale to overseas markets including the US, Europe, China and South Korea. These copra-based commodities comprise CNO, RBD CNO and other related by-products produced at its copra crushing plants. Prior to FY2004, the commodities division had engaged in trading of spot and forward contracts on palm oil-based commodities (such as CPO, palm kernel oil, RBD palm oil and RBD palm stearine) in domestic and foreign markets as one of its core activities. In FY2004, the Proforma Group decided to cease such commodity trading activities as a core business so as to focus its efforts on its plantations, cooking oil and fats as well as its copra-based businesses. Currently, the division undertakes a small amount of such trading of palm oilbased commodities on an ad-hoc basis mainly as an ancillary service to customers who request for such services. The following table sets forth a breakdown of the Proforma Group s revenue according to division (1) and geographical segments (2) for the periods indicated: FY2003 FY2004 FY2005 HY2005 HY2006 (Rp billion) % (Rp billion) % (Rp billion) % (Rp billion) % (Rp billion) % Revenue by division - Plantations (3) 1, Cooking Oil and Fats 2, , , , , Commodities 1, , Total revenue 4, , , , , Revenue by geographical segments Indonesia 2, , , , , Asia (excluding Indonesia) 1, Europe Africa, Middle East and Oceania America Total revenue 4, , , , , Notes: (1) Please refer to Note 41 of the Accountants Report for details of the Proforma Group s operating results by business segments. (2) The breakdown of revenue by geographical segments is based on shipment destination. (3) Prior to FY2004, all the CPO and other products produced by the plantations division were sold to external parties. In FY2004, the Proforma Group decided to dedicate the majority of its CPO production for its own cooking oil and fats manufacturing needs. The aggregate of the division s external sales and inter-segment sales amounted to Rp1,312 billion and Rp1,167 billion in FY2004 and FY2005 respectively. Approximately 51.0%, 62.8%, 65.5%, 64.2% and 68.4% of the Proforma Group s revenue was derived from the Indonesian market in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. Revenue from the Indonesian market is mainly denominated in Indonesian Rupiah while its overseas revenue is mainly denominated in United States Dollar. Revenue from the sale of goods is recognised upon delivery of products when significant risks and rewards of ownership are transferred to the buyers. In general, the Proforma Group does not receive any long-term orders from its customers. The Proforma Group s customers generally place orders from time to time depending on their prevailing demand. The Proforma Group usually delivers its products (other than copra-based products) to its customers according to the orders placed within seven days of receiving the orders. For sales of copra-based products, the Proforma Group generally delivers its products within one to two months of receiving orders. 106

161 LETTER TO SHAREHOLDERS The principal factors that can affect the Proforma Group s revenue include the following:- (i) Economic growth of Indonesia The Proforma Group s largest source of revenue is the sale of cooking oil and fats in Indonesia. The consumption of cooking oil and fats in Indonesia is correlated with its overall economic growth. An improving economy which raises the affluence and purchasing power of the general Indonesian population is likely to increase the volume of cooking oil and fats consumed in the country. It is also likely to result in more consumers switching from unbranded cooking oil and fats to branded ones such as those marketed by the Proforma Group. Conversely, a declining economy may result in the opposite occurring. (ii) Price of CPO The majority of cooking oil and fats currently consumed in Indonesia are palm oil-based with CPO being the main ingredient used. As such, CPO prices have a significant direct impact on the Proforma Group s cost of production for cooking oil and fats and consequently its product selling prices and its revenue. CPO is traded globally on international commodity markets and its price is generally affected by its worldwide demand and supply as well as weather conditions, government trade policies, shifts in consumption patterns and the availability and price of substitute commodities. A prolonged increase or decrease in the price of CPO in Indonesian Rupiah terms is likely to eventually lead to a corresponding increase or decrease in the price of cooking oil and fats in Indonesia. In general, there is a time lag effect of a few weeks before the market selling prices of cooking oil and fats in Indonesia are adjusted for the fluctuations in the CPO prices. In FY2004, the Proforma Group decided to cease the trading of spot and forward contracts on palm oil-based commodities as a core business. During the same year, the Proforma Group also decided to dedicate the bulk of its plantations division s CPO output for its own internal use. Currently, the Proforma Group continues to derive a small portion of its revenue from the sale of CPO and other palm oil-based products such as palm kernel oil, RBD palm oil and RBD palm stearine whose selling prices are generally correlated with the price of CPO to a certain extent. The chart below illustrates the fluctuations in international CPO prices (Free On Board spot price) and the exchange rates between United States Dollar and the Indonesian Rupiah from January 2003 to October Prices of CPO (US$/MT) Exchange Rate (Rp/US$) 12, CPO Prices 11, , , , Exchange Rate 350 7, Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 6,000 Source : CPO Prices: Malaysian Palm Oil Board, Exchange Rate: Bloomberg LP 107

162 LETTER TO SHAREHOLDERS (iii) Price of CNO The Proforma Group is engaged in the production of copra-based products comprising mainly CNO for sale to overseas markets. As such, the Proforma Group s revenue is also affected by changes in the price of CNO. The selling price of copra-based commodities such as CNO are generally based on, or affected by, their international demand and supply as well as other generic factors similar to those affecting CPO and other edible oils. The chart below illustrates the fluctuations in international CNO prices (Cost, Insurance and Freight price) and the exchange rates between United States Dollar and the Indonesian Rupiah from January 2003 to October Prices of CNO (US$/MT) CNO Prices Exchange Rate (Rp/US$) 11,000 10,000 9, Exchange Rate 8,000 7, Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 6,000 Source : CNO Prices: Target Group, Exchange Rate: Bloomberg LP (iv) (v) Exchange rate between the United States Dollar and the Indonesian Rupiah The Proforma Group s export sales are largely denominated in United States Dollar. Further, certain of the Proforma Group s key raw materials such as CPO and sales products such as CNO (including their respective derivative products) are widely consumed commodities and their prices are primarily driven by international demand and supply with their benchmark prices determined on international commodity markets mainly in United States Dollar. As the Proforma Group s functional and reporting currency is in Indonesian Rupiah, any material fluctuation in exchange rate between the United States Dollar and the Indonesian Rupiah will have an impact on the Proforma Group s revenue, operating results and cash flow. For example, an appreciation in the Indonesian Rupiah against United States Dollar will result in the Proforma Group receiving less export revenue per unit volume of sales in Indonesian Rupiah terms. It would also reduce the cost of CPO to the Proforma Group in Indonesian Rupiah terms and lower its cost of sales which in turn may lead to a decline in its revenue if the selling prices of its end products decline in tandem. Competition from other manufacturers and substitute products The cooking oil and fats market in Indonesia is highly competitive with numerous local and foreign players competing principally on the basis of quality, price and availability. Branded cooking oil in Indonesia also faces competition from unbranded cooking oil which is currently the mainstay of consumers in the country. Furthermore, palm oil-based cooking oil and fats also face competition from substitute vegetable oils such as coconut oil, soya oil, corn oil and olive oil. Demand for the Proforma Group s products and its revenue are affected by the marketing strategies deployed by its competitors as well as the relative affordability or popularity between palm oil-based edible oils and substitute edible oils. 108

163 LETTER TO SHAREHOLDERS (vi) (vii) (viii) Changes in consumer trends Changes in consumer preferences will affect demand for the cooking oil and fats produced by the Proforma Group. These preferences include, inter alia, type of vegetable oil, product brand, product pricing, sales channel, health and other product attributes. The Proforma Group s revenue is determined in part, by the extent to which it is able to keep abreast of such consumer trends and maintain demand for its products by adopting the appropriate business strategies. The Proforma Group s production and marketing capabilities The Proforma Group s revenue is affected by its ability to successfully manufacture, market and deliver its products to meet market demand in an effective and timely manner. These, in turn, depend on, inter alia, the Proforma Group s ability to manage, maintain and coordinate its production facilities, logistics and distribution channels judiciously. Any major disruption in the Proforma Group s production and distribution channels can have an adverse impact on its revenue. As a manufacturer of branded products, the Proforma Group s revenue is also affected by its ability to generate demand for its products through the building of brand awareness, brand loyalty and product differentiation. Sales to the PT ISM Group The PT ISM Group is one of the Proforma Group s national distributors in Indonesia and a major customer for the industrial cooking oil produced by the Proforma Group. Sales to the PT ISM Group amounted to approximately 28.0% of the Proforma Group s revenue in FY2005. The Proforma Group does not have any long term sales contract with the PT ISM Group. As the Proforma Group derives a substantial proportion of its revenue from the PT ISM Group, any significant change in the level of sales orders placed by the latter with the Proforma Group will have a significant impact on its revenue. The quantum of orders from the PT ISM Group is in turn affected by, inter alia, demand for the end products it manufactures such as noodles and other food items, the competitiveness of the Proforma Group s products and the strength of the PT ISM Group s distribution network. Cost of Sales The cost of sales of the Proforma Group amounted to approximately 82.2%, 71.0%, 70.0%, 67.6% and 80.5% of its revenue in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. A breakdown of the components of the Proforma Group s cost of sales in FY2003, FY2004, FY2005, HY2005 and HY2006 are as follows: FY2003 FY2004 FY2005 HY2005 HY2006 (Rp billion) % (Rp billion) % (Rp billion) % (Rp billion) % (Rp billion) % Raw materials 1, , , Labour and overheads Depreciation and amortisation Production costs 2, , , , Purchase of merchandises 1, Changes in finished goods and work in progress Inventories (12) (0.5) (25) (2.4) (23) (1.7) Cost of sales 4, , , , , Gross profit margin (%) Raw materials which comprise mainly CPO and copra accounted for approximately 38.8%, 51.5%, 50.4%, 50.6% and 56.5% of the Proforma Group s total cost of sales for FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. Nearly all of the Proforma Group s purchases of raw materials 109

164 LETTER TO SHAREHOLDERS are made in Indonesia and are transacted in Indonesian Rupiah. In FY2005, approximately half of the Proforma Group s CPO requirements were sourced internally from its plantation division. However, as the above raw materials comprise mainly international commodities whose global benchmark prices are determined mainly in United States Dollar, their costs to the Proforma Group are dependent on the exchange rate between the United States Dollar and Indonesian Rupiah. Any material depreciation of the Indonesian Rupiah against the United States Dollar and increase in the international prices of the above raw materials will increase the Proforma Group s costs of sales in Indonesian Rupiah terms. The price of such commodities is also dependent on their respective global demand and supply, weather conditions, government trade policies, shifts in consumption patterns and the availability and price of substitute commodities. Labour and overheads expenses accounted for approximately 18.3%, 26.9%, 33.7%, 35.0% and 34.6% of the Proforma Group s total cost of sales for FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. Labour and overheads comprise mainly salaries, other staff-related costs, maintenance and fertilizing costs, harvesting and collecting costs, fuel and lubricants costs, repair and maintenance costs, indirect materials and packaging costs. The key factors affecting the costs of labour and overheads are number of employees, number of working hours, salary increments, sales and production volumes, expansion in plantation and production facilities. Depreciation expenses relate to the Proforma Group s property, plant and equipment while amortisation expenses relate to the Proforma Group s prepaid land premium and deferred land right acquisition costs, and other deferred charges. The key factors affecting the depreciation and amortisation expenses are expansion in plantation and production facilities. Purchase of merchandises represents purchases of mainly palm oil-based products for the Proforma Group s trading of palm oil-based commodities which ceased as a core activity in FY2004. Changes in finished goods and work-in-process inventory represents the difference between the value of opening and closing inventory levels of finished goods and work in progress for the respective financial periods. Gains or Losses Arising from Changes in Fair Value of Biological Assets Biological assets which comprise mainly mature and immature oil palm and rubber plantations are stated at fair values less estimated point-of-sale costs. As market determined prices or values are not readily available for plantations in its present condition, the Proforma Group uses the present value of expected net future cash flows (excluding any future cash flows for financing the assets, taxation or re-establishing plantations after harvest) from the asset, discounted at a current market determined pre-tax rate in determining fair values. The expected future cash flows of oil palm plantations are determined using the forecast market price of FFB which is largely dependent on the projected selling prices of CPO and palm kernel oil in the market. Gains or losses arising on initial recognition of plantations at fair value less estimated point-of-sale costs and from the change in fair value less estimated point-of-sale costs of plantations at each reporting date are included in the profit and loss accounts for the period which they arises. For FY2007, the fair value of the Proforma Group s biological assets to be stated in its financial statements will be determined by reference to independent external valuations. Please refer to Note 13 to the Accountants Report for further details of the valuation of the Proforma Group s biological assets. Other Operating Income Other operating income amounted to approximately 0.2%, 0.5%, 1.1%, 0.7% and 1.3% of the total revenue of the Proforma Group in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. Other operating income comprises mainly net gains on foreign exchange, excess of net asset of acquiree over investment costs, gain on disposal of property, plant and equipment, gains on changes in estimates of provision for asset dismantling costs, net tank operation surpluses, gains on future commodity contract transactions, gain on sale of prepaid land premium and allowance for doubtful debts written back. 110

165 LETTER TO SHAREHOLDERS Selling and Distribution Costs Selling and distribution costs amounted to approximately 3.1%, 3.3%, 4.3%, 4.0% and 3.6% of the total revenue of the Proforma Group in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. Selling and distribution costs comprise mainly domestic freight and handling charges, A&P expenses and export expenses (such as export tax, ocean freight and terminal handling charges) which accounted for approximately 35.4%, 22.2% and 19.6% of total selling and distribution costs in FY2005, respectively. Freight and handling expenses are influenced mainly by domestic market freight rates and the Proforma Group s domestic sales. Export expenses are influenced mainly by the Proforma Group s overseas sales and international ocean freight rates. The other selling and distribution costs of the Proforma Group are primarily influenced by the extent of its marketing and promotion activities and sales volumes during the Period Under Review. General and Administrative Expenses General and administrative expenses amounted to approximately 3.7%, 3.8%, 5.0%, 4.9% and 4.6% of the total revenue of the Proforma Group in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. General and administrative expenses comprise mainly salaries and employee benefits and depreciation and amortisation which accounted for approximately 66.8% and 5.6% of total general and administrative expenses in FY2005, respectively. The general and administrative expenses of the Proforma Group are generally influenced by its general and administrative staff headcount and wage levels as well as the growth of the Proforma Group s business. Other Operating Expenses Other operating expenses amounted to approximately 0.9%, 0.3%, 0.2%, 0.4% and 0.4% of the total revenue of the Proforma Group for FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. Other operating expenses comprise mainly net losses on foreign exchange, losses on sale of available-for-sale investments, tax authority s correction of value-added and other taxes, net tank operation losses, losses on changes in estimates of provision for assets dismantling costs, losses on future commodity contract transactions, loss on write-off of property, plant and equipment and other miscellaneous expenses. Financial Income Financial income amounted to approximately 4.0%, 1.7%, 0.5%, 0.7% and 0.2% of the total revenue of the Proforma Group in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. Financial income comprises mainly interest income on current and time deposits, available-for-sale investments and other receivable from a shareholder and related parties. Financial income is determined primarily by the Proforma Group s cash, time deposits, receivables from a shareholder and related parties, and available-for-sale investments balances and the prevailing market interest rates. Financial Expenses Financial expenses amounted to approximately 1.3%, 1.0%, 1.2%, 0.9% and 2.7% of the total revenue of the Proforma Group in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. Financial expenses relate mainly to interest expense on bank borrowings, loan from related parties, finance leases and bank charges. Financial expenses are determined by the quantum of borrowings and the interest rates on such borrowings. Please refer to Section 15.6 of this Circular for further information on the borrowings of the Proforma Group. Tax Expense The effective corporate tax rate of the Proforma Group was approximately 32.7%, 30.0%, 28.6%, 30.3% and 37.6% in FY2003, FY2004, FY2005, HY2005 and HY2006, respectively. The corporate tax rate in Indonesia is progressive up to a maximum of 30%. The tax rate applicable to the Proforma Group s subsidiaries in Indonesia is generally 30%. The difference between the Proforma Group s effective tax rate and its corporate tax rate is mainly due to permanent differences such as non-taxable income, non-deductible expenses, and under/over provision in respect of prior periods. Please refer to Note 11 to the Accountants Report for further details. 111

166 LETTER TO SHAREHOLDERS Minority Interests Minority interests refer to profits attributable to minority shareholders of the subsidiaries of the Proforma Group Review of Financial Performance FY2004 compared to FY2003 Revenue. The Proforma Group s revenue decreased by approximately 17.5% from Rp4,887 billion in FY2003 to Rp4,032 billion in FY2004 mainly due to the lower revenue from its plantations and commodities divisions partially offset by an increase in the revenue from its cooking oil and fats division. While the plantation division s CPO production increased by approximately 5% in FY2004, the Proforma Group decided during the year to dedicate the bulk of its CPO output to meet the production requirements of its cooking oil and fats division in order to ensure the consistency in its product quality and to increase its self-sufficiency in CPO. As a result, the plantation division s revenue from external sales decreased by approximately 74.1% from Rp1,077 billion in FY2003 to Rp279 billion in FY2004. Revenue from the cooking oil and fats division increased by approximately 15.3% from Rp2,191 billion in FY2003 to Rp2,526 billion in FY2004. This increase was mainly due to an increase in the selling prices of its main product categories in FY2004 to adjust for the general increase in CPO prices towards the end of FY2003 and the effect of the depreciation of Indonesian Rupiah against the United States Dollar. Furthermore, the division also recorded higher domestic sales of cooking oil driven primarily by the increase in sales volume of industrial cooking oil. Revenue from the commodities division decreased by approximately 24.2% from Rp1,619 billion in FY2003 to Rp1,227 billion in FY2004. This decrease in revenue was attributable to the reduction in the division s trading of palm oil-based commodities which ceased as a core activity during the year. This was partially offset by an increase in export sales of copra-based products, especially CNO, as a result of higher international prices of CNO and the effect of the depreciation of the Indonesian Rupiah against the United States Dollar. Gross Profit and Gross Profit Margin. Notwithstanding the decline in revenue, the Proforma Group recorded an approximate 34.4% increase in gross profit from Rp871 billion in FY2003 to Rp1,170 billion in FY2004. Gross profit margin improved from approximately 17.8% in FY2003 to approximately 29.0% in FY2004. Such improvement can be attributed to (i) the increase in the selling prices of the main product categories in the Proforma Group s division; (ii) the improved production efficiency as a result of utilising the Proforma Group s internal CPO (which posseses higher quality) for its cooking oil and fats production requirements; (iii) a higher yield of FFB as a result of favourable weather conditions, and (iv) a lower proportion of revenue contribution from commodity trading activities which generally has a lower profit margin. Losses Arising from Changes in Fair Values of Biological Assets. Losses arising from changes in fair values of biological assets decreased by approximately 97.3% from Rp230 billion in FY2003 to Rp6 billion in FY2004. This was mainly due to the upward revision in forecast prices of FFB due to the improved outlook for FFB prices. Other Operating Income. Other operating income increased by approximately 96.6% from Rp11 billion in FY2003 to Rp22 billion in FY2004. The increase was mainly due to net gains on foreign exchange and higher gain on disposal of property, plant and equipment and other income partially offset by the absence of any gains on future commodity contract transactions and gains on changes in estimates of provision for asset dismantling costs in FY2004 as compared to a combined gain/income of approximately Rp6 billion in FY2003. Selling and Distribution Costs. Selling and distribution costs decreased by approximately 12.3% from Rp149 billion in FY2003 to Rp131 billion in FY2004. These were led by decreases in freight and handling expenses, salaries and employee benefits, export expenses, commissions and other expenses primarily as a result of the reduction in the Proforma Group s commodity trading activities. 112

167 LETTER TO SHAREHOLDERS General and Administrative Expenses. General and administrative expenses decreased by approximately 16.1% from Rp182 billion in FY2003 to Rp153 billion in FY2004. The decrease was mainly due to a decrease in salaries and employee benefits by approximately Rp25 billion primarily as a result of a reduction in the number of employees in FY2004 mainly as a consequence of the reduction in the Proforma Group s commodity trading activities and retirements. Other Operating Expenses. Other operating expenses decreased by approximately 69.4% from Rp42 billion in FY2003 to Rp13 billion in FY2004. The decrease was mainly a result of the absence of the Rp22 billion foreign exchange loss recorded in FY2003. Financial Income. Financial income decreased by approximately 66.2% from Rp198 billion in FY2003 to Rp67 billion in FY2004 primarily due to a decrease in interest income of Rp114 billion principally as a result of the collection of receivables from its shareholder and dividend payments during the year. Financial Expenses. Financial expenses decreased by approximately 37.9% from Rp66 billion in FY2003 to Rp41 billion in FY2004 mainly due to a decrease in interest expense as a result of lower level of bank borrowings. Profit Before Taxation. Profit before taxation increased by approximately 123.6% from Rp409 billion in FY2003 to Rp915 billion in FY2004 mainly due to the increase in gross profit and the decrease in operating expenses and losses from changes in fair values of biological assets. Tax Expense. Tax expense increased by approximately 104.9% from Rp134 billion in FY2003 to Rp275 billion in FY2004. The effective tax rate declined from approximately 32.7% in FY2003 to approximately 30.0% in FY2004. Please refer to Note 11 to the Accountants Report for further details. Minority Interests. Minority interests increased by approximately 114.4% from Rp33 billion in FY2003 to Rp70 billion in FY2004 in line with the improvement in the Proforma Group s profit for the year. Net Profit. Net profit attributable to the equity holders of the Company increased by approximately 135.1% from Rp242 billion in FY2003 to Rp570 billion in FY2004. FY2005 compared to FY2004 Revenue. The Proforma Group s revenue decreased by approximately 11.0% from Rp4,032 billion in FY2004 to Rp3,590 billion in FY2005 mainly due to lower revenue from its commodities and plantations divisions, partially offset by an increase in the revenue from its cooking oil and fats division. Revenue from the plantations division decreased by approximately 19.3% from Rp279 billion in FY2004 to Rp226 billion in FY2005 mainly due to a general decline in CPO prices and a slight drop in CPO output as a result of less favourable climatic conditions. The cooking oil and fats division recorded a marginal 0.4% increase in its revenue from Rp2,526 billion in FY2004 to Rp2,537 billion in FY2005 mainly due to an increase in the sales volume of semi-consumer pack cooking oil and industrial cooking oil in the domestic and overseas markets. This was however partially offset by the lower average selling prices of its cooking oil and fats products in FY2005 as a result of lower CPO prices. Revenue from the commodities division decreased by approximately 32.6% from Rp1,227 billion in FY2004 to Rp827 billion in FY2005. The decrease in revenue was attributable to the continued winding down of the Proforma Group s commodity trading activities. Nevertheless, this was partially offset by an increase in the revenue from copra-based products, which are mainly exported and sold in United States Dollar, principally as a result of higher selling prices of CNO (in Indonesian Rupiah terms) due to the effect of the depreciation of Indonesian Rupiah against the United States Dollar during FY

168 LETTER TO SHAREHOLDERS Gross Profit and Gross Profit Margin. Despite the increase in cost of sales driven mainly by increased fuel prices due to the reduction in the Indonesian government s fuel subsidies in the first and the last quarter of FY2005, the Proforma Group was able to increase its gross profit margin from 29.0% to approximately 30.0% primarily due to the lower proportion of contribution from the Proforma Group s commodity trading activities which generally generate a lower profit margin. As a result of the lower revenue recorded, the Proforma Group recorded an approximately 7.8% decline in gross profit from Rp1,170 billion in FY2004 to Rp1,079 billion in FY2005. Gains Arising from Changes in Fair Values of Biological Assets. Gains arising from changes in fair values of biological assets was Rp100 billion in FY2005 as compared to a loss of Rp6 billion in FY2004 mainly due to the effect of the depreciation of the Indonesian Rupiah against the United States Dollar which increased the forecast prices of CPO in Indonesian Rupiah terms. Other Operating Income. Other operating income increased by approximately 89.0% from Rp22 billion in FY2004 to Rp41 billion in FY2005. The increase was mainly attributed to negative goodwill of approximately Rp26 billion arising from the Proforma Group s acquisition of PT KMS and the increase in gain on disposal of property and equipment by approximately Rp4 billion partially offset by the absence of net gains on foreign exchange in FY2005. Selling and Distribution Costs. Selling and distribution costs increased by approximately 18.3% from Rp131 billion in FY2004 to Rp155 billion in FY2005. Despite the decrease in revenue, the Proforma Group incurred higher selling and distribution costs mainly due to (i) an increase in freight and handling expenses of approximately Rp4 billion as a result of higher fuel prices; (ii) an increase in A&P expenses of approximately Rp3 billion to maintain the market position of its branded products; (iii) an increase in export expenses of approximately Rp7 billion as a result of higher fuel prices and in line with the increase in export sales and (iv) an increase in depreciation expenses of approximately Rp4 billion as a result of additional transport facilities purchased. General and Administrative Expenses. General and administrative expenses increased by approximately 18.2% from Rp153 billion in FY2004 to Rp181 billion in FY2005. The increase was mainly due to an increase in staff-related expenses by approximately Rp12 billion as a result of salary increments and provision of a long outstanding non-trade receivables from a third party of approximately Rp10 billion. The said receivables had subsequently been fully collected in HY2006. Other Operating Expenses. Other operating expenses decreased by approximately 50.2% from Rp13 billion in FY2004 to Rp6 billion in FY2005 mainly due to the absence of net tank operation losses, losses on sale of available-for-sale investments, losses on changes in estimates of provision for assets dismantling cost and losses on future commodity contract transactions in FY2005 as compared to total expenses and losses of Rp8 billion in FY2004 for such items partially offset by a foreign exchange loss of Rp2 billion in FY2005. Financial Income. Financial income decreased by approximately 74.7% from Rp67 billion in FY2004 to Rp17 billion in FY2005 principally as a result of the collections of receivables from its shareholder and dividend payments during the year. Financial Expenses. Financial expenses increased by approximately 4.9% from Rp41 billion in FY2004 to Rp43 billion in FY2005 mainly due to an increase in borrowings from related parties for working capital purposes. Profit Before Taxation. Profit before taxation decreased by approximately 6.9% from Rp915 billion in FY2004 to Rp851 billion in FY2005 mainly due to the decrease in revenue, gross profit and finance income coupled with the increase in operating expenses and finance expenses. These were partially offset by gains arising from changes in fair values of biological assets. Tax Expense. Tax expense decreased by approximately 11.2% from Rp275 billion in FY2004 to Rp244 billion in FY2005. The effective tax rate declined from approximately 30.0% in FY2004 to approximately 28.6% in FY2005. Please refer to Note 11 to the Accountants Report for further details. 114

169 LETTER TO SHAREHOLDERS Minority Interests. Minority interests decreased by approximately 7.6% from Rp70 billion in FY2004 to Rp65 billion in FY2005 as a result of the decline in the Proforma Group s profit for the year. Net Profit. Net profit attributable to the equity holders of the Company decreased by approximately 4.8% from Rp570 billion in FY2004 to Rp543 billion in FY2005. HY2006 compared to HY2005 Revenue. The Proforma Group s revenue increased by approximately 8.6% from Rp1,560 billion in HY2005 to Rp1,693 billion in HY2006 driven by higher revenue from all its three business divisions. Revenue from the plantation division increased by approximately 43.7% from Rp66 billion in HY2005 to Rp95 billion in HY2006 attributable mainly to external sales of palm oil-based products which were surplus to the Proforma Group from time to time and subject to seasonal demand of the products. Revenue from the cooking oil and fats division increased by approximately 7.4% from Rp1,132 billion in HY2005 to Rp1,215 billion in HY2006. This increase was mainly due to higher sales volume in the domestic Indonesian market attributable to (i) the Proforma Group leveraging on the PT ISM Group s new stock points distribution system, (ii) increased marketing efforts by the Proforma Group for the margarine and shortening segments and (iii) an increase in the sale of industrial cooking oil to the PT ISM Group for its noodles business. Revenue from the commodities division increased by approximately 5.8% from Rp362 billion in HY2005 to Rp383 billion in HY2006. This was mainly attributable to the increase in the sales volume of palm oil-based products particularly the export of palm fatty acid distillate to meet customer demand. Such increase was partially offset by a decrease in revenue from the sale of copra-based products (which are mainly exported) due to lower average selling prices caused by the appreciation of the Indonesian Rupiah against the United States Dollar and the shift in product mix towards copra pellets which have a lower selling price than CNO products. Gross Profit and Gross Profit Margin. Notwithstanding the increase in revenue, gross profit decreased by approximately 34.6% from Rp506 billion in HY2005 to Rp331 billion in HY2006 primarily due to a sharp decline in profit margin in HY2006. Gross profit margin declined from approximately 32.4% in HY2005 to approximately 19.5% in HY2006. Such decline can be attributed to the rising fuel costs in Indonesia which have risen sharply after the latest reduction of fuel subsidies by the Indonesian government in October This contributed to a 27.7% increase in labour and overheads expenses. The reduction in fuel subsidies also contributed to the increase in the cost of raw materials which increased by 44.3% due to an increase in inbound logistic costs. The increase in the cost of raw materials can also be attributed to an increase in CPO purchase from external parties in line with the growth in the sales of cooking oil and fats. Further, gross profit margin was also affected by the strengthening of the Indonesian Rupiah, which appreciated from approximately Rp9,830 per US$ at the beginning of FY2006 to approximately Rp9,300 per US$ as at 30 June As most of the Proforma Group s exports are denominated in US$, the strengthening Indonesian Rupiah has resulted in lower export revenue per unit volume of sales in Indonesian Rupiah terms. Gains Arising from Changes in Fair Values of Biological Assets. Gains arising from changes in fair values of biological assets increased by approximately 171.2% from Rp95 billion in HY2005 to Rp257 billion in HY2006. This was mainly due to the higher estimate of the fair value as a result of (i) a lower discount rate being applied due to a decrease in consensus emerging market risk premium and (ii) a lower estimate of future cost inflation. Other Operating Income. Other operating income increased by approximately 85.3% from Rp11 billion in HY2005 to Rp21 billion in HY2006. The increase was mainly due to the write-back of an allowance for doubtful debts made in FY2005 of approximately Rp10 billion and net gains on foreign exchange of approximately Rp3 billion. These were partially offset by a decrease in gains on changes in estimates of provision for asset dismantling costs and other miscellaneous income. 115

170 LETTER TO SHAREHOLDERS Selling and Distribution Costs. Notwithstanding the increase in revenue, the Proforma Group s selling and distribution costs decreased by approximately 4.7% from Rp63 billion in HY2005 to Rp60 billion in HY2006. This was mainly due to a Rp6 billion decline in export expenses caused mainly by lower export sales of cooking oil and fats. This was partially offset by a Rp4 billion increase in freight & handling charges as a result of higher fuel costs. General and Administrative Expenses. General and administrative expenses increased by approximately 3.3% from Rp76 billion in HY2005 to Rp78 billion in HY2006 driven mainly by the increase in revenue. This was partially offset by lower staff-related expenses of approximately Rp5 billion as a result of a reduction in the number of staff in HY2006. Other Operating Expenses. Notwithstanding an increase in the tax authority s correction of valueadded and other taxes and other miscellaneous expenses, other operating expenses remained relatively stable at approximately Rp7 billion in HY2006 as the Proforma Group did not incur any net losses on foreign exchange and future commodity contract transactions. Financial Income. Financial income decreased by approximately 58.8% from Rp10 billion in HY2005 to Rp4 billion in HY2006 primarily due to lower interest income on current accounts and deposits and other receivables from a shareholder (PT ISM) and related parties. Financial Expenses. Financial expenses increased by approximately 221.3% from Rp14 billion in HY2005 to Rp45 billion in HY2006 mainly due to increased borrowings from banks and PT ISM primarily for working capital purposes. Profit Before Taxation. Profit before taxation decreased by approximately 8.7% from Rp463 billion in HY2005 to Rp422 billion in HY2006 mainly due to the decrease in gross profit and increase in net financial expenses which were partially mitigated by the increase in gains arising from changes in fair values of biological assets as explained above. Tax Expense. Despite the lower profit before taxation, tax expense increased by approximately 13.4% from Rp140 billion in HY2005 to Rp159 billion in HY2006. The effective tax rate increased from approximately 30.3% in HY2005 to approximately 37.6% in HY2006 primarily due to adjustments for under provision in respect of prior periods mainly pursuant to the PT ISM Group Restructuring. Please refer to Note 11 to the Accountants Report for further details. Minority Interests. Minority interests decreased by approximately 19.4% from Rp35 billion in HY2005 to Rp28 billion in HY2006 as a result of the decline in the Proforma Group s profit for the period. Net Profit. Net profit attributable to the equity holders of the Company decreased by approximately 18.2% from Rp288 billion in HY2005 to Rp235 billion in HY Review of Financial Position A review of the financial position of the Proforma Group as at 31 December 2005 and 30 June 2006 is set out below: (i) Non-current Assets As at 31 December 2005 and 30 June 2006, non-current assets amounted to Rp3,129 billion and Rp3,502 billion, respectively. 116

171 LETTER TO SHAREHOLDERS Biological assets accounted for approximately 53.1% and 63.0% of non-current assets as at 31 December 2005 and 30 June 2006, respectively. Biological assets comprise mainly mature and immature of oil palm plantations stated at fair value less estimated point-of-sale costs. The fair value of the oil palm plantations is determined using the discounted future cash flow method with reference to the projected selling prices of CPO and palm kernel oil in the market. Biological assets increased by Rp546 billion or 32.9% from Rp1,662 billion as at 31 December 2005 to Rp2,208 billion as at 30 June 2006 primarily due to the acquisition of PT SAIN during HY2006 and gains arising from changes in fair value. Property, plant and equipment accounted for approximately 23.5% and 23.1% of non-current assets as at 31 December 2005 and 30 June 2006, respectively. Property, plant and equipment comprise mainly buildings and improvements, machinery and equipment as well as furniture, fixtures and office equipment. Property, plant and equipment increased by Rp77 billion or 10.5% from Rp734 billion as at 31 December 2005 to Rp811 billion as at 30 June 2006 primarily due to the construction of a new palm oil mill in West Kalimantan, construction of housing and infrastructure in plantations, as well as the acquisition of PT SAIN during HY2006. Prepaid land premiums and deferred land right acquisition costs accounted for approximately 5.1% and 5.5% of non-current assets as at 31 December 2005 and 30 June 2006, respectively. Prepaid land premiums represent the cost of land rights owned by the Proforma Group which have limited useful lives / terms while deferred land rights acquisition costs represents cost associated with the legal transfer or renewal for titles of land rights. Prepaid land premiums and deferred land right acquisition costs increased by Rp33 billion or 20.9% from Rp159 billion as at 31 December 2005 to Rp192 billion as at 30 June 2006 primarily due to the acquisition of PT SAIN during HY2006. Assets not used in operations amounted to Rp160 billion or approximately 5.1% of noncurrent assets as at 31 December These comprise of land, machinery and equipment which are not used for the operational needs of the Proforma Group. As at 30 June 2006, the Proforma Group had no such assets as these assets were sold to PT ISM in HY2006. Investment in and advance for convertible bonds amounted to an aggregate Rp196 billion or approximately 6.3% of non-current assets as at 31 December These relate to payments for convertible bonds issued by PT SAIN (which is engaged in oil palm seed breeding and research) of Rp146 billion and issued by PT Pelayaran Tahta Bahtera ( PT PTB ) (which is engaged in the shipping logistic business) of Rp50 billion. The bonds issued by PT SAIN have been converted by the Proforma Group in the first half of FY2006 resulting in PT SAIN becoming a subsidiary of the Proforma Group. The bonds issued by PT PTB were converted by the Proforma Group on 3 January 2006 and subsequently the Proforma Group sold its investment in PT PTB to PT ISM at approximately its acquisition cost on 30 May As a result, the Proforma Group has no investment in and advance for convertible bonds as at 30 June Further information on such transfer is set out in Section (b) of the Circular. Apart from the above mentioned, other non-current assets of the Proforma Group accounted for approximately 7.0% and 8.3% of total non-current assets as at 31 December 2005 and 30 June 2006, respectively. These include mainly deferred tax assets, claims for income tax refund, goodwill, advances and deposits for purchases, long-term prepayments and advances to KKPA projects in relation to Plasma Programme. These non-current assets increased by approximately Rp73 billion or 33.4% from Rp218 billion as at 31 December 2005 to Rp291 billion as at 30 June 2006 primarily due to higher claims for income tax refund by approximately Rp48 billion and an increase in advances to KKPA projects by approximately Rp30 billion. Please refer to Note 37(a) of the Accountants Report for details of the KKPA projects. 117

172 LETTER TO SHAREHOLDERS (ii) Current Assets As at 31 December 2005 and 30 June 2006, current assets amounted to Rp1,490 billion and Rp1,541 billion, respectively. Inventories accounted for approximately 35.9% and 32.5% of current assets as at 31 December 2005 and 30 June 2006, respectively. Inventories comprise mainly raw materials, work in progress, finished goods, goods in transit and spare parts and factory supplies. Inventories are stated at the lower of cost and net realizable value. Inventories decreased by approximately Rp35 billion or 6.5% from Rp535 billion as at 31 December 2005 to Rp500 billion as at 30 June 2006 primarily due to lower level of raw materials for copra-based products. Trade and other receivables (net of allowance for doubtful debts) accounted for approximately 23.6% and 25.0% of current assets as at 31 December 2005 and 30 June 2006, respectively. These receivables comprise mainly trade receivables from third parties, trade receivables from related parties, other receivables from a shareholder and related party and receivables under future commodity contracts transactions (carried at quoted market prices). Other receivables from a shareholder and related party pertains mainly to loans provided to PT ISM. Trade and other receivables (net of allowance for doubtful debts) increased by approximately Rp34 billion or 9.7% from Rp351 billion as at 31 December 2005 to Rp385 billion as at 30 June 2006 primarily due to (i) an increase in trade receivables of approximately Rp9 billion in line with the increase in the Proforma Group s revenue in HY2006 and (ii) an increase in receivables under future commodity contract transactions of approximately Rp20 billion. Cash and cash equivalents accounted for approximately 18.4% and 12.3% of current assets as at 31 December 2005 and 30 June 2006, respectively. Cash and cash equivalents declined by approximately Rp85 billion or 30.8% from Rp275 billion as at 31 December 2005 to Rp190 billion as at 30 June Prepaid value-added tax accounted for approximately 3.1% and 12.3% of current assets as at 31 December 2005 and 30 June 2006, respectively. Prepaid value-added tax increased by approximately Rp144 billion or 313.6% from Rp46 billion as at 31 December 2005 to Rp190 billion as at 30 June 2006, primarily arose from the transfer of assets of the Merged Entities pursuant to the PT ISM Group Restructuring. Available-for-sale investments accounted for approximately 14.3% and 14.8% of current assets as at 31 December 2005 and 30 June 2006, respectively. Available-for-sale investments comprise mainly investments in quoted shares stated at fair values. Availablefor-sale investments increased by approximately Rp16 billion or 7.3% from Rp213 billion as at 31 December 2005 to Rp229 billion as at 30 June 2006 primarily due to an increase in the market value of the Proforma Group s investments in quoted shares. (iii) Current Liabilities As at 31 December 2005 and 30 June 2006, current liabilities amounted to Rp1,259 billion and Rp913 billion, respectively. Trade payables and accruals accounted for approximately 83.7% and 80.4% of current liabilities as at 31 December 2005 and 30 June 2006, respectively. Trade payables and accruals comprise mainly non-trade payables due to related parties, advances from shareholders, trade payables to third parties, trade payables to related parties, payables under future commodity contracts transactions (carried at quoted market prices), accrued expenses and other taxes payables. Trade payables and accruals decreased by approximately Rp320 billion or 30.4% from Rp1,054 billion as at 31 December 2005 to Rp734 billion as at 30 June 2006 primarily due to repayment of other payables to a shareholder and related parties and advances from shareholders of an aggregate amount of approximately Rp510 billion. These were partially offset by an increase in other taxes 118

173 LETTER TO SHAREHOLDERS payable of approximately Rp139 billion arising from the transfer of assets of the Merged Entities pursuant to the PT ISM Group Restructuring, an increase in payables under future commodity contracts of Rp18 billion and an increase in trade payables and accrued expenses of Rp12 billion and Rp20 billion, respectively in line with the increase in revenue. Interest-bearing loans and borrowings accounted for approximately 14.7% and 17.3% of current liabilities as at 31 December 2005 and 30 June 2006, respectively. Interest-bearing loans and borrowings comprise mainly working capital facility, pre-export financing loan and term loan facility. Interest-bearing loans and borrowings decreased by approximately Rp27 billion or 14.7% from Rp186 billion as at 31 December 2005 to Rp158 billion as at 30 June 2006 primarily due to partial repayment of pre-export financing loan. Other current liabilities include income tax payable and advances from customers. (iv) Non-current Liabilities As at 31 December 2005 and 30 June 2006, non-current liabilities amounted to Rp736 billion and Rp1,160 billion, respectively. Deferred tax liabilities accounted for approximately 60.3% and 51.4% of non-current liabilities as at 31 December 2005 and 30 June 2006, respectively. Deferred tax liabilities relate mainly to biological assets, property, plant and equipment and prepaid land premium and deferred land right acquisition costs. Deferred tax liabilities increased by approximately Rp153 billion or 34.4% from Rp444 billion as at 31 December 2005 to Rp597 billion as at 30 June 2006 primarily due to acquisition of PT SAIN. Interest-bearing loans and borrowings accounted for approximately 27.3% and 40.4% of non-current liabilities as at 31 December 2005 and 30 June 2006, respectively. Interestbearing loans and borrowings comprise mainly bank loans and loans from PT ISM. Interestbearing loans and borrowings increased by approximately Rp268 billion or 133.2% from Rp201 billion as at 31 December 2005 to Rp469 billion as at 30 June 2006 primarily due to an increase in bank borrowings for working capital purposes offset by a decrease in loans from PT ISM. Other non-current liabilities include mainly estimated liabilities for employee benefits and provision for assets dismantling costs. (v) (vi) Share Capital and Reserves Equity attributable to shareholders amounted to Rp2,121 billion and Rp2,370 billion as at 31 December 2005 and 30 June 2006, respectively. Minority Interests Minority interests amounted to Rp502 billion and Rp600 billion as at 31 December 2005 and 30 June 2006, respectively. This relates mainly to subsidiaries of the Proforma Group including PT SIMP Liquidity and Capital Resources The growth and expansion of the Proforma Group have been funded by a combination of internal and external sources of funds. Its internal sources of funds comprise mainly shareholders equity, retained profits and cash generated from its operations. Its external sources of funds comprise mainly bank borrowings and interest-bearing loans from the PT ISM Group. In the reasonable opinion of the new Board of the Company after the completion of the Proposed Acquisition, after taking into account the Proforma Group s present credit facilities and cash position, the working capital available to the Proforma Group is sufficient for its present requirements. 119

174 LETTER TO SHAREHOLDERS A summary of the unaudited consolidated statement of cash flows of the Proforma Group for FY2005 and HY2006 based on the Accountants Report is as follows: FY2005 (Rp billion) HY2006 (Rp billion) Profit before tax Adjustments for non-cash items, income tax paid and net interest paid (297) (258) Changes in working capital (262) 101 Net cash flow generated from operating activities Net cash (used in)/generated from investing activities (505) 57 Net cash (used in) financing activities (42) (407) Net decrease in cash and cash equivalents (255) (85) Cash and cash equivalents at beginning of the year/period Cash and cash equivalents at the end of the year/period (i) Net Cash Generated from Operating Activities In FY2005, despite recording a profit before tax for the year of Rp851 billion, the Proforma Group generated a lower net cash flow from operating activities of Rp292 billion mainly due to an increase in working capital of Rp262 billion and income tax paid of Rp293 billion. The increase in working capital was attributed mainly to increases in inventories (Rp101 billion), receivables (Rp22 billion), prepaid value-added taxes (Rp30 billion) and other non-current assets (Rp47 billion) as well as a decrease in payables (Rp62 billion). In HY2006, the Proforma Group generated net cash flow from operating activities of Rp265 billion. This comprised operating profit before changes in working capital of approximately Rp265 billion, adjusted for net working capital inflow of approximately Rp101 billion, net interest paid of Rp41 billion and income tax paid of approximately Rp60 billion. The net working capital inflow was due to an increase in payables (Rp251 billion) and a decrease in inventories (Rp38 billion). This was partially offset by an increase in prepaid value-added taxes (Rp144 billion) and other non-current assets (Rp35 billion) as well as an increase in receivables (Rp8 billion). (ii) Net Cash Used in/generated from Investing Activities Net cash used in investing activities for FY2005 amounted to Rp505 billion attributable mainly to the various acquisitions and investments during the year. These include the acquisition of property, plant and equipment (Rp158 billion), advance for investment in convertible bonds (Rp146 billion), acquisition of available-for-sale investments (Rp70 billion), acquisition of subsidiaries net of cash acquired (Rp62 billion), investment in convertible bonds (Rp50 billion) and acquisition of biological assets (Rp28 billion). Net cash generated from investing activities for HY2006 amounted to Rp57 billion. This was mainly attributable to the proceeds from (i) the disposal of assets not used in the operations (Rp145 billion), (ii) disposal of its investment in convertible bonds (Rp50 billion) and (iii) the disposal of its prepaid land premium, property, plant and equipment (Rp7 billion). These proceeds were partially offset by the acquisition of property, plant and equipment (Rp95 billion), biological assets (Rp26 billion), subsidiaries, net of cash acquired (Rp10 billion), advances for purchases of factory equipment (Rp3 billion) and advances paid to the KKPA projects (Rp11 billion). 120

175 LETTER TO SHAREHOLDERS (iii) Net Cash Used in Financing Activities Net cash used in financing activities for FY2005 amounted to Rp42 billion. This comprised cash outflow of Rp1,014 billion partially offset by cash inflows of Rp972 billion. Of the cash outflow, Rp1,013 billion was for payment of cash dividends. The cash inflow was mainly due to proceeds from interest-bearing loans and borrowings of Rp166 billion and proceeds from borrowings from related parties of Rp806 billion. Net cash used in financing activities for HY2006 amounted to Rp407 billion. This comprised cash outflow of Rp1,052 billion partially offset by cash inflow of Rp646 billion. Of the cash outflow, Rp415 billion was for repayment of short-term interest-bearing loans and borrowings, Rp388 billion was for payment of share capital reduction pursuant to the PT ISM Group Restructuring and Rp250 billion was for the payment of net amount due to related parties. The cash inflow was mainly due to proceeds from interest-bearing loans and borrowings Capitalisation and Indebtedness The following information should be read in conjunction with the Accountants Report in Appendix C of this Circular and the related notes thereto included elsewhere in this Circular. The Proforma Group s capitalisation and indebtedness based on its financial position as at 30 June 2006 and 31 October 2006 were as follows: As at As at 30 June October 2006 (Rp billion) (Rp billion) Cash and cash equivalents Bank borrowings Short term bank borrowings Unsecured and guaranteed borrowings Long term bank borrowings Unsecured and guaranteed borrowings Secured and guaranteed borrowings Amounts due to shareholder Short term amounts due to shareholder Unsecured and interest bearing 350 (1) 390 (1) Long term amount due to shareholder Unsecured and interest-bearing Total indebtedness 977 1,191 Proforma shareholders equity (excluding minority interests) 2,370 2,531 Total capitalisation and indebtedness 3,347 3,722 Note: (1) The short term amounts due to shareholder is reflected under Other payables to a shareholder and related parties under Trade payables and accruals in the Accountants Report. 121

176 LETTER TO SHAREHOLDERS Bank Facilities As at 31 October 2006, the Proforma Group s total banking facilities included term loan, investment loan and working capital loan facilities from various financial institutions amounting to approximately Rp345 billion and US$45 million. The tenure of these banking facilities ranged from 1 year to 10 years. As at 31 October 2006, approximately Rp279 billion and Rp325 billion of the Proforma Group s bank facilities were utilised as short term and long term borrowings, respectively. Approximately 67% of these loans were denominated in United States Dollar with the balance denominated in Indonesian Rupiah. As at 31 October 2006, approximately Rp457 billion of the Proforma Group s outstanding bank borrowings are guaranteed by PT ISM, approximately Rp100 billion of the Proforma Group s outstanding bank borrowings are guaranteed by PT SIMP and approximately Rp47 billion of the Proforma Group s outstanding bank borrowings are jointly guaranteed by PT SIMP and PT SAIN. Corporate guarantees from PT ISM will continue after the completion of the Proposed Acquisition unless PT SIMP and its subsidiaries are able to refinance the existing facilities or obtain alternative facilities on terms no less favourable than those under existing facilities. Approximately Rp47 billion of the Proforma Group s long term bank borrowings are secured by the Proforma Group s plantation assets. As at 31 October 2006, these interest-bearing bank loans bear interest at rates ranging from 12.3% to 15.5% per annum for Indonesia Rupiah denominated loans and 6.8% to 7.1% per annum for United States Dollar denominated loans. Amounts Due to Shareholder As at 31 October 2006, the short term amounts due to shareholder represented unsecured borrowings from PT ISM for working capital purposes, bearing interest rates ranging from 7.0% to 12.3% with no fixed repayment schedule and are repayable on demand. As at 31 October 2006, the long term amount due to shareholder represented an unsecured borrowing from PT ISM and mainly used for working capital purposes. The unsecured borrowing bears interest at a rate of 12.3% and will mature on 5 August Based on the Proforma Group s shareholders equity of approximately Rp2,531 billion as at 31 October 2006, the net gearing, defined as total indebtedness less cash and cash equivalents divided by proforma shareholders equity, was approximately 0.38 times. Save as disclosed above and in the section Capital Resources and Liquidity of this Circular, between 31 October 2006 to the Latest Practicable Date, there were no material changes in the level of the Proforma Group s borrowings or indebtedness or its total liquidity and capital resources, save for scheduled repayments of its financing facilities and changes in retained earnings arising from day-to-day operations in the ordinary course of its business. 122

177 LETTER TO SHAREHOLDERS 15.7 Material Capital Expenditures and Divestments The Proforma Group has made capital expenditures to increase its plantation land bank and enhance its refining and processing capabilities between the beginning of FY2003 and the Latest Practicable Date. These comprised mainly expenditure on the purchase of and/or investment in companies with plantation land, property, buildings and improvement, machinery and plant equipment, heavy equipment and transportation equipment as well as furniture and fixtures and office equipment. The details of the material capital expenditures and divestments of the Proforma Group for FY2003, FY2004, FY2005 and for the period from 1 January 2006 up to 31 October 2006 are set out below: 1 January 2006 to 31 October FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Capital Expenditures Biological assets (1) Property, plant and equipment (1) Assets not used in operations (2) Land related expenditures (3) n.m. (4) Total Capital Divestments Assets not used in operations (2) 156 Property, plant and equipment Prepaid land premiums 1 Total Notes: (1) The increase in biological assets and property, plant and equipment in FY2005 resulted from the Proforma Group s acquisition of SIL and PT KMS which effectively became subsidiaries of the Proforma Group in FY2005. The total capital expenditures of Rp425 billion in FY2005 were financed mainly by internal funds. SIL and PT KMS were acquired for approximately Rp250 billion, payment of which was made in FY2004 and FY2005 respectively. The increase in biological assets and property, plant and equipment from 1 January 2006 to 31 October 2006 mainly resulted from the Proforma Group s acquisition of PT SAIN (which was financed mainly by internal funds) and construction of a new mill in West Kalimantan. (2) These refer mainly to land, machinery and equipment relating to assets which are not yet used in operations. Certain assets were sold to PT ISM at their carrying value in FY2006. (3) Land related expenditures include investment in deferred land right acquisition costs and prepaid land premiums. The increase in land related expenditures in FY2005 mainly resulted from the Proforma Group s acquisition of SIL and PT KMS. The increase in land related expenditures from 1 January 2006 to 31 October 2006 mainly resulted from the Proforma Group s acquisition of PT SAIN. (4) n.m. denotes not meaningful as the amount is less than Rp0.5 billion. On-going and Future Capital Expenditures As at the Latest Practicable Date, the Proforma Group s material on-going and future capital expenditure plans are as follows: The Proforma Group is currently completing the construction of a new mill in West Kalimantan with a capacity of 45 MT FFB/hr at a cost of approximately Rp65 billion. This mill is expected to be completed before the end of On 16 August 2006, the Proforma Group entered into a conditional sale and purchase agreement with Rascal Holdings Limited to acquire the Plantation Companies for Rp125 billion pursuant to the Plantation Acquisition. Please refer to Section 14.3 of this Circular for more details. 123

178 LETTER TO SHAREHOLDERS The Proforma Group intends to relocate its refinery in North Jakarta to a new location in the vicinity of the Jakarta Port in early 2009 at a cost of approximately US$40 million. The Proforma Group intends to increase the annual capacity of its refinery, fractionation and margarine processing plant in Medan by approximately 120,000 MT, 60,000 MT and 30,000 MT by 2008, respectively, at a cost of approximately Rp90 billion. The Proforma Group presently intends to invest approximately US$160 million for the period up to FY2009 to develop approximately 70,000 hectares of its unplanted land bank into oil palm plantations. It is presently expected that the costs of the above capital expenditure plans will be funded through internal resources and/or bank borrowings. A portion of the proceeds from the Placement may be deployed towards the above Material Commitments As at 31 October 2006, the Proforma Group has the following material commitments which are contracted for but not provided for in the financial statements: Material Commitments Amount Description (Rp billion) Loans under the Plasma Programme 21.7 These relate to Proforma Group s commitment to provide loans of up to Rp25.7 billion under the Plasma Programme and of which approximately Rp4.0 billion of such loans has been drawn down as at 31 October Future commodity contracts transactions 13.4 These relate to the Proforma Group s commitment in relation to future commodity contracts entered into with several foreign entities. These contracts were primarily intended to hedge the Proforma Group s exposures to risks of losses arising from the fluctuations in prices of commodities. Capital expenditure commitments 46.2 These relate to the Proforma Group s acquisition of land, buildings, machinery and equipment. Operating lease commitments 1.6 These relate to the commercial leases on land and building that the Proforma Group has entered into. Acquisition of Plantation Companies These relate to the Plantation Acquisition, details of which are set out in Section 14.3 of this Circular. Total Please also refer to Note 37 to the Accountants Report for details of the Proforma Group s commitments and contingencies. The Proforma Group expects to fund the above commitments mainly through internal resources and/or bank borrowings. A portion of the proceeds from the Placement may be deployed towards the above. 124

179 LETTER TO SHAREHOLDERS 15.9 Contingent Liabilities As at the Latest Practicable Date, no provision has been made in respect of the Proforma Group s contingencies. Some of these contingencies are briefly described below. Advances from Primary Credit Cooperative for Member ( KKPA ) projects under the Plasma Programme The Proforma Group has given guarantees for facilities of approximately Rp684.4 billion in relation to advances from various banks under the KKPA projects for the small landholders collectively under the Plasma Programme. The loan facilities are secured by receivables from the plasma farmers arising from sales of FFB, the land rights over the small landholders oil palm plantations and corporate guarantees from subsidiaries of the Proforma Group namely PT RAP, PT CKS, PT CNIS and PT KGP. Litigation against PT BML Land at Bitung, North Sulawesi In February 2001, several individuals filed a civil claim against PT BML at the District Court of Bitung, North Sulawesi. The plaintiffs alleged that PT BML was unlawfully controlling land of an area of approximately 1.2 ha located in North Sulawesi Province, which the individuals claimed to own. The land has a carrying value of Rp0.15 billion as at 31 December In October 2001, the District Court of Bitung rejected the plaintiffs claim and the plaintiffs appealed against this decision to the High Court of Manado. On appeal, the High Court of Manado reaffirmed the decision of the District Court of Bitung. The plaintiffs filed their appeal against this decision to the Indonesian Supreme Court in October 2002 and the proceedings are pending as at the Latest Practicable Date. Land at Manado, North Sulawesi In September 2004, several individuals filed a civil claim against, inter alia, PT BML at the District Court of Manado. The individuals alleged that PT BML unlawfully controlled a plot of land of approximately 2,200 square metres located in North Sulawesi Province, which the individuals claimed to own. The plaintiffs claim was for compensation of Rp4.7 billion. In July 2005, the District Court of Manado rejected the plaintiffs claim. The plaintiffs have appealed against this decision to the High Court of Manado and the proceedings are pending as at the Latest Practicable Date. Please refer to Section 29.3(a) of this Circular for more details Credit Management (a) Customers To control its credit risk exposure, the Proforma Group has in place policies to ensure that wholesales of products are made only to creditworthy customers with proven track record or good credit history. All customers who wish to trade on credit terms are subject to credit verification procedures. It also has policies to limit the amount of credit exposure to any particular customer such as requiring sub-distributors to provide bank guarantees. The Proforma Group reviews and monitors closely the receivable balances to reduce the Proforma Group s exposure to bad debts. The Proforma Group also reviews periodically the credit terms and limits granted to its customers as well as their financial strength and creditworthiness. To assess the financial strength and creditworthiness of its customers, the Proforma Group reviews customers recent payment history, sales performance and their financial statements (if available). The Proforma Group also makes enquiries with management of the customers as part of its assessment. 125

180 LETTER TO SHAREHOLDERS For export sales, the Proforma Group typically requires a letter of credit from its customers or cash against the presentation of documents of title. For domestic sales, the Proforma Group may grant its customers credit terms of up to 45 days from the date of issuance of invoice. If a customer fails to make payment within the credit terms granted, the Proforma Group will contact the customer to act on the overdue receivable. If the customer does not settle the overdue receivable within a reasonable time, the Proforma Group will proceed with legal action to recover the receivable. To mitigate its credit risk, the Proforma Group will cease the supply of products to customers in the event of late payment and/or default. As the Proforma Group s trade receivables relate to a large number of diversified customers, there is no concentration of credit risk. Depending on management s assessment, the Proforma Group will make specific allowances when a debt is deemed uncollectible. The average trade receivables turnover in days in FY2003, FY2004 and FY2005 are as follows: FY2003 FY2004 FY2005 Average trade receivable turnover (days) An analysis of the trade receivables aging schedule as at 31 December 2005 and 30 June 2006 is as follows: As at As at 31 December June 2006 (Rp billion) (Rp billion) Current Overdue: 1-30 days days days More than 90 days The management of the Proforma Group has reviewed all outstanding trade receivables at the end of the past three financial years and as at 30 June 2006, and was satisfied that such trade receivables are collectible based on its assessment of the creditworthiness of the debtors. Further, some of the customers provide bank guarantees to the Proforma Group in respect of their purchases. As such, no allowance had been made for doubtful trade receivables in the profit and loss accounts during the past three financial years and for HY2006. The decline in trade receivable turnover days in FY2004 was mainly due to the reduction in the Proforma Group s trading of palm oil-based commodities which ceased as a core activity in FY

181 LETTER TO SHAREHOLDERS (b) Suppliers The payment terms granted by the Proforma Group s suppliers depend on factors such as the volume of its purchases, pricing and the strength of its business relationship with these suppliers. Payment for purchases is generally due between 7 and 60 days after delivery. The average trade payable turnover in days for FY2003, FY2004 and FY2005 are as follows: FY2003 FY2004 FY2005 Average trade payable turnover (days) An analysis of the trade payable aging schedule as at 31 December 2005 and 30 June 2006 is as follows: As at As at 31 December June 2006 (Rp billion) (Rp billion) Current Overdue: 1-30 days days days More than 90 days Liquidity Management The Proforma Group had a positive working capital position of Rp628 billion as at 30 June 2006 and positive operating cashflow of Rp292 billion in FY2005. The Proforma Group manages its liquidity profile to be able to finance its capital expenditures and service its maturing debt by maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities. In addition, it also regularly evaluates its projected and actual cash flow information and continuously assesses market conditions for opportunities to pursue fund-raising initiatives. These initiatives may include bank loans and debt capital. As at 31 October 2006, the Proforma Group had total banking facilities of Rp345 billion and US$45 million. As at 31 October 2006, approximately Rp198 billion and US$45 million of such facilities were utilised Inventory Management The Proforma Group s inventory comprises mainly raw materials, finished goods, and consumables like spare parts and factory supplies. The Proforma Group s inventory level is determined principally by its production requirements and sales forecasts. The Proforma Group generally maintains raw material inventory of up to two months of its production requirements. The inventory turnover for FY2003, FY2004 and FY2005 were as follows: FY2003 FY2004 FY2005 Average inventory turnover (days) The increase in inventory turnover days in FY2004 and FY2005 was to secure higher level of raw materials in order to meet the Proforma Group s increasing sales requirements. 127

182 LETTER TO SHAREHOLDERS The amount of inventory written down in FY2003, FY2004, FY2005 and HY2006 were as follows: FY2003 FY2004 FY2005 HY2006 Amount of inventory written-down (Rp billion) 1 n.m. (1) 2 Note : (1) n.m. denotes not meaningful as the amount is less than Rp0.5 billion. The Proforma Group records its inventories at the lower of cost (calculated using the weighted average method) and net realisable value. The value of finished goods and work in progress include the cost of direct materials, labour and a proportion of manufacturing overheads. The Proforma Group monitors its inventory ageing monthly through monthly inventory counts and also performs full inventory counts at the end of each financial year. Discrepancies in the amount of inventories detected during inventory counts as well as slow moving inventories that are identified during inventory counts are written down to their net realisable value at the end of each financial year Foreign Exchange Exposure The functional and reporting currency of the Proforma Group is Indonesian Rupiah as majority of its sales, purchases and operating expenses are denominated in Indonesian Rupiah. Accordingly, assets and liabilities stated in currencies other than Indonesian Rupiah are translated into Indonesian Rupiah at exchange rates prevailing at the balance sheet date. The Proforma Group s transactions in foreign currencies are converted at exchange rates prevailing at the transaction dates. Exchange differences arising from such transactions are recorded in the profit and loss accounts in the period in which they arise. Fluctuation in the exchange rate between United States Dollar and Indonesian Rupiah has an impact on the Proforma Group as: (i) (ii) (iii) the Proforma Group has bank borrowings that are denominated in United States Dollar; the Proforma Group s revenue derived from the export sales are mainly denominated in United States Dollar; and prices of certain of the Proforma Group s main materials (such as CPO) are determined by their international benchmark prices in United States Dollar. The Proforma Group does not have any formal hedging policy for foreign exchange exposure. However, in relation to point (i), (ii) and (iii) above, fluctuations in the exchange rates between Indonesian Rupiah and United States Dollar provide some degree of natural hedge for the Proforma Group s foreign exchange exposure. To the extent there is a mismatch between the currency denominations and timing of the Proforma Group s revenue, purchases and operating expenses, the Proforma Group is exposed to foreign currency exchange fluctuations. The Proforma Group foreign exchange gain or loss in FY2003, FY2004, FY2005 and HY2006 were as follows: FY2003 FY2004 FY2005 HY2006 Net foreign exchange gain / (loss) (Rp billion) (22) 13 (2) 3 128

183 LETTER TO SHAREHOLDERS Commodity Price Risk The Proforma Group is exposed to commodity price risk due to unpredictable factors, such as weather, government policy, level of demand and supply in the market and the global economic environment. As the Proforma Group s own production of CPO is not sufficient to meet its cooking oil and fats manufacturing needs, it is exposed to commodity price risk arising from its CPO purchases from external parties. In addition, the Proforma Group is also subject to fluctuations in the selling price of its manufactured CNO and the purchase price of copra (being the raw material used in the manufacture of CNO). The Proforma Group s policy is to further minimise the risks arising from fluctuations in the CPO prices by aiming to be self-sufficient in CPO as this provides a hedge against such price fluctuations. For copra-based products, the Proforma Group may minimise such risks through forward contracts. As such, it may also be exposed to commodity price risk as changes in fair value of future commodity contracts are recognised directly in the profit and loss accounts. The Proforma Group will, prior to entering into any significant speculative or hedging transactions, (a) seek approval from the Board on the policy pertaining to such transactions; and (b) put in place adequate risk management procedures which must be reviewed and approved by the Audit Committee of the Company Trends As at the Latest Practicable Date, the Proforma Group has experienced growth in revenue during the current financial year ending 31 December 2006 on the back of increased sales volume. For HY2006, the Proforma Group achieved a revenue of approximately Rp1,693 billion as compared to approximately Rp1,560 billion in HY2005. The Proforma Group s gross profit margin in the current financial year up to the Latest Practicable Date has been affected by rising operating costs and costs of raw materials. Fuel costs in Indonesia have risen sharply after the reduction of fuel subsidies by the Indonesian government in October 2005 and this increased the transportation, utility and other operating costs of the Proforma Group. The Proforma Group has also experienced an increase in its raw material costs. The Proforma Group is also affected by the strengthening of the Indonesian Rupiah, which has appreciated from approximately Rp9,830 per US$ at the beginning of FY2006 to approximately Rp9,070 per US$ as at the Latest Practicable Date. As most of the Proforma Group s exports are denominated in US$, the strengthening Indonesian Rupiah has resulted in lower export revenue per unit volume of sales in Indonesian Rupiah terms. In addition, the Proforma Group expects to incur higher amounts of interest expenses in FY2006 due to its higher average level of borrowings. The above factors may result in the Proforma Group experiencing a decline in profits for FY2006 as compared to FY2005. For HY2006, the Proforma Group achieved a profit attributable to its equity holders of approximately Rp235 billion as compared to approximately Rp288 billion in HY2005. Please refer to Section 15.3 of this Circular for a financial review of Proforma Group s performance for HY Order Books The Proforma Group does not have agreements with its customers which require the latter to purchase minimum quantum of products from the Proforma Group over any extended period of time. The Proforma Group s customers typically place their orders for cooking oil, margarine and shortening shortly before the expected delivery date. Accordingly, the Target Group believes that it is not meaningful to consider the Proforma Group s order book at any single point in time and it is not indicative of the Proforma Group s revenue in any financial year. 129

184 LETTER TO SHAREHOLDERS 16. DIVIDEND POLICY As at the Latest Practicable Date, IOFPL does not have a fixed dividend policy. The form, frequency and amount of future dividends, if any, will depend on the Target Group s operating results, financial position, cash requirements, expansion plans and other factors which the Board may deem appropriate. There is no assurance that dividends will be paid in the future. There are only ordinary shares in the share capital of the subsidiaries in the Target Group. In the three financial years ended 31 December 2005, PT SIMP paid dividends of Rp1,500 billion for FY2003, Rp500 billion for FY2004 and Rp1,000 billion for FY2005. Dividends may be declared and paid out of the profits of a company and in appropriate cases, out of unrealised profits, or reserves. Subject to the foregoing and completion of the Proposed Acquisition, PT ISM intends for the Company to recommend and distribute dividends of not less than 20.0% of the Proforma Group s FY2006 net profit attributable to shareholders. However, it should be noted that the foregoing is merely a statement of present intention and shall not constitute or be treated as a legal obligation on the Company or the PT ISM Group nor should it be treated as an indication of the Company s future dividends, including in respect of FY2006, which may be subject to modification in the Board s absolute discretion. There is no assurance that dividends will be paid in future, including in respect of FY2006, or of the amount or timing of any dividends that will be paid. No inference should be made from the foregoing as to the Proforma Group s actual future profitability or the Company s ability to pay any future dividends. Please also refer to Appendix G of this Circular for more information. 17. PROPOSED MANAGEMENT AFTER COMPLETION OF THE PROPOSED TRANSACTIONS In connection with the Proposed Transactions, the Company proposes to appoint a team of new directors and executive officers to its management team. Information on this is as follows:- (a) Management Reporting Structure Board of Directors Cesar Manikan dela Cruz Executive Director and Chief Executive Officer Gunadi Executive Director and Head of Plantation Operations Mulyawan Tjandra Executive Director and Head of Indonesian Operations Moleonoto Tjang Executive Director and Head of Finance and Corporate Services Tan Agustinus Dermawan Group Controller (Indonesia) Mak Mei Yook Chief Financial Officer (Singapore) (b) Directors It is envisaged that all the Directors (save for Mr Moleonoto Tjang and Mr Tjhie Tje Fie) will resign with effect from the completion of the Proposed Acquisition. The Company proposes to appoint eight new directors, namely Mr Cesar Manikan dela Cruz, Mr Mulyawan Tjandra and Mr Gunadi as executive directors, Mr Benny Setiawan Santoso as a non-executive director, Mr Lee Kwong Foo Edward as the lead independent director, and Mr Lim Hock San, Mr Goh Kian Chee and Mr Hendra Susanto as independent directors with effect from the completion of the Proposed Acquisition. Mr Moleonoto Tjang will be an executive director and Mr Tjhie Tje Fie will remain as a non-executive director. 130

185 LETTER TO SHAREHOLDERS The particulars of the new Board following the completion of the Proposed Transactions are set out below. Proposed Position Name Age Address in the Proforma Group Lee Kwong Foo Edward Mount Elizabeth Chairman and Lead #12-34 Independent Director Singapore Benny Setiawan Santoso 48 Jalan Sekolah Kencana Vice Chairman and IV/5, Pondok Pinang Non-executive Director Jakarta Selatan Cesar Manikan dela Cruz 63 No. 34D, North Tower CEO and Executive Director Pacific Plaza Tower FT. Bonifacio Global City Taguig City Philippines Tjhie Tje Fie 43 Jalan Alternatif Cibubur Non-executive Director Perumahan Raffles Hills E6/09 Harjamukti Cimanggis Depok 16954, Indonesia Mulyawan Tjandra 43 Bukit Raflesia Blok A3 Executive Director and No. 22, Harjamukti Head of Indonesian Operations Cimanggis Depok 16954, Indonesia Gunadi 52 Jalan Kembang Sakti II Executive Director and D9 No. 11 Head of Plantation Operations Jakarta Barat Indonesia Moleonoto Tjang 44 Citra Garden II Executive Director and C.4/19 Kali Deres Head of Finance and Jakarta Barat Corporate Services Indonesia Lim Hock San Peirce Road Independent Director Singapore Goh Kian Chee 53 9 Tham Soong Avenue Independent Director Singapore Hendra Susanto 42 Jalan Buana Biru Besar II/48 Independent Director Jakarta Indonesia Information on the business and working experience of the members of the new Board is set out below:- Mr Lee Kwong Foo Edward will be appointed as the Chairman and Lead Independent Director of the Company upon the completion of the Proposed Acquisition. His responsibilities as Chairman are described in Section 19.1 of this Circular. Mr Lee has spent 36 years in the Singapore Administrative Service (Foreign Service Branch), during which time he has served as Singapore s High Commissioner in Brunei (1984 to 1990), Ambassador to the Philippines (1990 to 1993) and Ambassador to Indonesia (1994 to June 2006). Mr Lee was awarded the Public Administration Medal (Silver) in 1996, the Long Service Medal in 1997 and the Public Administration Medal (Gold) in He was also awarded the Order of Sikatuna, Rank of Datu (Grand Cross) by the Philippines government in Mr Lee has a Masters of Arts from Cornell University. 131

186 LETTER TO SHAREHOLDERS Mr Benny Setiawan Santoso will be appointed as a Non-executive Director of the Company upon the completion of the Proposed Acquisition. He is presently a Commissioner of PT ISM. He is also a Director of PT Indocement Tunggal Prakarsa Tbk, a Non-Executive Director of First Pacific Company Limited, Hong Kong, a member of the Advisory Board of Philippine Long Distance Telephone Company, and a Commissioner of PT Indosiar Visual Mandiri Tbk. Mr Santoso completed his education in Business Studies at Ngee Ann College, Singapore. Mr Cesar Manikan dela Cruz will be appointed as CEO and Executive Director upon the completion of the Proposed Acquisition. His responsibilities as CEO are described in Section 19.1 of this Circular. Mr dela Cruz was appointed as a Vice President Director of PT ISM in He will step down from the board of PT ISM within one (1) year of the completion of the Proposed Acquisition, so as to devote all of his time in managing the affairs of the Group. Prior to this appointment, he had served as a Commissioner of PT ISM between March 1994 to April 1997 and as a Director of PT ISM from April 1997 to June Mr dela Cruz is currently President Commissioner of PT SIMP. Mr dela Cruz was an Audit Partner of the SGV Group in the Philippines, Indonesia and South Korea from 1977 to He received the Asia Pacific Agora Award for Marketing Excellence from the Philippine Marketing Association in 2001 and in 2002 received the Pamana Ng Pilipino Presidential Award for Filipinos Overseas by the Philippines government. He was awarded a Master of Business Administration degree from the University of Pennsylvania s Wharton School, USA and is a Certified Public Accountant in the Philippines. Mr Tjhie Tje Fie will remain as a Non-executive Director of the Company upon the completion of the Proposed Acquisition. Mr Tjhie is currently a Director of PT ISM and heads its Treasury Division. In addition, he is currently a Commissioner of PT SIMP. Previously, he was Director of PT Indomiwon Citra Inti and senior executive of PT Kitadin Coal Mining. Mr Tjhie was awarded a Bachelor s degree in Accountancy from the Perbanas School of Economics. Mr Mulyawan Tjandra will be appointed as Executive Director of the Company and Head of Indonesian Operations upon the completion of the Proposed Acquisition. He will be responsible for managing the day-to-day activities of the Group. Mr Tjandra joined the Sadang Mas Group in 1989 as a management executive in the Corporate Planning Department. He was appointed to the position of Vice President (Corporate Planning and Budget) in In 2001 he was appointed to the position of Deputy Division Head (Investor Relations) of PT ISM, and in 2004 he became the President Director of PT BML and the Vice-President Director of PT IBS. He is currently the President Director of PT SIMP and a Director of PT ISM. He will step down from the board of PT ISM within one (1) year of the completion of the Proposed Acquisition, so as to devote all of his time in managing the affairs of the Group. Mr Tjandra has a Bachelor of Management from the University of Jayabaya and a Masters of Management from Institut Pendidikan dan Pengembangan Manajemen, Jakarta (Institute for Management Education and Development). Mr Gunadi will be appointed as an Executive Director of the Company and Head of Plantation Operations upon the completion of the Proposed Acquisition. He will be responsible for the Group s plantation operations. He is currently a Vice President Director of PT SIMP. Mr Gunadi started his career in 1977 as an assistant accountant with a public accountants firm, Drs Hans Kartikahadi & Co., Jakarta. He was with PT Besuki Indah Electric Industry (Luxor), Jakarta in 1979 as Finance Manager before joining PT Lippo Mulia Jakarta in 1980 as Finance and Administration Manager. From 1981 to 1991, Mr Gunadi was with PT Broco, Jakarta, as Group Finance Director. In 1991, Mr Gunadi joined the Salim Plantations Group (which was subsequently acquired by PT ISM) as Senior Vice President (Finance). In 2004 he was appointed to the position of Chief Operating Officer of PT SIMP. Mr Gunadi has a Bachelor of Accountancy from University of Indonesia. 132

187 LETTER TO SHAREHOLDERS Mr Moleonoto Tjang will be appointed as an Executive Director of the Company and Head of Finance and Corporate Services upon the completion of the Proposed Acquisition. He will be responsible for the Group s finance and corporate services functions. He is currently a Vice President Director of PT SIMP. Mr Tjang started his career in 1984 as a Senior Auditor with a public accountants firm, Drs Hans Kartikahadi & Co., Jakarta. In 1990, he joined the Indoagri Plantations Group (which was part of the Salim Group) as Manager and was promoted to Assistant Vice President (Commercial and Accounting) in In 1996, he was appointed as Vice President (Finance) of the Salim Plantations Group. He was made Chief Financial Officer of the PT ISM Group s Plantations Division in 2001, and became the Deputy Head of Corporate Treasury of the PT ISM Group in 2003, a position he will relinquish on completion of the Proposed Acquisition so as to devote all of his time in managing the affairs of the Group. He has a Bachelor of Accountancy from the University of Tarumanagara, a Bachelor of Management and a Master of Science in Administration & Business Policy from the University of Indonesia. Mr Tjang is also a registered accountant in Indonesia. Mr Lim Hock San will be appointed an Independent Director of the Company upon the completion of the Proposed Acquisition. Mr Lim is presently the President and CEO of United Industrial Corporation Limited as well as Singapore Land Limited. He is also the Nonexecutive Chairman and Independent Director of Gallant Venture Ltd., in which the Salim Group has a shareholding interest. Mr Lim started his career in 1966 as an Assistant Tax Examiner with the then Inland Revenue Department. He became an Accountant at Mobil Oil Malaya Sdn Bhd in 1967 before joining the Port of Singapore Authority in 1968, where he served in various management positions. From 1975 to 1992, he was with the Civil Aviation Authority of Singapore finally becoming the Director-General of the Civil Aviation Authority of Singapore. He has a Bachelor of Accountancy degree from the then University of Singapore, a Master of Science (Management) degree from the Massachusetts Institute of Technology and attended the Advanced Management Program at Harvard Business School. He is also a fellow of The Chartered Institute of Management Accountants (UK). He is also a recipient of the Singapore Government Meritorious Service Medal, the Public Administration Medal (Gold) and the Public Service Medal. Mr Goh Kian Chee will be appointed an Independent Director of the Company upon the completion of the Proposed Acquisition. Mr Goh is presently the Chief Financial Officer of National University of Singapore, Centre For The Arts (NUS). He is also an Independent Director of Asiamedic Limited, in which the Salim Group has a shareholding interest. Mr Goh started his career in 1979 as an audit trainee with Goldblatt & Co (UK). In 1982, he became a Regional Internal Auditor in Mobil Oil Singapore Pte Ltd and rose to the position of Regional Credit and Insurance Manager in In 1990, he joined Mobil Petrochemicals International Ltd where he served as Regional Accounting Manager and later, as the Financial Controller of Asia Pacific region. Before his present position in NUS, Mr Goh was the Regional Vice President & Financial Controller as well as an Executive Director of John Hancock International Pte Ltd. Mr Goh has a Bachelor of Arts (Hons) in Accounting & Economics from Middlesex University (London, United Kingdom). Mr Hendra Susanto will be appointed an Independent Director of the Company upon the completion of the Proposed Acquisition. Mr Susanto began his career with the Standard Chartered Bank as an Account Relationship Manager of the Corporate Banking division in He joined PT BNP Lippo Leasing in 1993 as the Head of the Corporate Marketing division. In 1996, he joined PT ING Indonesia Bank as Vice President in the Project and Structured Finance division and was subsequently promoted to Director in the Wholesale Banking division of the bank. Mr Susanto also acted as the Chief Representative of ING Bank N.V. in Indonesia until Mr Susanto has a Bachelor of Computer Science and Master of Commerce from the University of New South Wales, Australia. 133

188 LETTER TO SHAREHOLDERS (c) Key Executives It is envisaged that all the present key executives will resign with effect from the completion of the Proposed Acquisition. In replacement, the Company will appoint the Proposed New Key Executives and their particulars are set out below. Proposed Position Name Age Address in the Proforma Group Tan Agustinus Dermawan 44 Sunter STS Blok F/32 Group Controller (Indonesia) Sunter Agung Podomoro Jakarta Mak Mei Yook 37 5A Cashew Crescent Chief Financial Officer (Singapore) Singapore Information on the area of responsibility and working experience of our Proposed New Key Executive Officers is set out below:- Mr Tan Agustinus Dermawan will be appointed as Group Controller (Indonesia) upon the completion of the Proposed Acquisition. He will be responsible for the controllership functions of the Group. He is currently a director of PT SIMP. He began his career as a senior auditor with a public accountants firm, Drs Hans Kartikahadi & Co., Jakarta in 1985 before joining the Sadang Mas Group as a Funding Supervisor in In 1991 he joined the Salim Plantations Group as a Funding Manager and rose to the position of Vice President (Accounting) in 1996 before reaching his present appointment as Vice President (Accounting) in PT SIMP. Mr Dermawan graduated with a Bachelor in Accounting from the Tarumanegara University, Jakarta in Ms Mak Mei Yook will be appointed as Chief Financial Officer (Singapore) of the Company upon the completion of the Proposed Acquisition. Prior to joining the Target Group in October 2006, she was financial controller of Antalis Singapore Pte Ltd, a subsidiary of a European multinational group, and before that she was the Financial Controller of Delifrance Singapore. She has been a member of the Institute of Certified Public Accountants of Singapore (ICPAS) since 1997 and is also a fellow member of the Association of Chartered Certified Accountants in the United Kingdom. None of the Directors or the Proposed New Directors or the Proposed New Key Executive Officers have any family relationships with each other or with any Substantial Shareholder of the Company referred to in Section 11.2 of this Circular. So far as the Company is aware, save as disclosed in Section 5.3(a)(iii) of this Circular, there are no arrangements or understandings with any of the Substantial Shareholders of the Company referred to in Section 11.2 of this Circular, or customers or suppliers of the Target Group or any other person, pursuant to which any member of the new Board named above or any Proposed New Key Executive was selected as a director or key executive of the Company. Additional Information on members of the new Board and Proposed New Key Executive Officers (if applicable) (d) Remuneration The compensation paid or payable to the members of the new Board (including directors fees) and key executives of the Target Group (including salary, bonus, CPF contribution, benefits-in-kind and deferred compensation accrued in the financial year in question and payable at a later date) in remuneration bands of S$250,000 per annum, namely for remuneration bands of up to S$250,000 ( Band I ), above S$250,000 and up to S$500,000 ( Band II ), above S$500,000 and up to S$750,000 ( Band III ) for services rendered to the 134

189 LETTER TO SHAREHOLDERS Target Group in all capacities for FY2004 and FY2005 and an estimate of the amount of compensation expected to be paid for the whole of the current financial year were or are as follows:- (i) Remuneration of each member of the new Board in remuneration bands FY2004 FY2005 FY2006 (2) (estimated) Lee Kwong Foo Edward Benny Setiawan Santoso Cesar Manikan dela Cruz (1) Band II Band II Band II Tjhie Tje Fie Band I Mulyawan Tjandra Band II Band II Band II Gunadi Band II Band II Band II Moleonoto Tjang Band II Band II Band II Lim Hock San Goh Kian Chee Hendra Susanto Notes: (1) Mr Cesar Manikan dela Cruz was remunerated by the PT ISM Group for FY2004 and FY2005. (2) For the purposes of this estimation, the computation does not include any discretionary bonus payable for FY2006, the grant of share options (if any) and any estimated amount of compensation that is to be paid pursuant to any bonus or profit-sharing plan or any other profit-linked agreement or arrangement, but which has not yet been paid. There are no existing or proposed service contracts entered into or proposed to be entered into by the members of the new Board named above with the Company or the Target Group or any of their respective subsidiaries which provide for benefits upon termination of employment. (ii) Individual Proposed New Key Executives remuneration in remuneration bands FY2004 FY2005 FY2006 (1) (estimated) Tan Agustinus Dermawan Band I Band I Band I Mak Mei Yook Band I Note: (1) For the purposes of this estimation, the computation does not include any discretionary bonus payable for FY2006, the grant of share options (if any) and any estimated amount of compensation that is to be paid pursuant to any bonus or profit-sharing plan or any other profit-linked agreement or arrangement, but which has not yet been paid. Save as disclosed in Section 14.21(b) of this Circular and other than for amounts set aside or accrued in respect of mandatory employee funds, no amounts have been set aside or accrued by the Target Group to provide pension, retirement or similar benefits. As at the Latest Practicable Date, in respect of FY2006, (i) no portion of the compensation was paid or is to be paid pursuant to any bonus or profit-sharing plan or any other profit-linked agreement or arrangement; and (ii) no portion of the compensation was paid or is to be paid in the form of stock options. 135

190 LETTER TO SHAREHOLDERS 18. INTERESTED PERSON TRANSACTIONS In general, transactions between the Proforma Group and any of its interested persons (namely, the members of the Board, CEO or Controlling Shareholders of the Company or their respective associates) after the completion of the Proposed Acquisition would constitute interested person transactions. The interested persons of the Proforma Group include (1) members of the PT ISM Group; (2) First Pacific and its subsidiaries (other than the PT ISM Group); and (3) members of the Salim Group. The following discussion on material interested person transactions for the period from 1 January 2003 up to 31 October 2006, is based on the Proforma Group and interested persons are construed accordingly. Save as disclosed herein including in this Section 18 and Section 18.4 entitled Potential Conflicts of Interest, there are no other transactions undertaken between the Proforma Group and any of the Proposed New Directors (including the CEO), the PT ISM Nominee Directors or Controlling Shareholders of the Company or their associates (immediately after the completion of the Proposed Acquisition) during the period from 1 January 2003 up to 31 October 2006 which are material in the context of the Proposed Transactions. This Section also discloses interested person transactions which may not be material, but for which the Company intends to seek the IPT Mandate if they are to be renewed Past Interested Person Transactions Transactions with the PT ISM Group (a) Sale of land Pursuant to sale and purchase agreements dated 26 May 2006 and 31 May 2006, PT SIMP and one of its subsidiaries sold to PT ISM several plots of land with an aggregate area of approximately hectares in Purwakarta, West Java, for an aggregate cash consideration of Rp156 billion. These parcels of land were sold to PT ISM because they were in excess of the needs of the Target Group. The selling price was determined based on its carrying value in the Target Group s financial statements which the Target Group believes is not materially different from its market value taking into consideration the general property market conditions at the point of sale. Pursuant to a sale and purchase agreement dated 22 May 2006 and a sale and purchase deed dated 14 June 2006, PT SIMP sold to PT ISM land (required by PT ISM for its training centre) with an area of approximately 0.60 hectares in Cibodas, West Java, for a cash consideration of Rp2 billion. The selling price was determined based on its market value which was arrived at based on a valuation conducted by an independent property valuer. The above agreements were entered into on an arm s length basis. (b) Sale of shares Pursuant to a sale and purchase agreement dated 30 May 2006, PT SIMP sold its 90.9% shareholding in PT PTB to PT ISM for Rp50.30 billion in cash. PT PTB is in the business of sea transportation services and these shares were sold to PT ISM in line with the latter s plan to consolidate its shipping assets. These shares were disposed at cost and the sale and purchase agreement was entered into on an arm s length basis. The Target Group believes that given the relatively short holding period (approximately six months) between the purchase and subsequent sale of these shares, the value of such shares is not materially different from the Target Group s purchase cost which was arrived at based on a valuation conducted by an independent valuer. 136

191 LETTER TO SHAREHOLDERS (c) Rental transactions PT SIMP had sub-leased an office space to a subsidiary of PT ISM between February 2005 and January The rental received by PT SIMP for the period from 1 January 2003 up to 31 October 2006 was as follows:- Between 1 January 2006 and 31 October FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Rental received These rental transactions were entered into on an arm s length basis. (d) Loans to PT ISM PT SIMP had provided interest-bearing loans to PT ISM in Indonesian Rupiah and United States Dollars evidenced by promissory notes. The interest rates for FY2003 charged by PT SIMP to PT ISM were based on commercial bank deposit interest rates. From FY2004 up to 31 October 2006, the interest rates charged by PT SIMP were based on commercial bank loan interest rates. Certain information on such loans is as follows:- Between 1 January 2006 and 31 October United States Dollar Loans FY2003 FY2004 FY (USD million) (USD million) (USD million) (USD million) Principal amount outstanding at the end of the period Largest amount outstanding during the period (inclusive of principal and interest) Interest rate 1.5% 8% 8% 3% 8% 6.22% Between 1 January 2006 and 31 October Rupiah Loans FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Principal amount outstanding at the end of the period Largest amount outstanding during the period (inclusive of principal and interest) 1, Interest rate 8.5% 12% 10% 10% 14% The aggregate interest income in respect of the loans for FY2003, FY2004, FY2005 and for the period from 1 January 2006 up to 31 October 2006 was Rp billion, Rp30.93 billion, Rp2.51 billion and Rp9.2 million respectively. 137

192 LETTER TO SHAREHOLDERS The largest amount outstanding from PT ISM to PT SIMP during the period from 1 January 2003 up to 31 October 2006 (inclusive of principal and interest) was US$8.51 million and Rp1, billion. All of the outstanding loans were discharged in full by PT ISM in January These transactions were entered into on an arm s length basis Transactions with the Salim Group Purchase of goods and services During the last three financial years ended 31 December 2005, PT SIMP transacted with members of the Salim Group (in particular PT Sawit Malinda and PT Sarpindo Soyabean Industri) for the purchase of various goods and services, including the purchase of cooking oil, toll manufacturing transactions involving processing of CPO for the production of cooking oil and the rental of warehouse space. These transactions ceased by the end of FY2005. The aggregate amounts paid by PT SIMP for such goods and services for the period from 1 January 2003 up to 31 October 2006 were as follows:- Between 1 January 2006 and 31 October FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Purchase of goods and services Further, in FY2005, PT SIMP extended interest bearing advances to PT Sawit Malinda as working capital to support, inter alia, its toll manufacturing operations amounting in aggregate to Rp2.2 billion (with interest charged at 10% p.a.). The largest amount outstanding in respect of the advances during the period from 1 January 2003 up to 31 October 2006 (inclusive of principal and interest) was Rp2.39 billion. The outstanding principal of Rp2.2 billion was discharged in full by PT Sawit Malinda in December 2005 while the interest of Rp0.19 billion (net of tax) was repaid in January The above transactions were entered into on an arm s length basis On-Going Interested Person Transactions Transactions with the PT ISM Group (a) Sale transactions PT SIMP sells industrial quality cooking oil to the PT ISM Group for its own use and consumer pack cooking oil and margarine to certain subsidiaries of PT ISM for re-sale under distribution agreements which are renewed annually. The subsisting distributorship agreements provide for, inter alia, certain terms such as territorial rights of the distributor, payment terms, price margins and the type and brands of products to be distributed. Such distributorship agreements are (where applicable) on terms substantially similar to those entered into with unrelated distributors. The revenue received by PT SIMP from the PT ISM Group from the sales of such cooking oil and margarine for the period from 1 January 2003 up to 31 October 2006 was as follows:- 138

193 LETTER TO SHAREHOLDERS Between 1 January 2006 and 31 October FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Industrial cooking oil Consumer cooking oil and margarine Total sales , , , These transactions are entered into on an arm s length basis. Where such transactions take place after the completion of the Proposed Acquisition, they will if applicable be subject to the review procedures under the IPT Mandate. (b) Purchase of goods and services PT SIMP purchases packaging materials (carton boxes) and sea transportation services for shipment of CPO from certain members of the PT ISM Group from time to time. The aggregate amounts paid by PT SIMP in respect of such purchases for the period from 1 January 2003 up to 31 October 2006 were as follows:- Between 1 January 2006 and 31 October FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Purchase of goods and services These transactions are entered into on an arm s length basis. Where such transactions take place after the completion of the Proposed Acquisition, they will if applicable be subject to the review procedures under the IPT Mandate. (c) Rental transactions PT SIMP rents storage tanks from PT ISM in Pontianak, Indonesia under a rental agreement dated 25 June The rental paid by PT SIMP for the period from 1 January 2003 up to 31 October 2006 was as follows:- Between 1 January 2006 and 31 October FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Rental paid The above rental agreement was entered into on an arm s length basis. Where such agreement is renewed or such rental takes place after the completion of the Proposed Acquisition, it will if applicable be subject to the review procedures under the IPT Mandate. 139

194 LETTER TO SHAREHOLDERS (d) Loans from PT ISM PT SIMP has obtained interest-bearing loans from PT ISM in Indonesian Rupiah and United States Dollars evidenced by promissory notes. The loans were used by PT SIMP to finance its working capital requirements. The interest rates charged by PT ISM were based on commercial bank loan interest rates. Certain information on such loans is as follows:- Between 1 January 2006 and 31 October United States Dollar Loans FY2003 FY2004 FY (USD million) (USD million) (USD million) (USD million) Principal amount outstanding at the end of the period Largest amount outstanding during the period (inclusive of principal and interest) Interest rate 6% 6% - 7% Between 1 January 2006 and 31 October Rupiah Loans FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Principal amount outstanding at the end of the period Largest amount outstanding during the period (inclusive of principal and interest) Interest rate 9% 15% 10% 10% 14% 12.25% % The aggregate interest expense in respect of the loans for FY2003, FY2004, FY2005 and for the period from 1 January 2006 up to 31 October 2006 was Rp47.82 billion, Rp32.68 billion, Rp36.91 billion and Rp49.56 billion respectively. The largest amount outstanding from PT SIMP to PT ISM during the period from 1 January 2003 up to 31 October 2006 (inclusive of principal and interest) was US$16.29 million and Rp billion. As at 31 October 2006, the principal amount outstanding in respect of such loans was US$1.64 million and Rp billion. These transactions are entered into on an arm s length basis. Where such transactions take place after the completion of the Proposed Acquisition, they will if applicable be subject to the review procedures under the IPT Mandate. 140

195 LETTER TO SHAREHOLDERS (e) Corporate Guarantee from PT ISM PT ISM has issued corporate guarantees to secure bank loan facilities extended to PT SIMP and its subsidiaries by various financial institutions. Corporate guarantees were given by PT ISM based on PT ISM s percentage ownership in PT SIMP at the time the guarantees were issued. No guarantee fee or other amount was paid by PT SIMP to PT ISM in respect of the issue of such corporate guarantees. Certain information on such corporate guarantees given by PT ISM is as follows:- Between 1 January 2006 and 31 October FY2003 FY2004 FY PT Bank Central Asia Tbk Total facility limit (Rp billion) Outstanding principal amount at the end of the period (Rp billion) PT Bank Rabobank International Indonesia Total facility limit (US$ million) Outstanding principal amount at the end of the period (US$ million) Citibank N.A. Total facility limit (US$ million) Outstanding principal amount at the end of the period (Rp billion) Outstanding principal amount at the end of the period (US$ million) Sumitomo Mitsui Banking Corporation Total facility limit (US$ million) Outstanding principal amount at the end of the period (US$ million) PT Bank Lippo Tbk. Total facility limit (Rp billion) Outstanding principal amount at the end of the period (Rp billion) The largest amount outstanding (inclusive of principal and interest) to all the financial institutions in respect of the loan facilities during the period from 1 January 2003 up to 31 October 2006 was US$45.37 million and Rp50.10 billion. As at 31 October 2006, the principal amount outstanding in respect of the bank loan facilities was US$44.74 million and Rp50.00 billion. In the event that such corporate guarantees are called upon for payment by the financial institutions, PT SIMP or its subsidiaries (as the case may be) may have to make payment to PT ISM in respect thereof. These transactions are entered into on an arm s length basis. It is envisaged that PT ISM may seek the release of such corporate guarantees after the completion of the Proposed Acquisition and the Placement. However, this will only be done provided PT SIMP and its subsidiaries are able to refinance the existing facilities or obtain alternative facilities on terms no less favourable than those under existing facilities. Pending such refinancing, the above arrangement is expected to continue or be renewed. The continuance or renewal of this arrangement and the release of such corporate guarantees will if applicable be subject to review procedures under the IPT Mandate. 141

196 LETTER TO SHAREHOLDERS Transactions with the Salim Group (a) Sales transactions PT SIMP sells CPO and other palm oil-based intermediate products to members of the Salim Group from time to time. Currently, such sales comprise mainly the sale of CPO for use as an additive to produce feedmeal by the Salim Group. The revenue received by PT SIMP from such sales for the period from 1 January 2003 up to 31 October 2006 was as follows:- Between 1 January 2006 and 31 October FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Sales transactions These transactions are entered into on an arm s length basis. Where such transactions take place after the completion of the Proposed Acquisition, they will if applicable be subject to the review procedures under the IPT Mandate. (b) Purchase of services PT SIMP and its subsidiaries purchase various services from members of the Salim Group from time to time including land freight transportation services for transporting CPO, pump services for loading CPO into vessels, lease of satellite communications facilities for data communications, property all risk insurance and marine cargo insurance. The aggregate amounts paid by PT SIMP and its subsidiaries for such services for the period from 1 January 2003 up to 31 October 2006 were as follows:- Between 1 January 2006 and 31 October FY2003 FY2004 FY (Rp billion) (Rp billion) (Rp billion) (Rp billion) Purchase of services These transactions are entered into on an arm s length basis. Where such transactions take place after the completion of the Proposed Acquisition, they will if applicable be subject to the review procedures under the IPT Mandate. (c) Rental of Land Since 1996, the Salim Group has granted PT SIMP the right to use various parcels of land located at North Jakarta with an aggregate area of approximately 19,875 square metres under a lease agreement dated 1 June Under the lease agreement, PT SIMP has made a one-time lumpsum payment of Rp11 billion of pre-paid rental for the lease period from 1 June 1996 up to June The Target Group amortises the pre-paid rental in its financial statements in respect of the land over 20 years, being the period of the lease. The Target Group s Jakarta refinery is currently sited on the land and on two other parcels of land located at North Jakarta with an aggregate area of approximately 17,830 square metres. The use of these other parcels of land was granted by the Salim Group to PT SIMP pursuant to agreements dated 31 March 1990 and 2 October Under the agreements, no rent is payable and no lease period is specified. 142

197 LETTER TO SHAREHOLDERS These transactions were entered into on an arm s length basis. Where such transactions are renewed or take place after the completion of the Proposed Acquisition, they will if applicable be subject to the review procedures under the IPT Mandate. (d) Plantation Acquisition PT SIMP has, pursuant to the Plantation Acquisition, entered into a conditional agreement with RHL (a member of the Salim Group) on 16 August 2006, for the acquisition of a 60% shareholding interest in the Plantation Companies for Rp125 billion in cash. Subject, inter alia, to the necessary approvals being obtained, the completion of the Plantation Acquisition is expected to be completed in the first quarter of Further information on the Plantation Acquisition is set out in Section 14.3 of this Circular. This transaction was entered into on an arm s length basis and the terms were determined after taking into consideration a valuation by an independent valuer. Further information on such independent valuer s valuation is contained in PT ISM s circular dated 29 September 2006 to its shareholders (a copy of which is available for inspection at the registered office of the Company) Adoption of the IPT Mandate for Interested Person Transactions (a) General It is anticipated that following the completion of the Proposed Acquisition, the Group and its associated companies which are entities at risk, if any, (collectively, the Listco Group ) will, in the ordinary course of business, enter into transactions with persons who are considered Interested Persons as defined in Chapter 9 of the Listing Manual. It is likely that such transactions will occur with some degree of frequency and could arise at any time, and from time to time. Such transactions include, but are not limited to, the categories of transactions described below. Chapter 9 of the Listing Manual applies to transactions entered or to be entered into by an entity at risk with a party that is an interested person of the listed company. Save for transactions which are excluded under Chapter 9 of the Listing Manual, an immediate announcement and/or shareholders approval would be required in respect of a transaction with interested persons ( interested person transaction ) if the value of that transaction is equal to or exceeds certain financial thresholds. Chapter 9 of the Listing Manual also permits a listed company to seek a mandate from its shareholders for recurrent interested person transactions which are of a revenue or trading nature or for those necessary for its day-to-day operations. These transactions include purchase and sale of supplies and materials, but do not include the purchase or sale of assets, undertakings or businesses that may be carried out with the listed company s interested persons. In the context of the IPT Mandate, Rule 920(1) of the Listing Manual requires the following information to be disclosed:- (1) the class of interested persons with which the entity at risk will be transacting; (2) the nature of the transactions contemplated under the IPT Mandate; (3) the rationale for, and benefit to, the entity at risk; (4) the methods or procedures for determining transaction prices; (5) an independent financial adviser s opinion on whether the methods or procedures in Section 18.3(e) of this Circular are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the listed company and its minority shareholders; 143

198 LETTER TO SHAREHOLDERS (6) an opinion from the audit committee if it takes a different view to the independent financial adviser; (7) a statement from the listed company that it will obtain a fresh mandate from shareholders if the methods or procedures in Section 18.3(e) of this Circular become inappropriate; and (8) a statement that the interested person will abstain, and has undertaken to ensure that its associates will abstain, from voting on the resolution approving the transaction. The IPT Mandate, if approved, will be effective from the date of the passing of the ordinary resolution so approving the IPT Mandate at the EGM and will, unless earlier revoked or varied by the Company in general meeting, continue in force until the next AGM. Thereafter, approval from Shareholders will be sought for the renewal of the IPT Mandate at each subsequent AGM of the Company. In accordance with Rule 920(1)(b)(viii) of the Listing Manual, interested persons will abstain, and have undertaken to ensure that their associates will abstain from voting on resolutions approving interested person transactions involving themselves and the Listco Group. Furthermore, such interested persons shall not act as proxies in relation to such resolutions unless voting instructions have been given by shareholders who are unrelated to such interested persons or their associates. Rule 905 and Rule 906 of the Listing Manual do not apply to any transaction which has a value that is below S$100,000 with an interested person and therefore transactions below S$100,000 need not be covered under the IPT Mandate. (b) Classes of Interested Persons The IPT Mandate will apply to transactions between the Listco Group and the following persons ( Interested Persons ):- (1) the PT ISM Group and its associates (other than the Company and, where applicable, its subsidiaries); (2) First Pacific and its subsidiaries (other than the PT ISM Group) and their associates; (3) the Salim Group and its associates (other than the PT ISM Group); and (4) any member (that may be appointed from time to time) of the new Board following the completion of the Proposed Acquisition and the CEO of the Company, and their respective associates. Transactions with interested persons that do not fall within the ambit of the IPT Mandate shall be subject to the provisions of Chapter 9 of the Listing Manual. (c) Categories of Interested Person Transactions The following transactions (the value of which is S$100,000 or more) with the Interested Persons (the Mandated Transactions ) are in connection with the provision to, or the obtaining from, these Interested Persons of products and services which are recurrent transactions of a revenue or trading nature or which are necessary for the day-to-day operations of the Listco Group:- (1) the sale and purchase of FFBs, palm oil and palm oil-based products, lauric products, cooking oil, margarine and shortening and other derivative products; (2) the purchase of packaging material; 144

199 LETTER TO SHAREHOLDERS (3) the purchases of products, services and materials from unrelated third parties on behalf of the Listco Group or Interested Persons (as the case may be); (4) the provision, obtaining and/or utilisation of storage facilities, transportation and logistics services; (5) the rental / lease of land, warehouse, factory, office and other premises ( Properties ) from and to Interested Persons; (6) the borrowing of funds and repayment of loans and obtaining of and release of guarantees, indemnities and other security; (7) the provision of loans (other than the provision of a loan to a joint venture with an Interested Person falling under Rule 916(3) of the Listing Manual) to those subsidiaries which are also Interested Persons (for example, because they are associates of a Controlling Shareholder) provided that in relation to the provision of loans to any Interested Person as referred to in this paragraph, the proportion of such loans provided by the Listco Group will not exceed its then existing shareholding percentage in such Interested Person; (8) the provision of credit support (such as securities, guarantees, indemnities, letters of comfort or other similar support) to or for the benefit of, those subsidiaries which are also Interested Persons (for example, because they are associates of a Controlling Shareholder) provided that in relation to the provision of credit support to any Interested Person as referred to in this paragraph, the proportion of such credit support provided by the Listco Group will not exceed its then existing shareholding percentage in such Interested Person; (9) the payment of technical consultation and other professional fees; (10) the obtaining of professional, management, operational, administrative and support services including secondment arrangements and treasury, business development, marketing, management information systems, human resource, corporate communications (including investor relations), taxation, legal, corporate secretarial services and any other professional services ( Corporate Services ); and (11) the provision or the obtaining of such other products and/or services which are incidental to or in connection with the provision or obtaining of products and/or services in sub-paragraphs (1) to (10) above and which are necessary for the day-today operations of the Listco Group or arise in the normal course of business of the Listco Group. (d) Rationale for and benefits of the IPT Mandate In view of the time-sensitive nature of commercial transactions, it would be advantageous to the Company to obtain the IPT Mandate to enter into the Mandated Transactions, provided that all such transactions are carried out on normal commercial terms. The IPT Mandate (if approved and renewed on an annual basis) will eliminate, among others, the need for the Company to convene separate general meetings on each occasion to seek its shareholders approval as and when potential transactions with interested persons arise. This will reduce substantially the administrative time, inconvenience and expenses associated with the convening of such meetings, without compromising its corporate objectives and adversely affecting its business opportunities. The Mandated Transactions are entered into or, are to be entered into, by the Listco Group in the ordinary course of business. They are recurring transactions which are likely to occur with some degree of frequency and arise at any time and from time to time. 145

200 LETTER TO SHAREHOLDERS Sales to the Interested Persons represent an additional source of revenue for the Listco Group. With regard to purchases, the Listco Group will benefit from having access to quotations from the Interested Persons, in addition to obtaining quotations from third parties, and with the various quotations available for assessment, this will ensure that the Listco Group obtains competitive prices for goods and services of similar quality and specifications. The Listco Group will benefit from the familiarity that the Interested Persons possess in relation to the specifications and requirements that it requires for such goods and services, built on its mutual course of dealing over the years. This gives the Listco Group assurance that the quality of goods and services provided by the Interested Persons would meet its requirements and standards. The terms that the Listco Group extend to the Interested Persons (both for sales, as well as purchases) will not be more favourable than that which it extends to non-interested Persons. The Directors are of the view that it will be beneficial to the Listco Group to transact or continue to transact with the Interested Persons after the completion of the Proposed Acquisition. Disclosure will be made in the Company s annual report on the aggregate value of transactions with Interested Persons conducted pursuant to the IPT Mandate during the current financial year, and in the annual reports for the subsequent financial years during which the IPT Mandate is in force. Disclosure will also be made in the Company s announcements of its financial statements for each of the first three quarters of its financial year and for its full financial year, of the aggregate value of all transactions between the Listco Group and each Interested Person conducted pursuant to the IPT Mandate. Further, disclosure will also be made showing a breakdown of the amount under each category of transaction (with specific disclosure on the amount of funds borrowed and loans repaid, the amount of guarantees, indemnities and other security obtained and released, and the amount of loans and credit support provided) conducted pursuant to the IPT Mandate with each Interested Person. (e) Guidelines and Review Procedures For Interested Person Transactions Subject to completion of the Proposed Acquisition, the Company intends to implement the following procedures to supplement its existing internal control procedures to ensure that the Mandated Transactions are undertaken on normal commercial terms consistent with its usual business practices and policies, which are generally no more favourable to the Interested Persons than those extended to non-interested Persons. The Audit Committee has reviewed and approved the following internal control procedures that will apply to the Mandated Transactions. These procedures are to ensure that the Mandated Transactions are undertaken on normal commercial terms and on an arms length basis; that is, the transactions are transacted on terms and prices not more favourable to the Interested Persons than if they were transacted with an unrelated third party, and are not prejudicial to the interests of the Company and the minority Shareholders. (1) When supplying products or services to an Interested Person, the sale price or fee, and the terms, of at least two recent successful sales or supplies of a similar nature to non-interested Persons will be used for comparison. The sale price or fee for the supply of goods or services shall not be lower than the lowest sale price or fee of these other transactions (of a similar nature) with non-interested Persons. (2) When purchasing items from or engaging the services of an Interested Person (other than Corporate Services), at least two recent successful purchases or quotations for the purchase or provision of same or similar items or services from non-interested Persons will be obtained (where available) for comparison. The purchase price or fee shall not be higher than the most competitive price, fee or quote of these other transactions (of a similar nature) with non-interested Persons. In determining the most competitive price or fee, non-price factors, including but not limited to quality, delivery time, payment terms and track record will be taken into account. 146

201 LETTER TO SHAREHOLDERS (3) When obtaining loans and guarantees, the Company shall ensure that the interest rate quoted and other material terms are no less favourable than that given by third party lenders (based on at least two recent quotations). (4) When renting Properties from or to an Interested Person, the Company shall take appropriate steps to ensure that such rent is commensurate with the prevailing market rates (such as making relevant enquiries with landlords of similar properties (in terms of area and location) and obtaining necessary reports or reviews published by property agents (including an independent valuation report by a property valuer, where considered appropriate)). The rent payable or to be received shall be based on the most competitive market rental rate of similar properties (in terms of area and location), based on the results of the relevant enquiries. (5) For Corporate Services, the fee to be charged to the Interested Person will be (i) based on the actual cost incurred by the Interested Person in providing such service; or (ii) equal to or less than the fees charged by or paid to unrelated third parties for comparable services rendered by such unrelated third parties. (6) The payment for purchases of products, services and materials on behalf of the Listco Group or any Interested Person (as the case may be) shall be made on a reimbursement basis. Further, in respect of payments to any Interested Person for purchases on behalf of the Listco Group, where practicable, at least two recent successful purchases or quotations for the purchase of the same or similar products, services or materials from non-interested Persons will be obtained for comparison. The purchase price or fee shall not be higher than the most competitive price, fee or quote of these other transactions (of a similar nature) with non-interested Persons. In determining the most competitive price or fee, non-price factors, including but not limited to quality, delivery time, payment terms and track record will be taken into account. (7) In relation to the provision of loans or credit support, the members of the Board (other than those who are not independent of the relevant Interested Persons) when considering whether the Listco Group should provide the loans or credit support to or for the benefit of its Interested Persons pursuant to the IPT Mandate, will only undertake such transactions when they are of the view that it is in the interests of the Group to do so. In addition, the interest rate charged by the Listco Group for the provision of loans shall not be less than the highest of the rates quoted by the Group s principal bankers for loans of an equivalent amount and tenure. The Company shall also take into consideration factors, including but not limited to the other terms of the relevant loans or credit support, operation requirements and risks, location of operations, country of incorporation of the relevant entity at risk, the creditworthiness of the Interested Persons and other pertinent factors. In the event that it is not possible for appropriate information (for comparative purposes) to be obtained, the respective heads of the finance and accounting department in Indonesia or Singapore (where applicable) of the Group (with no interest, direct or indirect, in the Mandated Transaction and who are independent of the relevant Interested Persons), will determine whether the price, fees and/or the other terms offered by or to the Interested Persons are fair and reasonable, and approve such Mandated Transaction. In so determining, that head of the finance and accounting department will consider whether the price, fees and/or other terms is in accordance with usual business practices and pricing policies and consistent with the usual margins and/or terms to be obtained for the same or substantially similar types of transactions to determine whether the relevant transaction is undertaken at an arm s length and on normal commercial terms. 147

202 LETTER TO SHAREHOLDERS The Company shall monitor the transactions with Interested Persons entered into by the Listco Group and categorise these transactions as follows:- (i) (ii) a Category 1 Mandated Transaction is one where the value thereof is in excess of S$15,000,000; and a Category 2 Mandated Transaction is one where the value thereof is below or equal to S$15,000,000. All Category 1 Mandated Transactions must be approved by the Audit Committee prior to its entry. Category 2 Mandated Transactions need not be approved by the Audit Committee prior to its entry but shall be approved by at least one Executive Director together with either the Group Controller or the Chief Financial Officer and reviewed on a quarterly basis by the Audit Committee. If the Executive Director is not available, such Category 2 Mandated Transactions shall be approved by either the Group Controller or the Chief Financial Officer, together with one Independent Director. In relation to the provision of loans or credit support, prior approval of the Audit Committee must also be obtained if the aggregate amount of such loans (inclusive of interest) and credit support immediately prior to, or will as a result of, such provision of loans or credit support exceed (as the case may be) 5% of the audited consolidated shareholders funds of the Company (based on the latest audited accounts and, as the case may be, adjusted for the Placement). In its review of each quarterly report, the Audit Committee will also review the payment terms, payment period(s) and settlement of the transactions in respect thereof to ensure that they are not prejudicial to the interests of the Company and the minority Shareholders. The internal auditor of the Company, and Audit Committee (independent of the internal auditor), where either of it deems fit or necessary, may carry out additional reviews. Additionally, and in respect of all transactions between the Listco Group and the Interested Persons, any person who is not independent of the relevant Interested Persons will not be involved in making any recommendation of or approving such transactions at the Listco Group. The Company will maintain a register of Interested Persons. This register will be updated regularly and will be sent to a designated person in each member of the Listco Group. The purpose of this register is to enable that designated person to identify the Interested Persons so as to facilitate the recording of all Mandated Transactions excluding those below S$100,000, in accordance with Chapter 9 of the Listing Manual. The Company will also maintain a register of transactions carried out with Interested Persons pursuant to the IPT Mandate (recording the basis, including the quotations obtained to support such basis, on which they were entered into). The Group s internal audit plan will incorporate a review of the transactions entered into in the relevant financial year pursuant to the IPT Mandate. If during the periodic reviews, the Audit Committee is of the view that the internal control procedures as stated above are not sufficient to ensure that the Mandated Transactions will be conducted on normal commercial terms and will not be prejudicial to the interests of the Company and the minority Shareholders, the Company will obtain a fresh mandate from Shareholders based on new guidelines and review procedures with interested persons. In the event that a member of the Audit Committee is interested in any of the Mandated Transactions, that member will abstain from reviewing that particular transaction. Any decision to proceed with such an agreement or arrangement would be recorded for review by the remaining members of the Audit Committee. The Audit Committee will also review the transactions with interested persons periodically and ensure that the prevailing rules of the SGX-ST (in particular, Chapter 9) are complied with. 148

203 LETTER TO SHAREHOLDERS 18.4 Potential Conflicts of Interest As a result of the completion of the Proposed Acquisition, the Target Group will be acquired by the Company and PT ISM will become a Controlling Shareholder of the Company. The Salim Group will become a Controlling Shareholder of the Company through its interest in the PT ISM Group. (a) PT ISM Group PT ISM was established in August 1990 under the name PT Panganjaya Intikusuma. In 1994, it changed its name to PT Indofood Sukses Makmur Tbk and was listed on both the Jakarta and Surabaya Stock Exchanges. In 1994, PT ISM merged with various companies engaged in various food processing businesses which started producing instant noodles and snack foods in the early 1980s, and subsequently expanded production to include baby foods in 1985 and food seasonings in the early 1990s. PT ISM acquired its flour business in 1995 and its plantation, edible oils and fats, and distribution businesses in As at the Latest Practicable Date, the issued share capital of PT ISM is held as to 51.5% by First Pacific. First Pacific is an investment and management company listed on the Hong Kong Stock Exchange holding assets in Indonesia and the Philippines, with principal business interests relating to consumer products and telecommunications. First Pacific is approximately 44.26% owned by the Salim Group. PT ISM is one of Indonesia s largest processed food companies, with leading domestic market shares for most of its products, including instant noodles, wheat flour, baby foods and snack foods. The PT ISM Group also produces food seasonings products. Currently, the PT ISM Group is Indonesia s largest instant noodles manufacturer and its flour milling facilities is Indonesia s largest and amongst the biggest in the world, with installed capacities of approximately 13 billion packs and approximately 3.8 million MT per annum, respectively. The PT ISM Group also has an extensive distribution network in Indonesia. The PT ISM Group is a national distributor of the Target Group s branded cooking oil and fats products in Indonesia. The PT ISM Group also purchases from the Target Group industrial cooking oil for its food manufacturing process. Further information on PT ISM and its various business divisions can be found on its website at The condensed financial information of PT ISM and its subsidiaries for the nine months ended 30 September 2006 ( PT ISM 3Q2006 Financial Information ) (as extracted from PT ISM s website) is set out in Appendix H of this Circular. Shareholders should note that the PT ISM 3Q2006 Financial Information is unaudited and has been prepared under generally accepted accounting principles in Indonesia. In the PT ISM 3Q2006 Financial Information, transactions between PT ISM s edible oils & fats division and its other divisions are considered inter-segment transactions and are eliminated on consolidation. Further, the segmental information on PT ISM s edible oils & fats division in the PT ISM 3Q2006 Financial Information includes the allocation of certain of PT ISM s corporate expenses for presentation purposes as well as the revenue and profit contribution of PT PTB (a transportation subsidiary of PT ISM, further information of which is disclosed in Section (b) above). Accordingly, the segmental information on PT ISM s edible oils & fats division in the PT ISM 3Q2006 Financial Information may not be directly comparable to the financial information of the Proforma Group. With a view to mitigating certain of the potential conflicts of interest between the PT ISM Group and the Target Group, PT ISM has undertaken that unless the Company has given its prior written approval, for so long as, inter alia, the aggregate shareholding interests (direct and indirect) of PT ISM from time to time in the Company is fifteen per cent. (15%) or more (or such other percentage as may be agreed between PT ISM and the Company, having reference to the Listing Manual including the definition of controlling shareholder therein, such agreement not to be unreasonably withheld by either PT ISM or the Company), PT ISM 149

204 LETTER TO SHAREHOLDERS will not, and shall procure that its subsidiaries and associates over which it is able to exercise control (as defined in the deed of undertaking) (in each case, other than those listed on a stock exchange in any jurisdiction or which is a subsidiary or associated company of a company which is listed on such a stock exchange or those which may be in breach of any law, rule or regulation applicable to it if it were to be subject to the restrictions contained in the deed of undertaking) ( Relevant PT ISM Group ) shall not, directly or indirectly, whether itself or together with any other person, firm or company in any capacity whatsoever:- (i) (ii) (iii) (iv) carry on, or be engaged or have a shareholding interest (directly or indirectly) in any business or activity in the Territory which is similar or connected to or competing with or in conflict with any of the Businesses in the Territory; assist (with technical or other advice in relation to the Businesses) any person, firm, company or organization engaged or about to be engaged in any of the Businesses in the Territory; carry on for its own account, whether alone or in conjunction with or on behalf of any other person, firm, company or organization, or, where relevant, be a director or directly or indirectly manage, join, control or participate or become interested in, as a partner or shareholder in any entity or company engaged or to be engaged in, any of the Businesses in the Territory; or subject to certain exceptions, either on its own account or jointly with or in conjunction with or on behalf of any person, firm, company or organization, solicit or entice away or attempt to solicit or entice away from any of the Group companies any person who is or was, an officer, director, manager or customer of any of the Group companies (in relation to the Businesses) whether or not such person would commit a breach of contract by reason of leaving service or transferring business. However, nothing shall preclude or restrict, inter alia:- (a) (b) the Relevant PT ISM Group from becoming the registered or beneficial owner of not more than 5% in aggregate of any class of securities in a competing corporation; and/or any member of the Relevant PT ISM Group from acquiring any insignificant competing business (as defined in the deed of undertaking, and which includes any competing business which accounts for less than 15% of the consolidated net asset value, profit after tax or purchase consideration of the entire business acquired) as part of a larger transaction or acquisition of a business, company or group of companies, Provided That PT ISM shall use its reasonable efforts to ensure that the Relevant PT ISM Group entity disposes of the insignificant competing business within six (6) months of the date of completion of the acquisition of such business and in making such disposal, PT ISM shall use its reasonable efforts to grant to the Company a right of first refusal to acquire such business on bona fide arms length terms, and Provided Further that the Relevant PT ISM Group entity may undertake such insignificant competing business with the consent of the Company. For this purpose:- Businesses means the Plantations Business, the EOF Business and the CNO Business, and Business means any of them. CNO Business means the business of processing copra to manufacture or produce crude and refined, bleached and deodorised coconut oil and the sale of such products and all other copra-based ancillary and/or incidental businesses as carried on by the Group from time to time in connection with the aforesaid. 150

205 LETTER TO SHAREHOLDERS EOF Business means the business of refining and processing crude palm oil to manufacture or produce edible oil and fats such as cooking oil, margarine and shortening and other palm oil derivative products and the packaging, marketing, sale and distribution of such products and all other palm oil-based ancillary and/or incidental businesses as carried on by the Group from time to time in connection with the aforesaid. Plantations Business means the business of ownership, development and/or operation of oil palm plantations and the business of oil palm cultivation and milling and the production of crude palm oil, palm kernel and palm kernel oil, and all other ancillary and/or incidental businesses as carried on by the Group from time to time in connection with the aforesaid. Territory means (in respect of the Plantations Business) Indonesia and (in respect of the EOF Business and the CNO Business) Indonesia and all other territories in the world. For the above purpose, the term immediate family as used in the definition of associate in the Listing Manual, means the person s spouse, child, adopted child, step-child and parent. The deed of undertaking was entered into between PT ISM and the Company on an arm s length basis and is subject to the completion of the Proposed Acquisition pursuant to the Injection Agreement and the shares of the Company being listed on the Main Board of the Official List of the SGX-ST. (b) Salim Group The Target Group has entered into a conditional agreement with the Salim Group to acquire a 60% interest in the Plantation Companies, which own approximately 85,541 hectares of mostly undeveloped plantation land, pursuant to the Plantation Acquisition. The Salim Group will hold the remaining 40% interest in the Plantation Companies and save as disclosed below, will not have a controlling ownership interest in any oil palm plantations in Indonesia in competition with the Group, immediately after the completion of the Plantation Acquisition. The Salim Group also owns approximately 6,000 hectares of plantation land in South Sumatra through PT Pusakasinar Dianabadi, of which approximately 776 hectares are planted with oil palms. In addition, the Salim Group has a 50% interest in PT Indotruba Timur, which owns approximately 3,750 hectares of plantation land in Central Kalimantan, of which approximately 913 hectares are planted with oil palms. With a view to mitigating certain of the potential conflicts of interest between the Salim Group and the Target Group, First Pacific Investments Limited ( FPIL Liberia ) and First Pacific Investments (BVI) Limited ( FPIL BVI ), which are members of the Salim Group, have undertaken that unless the Company has given its prior written approval, for so long as, inter alia, the aggregate shareholding interests (direct and indirect) of Anthoni Salim and the companies controlled (as defined in the deed of undertaking) by him from time to time in the Company is fifteen per cent. (15%) or more (or such other percentage as may be agreed between FPIL Liberia, FPIL BVI and the Company, having reference to the Listing Manual including the definition of controlling shareholder therein, such agreement not to be unreasonably withheld by FPIL Liberia, FPIL BVI or the Company), Anthoni Salim, his associates who are (in the case of individuals) under an obligation to act in accordance with his instructions and, in the case of associates which are companies, to the extent Anthoni Salim is able to exercise control over them, and the companies controlled by him (in each case, other than those companies which are listed on a stock exchange in any jurisdiction or which is a subsidiary or associated company of a company which is listed on such a stock exchange or those which may be in breach of any law, rule or regulation applicable to it if it were to be subject to the restrictions contained in the deed of undertaking) ( Relevant Salim Group ) shall not:- (i) undertake (whether on its own or with any other party), and shall not enter into and/or agree to enter into any agreement, understanding and/or arrangement to undertake, any Plantations Business Opportunity in Indonesia ( Plantation Territory ) except that 151

206 LETTER TO SHAREHOLDERS PT Pusakasinar Dianabadi and (for the avoidance of doubt) PT Indotruba Timur shall not be prohibited from continuing to engage in, manage and/or operate their existing plantation businesses so long as the aggregate planted area of oil palms does not exceed their current planted area of 1,689 hectares. For this purpose:- Plantations Business means the business of ownership, development and/or operation of oil palm plantations and the business of oil palm cultivation and milling and the production of crude palm oil, palm kernel and palm kernel oil, and all other ancillary and/or incidental businesses as carried on by the Group from time to time in connection with the aforesaid. Plantations Business Opportunity means:- (aa) (bb) (cc) any proposal to own, develop, cultivate and/or operate oil palm plantations in the Plantation Territory (whether as an owner and/or in any other capacity); any proposal to acquire any interest in or carry on (whether directly or indirectly, and whether as trustee, agent, shareholder, investor, joint venture partner or in any other capacity) any business in direct competition with the Plantations Business in the Plantation Territory; and/or any proposal to expand the business and operations of the Relevant Salim Group in or into the Plantation Territory which may directly compete with the Plantations Business; (ii) undertake (whether on its own or with any other party), and shall not enter into and/or agree to enter into any agreement, understanding and/or arrangement to undertake, any EOF Business Opportunity in Indonesia and all other territories in the world ( EOF Territory ). For this purpose:- EOF Business means the business of refining and processing crude palm oil to manufacture or produce edible oil and fats such as cooking oil, margarine and shortening and other palm oil derivative products and the packaging, marketing, sale and distribution of such products and all other palm oil-based ancillary and/or incidental businesses as carried on by the Group from time to time in connection with the aforesaid. EOF Business Opportunity means:- (aa) (bb) (cc) any proposal to process crude palm oil to manufacture or produce edible oil and fats such as cooking oil, margarine and shortening and other palm oil derivative products in the EOF Territory; any proposal to acquire any interest in or carry on (whether directly or indirectly, and whether as trustee, agent, shareholder, investor, joint venture partner or in any other capacity) any business in direct competition with the EOF Business in the EOF Territory; and/or any proposal to expand the business and operations of the Relevant Salim Group in or into the EOF Territory which may directly compete with the EOF Business; 152

207 LETTER TO SHAREHOLDERS (iii) undertake (whether on its own or with any other party), and shall not enter into and/or agree to enter into any agreement, understanding and/or arrangement to undertake, any CNO Business Opportunity in Indonesia and all other territories in the world ( CNO Territory ). For this purpose:- CNO Business means the business of processing copra to manufacture or produce crude and refined, bleached and deodorised coconut oil and the sale of such products and all other copra-based ancillary and/or incidental businesses as carried on by the Group from time to time in connection with the aforesaid. CNO Business Opportunity means:- (aa) (bb) (cc) any proposal to process copra to manufacture or produce crude and refined, bleached and deodorised coconut oil and its by-products in the CNO Territory; any proposal to acquire any interest in or carry on (whether directly or indirectly, and whether as trustee, agent, shareholder, investor, joint venture partner or in any other capacity) any business in competition with the CNO Business in the CNO Territory; and/or any proposal to expand the business and operations of the Relevant Salim Group in or into the CNO Territory which may compete with the CNO Business, unless the Relevant Salim Group entity first offers such opportunity to the Group. The Relevant Salim Group may however be or become the registered or beneficial owner of not more than 5% in aggregate of any class of securities in a competing corporation. For the above purpose, the term immediate family as used in the definition of associate in the Listing Manual, means the person s spouse, child, adopted child, step-child and parent. The deed of undertaking was entered into between FPIL Liberia, FPIL BVI and the Company on an arm s length basis and is subject to the completion of the Proposed Acquisition pursuant to the Injection Agreement and the shares of the Company being listed on the Main Board of the Official List of the SGX-ST. (c) Additional measures to mitigate potential conflicts of interest In addition to the above deeds of undertaking from PT ISM and the Salim Group, to mitigate against potential conflicts of interest, transactions between the Group and any of its Controlling Shareholders and their associates would be subject to the review procedures under the IPT Mandate or the provisions of Chapter 9 of the Listing Manual where applicable. Save for transactions which are excluded under Chapter 9 of the Listing Manual, the Listco Group will not provide any loans or credit support (such as securities, guarantees, indemnities, letters of comfort or other similar support) to, or place any deposit with, any Interested Person other than pursuant to the IPT Mandate, without the prior approval of the Audit Committee. Save as disclosed herein, as at the Latest Practicable Date, none of the members of the new Board or Controlling Shareholders of the Company immediately after the completion of the Proposed Acquisition has a material interest in any entity carrying on or dealing in the same business or products as the Target Group which gives rise to a material conflict of interest with the Target Group. 153

208 LETTER TO SHAREHOLDERS 19. CORPORATE GOVERNANCE The Company proposes to adopt corporate governance practices which are based on the principles in the Corporate Governance Code contained in the Listing Manual Board Practices The new Board after the completion of the Proposed Acquisition would include directors with a wide range of skills and experience in the fields of operations management, finance and accounting. The new Board will have ten members, comprising four executive directors, two nonexecutive directors, one lead independent director and three independent directors. Each member of the Board will hold office pursuant to the provisions of the Articles and thereafter, shall be eligible for re-election unless disqualified from holding office. The Board has overall responsibility for the corporate governance of the Company. Apart from its statutory responsibilities, the Board is responsible for:- (1) reviewing the financial performance and condition of the Group; (2) approving the Group s strategic plans, key operational initiatives, major investment and funding decisions; and (3) identifying principal risks of the Group s business and implementing systems to manage the risks. It is proposed that the new Board will hold at least four formal meetings every year, with additional meetings for particular matters convened when necessary. Upon completion of the Proposed Acquisition, the office of the Chairman of the Company will be held by Mr Lee Kwong Foo Edward. As the Chairman, Mr Lee Kwong Foo Edward will bear responsibility for the working of the Board and reviewing the effectiveness of the governance process of the Board. He will be responsible for representing the Board to Shareholders. Mr Lee Kwong Foo Edward will also be appointed as the lead independent director upon completion of the Proposed Acquisition. One of the Independent Directors will be Mr Goh Kian Chee. Mr Goh is the brother of Mr Goh Kian Hwee, a partner at Rajah & Tann, which are the legal advisers to the Proposed Acquisition and the Placement. Rajah & Tann may provide legal services to the Group from time to time. Notwithstanding the aforesaid, the Board is of the view that Mr Goh Kian Chee is independent, and that any provision of legal services by Rajah & Tann will not interfere with Mr Goh Kian Chee s independent judgment in his role as a member of the Audit Committee and the Remuneration Committee, as legal matters involving the Group will not be handled by him. He will abstain from decisions by the Board in respect of the Company s choice of legal counsel where Rajah & Tann is involved. Upon completion of the Proposed Acquisition, the office of CEO will be held by Mr Cesar Manikan dela Cruz. As the CEO, Mr dela Cruz s responsibilities will include the charting and reviewing of corporate directions and strategies, which cover areas of marketing and strategic alliances. He will be responsible for providing the Company with strong leadership and vision. The Board to be constituted upon completion of the Proposed Acquisition will be assisted by a new Executive Committee in addition to the Audit Committee, the Nominating Committee and the Remuneration Committee. Information on these board committees is set out below. 154

209 LETTER TO SHAREHOLDERS 19.2 Board Committees (a) Executive Committee ( Exco or Executive Commitee ) The new Executive Committee will comprise Mr Cesar Manikan dela Cruz, Mr Tjhie Tje Fie, Mr Mulyawan Tjandra, Mr Gunadi and Mr Moleonoto Tjang. Mr Cesar Manikan dela Cruz will be appointed as the Chairman of the Exco. The new Board will delegate to the Exco certain discretionary limits and authority for business development, investment/ divestment activities, capital expenditure, finance/treasury, budgeting and human resource management. Senior management is delegated the responsibility for drawing up the Group s annual budget and business plan for Board approval, carrying through business strategies as approved in the annual budget and business plan, implementing appropriate systems of internal accounting and other controls, instituting a risk management framework and monitoring for compliance, adopting suitably competitive human resource practices and compensation policies, and ensuring that the Group operates within budget. (b) Audit Committee ( AC or Audit Committee ) The new AC of the Company after completion of the Proposed Acquisition will comprise three Directors, the majority of whom, including the Chairman, are independent. The AC will be chaired by Mr Goh Kian Chee and the other members of the AC will be Mr Lim Hock San and Mr Hendra Susanto. The AC will perform the following functions:- (1) review with the external auditors the audit plan, their evaluation of the system of internal accounting controls, their audit report, their management letter and the management s response; (2) review the quarterly, half-yearly and annual financial statements before submission to the Board for approval, focusing on changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, the going concern statement, compliance with applicable accounting standards and stock exchange and statutory/ regulatory requirements; (3) review the internal control and procedures and co-ordination between the external auditors and the management, review the assistance given by the management to the auditors and discuss problems and concerns, if any, arising from the interim and final audits, and any matters which the auditors may wish to discuss (in the absence of management where necessary); (4) review and discuss with the external auditors any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on the Company s operating results or financial position, and the management s response; (5) consider the appointment or re-appointment of the external auditors, the audit fee, and matters relating to the resignation or dismissal of the auditors; (6) review interested person transactions (including those pursuant to the IPT Mandate and Section 18.4(c) of this Circular); (7) undertake such other reviews and projects as may be requested by the Board and report to the Board its findings from time to time on matters arising and requiring the attention of the AC; and (8) generally undertake such other functions and duties as may be required by statute or the Listing Manual, and by such amendments made thereto from time to time. 155

210 LETTER TO SHAREHOLDERS In addition, the AC will also (i) have the discretion to direct an independent review of the risk management procedures and the frequency of such review; and (ii) monitor to ensure the undertakings to resolve conflict of interests in Section 18.4 of this Circular are complied with. It is proposed that the new AC will also meet separately with the internal auditor of the Group and the external auditors and also meet among themselves, in the absence of management, when necessary. It is proposed that the Head of Internal Audit responsible for the Group s internal audit function reports to the AC and assists the new Board in assessing and reporting on the Group s business risks and internal controls. (c) Nominating Committee ( NC or Nominating Committee ) The new NC of the Company after completion of the Proposed Acquisition will be chaired by Mr Lee Kwong Foo Edward and the other members of the NC will be Mr Benny Setiawan Santoso, Mr Tjhie Tje Fie, Mr Hendra Susanto and Mr Lim Hock San. The NC will meet at least once a year or when necessary. Its focus will be guided by the terms and reference adopted from the Corporate Governance Code. The NC s duties and functions include (i) making recommendations to the Board on all board appointments and re-nomination having regard to the director s contribution and performance; (ii) ensuring that all members of the Board submit themselves for re-nomination and re-election at regular intervals and at least once in every three years; (iii) determining annually whether a director is independent, guided by guidelines in the Corporate Governance Code; (iv) deciding if a director is able and has adequately carried out his duties as a director of the Company where he has multiple board representations; and (v) deciding how the Board s performance may be evaluated and propose objective performance criteria. (d) Remuneration Committee ( RC or Remuneration Committee ) The new RC of the Company after completion of the Proposed Acquisition will be chaired by Mr Lim Hock San and the other members of the RC will be Mr Tjhie Tje Fie and Mr Goh Kian Chee. The role of the RC will be to review and approve the remuneration package and terms of employment of the Company s directors and key executives who are connected and deemed to be Substantial Shareholders of the Company. The RC will meet at least once a year with all members of the committee in attendance. In its review and approval of the recommendations on remuneration policies and packages for the Company s directors, the RC will cover all aspects of remuneration including but not limited to directors fees, salaries, allowances, bonuses, share options and benefits-in-kind. The RC s recommendations will be made in consultation with the CEO and submitted for endorsement by the entire Board. Payments of directors fees are subject to Shareholders approval at the AGM. Remuneration of senior management staff will be reviewed by the Company s human resource department in consultation with the CEO and the senior management. The review will take into consideration the value-add and the extent of contribution of the staff towards the financial health and business needs of the Company. The Company will offer competitive remuneration packages to recruit, motivate and retain valuable staff. The RC will also administer any share option schemes of the Company. It is proposed that RC members abstain from deliberations in respect of their own remuneration and the RC shall also be empowered to review human resource management policies of the Group. It is also proposed that the remuneration policy of the Group seeks, inter alia, to align the interests of employees with the Group, to reward and encourage performance based on its core values and to ensure that remuneration is commercially competitive to attract and retain talent. The typical remuneration package consists of fixed and variable components, with the 156

211 LETTER TO SHAREHOLDERS base salary making up the fixed component. The variable component can be in the form of a performance bonus, share options, performance shares and/or other long-term incentives. Proposed directors fees will be submitted as a lump sum for Shareholders approval in general meeting and the sum is divided amongst the directors with those having additional responsibilities as chairman or members of board committees receiving a higher portion of the approved sum. 20. ADMINISTRATIVE PROCEDURES FOR THE PROPOSED SHARE CONSOLIDATION 20.1 General The Proposed Share Consolidation involves the consolidation of the share capital of the Company so that every ten (10) Shares will be consolidated into one (1) Consolidated Share. Shareholders should note that the number of Consolidated Shares which they are entitled to, arising from the Proposed Share Consolidation, will be rounded down to the nearest whole Consolidated Share and any fractions thereof arising from the Proposed Share Consolidation may be disregarded at the discretion of the directors of the Company. As the proceeds of the sale of fractions of a Share arising from the Proposed Share Consolidation may be less than the administrative costs and expenses involved in despatching such proceeds to the Shareholders, fractions of a Share arising from the Proposed Share Consolidation may be aggregated and sold, at the discretion of the directors of the Company, and the proceeds retained for the benefit of the Company. As at the Latest Practicable Date, the Company has an issued share capital of S$15,334,788 divided into 135,000,000 Shares. Following the completion of the Proposed Transactions, including the implementation of the Proposed Share Consolidation but before the Placement, the Company will have an enlarged issued share capital of approximately S$397.7 million divided into 1,011,700,000 Consolidated Shares. Shareholders are not required to make any payment to the Company in respect of the Proposed Share Consolidation. Subject to Shareholders approval being obtained for the Proposed Share Consolidation at the EGM, Shareholders holding of the Consolidated Shares arising from the Proposed Share Consolidation will be ascertained on the Books Closure Date set out in Section 20.2 of this Circular Updating of Register of Members and Depository Register If the approval of Shareholders to the Proposed Share Consolidation is obtained, the Register of Members of the Company and the Depository Register will be updated to reflect the number of Consolidated Shares held by Shareholders and Depositors based on their shareholdings in the Company as at the Books Closure Date Deposit of Share Certificates with CDP Shareholders who hold old share certificates and who wish to deposit the same with the CDP and have their Shares (after the Share Consolidation) credited to their Securities Accounts must deposit such share certificates, together with the duly executed instruments of transfer in favour of CDP, no later than 12 Market Days prior to the Books Closure Date. After the Books Closure Date, CDP will only accept for deposit new share certificates of Shares (arising after the Proposed Share Consolidation). Shareholders who wish to deposit their old share certificates with CDP after the Books Closure Date must first deliver such share certificates to the Share Registrar of the Company, Lim Associates (Pte) Ltd, at 10 Collyer Quay #19-08, Ocean Building, Singapore , whose address will be at 3 Church Street, #08-01, Samsung Hub, Singapore with effect from 18 December 2006, for cancellation and issue of new share certificates in replacement thereof as described below. The new share certificates will then be sent by ordinary mail to the registered addresses of the Shareholders at their own risk within 10 Market Days from the date of receipt of their old share certificates. Upon receipt of the new share certificates, Shareholders may then proceed to deposit these new share certificates with the CDP. 157

212 LETTER TO SHAREHOLDERS 20.4 Issue of New Share Certificates Depositors and Shareholders who have deposited their old share certificates with CDP at least 12 Market Days prior to the Books Closure Date need not take any action. The Company will arrange with CDP to facilitate the exchange of new share certificates pursuant to the Proposed Share Consolidation. Shareholders who have not deposited their old share certificates as aforesaid or who do not wish to deposit their old share certificates with CDP are advised to forward all such share certificates to the Share Registrar of the Company as soon as possible after they have been notified of the Books Closure Date, and preferably, not later than five Market Days after the Books Closure Date for cancellation and exchange for new share certificates. No receipt will be issued by the Share Registrar of the Company for the receipt of the physical old share certificates. The new share certificates will be sent by ordinary mail to the registered addresses of the Shareholders at their own risk within 10 Market Days from the Books Closure Date or the date of receipt of the old share certificates, whichever is the later. Shareholders should note that new share certificates will not be issued to Shareholders unless their old share certificates have been tendered to the Share Registrar of the Company for cancellation. Please notify the Share Registrar of the Company if you have lost any of your existing old share certificates or if there is any change in your address from that reflected in the Register of Members of the Company. 21. ADVICE OF DTCF TO THE INDEPENDENT DIRECTORS IN RESPECT OF THE GENERAL MANDATE FOR INTERESTED PERSON TRANSACTIONS Pursuant to Chapter 9 of the Listing Manual, DTCF has been appointed as an independent financial adviser to the Independent Directors to provide an opinion letter as to whether the methods or procedures for determining transaction prices under the proposed IPT Mandate are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and the minority Shareholders. A copy of DTCF s letter is set out in Appendix B of this Circular. Based on the analysis undertaken and subject to the qualifications and assumptions made herein, DTCF is of the opinion that the current methods and procedures for determining transaction prices of Mandated Transactions as set out in Section 18.3(e) of this Circular are, if applied strictly, sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and the minority Shareholders. The interested person transactions which will be covered by the IPT Mandate are the Proforma Group s transactions with its Interested Persons as described in Section 18.3(c) of this Circular. 22. ADVICE OF DTCF TO THE INDEPENDENT DIRECTORS ON THE PROPOSED WHITEWASH RESOLUTION Pursuant to the conditions imposed by the SIC, the Independent Directors have appointed DTCF as the independent financial adviser to advise them in respect of the Proposed Whitewash Resolution. A copy of the letter from DTCF to the Independent Directors, containing their advice in full, is set out in Appendix A of this Circular, and Shareholders attention is drawn to it. Having regard to the considerations set forth in their letter to the Independent Directors, based on the information available as at the Latest Practicable Date, DTCF has advised the Independent Directors to recommend that the Independent Shareholders vote in favour of the Proposed Whitewash Resolution. 158

213 LETTER TO SHAREHOLDERS 23. INTERESTS OF THE DIRECTORS AND CONTROLLING SHAREHOLDERS Mr Tjhie Tje Fie and Mr Moleonoto Tjang are nominees of ISHPL appointed to the Board. Save as disclosed in this Circular, none of the Directors of the Company has any interest, direct or indirect, in the Proposed Transactions and the Company has not received any notification from its Controlling Shareholders that they have any interest, direct or indirect, in the Proposed Transactions. 24. DIRECTORS RECOMMENDATIONS 24.1 Proposed Transactions, Mandate for the issue of new Consolidated Shares for the Placement, the FP Placement and General Mandate for the issue of new Consolidated Shares Messrs Tjhie Tje Fie and Mr Moleonoto Tjang have voluntarily abstained, as Directors, from making any recommendation to Shareholders in respect of the resolutions to be tabled at the EGM. The Independent Directors are of the opinion that, having considered and reviewed, inter alia, the terms of the Injection Agreement, the rationale for and the financial effects of the Proposed Transactions and the risk factors set out in this Circular, the Proposed Transactions (save for the Proposed Whitewash Resolution which is dealt with in Section 24.2 of this Circular), the issue of new Consolidated Shares for the purposes of the Placement, the general mandate for the issue of new Consolidated Shares and the FP Placement, are in the interest of the Company. Accordingly, they recommend that Shareholders vote in favour of ordinary resolutions number 1, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14, and the special resolution number 16 set out in the Notice of EGM contained in this Circular The Proposed Whitewash Resolution and IPT Mandate The Independent Directors wish to draw the attention of Independent Shareholders to Sections 14 and 15 of this Circular. The Independent Directors have considered and concur with the advice of DTCF in relation to the Proposed Whitewash Resolution. They recommend that Independent Shareholders vote in favour of ordinary resolution number 2 relating to the Proposed Whitewash Resolution set out in the Notice of EGM contained in this Circular. In accordance with the terms of the waiver granted by the SIC as described in Section 7 of this Circular, voting on the Proposed Whitewash Resolution shall be by way of a poll, and PT ISM and ISHPL and parties acting in concert with them and persons not independent of them shall abstain from voting on the Proposed Whitewash Resolution. The Independent Directors and the Audit Committee have considered and concur with the opinion letter of DTCF set out in Appendix B of this Circular in relation to the IPT Mandate. They recommend that Shareholders vote in favour of ordinary resolution number 15 relating to the adoption of the IPT Mandate set out in the Notice of EGM contained in this Circular Inter-conditionality The passing of resolutions 1 to 16 (all inclusive) in the Notice of EGM, are inter-conditional. This means that if any one of these resolutions is not approved, the other resolutions would not be duly passed Existing Major Shareholders undertakings to vote The Existing Major Shareholders, who in aggregate own and have interests in Shares representing an aggregate of approximately 37.22% of the Company s total number of issued Shares as at the Latest Practicable Date, have undertaken, inter alia, to vote or to procure the voting of all such Shares in favour of the resolutions to be proposed at the EGM. 159

214 LETTER TO SHAREHOLDERS 25. EXTRAORDINARY GENERAL MEETING An EGM, notice of which is set out in this Circular, will be held at Kingfisher, Level 4, Grand Copthorne Waterfront Hotel Singapore, 392 Havelock Road, Singapore on Friday, 5 January 2007 at 4.00 p.m. for the purpose of considering and, if thought fit, passing with or without amendments, the special and ordinary resolutions set out in the Notice of EGM. If you are a Depositor, you shall not be entitled to attend and vote at the EGM unless you are shown to have Shares entered against your name in the Depository Register as at 48 hours before the time appointed for holding the EGM, as certified by CDP to the Company. 26. ACTION TO BE TAKEN BY SHAREHOLDERS Shareholders who are unable to attend the EGM and wish to appoint a proxy to attend and vote at the EGM on their behalf should complete, sign and return the attached Proxy Form in accordance with the instructions printed thereon as soon as possible and, in any event, so as to arrive at the registered office of the Company at 1A Lorong Telok, Singapore not less than 48 hours before the time appointed for holding the EGM. The completion and return of a Proxy Form by a Shareholder does not preclude him from attending and voting in person at the EGM if he subsequently so wishes to do so, in place of his proxy. CPF investors may wish to check with their CPF Approved Nominees on the procedure and deadline for the submission of their written instructions to their CPF Approved Nominees to vote on their behalf. 27. DIRECTORS AND ISHPL S RESPONSIBILITY STATEMENTS This Circular has been seen and approved by the Directors who collectively and individually accept full responsibility for the accuracy of the information given herein, and confirm that, having made all reasonable enquiries, to the best of their knowledge and belief the facts stated and opinions expressed in this Circular (save in respect of the Target Group) are fair and accurate in all material respects as at the Latest Practicable Date and that there are no material facts the omission of which would make any statement in this Circular misleading in any material respect as at the Latest Practicable Date. ISHPL accepts full responsibility for the accuracy of the information given in this Circular in respect of the Target Group, and confirms that, having made all reasonable enquiries, to the best of its knowledge and belief, the facts stated and opinions of ISHPL expressed in this Circular in respect of the Target Group are fair and accurate in all material respects as at the Latest Practicable Date and that there are no material facts in respect of the Target Group the omission of which would make any statement in respect of the Target Group in this Circular misleading in any material respect as at the Latest Practicable Date. Where information has been extracted from published or publicly available sources, the sole responsibility of the Directors and ISHPL, as the case may be, has been to ensure that such information has been accurately and correctly extracted from such sources. 28. FINANCIAL ADVISER S RESPONSIBILITY STATEMENT CIMB-GK, the financial adviser to the Company, confirms, having made reasonable enquiries, that to the best of its knowledge and belief, and based on information provided by or on behalf of the Company and PT ISM, this Circular constitutes a full and true disclosure of all material facts with regard to the Proposed Transactions and the Target Group as at the Latest Practicable Date, and that CIMB-GK is not aware of any material facts, the omission of which would make any statement in this Circular (other than Appendix A, B and C in this Circular) misleading in any material respect as at the Latest Practicable Date. Where information has been extracted from published or publicly available sources, the sole responsibility of CIMB-GK has been to ensure that such information has been accurately and correctly extracted from such sources. 160

215 LETTER TO SHAREHOLDERS 29. GENERAL INFORMATION 29.1 Share Capital in Relation to the Target Group As at the Latest Practicable Date, the issued and paid-up share capital of IOFPL is S$100,000 comprising 100,000 ordinary shares. Save for the ordinary shares in the share capital of IOFPL, there are no other classes of shares in the share capital of IOFPL. All of the issued shares in the share capital of IOFPL are fully paid-up. None of the shares in IOFPL are held by or on behalf of IOFPL itself or by its subsidiary. As at the Latest Practicable Date, no person has, or has the right to be given, an option to subscribe for any securities of any member of the Target Group. IOFPL was incorporated in Singapore on 11 September 2006 and is a private company limited by shares. The principal place of business of IOFPL is at Graha Inti Fauzi, 6th Floor, Jalan Buncit Raya No. 22, Pejaten Barat, Pasar Minggu, Jakarta Selatan. The registered office of IOFPL is at 4 Battery Road, #15-01, Bank of China Building, Singapore and the telephone and facsimile numbers of its registered office are and , respectively. Save as set out below, there were no changes in the share capital of the members of the Target Group in the three years prior to the Latest Practicable Date:- Company name/ Approximate Approximate Date of issue of Purpose of issue price issue price / Number of Resultant share(s) issue per share Consideration share(s) issued issued capital PT SIMP (1) 16 August 2006 Merger Rp1,000,000 Rp103,061,000, ,061 Rp253,061,000,000 PT KMS 23 September 2005 Conversion of bonds Rp1,000,000 Rp142,355,000, ,355 Rp152,355,000,000 PT CNIS 29 October 2004 Capital investment Rp1,000,000 Rp4,500,000,000 4,500 Rp5,000,000, December 2004 Capital investment Rp1,000,000 Rp31,566,000,000 31,566 Rp36,566,000, May 2005 Capital investment Rp1,000,000 Rp2,071,000,000 2,071 Rp38,637,000,000 PT SAIN 21 June 2006 Conversion of bonds Rp1,000,000 Rp36,200,000,000 36,200 Rp51,700,000,000 PT RAP 26 March 2004 Capital investment Rp1,000,000 Rp6,000,000,000 6,000 Rp6,500,000,000 9 June 2005 Capital investment Rp1,000,000 Rp13,500,000,000 13,500 Rp20,000,000, June 2006 Capital investment Rp1,000,000 Rp11,617,000,000 11,617 Rp31,617,000,000 PT CKS 30 June 2006 Capital investment Rp1,000,000 Rp13,362,000,000 13,362 Rp14,362,000,000 PT KGP 30 December 2004 Capital Investment Rp1,000,000 Rp33,104,000,000 33,104 Rp106,522,000, May 2005 Capital investment Rp1,000,000 Rp1,140,000,000 1,140 Rp107,662,000,000 ASL 1 December 2004 Capital investment US$1 US$2,323,858 2,323,858 US$2,323,860 3 May 2005 Capital investment US$1 US$218, ,000 US$2,541,

216 LETTER TO SHAREHOLDERS Company name/ Approximate Approximate Date of issue of Purpose of issue price issue price / Number of Resultant share(s) issue per share Consideration share(s) issued issued capital SIL 27 December 2004 Capital investment US$1 US$99,998 99,998 US$100, December 2004 Capital investment US$1 US$5,467,057 5,467,057 US$5,567, April 2005 Capital investment US$1 US$338, ,000 US$5,905,057 Note: (1) On 29 May 2006, prior to the PT ISM Group Restructuring, PT SIMP reduced its issued share capital from Rp375 billion divided into 375,000 shares of Rp1 million each to Rp150 billion divided into 150,000 shares of Rp1 million each. Save as disclosed in this Circular:- (a) (b) (c) (d) there has not been any public take-over offer, by a third party in respect of any of the shares of any company in the Target Group or by any company in the Target Group in respect of the shares of another corporation or the units of a business trust, which has occurred between the beginning of the most recent completed financial year and the Latest Practicable Date; to the extent known to ISHPL, the companies in the Target Group are not directly or indirectly owned or controlled, whether severally or jointly, by any person or government as at the Latest Practicable Date; as at the Latest Practicable Date, ISHPL is not aware of any arrangement, the operation of which may, at a subsequent date, result in a change in control of any of the companies in the Target Group; and as at the Latest Practicable Date, no option to subscribe for shares in any of the companies in the Target Group has been granted to, or was exercised by, any directors or CEO of any company in the Target Group Material Contracts of the Target Group The following contracts (not being contracts entered into in the ordinary course of business of the Target Group) have been entered into by the Target Group within the two years preceding the Latest Practicable Date and are, or may be, material:- (a) (b) (c) (d) Purchase Contracts dated 21 December 2004 entered into by PT SIMP, PT GMR, PT CTP and PT SP for the purchase of marketable securities comprising a total of 46,900,000 shares issued by PT Bank Mega Tbk, for a total consideration of Rp80.90 billion; Conditional Sale and Purchase Agreement dated 29 December 2004 entered into by PT SIMP with Reserve Cash Limited, Hongkong for the purchase by PT SIMP of 100% of the total issued shares of SIL from Reserve Cash Limited, Hongkong for a total consideration of Rp billion; Purchase Contracts dated 20 June 2005 and 21 June 2005 respectively entered into by PT CTP, PT SP, PT IP and PT IBS for the purchase of marketable securities comprising a total of 216,772,000 shares issued by PT Ultra Jaya Milk Tbk, for a total consideration of Rp70.45 billion; Bond Subscription Agreement dated 15 September 2005 entered into by PT SAIN with Beeager Investments Limited for issuance by PT SAIN of convertible bonds with total face value of US$3.62 million, convertible into 36,200 new shares of PT SAIN at the nominal value of Rp1,000,000 each ( SAIN Convertible Bonds ); 162

217 LETTER TO SHAREHOLDERS (e) (f) (g) (h) (i) (j) Sale and Purchase Agreement dated 24 November 2005 entered into by PT SIMP with PT Arka Kirana Sawita for the purchase of 93.44% of the total issued shares of PT KMS for a total consideration of Rp75.00 billion; Sale and Purchase and Assignment Agreement dated 24 November 2005 entered into by PT SIMP with Success Cheer Limited for the purchase by PT SIMP of convertible bonds issued by PT PTB with total face value of US$515,000, convertible into 5,000 new shares of PT PTB at the nominal value of Rp1,000,000 each. The total purchase consideration was US$5 million; Convertible Bond Purchase Agreement dated 15 December 2005 entered into by PT SIMP with Beeager Investments Limited for the purchase by PT SIMP of the SAIN Convertible Bonds. The total purchase consideration was US$16.41 million; Sale and Purchase Agreement dated 30 May 2006 entered into by PT SIMP with PT ISM for the sale by PT SIMP of 5,000 shares in PT PTB for Rp50.30 billion in cash; Conditional Sale and Purchase Agreement dated 16 August 2006 entered into by PT SIMP with RHL (a member of the Salim Group) (as amended by a supplemental agreement dated 4 December 2006 entered into between the same parties), for the acquisition of a 60% shareholding interest in the Plantation Companies for Rp125 billion in cash; and Merger Agreement dated 16 August 2006 entered into between PT SIMP and PT BML, PT IBS, PT SOG, PT GA and PT PU, whereby PT BML, PT IBS, PT SOG, PT GA and PT PU would merge into PT SIMP and all the rights, assets, liabilities, obligations and operations of PT BML, PT IBS, PT SOG, PT GA and PT PU would be transferred by law to PT SIMP as the surviving entity Litigation (a) Litigation involving Target Group companies Save as disclosed below, there are no legal or arbitration proceedings, including those which, to the knowledge of ISHPL are pending or known to be contemplated, which may have, or which have had in the 12 months immediately preceding the Latest Practicable Date, a material effect on the financial position or profitability of the Target Group. (a) In February 2001, Edy Tumbal, Petrus Tumbal, Meinhard Tumbal, Nikolas V. Tumbal, Anna Agustin Tumbal, Clartje Tumbal, Johana Josefin Paparang and Magdalena Paparang filed a civil claim against PT BML, at the District Court of Bitung, North Sulawesi. The plaintiffs alleged that PT BML was unlawfully controlling land of an area of approximately 1.2 ha located in North Sulawesi Province, which they claimed to own. The land has a carrying value of Rp0.15 billion as at 31 December In October 2001, the District Court of Bitung rejected the plaintiffs claim and the plaintiffs appealed against this decision to the High Court of Manado. On appeal, the High Court of Manado reaffirmed the decision of the District Court of Bitung. The plaintiffs filed their appeal against this decision to the Indonesian Supreme Court on 10 October 2002 and proceedings are pending as at the Latest Practicable Date. (b) In September 2004, Hein Edy Poluan, Wisye Poluan, Yopy Poluan, Yus Yap, Jeane, Pieter Yap, Meike, Jefry Yap, Yantje, Detty Ritha, Marthen, Yotje Poluan, Welly Poluan, Max Poluan and Sintje Poluan (the Relevant Plaintiffs ) filed a civil claim against, inter alia, PT BML at the District Court of Manado. The Relevant Plaintiffs alleged that PT BML unlawfully controlled a plot of land of approximately 2,200 square metres located in North Sulawesi Province, which the Relevant Plaintiffs claimed to own. The Relevant Plaintiffs claim was for compensation of Rp4.7 billion. 163

218 LETTER TO SHAREHOLDERS In July 2006, the District Court of Manado rejected the Relevant Plaintiffs claim. The Relevant Plaintiffs have appealed against this decision to the High Court of Manado and proceedings are pending as at the Latest Practicable Date. Under Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, all obligations and liabilities of PT BML have been transferred by law to PT SIMP as of 1 June (b) Litigation involving the Group There are no legal or arbitration proceedings, including those which, to the knowledge of the Company, are pending or known to be contemplated, which may have, or which have had in the 12 months immediately preceding the Latest Practicable Date, a material effect on the financial position or profitability of the Group Significant Changes ISHPL is not aware of any event which has occurred since 30 June 2006 and up to the Latest Practicable Date which may have a material effect on the financial position and results of the Target Group Consents DTCF, the independent financial adviser to the Independent Directors on the Proposed Whitewash Resolution and the IPT Mandate, has given and has not withdrawn its written consent to the issue of this Circular with the inclusion of its name and its letters to the Independent Directors set out in Appendices A and B of this Circular and all references thereto in the form and context in which they appear in this Circular and to act in such capacity in relation to this Circular. The aforesaid letters in Appendices A and B were prepared for the purpose of incorporation in this Circular. The financial adviser to the Company in respect of the Proposed Transactions and global coordinator for the Placement, CIMB-GK, has given and has not withdrawn its written consent to the issue of this Circular with the inclusion of its name and all references thereto in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. The Reporting Accountants to the Company, Messrs Ernst & Young, have given and have not withdrawn their written consent to the issue of this Circular with the inclusion of its name and the Accountants Report and all references thereto in the form and context in which they appear in this Circular and to act in such capacity in relation to this Circular. The Accountants Report was prepared for the purpose of incorporation in this Circular. The auditors of PT SIMP, Purwantono, Sarwoko & Sandjaja, have given and have not withdrawn their written consent to the issue of this Circular with the inclusion of its name and all references thereto in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. The solicitors to the Proposed Acquisition and Placement, Rajah & Tann, have given and have not withdrawn their written consent to the issue of this Circular with the inclusion of its name and all references thereto in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. The legal advisers to the Company on Indonesian law, Ali Budiardjo, Nugroho, Reksodiputro, have given and have not withdrawn their written consent to the issue of this Circular with the inclusion of its name and all references thereto in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. The statements by Ali Budiardjo, Nugroho, Reksodiputro in the Section Risk Factors The Target Group may face prohibitions and constraints in its ownership and acquisition of plantation land on pages 50 to 52 of this Circular were made on 28 September 2006 and were prepared for the purpose of incorporation in this Circular. 164

219 LETTER TO SHAREHOLDERS The auditors of the Company, Messrs Nexia Tan & Sitoh, have given and have not withdrawn their written consent to the issue of this Circular with the inclusion of its name and all references thereto in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. The registrar and share transfer agent, Lim Associates (Pte) Ltd, has given and has not withdrawn its written consent to the issue of this Circular with the inclusion of its name and all references thereto in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. Each of the solicitors to the Proposed Acquisition and Placement, the Principal Bankers to the Target Group, and the registrar and share transfer agent, do not make, or purport to make, any statement in this Circular or any statement upon which a statement in this Circular is based and make no representation express or implied regarding, and, to the maximum extent permitted by law, expressly disclaim and take no responsibility for, any statements, information or opinions in or any omissions from this Circular Documents Available for Inspection Copies of the following document are available for inspection at the registered office of the Company at 1A Lorong Telok, Singapore , during normal business hours for a period of six months from the date of this Circular:- (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) the Injection Agreement; the letter from DTCF to the Independent Directors in respect of the Proposed Whitewash Resolution set out in Appendix A of this Circular; the letter from DTCF to the Independent Directors in respect of the IPT Mandate set out in Appendix B of this Circular; the Accountants Report set out in Appendix C of this Circular; the unaudited proforma consolidated financial information of the Proforma Group for the three financial years ended 31 December 2003, 2004 and 2005 and the half year ended 30 June 2006 (and all notes, reports or information relating to the financial information which are required to be prepared under the Companies Act); the audited financial statements of the Target Group companies for the three financial years ended 31 December 2003, 2004 and 2005; the audited consolidated financial statements of PT SIMP for the half year ended 30 June 2006; the Memorandum and Articles of Association of the Company; the letters of consent referred to in Section 29.5 of this Circular; the material contracts referred to in Section 29.2 and Section 3 of Appendix D of this Circular; the rules of the CityAxis Share Option Scheme 2002; and the circular dated 29 September 2006 issued by PT ISM to its shareholders in relation to the Plantation Acquisition. 165

220 LETTER TO SHAREHOLDERS 30. ADDITIONAL INFORMATION Your attention is drawn to the additional information set out in the Appendices of this Circular. Yours faithfully, For and on behalf of the Board Yeunh Oi Siong, Alex Director CityAxis Holdings Limited 166

221 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION LETTER FROM THE INDEPENDENT FINANCIAL ADVISER TO THE INDEPENDENT DIRECTORS IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION Deloitte & Touche Corporate Finance Pte Ltd 6 Shenton Way #32-00 DBS Building Tower Two Singapore December 2006 The Independent Directors CityAxis Holdings Limited 1A Lorong Telok Singapore Dear Sirs, THE PROPOSED WHITEWASH RESOLUTION FOR THE WAIVER OF RIGHTS BY THE INDEPENDENT SHAREHOLDERS OF THE COMPANY TO RECEIVE A MANDATORY TAKE-OVER OFFER FROM PT INDOFOOD SUKSES MAKMUR TBK, INDOFOOD SINGAPORE HOLDINGS PTE. LTD. AND PARTIES ACTING IN CONCERT WITH THEM For the purpose of this letter, capitalised terms not otherwise defined shall have the meanings given to them in the circular dated 11 December 2006 to the shareholders of the Company (the Circular ). 1. INTRODUCTION On 23 August 2006, the Company announced that it had entered into the Injection Agreement pursuant to which it had agreed to purchase from ISHPL the entire issued share capital of IOFPL for a consideration of S$392,691,880 to be satisfied entirely by the issue to ISHPL (or to such persons as it or PT ISM may direct) of 9,982,000,000 Consideration Shares at the Issue Price of S$ each. Upon completion of the Proposed Acquisition but before the Placement, ISHPL and/or its nominee(s) will own an aggregate of 9,982,000,000 Shares, representing approximately 98.67% of the enlarged total number of issued Shares of the Company. Under Rule 14 of the Code, any person acquiring Shares in excess of 30% of the Company is required to make a general offer for those Shares not owned, controlled or agreed to be acquired by it and parties acting in concert with it at the highest price paid by them for the Shares in the six months preceding the acquisition. In line with a further provision of the Code, the SIC has on 4 October 2006 granted PT ISM, ISHPL and parties acting in concert with them a waiver from the aforesaid requirement subject to the fulfilment of the conditions set out in Section 7 of the Circular. Deloitte & Touche Corporate Finance Pte Ltd ( DTCF ) has been appointed to advise the Independent Directors in respect of the Proposed Whitewash Resolution for the waiver of rights by the Independent Shareholders to receive a general offer from PT ISM, ISHPL and parties acting in concert with them for the remaining issued Shares of the Company not owned or controlled by them, as a result of the completion of the Proposed Acquisition. 2. TERMS OF REFERENCE We do not express any advice or give any opinion on any or all of the other resolutions in respect of the Proposed Acquisition to be voted upon by the Shareholders except for the resolution relating to the adoption of the IPT Mandate which we have opined on in our letter to the Independent Directors of the Company which is attached as Appendix B of the Circular. A-1

222 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION We do not, by this letter or otherwise, advise or form any judgment on the merits of the Proposed Acquisition or whether the financial terms of the Proposed Acquisition are on normal commercial terms, fair, reasonable and/or not prejudicial to the interests of the Independent Shareholders. Our terms of reference do not require us to evaluate or comment on the strategic merits, long term or otherwise, and/or on the commercial and/or financial merits and/or risks (if any) of the Proposed Acquisition or on the future prospects or value of the Company. All such evaluations, advice, judgements or comments remain the sole responsibility of the Directors, the management of the Company and their advisors. We have however drawn upon their evaluations, judgements and comments in those respects (to the extent we deemed necessary and appropriate) in arriving at our opinion. We were neither a party to the negotiations entered into by the Company in relation to the Proposed Acquisition nor were we involved in the deliberations leading up to the decision on the part of the Directors to enter into the Proposed Acquisition. We were not requested nor authorised to solicit, and we have not solicited, any indications of interest from any third parties with respect to the Proposed Acquisition. In that regard, we have not addressed the relative merits of the Proposed Acquisition as compared to any alternative transaction previously considered by the Company, if any, or that may otherwise have been available to the Company currently or in the future, and such comparison and consideration remains the responsibility of the Directors. In the course of our evaluation, we have held discussions with certain of the Directors and with the management of the Company and have examined publicly available information collated by us and information provided by the Directors, management and professional advisors of the Company and their representatives. We have relied upon and assumed the accuracy of, without having independently verified such information, whether written or verbal, provided to us by the aforesaid parties and also by the Company s auditors and solicitors and accordingly cannot and do not expressly or impliedly warrant, and do not accept any responsibility for, the accuracy, completeness or adequacy of such information. We have relied upon the assurances of the Directors who have accepted full responsibility for the accuracy and completeness of the information provided to us and they have confirmed to us that to the best of their knowledge, information and belief, having made due and careful enquiries, all material information available to them in connection with the Proposed Acquisition has been disclosed to DTCF and that such information constitutes full and true disclosure of all material information relating to the Proposed Acquisition and is true, complete and accurate in all material respects and that there is no other information or fact including the expected future performance or future growth prospects of the Company after the Proposed Acquisition, the omission of which would cause any of the information disclosed to us or relied by us in making our recommendation or giving our advice or information disclosed or opinion expressed in the Circular to be inaccurate, incomplete, untrue or misleading in any material respect. We have assumed that all statements of fact, belief, opinion and intention made by the Directors and the management of the Company in the Circular have been reasonably made after due and careful enquiry. Accordingly, no representation or warranty, express or implied, is made and no responsibility is accepted by us concerning the accuracy, completeness or adequacy of such information. In addition, we have not made any independent evaluation or appraisal of the assets and liabilities (including without limitation, real property) of the Company and we have not been furnished with any such evaluation or appraisal. The scope of our appointment does not require us to express, and we do not express, a view on the future growth prospects, value and earnings potential of the Company. We are therefore not expressing any view herein as to the price at which the Shares may trade upon completion of the Proposed Transactions or on the future value, financial performance or condition of the Company after the Proposed Transactions. Our views are based on market, economic, industry, monetary and other conditions (where applicable) prevailing on, and our analysis of the information made available to us as at the Latest Practicable Date. We assume no responsibility to update, revise or reaffirm our opinion, factors or assumptions in light of any subsequent development after the Latest Practicable Date that may affect our opinion or factors or assumptions contained herein. A-2

223 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION We have not had regard to the general or specific investment objectives, financial situation, tax position, risk profiles or unique needs and constraints of any individual Independent Shareholder. As different Independent Shareholders have different investment portfolios and objectives, we would advise the Directors to recommend that any individual Independent Shareholder who may require specific advice in relation to his or her investment in the Company should consult his or her stockbroker, bank manager, solicitor, accountant, tax adviser or other professional advisers. Our recommendation in relation to the Proposed Whitewash Resolution, as set out under Section 7 of this letter, should be considered in the context of the entirety of our advice as set out in this letter. The Company has been separately advised by its own legal adviser in the preparation of the Circular (other than this letter). We have had no role or involvement and have not provided any advice (financial or otherwise) whatsoever in the preparation, review and verification of the Circular (other than this letter) and our responsibility is as set out above in relation to this letter. Accordingly, we take no responsibility for, and express no views, whether express or implied, on the contents of the Circular (except for this letter). 3. THE PROPOSED WHITEWASH RESOLUTION Under Rule 14 of the Code, any person who acquires, whether by a series of transactions over a period of time or not, Shares which (taken together with Shares held or acquired by persons acting in concert with him) carry 30% or more of the voting rights in the Company must make a general offer for the Shares which it and parties acting in concert with it do not already own or control. PT ISM, ISHPL and parties acting in concert with them do not hold any Shares or instruments convertible into, rights to subscribe for and options in respect of Shares as at the Latest Practicable Date. On completion of the Proposed Acquisition but before the Placement, ISHPL and/or its nominees will hold 9,982,000,000 Shares representing approximately 98.67% of the enlarged total number of issued Shares of the Company. Accordingly, under Rule 14 of the Code, PT ISM, ISHPL and parties acting in concert with them will be required to make a general offer for the remaining Shares not owned, controlled or agreed to be acquired by PT ISM, ISHPL and parties acting in concert with them at the highest price paid or agreed to be paid by any of them for the Shares in the six months preceding the acquisition of the Consideration Shares. The SIC has in a letter dated 4 October 2006 waived the requirement for PT ISM, ISHPL and parties acting in concert with them to make a general offer to the Independent Shareholders, subject to the fulfilment of the following conditions: (a) (b) (c) (d) a majority of holders of voting rights of the Company present and voting at a general meeting, held before the issue of the Consideration Shares approve by way of a poll a resolution to waive their rights to receive a general offer from PT ISM, ISHPL and parties acting in concert with them; the Proposed Whitewash Resolution is separate from other resolutions; PT ISM, ISHPL, parties acting in concert with them and parties not independent of them abstaining from voting on the Proposed Whitewash Resolution; PT ISM, ISHPL and parties acting in concert with them not having purchased and are not to purchase, as the case may be, any Shares, (i) during the period between the announcement of the Proposed Acquisition on 23 August 2006 (the Announcement ) and the date Shareholders approval is obtained for the Proposed Whitewash Resolution; and A-3

224 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION (ii) in the 6 months prior to the Announcement but subsequent to negotiations, discussions or the reaching of understandings or agreements with the directors of the Company in relation to the proposed issue of the Consideration Shares; (e) (f) the Company appointing an independent financial adviser to advise its Independent Shareholders on the Proposed Whitewash Resolution; the Company setting out clearly in the Circular:- (i) (ii) (iii) (iv) (v) details of the proposed issue of the Consideration Shares to ISHPL or parties acting in concert with it; the dilution effect to existing Shareholders of issuing the Consideration Shares to ISHPL or parties acting in concert with it; the total voting rights to be issued to ISHPL or parties acting in concert with it pursuant to the Proposed Acquisition; specific and prominent reference to the fact that the Proposed Acquisition would result in PT ISM, ISHPL and parties acting in concert with them owning Shares carrying over 49% of the voting rights of the Company, and the fact that they will be free to acquire further Shares without incurring any obligation under Rule 14 of the Code to make a general offer for the Company; and that Independent Shareholders, by voting for the Proposed Whitewash Resolution, are waiving their rights to a general offer from PT ISM, ISHPL and parties acting in concert with them at the highest price paid by them for the Shares in the past 6 months preceding the acquisition of the Consideration Shares; (g) (h) (i) the Circular stating that the waiver granted to PT ISM, ISHPL and parties acting in concert with them from the requirement to make a general offer for the Company under Rule 14 of the Code is subject to the conditions stated in paragraphs (a) to (f) above; PT ISM, ISHPL and parties acting in concert with them obtaining the SIC s approval of the Circular in advance; and the acquisition of the Consideration Shares by ISHPL or parties acting in concert with it under the Proposed Acquisition being completed within three months of the approval of the Proposed Whitewash Resolution. Immediately after the Proposed Transactions but before the Placement, existing Shareholders shareholdings in the Company will be diluted from 135,000,000 Shares, representing 100% of the issued share capital of the Company as at the Latest Practicable Date, to 13,500,000 Consolidated Shares, representing approximately 1.33% of the enlarged total number of issued Shares of the Company. By voting in favour of the Proposed Whitewash Resolution, Independent Shareholders should note that they will be waiving their rights to receive a general offer for all of their Shares from PT ISM, ISHPL and parties acting in concert with them at the highest price paid by them in the six months preceding the acquisition of the Consideration Shares. The Independent Shareholders should also note that if they do not vote in favour of the Proposed Whitewash Resolution, the Proposed Acquisition will not take place. A-4

225 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION Independent Shareholders should further note that as PT ISM, ISHPL and parties acting in concert with them will own more than 49.0% of the voting rights of the Company as a result of the Proposed Acquisition (if completed), PT ISM, ISHPL and parties acting in concert with them will thereafter be free to acquire further Shares without incurring any obligation under Rule 14 of the Code to make a general offer for the Company. 4. TERMS OF THE PROPOSED ACQUISITION 4.1 Sale and Purchase Pursuant to the Injection Agreement, the Company has agreed to purchase from ISHPL and PT ISM has agreed to procure the sale by ISHPL of the IOFPL Shares for a consideration of S$392,691,880, such Shares to be acquired by the Company free from all encumbrances and together with all rights and advantages attaching as at completion and on the other terms and conditions of the Injection Agreement. 4.2 Consideration The consideration for the Proposed Acquisition of S$392,691,880 was arrived at after negotiations on a willing buyer and willing seller basis, taking into account, inter alia, the net asset value, earnings and businesses of the Target Group. The consideration will be satisfied by the allotment and issue to ISHPL (or to such persons as it or PT ISM may direct) of 9,982,000,000 Consideration Shares at the Issue Price of S$ each. The Consideration Shares, when allotted and issued, shall rank pari passu in all respects with the then existing Shares, save that the Consideration Shares will not rank for the Value Assurance, details of which are set out in Sections 5.4(d) and 8.1 of the Circular. 4.3 Conditions Precedent The conditions precedent for completion of the Injection Agreement are set out in Section 5.3 of the Circular. We highlight in particular that, inter alia, completion is subject to and conditional upon:- (a) the approval of the Shareholders being obtained at a general meeting for:- (i) (ii) (iii) (iv) (v) (vi) the Proposed Acquisition including the issue of the Consideration Shares to ISHPL (or as it or PT ISM may direct); the Proposed Share Consolidation and the grant of the General Share Issue Mandate; the appointment of nominees of PT ISM and/or ISHPL as new directors of the Company; the change of the Company s name to Indofood Agri Resources Ltd. or such other name as ISHPL and/or PT ISM may decide; the adoption of the IPT Mandate; and the issue of the Placement Shares under the Placement; (b) (c) the approval of the Independent Shareholders being obtained at a general meeting for the Proposed Whitewash Resolution; the approval of the SGX-ST for the Proposed Acquisition and if such approval is subject to conditions, such conditions being reasonably acceptable to the Company and PT ISM and/or ISHPL, and such approval remaining in full force and effect; A-5

226 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION (d) (e) (f) (g) the approval in-principle of the SGX-ST for the transfer of the Company s listing from SGX- SESDAQ to the SGX Mainboard on completion of the Proposed Acquisition and the Placement, and for the listing and quotation of the Consideration Shares, the Consolidated Shares and the Placement Shares on the SGX Mainboard (on conditions, if any, reasonably acceptable to PT ISM and/or ISHPL and the Company) having been obtained and such approval remaining in full force and effect; the SIC having granted PT ISM, ISHPL and parties acting in concert with them, and such grant remaining in full force and effect, a waiver of their obligation to make a general offer under Rule 14 of the Code for the Shares not owned or controlled by PT ISM, ISHPL or parties acting in concert with them and from having to comply with the requirements of Rule 14 of the Code, subject to the passing of the Proposed Whitewash Resolution and such other conditions that the SIC may impose which are reasonably acceptable to the Company and PT ISM and/or ISHPL; the approval of the shareholders of PT ISM in general meeting for or in connection with the Proposed Acquisition having been obtained; and all necessary waivers, consents and/or approvals of the shareholders of First Pacific in general meeting, the Hong Kong Stock Exchange and/or the Listing Committee of the Hong Kong Stock Exchange having been obtained, to the extent required by and in accordance with the listing rules of the Hong Kong Stock Exchange, for the transactions contemplated by the Injection Agreement (including but not limited to the Proposed Acquisition and the Placement). 4.4 Certain Other Terms (a) Disposals Completion of the Disposals is a condition precedent to the completion of the Proposed Acquisition. Information on the Disposals is set out in Section 6 of the Circular. (b) (c) Placement Completion of the Proposed Acquisition is conditional upon PT ISM and the Company being reasonably satisfied that no later than 30 days after completion of the Proposed Acquisition, the Company will enter into a placement agreement with placement agent(s) to place such number of new Consolidated Shares, to be determined by the Company, to meet the shareholding spread and distribution requirements set out in Rule 210(1) of the Listing Manual and raise funds for the enlarged Group. Completion of the Placement is intended to take place within one month of the completion of the Proposed Acquisition or such period of time as may be permitted by the SGX-ST. Information on the Placement is set out in Section 8.1 of the Circular. Indemnity by Existing Major Shareholders Under the terms of the Injection Agreement, the Existing Major Shareholders have provided certain undertakings to indemnify the Company, PT ISM and/or ISHPL, as the case may be, against, inter alia, any actions, proceedings, claims, liabilities, losses, costs and expenses which they may incur as a result of liabilities arising out of any transaction, event, act, omission, circumstance or matter prior to the completion of the Proposed Acquisition, subject to the terms and conditions of the Injection Agreement (including the liability of the Existing Major Shareholders under such indemnity not exceeding the current percentage of their aggregate shareholding interest in the Company (namely, 37.22%) under certain circumstances). A-6

227 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION 5. INFORMATION ON THE TARGET GROUP The Target Group is one of Indonesia s major vertically-integrated manufacturers of edible oils and fats with a significant market share in the branded cooking oil, as well as the margarine and shortening segments in Indonesia. Its business operations range from oil palm cultivation and milling to the refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivative products. The Target Group also has undeveloped plantation land which can be developed to increase its production of CPO. It is also a leading producer of CNO in Indonesia. Further information on the Target Group, its business, prospects, strategy and future plans are set out in the Letter from the Board to the Shareholders included in Section 14 of the Circular entitled Information on the Target Group. We recommend that the Independent Directors advise the Independent Shareholders to read this section of the Circular very carefully. 6. EVALUATION OF THE PROPOSED WHITEWASH RESOLUTION In our evaluation of the Proposed Whitewash Resolution, we have given due consideration to the following key factors: (1) the rationale for the Proposed Acquisition; (2) the process undertaken by the Directors in selecting the Proposed Acquisition from the alternative transactions available; (3) the pricing of the Consideration Shares relative to the attributable NTA of such shares following the Disposals and the Proposed Cash Distribution; (4) the benchmarking comparison of consideration payable for the Proposed Acquisition with public information available on comparable companies; (5) the price performance of the Shares following announcement of the Proposed Acquisition; (6) the pro forma financial effects of the Proposed Acquisition; and (7) other relevant factors. 6.1 The Rationale for the Proposed Acquisition The Directors have set out the rationale for the Proposed Acquisition in Section 10 of the Circular. We recommend that Independent Shareholders read this section of the Circular carefully. We summarise below the key points relevant to the consideration of the Proposed Whitewash Resolution: (a) Preserve Listing Status of the Shares Following completion of the Disposals, the Company will be substantially a cash holding company. In such circumstances and under Rule 1018 of the Listing Manual, trading in the Shares may be suspended by the SGX-ST until such time the Company acquires a business which is able to satisfy the SGX-ST s requirements for a new listing. The SGX-ST may remove the Company from the Official List if it is unable to meet such requirements within 12 months of the trading suspension of the Shares. The Proposed Transactions are being undertaken to provide the Company with a new business which will enable the Company both to preserve and to capitalise on its listed status thereby enhancing the value of Shareholders equity interests in the Company. A-7

228 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION (b) Invest in a Profitable Enterprise with Significant Market Share The Proposed Acquisition will enable the Company to own an established major verticallyintegrated producer of edible oils and fats in Indonesia. Based on information provided by the PT ISM Group, the Directors regard the Target Group as an attractive investment opportunity taking into consideration, inter alia, the following: (i) (ii) (iii) (iv) (v) (vi) the Target Group has an established operating history of more than 20 years and has consistently achieved profits in its three financial years ended 31 December As an indication of its size and performance, the Target Group achieved an unaudited pro forma consolidated net profit after tax and minority interests of approximately S$92.7 million (based on an exchange rate of S$1:Rp5,851) in FY2005; the Target Group is a major producer of edible oils and fats in Indonesia with an estimated market share of approximately 38.2% for branded edible oils and fats (as measured by retail value) in 2004; the Target Group s stable of brands has gained wide acceptance and recognition in the Indonesian market. The Target Group also has an extensive distribution network supplying approximately 230,000 retail outlets throughout Indonesia; the Target Group is vertically-integrated with operations spanning oil palm seed breeding, the cultivation of oil palm, the production and refining of CPO and coconut oil, the marketing of end products and brand management. With its sizeable economies of scale and industry knowledge, the Target Group enjoys significant cost advantages as well as market penetration in Indonesia; consumption of branded edible oils and fats in Indonesia has the potential to grow together with the country s rising consumer affluence. The bulk of cooking oil currently consumed in Indonesia is unbranded. With increasing purchasing power, consumption of cooking oil in Indonesia is expected to shift increasingly towards better-quality branded products such as those produced by the Target Group. The Target Group is well positioned to participate in the growth of Indonesia s branded edible oils and fats market. Other potential areas of growth for the Target Group include expanding its export markets and increasing its production and sale of CPO through the planting of its undeveloped plantation land; and as part of one of Indonesia s largest processed food companies listed on both the Jakarta and Surabaya Stock Exchanges, the Target Group is able to tap the PT ISM Group s market knowledge, management expertise, collective bargaining strength and business infrastructure to provide the Target Group with important operational efficiencies and competitive advantages. (c) Enhance Investment Profile of the Shares The Proposed Transactions, together with the Placement, will increase the market capitalisation of the Company by a very significant sum and will widen its investor base for the Shares. This should enable the Company to attract more extensive analyst coverage, leading to an increase in investor interest and trading liquidity in the Shares. Upon completion of the Proposed Transactions and the Placement, the Consolidated Shares will give the investing public an avenue to gain exposure to the edible oils and fats industry in Indonesia through shares listed and quoted on the SGX-ST. A-8

229 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION 6.2 The Process Undertaken by the Directors in Selecting the Proposed Acquisition from the Alternative Transactions Available A number of alternative acquisition opportunities were made available to the Company following the announcement of the First Disposal. The Directors undertook a process to evaluate all such alternative transactions available. This process involved the evaluation of each of the acquisition targets (including, inter alia, the nature of the target s business, its market position, its track record, size, financial strength and prospects) and the transactions being offered (including, inter alia, the interest available, the structure of the interest being offered, its pricing for acquisition and the terms and conditions for such acquisition). On the basis of this evaluation and for the reasons stated in Section 6.1, the Directors have concluded that the Proposed Acquisition is in the best interests of the Company. The Directors have advised that both at the time of consideration of the Proposed Acquisition and as at the Latest Practicable Date they are not aware of any alternative transaction available which is more attractive to the Shareholders. 6.3 The Pricing of the Consideration Shares Relative to the Attributable NTA of Such Shares Following the Disposals and the Proposed Cash Distribution Following the Disposals and the Proposed Cash Distribution and in line with the relevant terms of the Injection Agreement, the Company s NTA will comprise not less than S$5 million in cash yielding a theoretical NTA backing of not less than S$0.037 per Share. We highlight that the Issue Price represents a premium of approximately S$ per Share (or 6.2%) over the theoretical NTA per Share immediately prior to the completion of the Proposed Acquisition. Further we note that the theoretical NTA per share will be represented solely by cash and that the Company will not at that time have an operating business. We highlight that the Proposed Transactions are being undertaken to provide the Company with a new business which will enable the Company both to preserve and to capitalise on its listed status thereby enhancing the value of Shareholders equity interests. 6.4 The Benchmarking Comparison of Consideration Payable for the Proposed Acquisition with Public Information Available on Comparable Companies We have undertaken an exercise to benchmark the key parameters of the consideration based upon the recent financial performance of the Target Group against equivalent parameters for companies which, in both our opinion and that of the Directors and the management of the Company, are broadly comparable to the Target Group on the basis of public information. A-9

230 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION The Target Group is a vertically-integrated manufacturer of edible oils and fats with operations ranging from oil palm cultivation and milling to the refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivative products. The following is the list of the companies, together with a brief description of their principal activities, which are considered to be broadly comparable to the Target Group (the Comparable Companies ) and which are listed on the SGX-ST, the Jakarta Stock Exchange and the Surabaya Stock Exchange: Financial Net Profit Company Business Description Year Revenue After Tax (1) Ended (S$ Million) (1) (S$ Million) Golden-Agri Resources Ltd ( GAR ) PT Sinar Mas Agro Resources & Tech Tbk ( SMART ) PT Astra Agro Lestari Tbk ( AAL ) PT PP London Sumatra Indonesia Tbk ( LSI ) PT Bakrie Sumatera Plantation Tbk ( BSP ) Wilmar International Ltd ( Wilmar ) Source: Bloomberg. Cultivates, harvests, processes, distributes and sells crude palm oil and palm kernel. The company also refines crude palm oil into cooking oil, margarine and shortening for sale and distribution. Develops oil palm and tea plantations. The company produces and trades crude palm oil, palm kernel oil, tea and refined palm products such as cooking oil and margarine. The company also manufactures packaging products such bottles and caps as well as provides management services. Operates rubber plantations and manufactures cooking oil. Through its subsidiaries, the company also operates a variety of other plantations such as palm oil, tea, and cocoa plantations. Cultivates, harvest and processes palm oil, rubber, coconut, cocoa, coffee and tea. Operates rubber, palm oil and fresh fruit plantations. The company also processes and trades agricultural and industrial products. Involved in oil palm cultivation and milling. The company refines, processes, brands, trades and distributes palm oil and lauric related products as well as trading in soya bean crude, soya bean oil, grains and fertiliser. 31-Dec-05 1, Dec Dec Dec Dec Dec-05 7, Notes: (1) The revenues and net profit after tax attributable to shareholders ( NPAT ) of SMART, AAL, LSI and BSP have been converted from Rp to S$ using an average exchange rate of S$1.00: Rp5,862 for the calendar year ending 31 December 2005 and that of GAR and Wilmar have been converted from US$ to S$ using an average exchange rate of US$1.00: S$1.67 for the calendar year ending 31 December It is important to highlight that there is no single company listed either on the SGX-ST or the Jakarta or Surabaya Stock Exchanges which is truly comparable to the Target Group in terms of business activities, size, asset base, geographical spread, track record, financial performance, operating and financial leverage, risk profile, liquidity, accounting policies, future prospects, market capitalisation, and other relevant criteria. As a consequence, the benchmarking comparison made can serve only as an illustrative guide. A-10

231 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION In the exercise we have undertaken, we have considered the following valuation parameters: (i) (ii) (iii) a comparison of historical price earning ratios (the PER multiples ); a comparison of enterprise values to historical earnings before interest, tax, depreciation and amortisation (the EBITDA multiples ); and a comparison of market capitalisation to net asset values (the Price-To-NAV ratio ). For the Target Group, we have calculated the PER multiples, the EBITDA multiples and the Price- To-NAV ratio implied by the Purchase Consideration and the Unaudited Proforma Consolidated Financial Information of the Target Group for HY2006. The statistics for the Comparable Companies are based on their closing prices on the Latest Practicable Date and the disclosed financial results for the six month period ended 30 June Comparisons between the Target Group and the Comparable Companies may be affected, inter alia, by differences in their accounting policies. Our analysis has not attempted to adjust for such differences The PER Multiples The PER multiple is a widely used comparative measure for valuation. It illustrates the ratio of the current market price of a company s shares relative to its net earnings per share. The PER multiple is based on net earnings attributable to shareholders after interest, taxation, depreciation and amortisation. As such, it is affected by the capital structure of a company, its tax position as well as its accounting policies relating to depreciation and intangible assets. Market Capitalisation NPAT PER Comparable Companies (S$ Million) (1) (S$ Million) (2) (times) (3) GAR 2, SMART 1, AAL 2, LSI 1, BSP Wilmar 4, High 44.5 Low 13.2 Simple Average 22.9 The PER Implied by Purchase Consideration (4) (5) 4.9 Source: Announcements, unaudited financial statements for six months period ended 30 June 2006 and Bloomberg Notes: (1) Market capitalisation of Comparable Companies has been converted from Rp to S$ using an exchange rate of S$1.00: Rp5,882 as at Latest Practicable Date. (2) The NPAT of the Comparable Companies represents the annualised NPAT calculated based on the unaudited NPAT of these companies for the six months period ending 30 June The NPAT of SMART, AAL, LSI and BSP have been converted from Rp to S$ using an average exchange rate of S$1.00: Rp5,719 for the six months period ending 30 June 2006 and that of GAR and Wilmar have been converted from US$ to S$ using an average exchange rate of US$1.00: S$1.60 for the six months period ending 30 June (3) Computed as the ratio of market capitalisation to NPAT. (4) The Target Group s NPAT is converted from Rp to S$ using an exchange rate of S$1.00: Rp5,851 in 1H2006. (5) The PER of the Target Group implied by Purchase Consideration and calculated based on the annualised NPAT attributable to equity holders for HY2006, excluding gains arising from changes in fair values of biological assets, is 15.4 times. A-11

232 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION We note that the PER Multiple implied by the Purchase Consideration is substantially lower than all of the PER Multiples of the Comparable Companies individually and is substantially lower than the simple average of such PER Multiples The EBITDA Multiples Enterprise value is defined as the sum of a company s market capitalisation, its preferred equity, minority interests and its short term and long term debts less cash and cash equivalents. EBITDA is defined as earnings before interest, tax, depreciation and amortisation expenses. The EBITDA Multiple does not take into account the capital structure of a company, nor does it take into account its interest, taxation, depreciation and amortisation expenses. This comparative measure of value serves as an illustrative indicator of the current market valuation of the business of a company relative to its operating cash flow and performance. Market Enterprise Capitalisation Value EBITDA EV/EBITDA Comparable Companies (S$ Million) (1) (S$ Million) (1) (S$ Million) (2) (times) (3) GAR 2, , SMART 1, , AAL 2, , LSI 1, , BSP Wilmar 4, , High 21.7 Low 8.9 Simple Average 14.5 The EV/EBITDA Implied by Purchase Consideration (4) (5) 3.2 Source: Announcements, unaudited financial statements for six months period ended 30 June 2006 and Bloomberg Notes: (1) Market capitalisation and EV of Comparable Companies have been converted from Rp to S$ using an exchange rate of S$1.00: Rp5,882 as at Latest Practicable Date. (2) The EBITDA of Comparable Companies represents the annualised EBITDA calculated based on the unaudited EBITDA of these companies for the six months period ending 30 June The EBITDA of SMART, AAL, LSI and BSP have been converted from Rp to S$ using an average exchange rate of S$1.00: Rp5,719 for the calendar year ending 31 December 2005 and that of GAR and Wilmar have been converted from US$ to S$ using an average exchange rate of US$1.00: S$1.60 for the six months period ending 30 June (3) Computed as the ratio of EV to historical EBITDA (4) The Target Group s EBITDA is converted from Rp to S$ using the exchange rate of S$1.00: Rp5,851 in HY2006. (5) The EV to EBITDA multiple of the Target Group implied by Purchase Consideration and calculated based on the annualised EBITDA for HY2006, excluding gains arising from changes in fair values of biological assets, is 6.4 times. We note that the EBITDA Multiple implied by the Purchase Consideration is substantially lower than all of the EBITDA Multiples of the Comparable Companies individually and is substantially lower than the simple average of such EBITDA Multiples The Price-To-NAV Ratio The use of the price to net asset value ratio for valuation purposes is primarily relevant to assetbased businesses. The Target Group and the Comparable Companies own substantial assets but operate these assets to generate earnings. As such, the Price-to-NAV ratio is generally less relevant than other comparative valuation measures. Nonetheless, it can serve to illustrate the net asset value backing of each share and can be used as an estimator of the relative ratings of similar businesses. A-12

233 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION The Price-to-NAV Ratio is computed by dividing the Purchase Consideration by the Unaudited Proforma Consolidated NAV as at 30 June The Price-To-NAV Ratios for the Comparable Companies is based on their respective closing prices as at the Latest Practicable Date and their net asset value as at 30 June Closing Price on Latest Practicable NAV Date per share Price-to-NAV Comparable Companies (S$) (1) (S$) (2) Ratio (3) GAR SMART AAL LSI BSP Wilmar High 9.73 Low 1.55 Simple Average 5.42 Price-to-NAV Implied By Purchase Consideration (4) 1.00 Source: Announcements, unaudited financial statements for six months period ended 30 June 2006 and Bloomberg Notes: (1) Last traded price of the shares of the Comparable Companies on the respective stock exchanges. For companies trading on the Jakarta Stock Exchange and the Surabaya Stock Exchange the last traded prices have been converted from Rp to S$ using an exchange rate of S$1.00: Rp5,882 as at Latest Practicable Date. (2) The NAV of the Comparable Companies have been converted from Rp to S$ using the exchange rate of S$1.00: Rp5,852 as at 30 June (3) Computed as the ratio of closing price on Latest Practicable Date by NAV per share. (4) The Target Group s NAV is converted from Rp to S$ using the exchange rate of S$1.00: Rp5,851. We note that the Price-to-NAV Ratio implied by the Purchase Consideration is substantially lower than all of the Price-to-NAV Ratios of the Comparable Companies individually and is substantially lower than the simple average of such Price-to-NAV Ratios. 6.5 Price Performance of the Shares Following Announcement of the Proposed Acquisition We have considered the price performance and trading volume of the Shares for a period prior to and following the date of announcement (the Announcement Date ) of the Proposed Acquisition. A-13

234 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION We set out below a chart showing the daily market traded price movements of the Shares for the 12-month period prior to the Announcement Date and from that date to the Latest Practicable Date: 0.30 Company's Share Price for the 12-month period prior to the Announcement Date to the Latest Practicable Date Share Price (S$) Aug'06 - Announcement of Proposed Acquisition 11 Jul '06 - Announcement of Proposed Sale of Existing Businesses to ISG Plc Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov-06 Source: Bloomberg We highlight the following as the matters of significance in the data presented in the chart: (i) (ii) (iii) (iv) (v) in the 12-month period up to 22 August 2006 (being the Market Day prior to the Announcement Date), the Shares traded between a low of S$0.040 and a high of S$0.130; in the period from 12 July 2006 (being the first Market Day following the announcement of the First Disposal) to 22 August 2006 (being the Market Day prior to the Announcement Date), the Shares traded between a low of S$0.080 and a high of S$0.115; the last traded market price of the Shares on 24 August 2006 (being the first Market Day following the Announcement Date) was S$ double the last traded market price of the Shares of S$0.115 on 22 August 2006 (being the Market Day prior to the Announcement Date); in the period commencing from 24 August 2006 (being the first trading Market Day following the Announcement Date) to the Latest Practicable Date, the Shares traded between a low of S$0.165 to a high of S$0.280; and in the period commencing from 24 August 2006 (being the first trading Market Day following the Announcement Date) to the Latest Practicable Date, the volume weighted average traded market price of the Shares was S$ Based upon the chart presented above, we note that the First Disposal had a positive impact on the traded market price of the Shares. We further note that the announcement of the Proposed Transactions had a further significant positive impact on the traded market price of the Shares and that positive change has been sustained in the period since the Announcement Date. A-14

235 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION In comparing the market traded price of the Shares with the Issue Price, it is important to note that the Issue Price assumes inter alia, that the Disposals and the Proposed Cash Distribution will be completed prior to completion of the Proposed Acquisition. The meaningful comparison is between the sum of the amount of the Proposed Cash Distribution per Share and the Issue Price per Share and the market traded price of the Shares. In making this comparison, we highlight that: (i) the First Disposal was announced on 11 July 2006 and completed on 30 October 2006, while the Second Disposal was completed on 30 November 2006; and (ii) pursuant to the Proposed Cash Distribution, Shareholders will in aggregate receive an amount of up to S$10,334,250 (or approximately S$0.077 per Share). The actual amount and timing of the distribution will depend upon, inter alia, the available cash balances and funding requirements of the Company pending completion of the Proposed Acquisition and will be announced by the Company in due course. We note that the volume weighted average traded market price of the Shares since the Announcement Date of S$0.240 per Share is significantly more than the sum of the Proposed Cash Distribution per Share and the Issue Price per Share (which we note will be a maximum sum of S$0.117 per Share). In order to examine whether this positive change in market traded price of the Shares is attributable to the First Disposal and the Proposed Acquisition or to external market factors, we have examined the price performance of the Shares relative to the UOB SESDAQ Index for the 12- month period prior to the Announcement Date and from that date to the Latest Practicable Date. The UOB SESDAQ Index is a capitalisation-weighted index designed to reflect companies listed on SESDAQ, of which the Company is a member. Relative Price Performance between the Company and UOB SESDAQ Aug'06 - Announcement of Proposed Acquisition 11 Jul '06 - Announcement of Proposed Sale of Existing Businesses to ISG Plc Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov-06 Source: Bloomberg A-15

236 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION We highlight the following as the matters of significance in the data presented in the chart: (i) (ii) (iii) (iv) the Shares under-performed the UOB SESDAQ Index during the period from 23 August 2005 (being the date falling 12 months prior to the Announcement Date) until mid-may 2006; due to a rise in the market traded price of the Shares in the second half of May 2006, the Shares marginally out-performed the UOB SESDAQ Index overall in the 12-month period prior to the Announcement Date; for the period commencing on 24 August 2006 (being the first trading Market Day following the Announcement Date) up to the Latest Practicable Date, the Shares have substantially out-performed the UOB SESDAQ Index. The data presented in the chart is consistent with a view that the positive change in the market traded price of the Shares is attributable to the Proposed Acquisition (and to a lesser extent the First Disposal) rather than to external market factors, We set out below a chart showing the market traded volume of the Shares on the SGX-ST for the 12-month period prior to the Announcement Date and from that date to the Latest Practicable Date: Volume traded for the Company for the 12-month period prior to the Announcement Date to the Latest Practicable Date Trading Volume (Thousand Shares) 2,500 2,000 1,500 1, Aug'06 - Announcement of Proposed Acquisition 23-Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov-06 Source: Bloomberg We highlight the following as the matters of significance in the data presented in the chart: (i) in the 12-month period preceding the Announcement Date, the Shares were traded on 88 Market Days out of a total of 251 Market Days; (ii) in the 12 month period preceding the Announcement Date, the average daily traded volume of the Shares was 156,648 shares representing approximately 0.29% of the free float of the Shares (where free float is defined the total number of the Shares in issue excluding the 50,242,000 Shares held indirectly by the Existing Major Shareholders and the 30,000,000 Shares held by ISG Plc); A-16

237 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION (iii) (iv) in the period from 24 August 2006 (being the first trading Market Day following the Announcement Date) up to the Latest Practicable Date, the Shares were traded on each of the 74 Market Days in that period; and in the period from 24 August 2006 (being the first trading Market Day following the Announcement Date) up to the Latest Practicable Date, the average daily traded volume of the Shares was 1,155,320 shares representing approximately 2.3% of the free float of the Shares (as defined above). The data presented in the chart is consistent with a view that the Proposed Acquisition has led to a significant increase in the market traded volume of the Shares on the SGX-ST. The significant increase in the market traded price of the Shares and the significant increase in the market trading volume of the Shares in the period from the Announcement Date to the Latest Practicable Date is consistent with the view that investor sentiment towards the Proposed Acquisition is positive. There is and can be no assurance that the market traded price and the trading volumes of the Shares will be sustained at the higher levels noted since the date of the Announcement, should the Proposed Acquisition fail. 6.6 The Pro Forma Financial Effects of the Proposed Acquisition We set out below an analysis of the unaudited pro forma financial effects of the Proposed Transactions on the Group. The objective of this analysis is to illustrate what the historical information of the Group might have been had such transactions been completed at an earlier date. Such information is not indicative nor is it a projection of the financial performance and financial position of the Group after the completion of the Proposed Transactions. The unaudited pro forma financial effects of the Proposed Transactions on the Group should be read in conjunction with the bases and assumptions set out in Section 3.1 of the Circular. Financial Effects on Issued and Paid-up Share Capital No. of Shares Share Capital (S$ 000) Issued and paid-up share capital as at the Latest Practicable Date 135,000,000 15,335 (1) Effect of Disposals and Proposed Cash Distribution (10,335) Issued and paid-up share capital immediately prior to the Proposed Acquisition 135,000,000 5,000 Issue of Consideration Shares pursuant to the Proposed Acquisition 9,982,000, ,692 Issued and paid-up share capital immediately after the Proposed Acquisition 10,117,000, ,692 Issued and paid-up share capital immediately after the Proposed Transactions 1,011,700, ,692 Note: (1) Share capital includes share premium reserve which had become part of the Company s share capital on 30 January A-17

238 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION Financial Effects on NTA and NTA per Share Before the Proposed Transactions (Adjusted for Immediately Before the the Disposals after the Proposed and Proposed Proposed Transactions Cash Distribution) Transactions Consolidated NTA as at 31 December 2005 (S$ 000) 11,188 5, ,798 (1) Number of issued Shares ( 000) 135, ,000 1,011,700 (2) Consolidated NTA per Share (cents) Notes: (1) Translated into S$ using the closing exchange rate of Rp5,907 to S$1.00 as at 31 December (2) Refers to number of Shares after the Proposed Share Consolidation. On the basis of the assumptions set out above, we note that the consolidated NTA per Share as at 31 December 2005 decreases from 8.29 cents per Share before the Proposed Transactions to 3.70 cents per Share following the Disposals and the Proposed Cash Distribution. It increases to cents per Share following the completion of the Proposed Transactions, largely as a consequence of the Proposed Share Consolidation. Financial Effects on Earnings and EPS Before the Proposed Transactions (Adjusted for Immediately Before the the Disposals after the Proposed and Proposed Proposed Transactions Cash Distribution) Transactions Consolidated net earnings for FY2005 (S$ 000) 1,021 92,742 (1) Number of issued Shares ( 000) 135, ,000 1,011,700 (2) Consolidated EPS (cents) Notes: (1) Translated into S$ using the average exchange rate of Rp5,851 to S$1.00 in FY2005. (2) Refers to number of Shares after the Proposed Share Consolidation. On the basis of the assumptions set out above, we note that the consolidated EPS for FY2005 increases significantly from 0.76 cents before the Proposed Transactions to 9.17 cents following the Proposed Transactions. This increase is largely a consequence of the Proposed Share Consolidation. A-18

239 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION Financial Effects on Gearing Before the Proposed Transactions (Adjusted for Immediately Before the the Disposals after the Proposed and Proposed Proposed Transactions Cash Distribution) Transactions Consolidated borrowings as at 31 December 2005 (S$ 000) 1,884 65,468 (1) Consolidated cash and cash equivalents as at 31 December 2005 (S$ 000) 8,958 5,000 46,512 (1) Consolidated shareholders fund as at 31 December 2005 (S$ 000) 14,507 5, ,037 (1) Gross Gearing (2) as at 31 December 2005 (times) Net Gearing (3) as at 31 December 2005 (times) 0.05 Notes: (1) Translated into S$ using the closing exchange rate of Rp5,907 to S$1.00 as at 31 December (2) Computed as the ratio of consolidated borrowings to consolidated shareholders funds. (3) Computed as the ratio of consolidated borrowings less consolidated cash and cash equivalents to consolidated shareholders funds. On the basis of the assumptions set out above, we note that there is an increase in gearing as at 31 December 2005 from 0.13 times before the Proposed Transactions to 0.18 cents following the Proposed Transactions. 6.7 Other Relevant Factors We highlight below the following factors as matters which the Independent Shareholders should consider along with the other comments and issues raised in this letter and the contents of the Circular Value Assurance for the Placement Independent Shareholders should be fully aware of the impact of the Placement on their holdings, together with the implications of the Value Assurance given by PT ISM. Full details of both aspects of the Proposed Transactions are set out in Sections 5.4(d) and 8.1 of the Circular. We highlight below the principal matters for the reference of the Independent Shareholders. The Placement is required to be undertaken to meet the shareholding spread and distribution requirements of Rule 210(1) of the Listing Manual of the SGX-ST. The Placement is intended to be undertaken by way of an issue of new Consolidated Shares. Independent Shareholders should note that PT ISM has undertaken that, subject to the terms of the Injection Agreement, in the event the Placement Price is less than S$0.75 per Placement Share (which is equivalent to S$0.075 per Share before the Proposed Share Consolidation), it shall procure that ISHPL shall (subject to completion of the Proposed Acquisition and completion of the Placement) pay the Shareholders existing on the Book Closure Date (other than holders of the Consideration Shares and the placees under the Placement) (the Entitled Shareholders ), as soon as practicable after completion of the Placement a compensation amount in cash for each A-19

240 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION Consolidated Share held by such Entitled Shareholders as at the Books Closure Date equivalent to the difference, if any, between S$0.75 and the Placement Price, subject always to a maximum compensation of S$0.37 per Consolidated Share held. The amount payable shall be rounded down to the nearest whole cent. The Value Assurance provides the Entitled Shareholders with a mechanism to extract compensation for a price established in respect of the Placement Shares below S$0.75 per Share, in the event that the Placement Shares are placed at less than S$0.75 per share Irrevocable Undertakings We note that the Existing Major Shareholders (that is, Yeunh Oi Siong, Alex and Kumpulan CityAxis Sdn. Bhd.) who own and have interests in Shares representing an aggregate of approximately 37.22% of the Company s total number of issued Shares as at the Latest Practicable Date, have undertaken, inter alia, to vote (or to procure the voting of) all such Shares in favour of the resolutions to be proposed at the EGM. These undertakings represent a significant proportion of the votes needed to pass the resolutions to be proposed at the EGM but are not, in and of themselves, sufficient to ensure that such resolutions to be proposed at the EGM will pass Moratorium We note that ISHPL has agreed with CIMB-GK that during the period of 6 months commencing from the date of completion of the Proposed Acquisition, it will not transfer, sell or otherwise dispose of any part of its shareholdings in the Company (the Locked-up Securities ) or publicly announce any intention to do anything which is contrary to its aforesaid obligation without, in each case, the prior written consent of CIMB-GK. In addition, PT ISM has agreed with CIMB-GK that during the period of 6 months commencing from the date of completion of the Proposed Acquisition, it will not transfer, dispose or realise any part of its shareholdings in ISHPL or publicly announce any intention to do anything which is contrary to its aforesaid obligation, without, in each case, the prior written consent of CIMB-GK. Such a moratorium is an indication of support for the Company on the part of ISHPL and PT ISM No Profit Warranty Independent Shareholders of the Company should note that no profit warranty has been provided by any party with respect to the future performance of the Target Group in connection with the Proposed Acquisition. There can be no assurance that the Target Group will be able to maintain its profitability. We recommend that the Independent Directors advise the Independent Shareholders to read in full Section 15 of the Circular entitled Management s Discussion and Analysis of Results of Operations and Financial Condition of the Proforma Group in conjunction with Sections and entitled Prospects and Strategy and Future Plans respectively Dilution Impact The shareholding structure of the Company will change significantly as a consequence of the Proposed Transactions and the shareholdings of the existing Shareholders will be diluted substantially following the issue of the Consideration Shares. A-20

241 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION Based on the shareholdings of the Company as at the Latest Practicable Date, the effects of the Proposed Transactions on the shareholder composition of the Company are as follows: Existing Directors (2) Before the Proposed Immediately after the Transactions Proposed Transactions Direct Interest Deemed Interest Direct Interest Deemed Interest Number Number of Number of Number of of Shares % Shares % Shares (1) % Shares (1) % Mr Alex Yeunh (3) 645, ,597, , ,959, Mr Tjhie Tje Fie Mr Moleonoto Tjang Mr Huang Yuan Chiang 100, ,000 n.m. (9) Mr Yeo Wee Kiong 100, ,000 n.m. (9) Substantial Shareholders (Other than Existing Directors) Kumpulan CityAxis Sdn. Bhd. ( KCA ) 49,500, ,950, Loke Tan Chung (4) 27,040, ,704, ISHPL 998,200, PT ISM (5) 998,200, First Pacific and its subsidiaries (6) 998,200, Salim Group (7) 998,200, Public shareholders (8) 57,615, ,761, Total 135,000, ,011,700, (10) Pursuant to the Placement, up to 435,000,000 new Consolidated Shares representing up to approximately 30% of the Company s enlarged total number of issued Shares after the Placement, may be issued by the Company. The issue of any new Consolidated Shares by the Company pursuant to the Placement would dilute the shareholding of the Shareholders in the Company on completion of the Placement. Notes: (1) Based on Consolidated Shares. (2) It is envisaged that all the existing Directors (save for Mr Moleonoto Tjang and Mr Tjhie Tje Fie) will resign with effect from the completion of the Proposed Acquisition. (3) Mr Alex Yeunh is a director of and holds 80% of the issued share capital of KCA as at the Latest Practicable Date and is deemed to be interested in the Shares held by KCA. He is also deemed to be interested in the 97,000 Shares held by his spouse. (4) On 30 October 2006, Mr Loke Tan Chung acquired 27,000,000 Shares representing 20.0% of the Company s total number of issued Shares from ISG Plc. (5) PT ISM is a holding company of ISHPL with an interest of approximately 83.84% of the total number of issued shares in ISHPL. Accordingly, PT ISM is deemed to be interested in the Shares held by ISHPL. (6) First Pacific has an interest in 51.5% of the capital of PT ISM through its wholly-owned subsidiaries. Accordingly, First Pacific and such subsidiaries are deemed to be interested in the Shares held by ISHPL in which PT ISM has an interest. Up to 6,525,000 new Consolidated Shares may be issued to First Pacific pursuant to the FP Placement. (7) The Salim Group has an interest in approximately 44.26% of the total number of issued and voting shares in the capital of First Pacific. Accordingly, the Salim Group is deemed to be interested in the Shares held by ISHPL in which First Pacific has an interest. The Salim Group would be entitled to participate in the FP Distribution-in-specie. (8) Shares held by Mr Alex Yeunh, his spouse, KCA, Mr Huang Yuan Chiang, Mr Yeo Wee Kiong and Mr Loke Tan Chung would be considered as publicly held after the completion of the Proposed Transactions. (9) Less than 0.01%. (10) The discrepancy between the figures stated above and the total thereof is due to rounding. As at the Latest Practicable Date, the existing public Shareholders own approximately 42.68% of the Company. Following completion of the Proposed Transactions but before the Placement, the existing public Shareholders will own approximately 0.57% of the Company, reflecting a substantial dilution of their shareholding in the Company. A-21

242 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION 7. RECOMMENDATION In arriving at our recommendation in respect of the Proposed Whitewash Resolution, we have taken into account all the factors which we consider to have a significant bearing on our assessment of the Proposed Whitewash Resolution, including the following: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) the rationale set out by the Directors for the Proposed Acquisition in Section 10 of the Circular and in particular the importance of such transactions in preserving the listing status of the shares, the opportunity to invest in a profitable enterprise with significant market share and the means to enhance the investment profile of the Shares; the process undertaken by the Directors to evaluate the alternative transactions available to the Company, leading to the selection of the Proposed Acquisition as the transaction that is in the best interests of the Company and its Shareholders; that following the Disposals, the Company will not have an operating business and as such that the price of the Consideration Shares of S$ represents a premium of approximately S$ per Share (or 6.2%) over the theoretical NTA per Share immediately prior to the completion of the Proposed Acquisition, such theoretical NTA per share being represented solely by cash; the Proposed Acquisition represents a means to acquire a new business which will enable the Company both to preserve and to capitalise on its listed status thereby enhancing the value of Shareholders equity interests; that the PER Multiple, the EBITDA Multiple and the Price-to NAV Ratio implied by the Purchase Consideration are all substantially lower than all of the PER Multiples, the EBITDA Multiple and the Price-to NAV Ratios of the Comparable Companies individually; that the PER Multiple, the EBITDA Multiple and the Price-to NAV Ratio implied by the Purchase Consideration are all substantially lower than the simple average of all of the PER Multiples, the EBITDA Multiple and the Price-to NAV Ratios of the Comparable Companies; that the announcement of the Proposed Transactions has had a sustained, significant positive impact on both the traded market price of the Shares and the market trading volume of the Shares, consistent with the view that investor sentiment towards the Proposed Acquisition is positive; that the volume weighted average traded market price of the Shares since the date of the Announcement of S$0.240 per Share is significantly more than the sum of the Proposed Cash Distribution per Share and the Issue Price per Share (which we note will be a maximum sum of S$0.117 per Share); that the Value Assurance provides the Entitled Shareholders with a mechanism to extract compensation for a price established in respect of the Placement Shares below S$0.75 per Share, in the event that the Placement Shares are placed at less than S$0.75 per share; that the undertaking made by the Existing Major Shareholders to vote (or to procure the voting of) their Shares in favour of the resolutions to be proposed at the EGM represent a significant proportion of the votes needed to pass the resolutions but are not, in and of themselves, sufficient to do so; that the shareholding structure of the Company will change significantly as a consequence of the Proposed Transactions and the shareholdings of the existing public Shareholders will be diluted substantially following the issue of the Consideration Shares from approximately 42.68% to approximately 0.57% of the Company; and A-22

243 APPENDIX A: LETTER FROM DTCF TO THE INDEPENDENT DIRECTORS OF THE COMPANY IN RESPECT OF THE PROPOSED WHITEWASH RESOLUTION (l) that the Proposed Whitewash Resolution is an integral part of the Proposed Transactions and that, in the event that the Proposed Whitewash Resolution is not passed, it will lead to the failure of the Proposed Transactions as a whole. Having considered all of the above and subject to the assumptions and qualifications set out in this letter, we advise the Independent Directors to recommend that the Independent Shareholders vote in favour of the Proposed Whitewash Resolution. In arriving at our recommendation, we wish to emphasise that we have, inter alia, relied on representations made by the Directors and the executive management of Company relating to current intentions and future directions of the Company. In addition, the Independent Directors should note that we have arrived at these conclusions based on information made available to us prior to and including the Latest Practicable Date. The Independent Directors should note that trading in the Shares is subject to possible market fluctuations and, accordingly, our advice on the Proposed Whitewash Resolution cannot and does not take into account the future trading activity or patterns or price levels that may be established for the Shares as these are governed by factors beyond the ambit of our review and would not fall within the terms of reference in connection with the Proposed Whitewash Resolution. Our recommendation is addressed to the Independent Directors for their benefit in connection with and for the purposes of their consideration of the Proposed Whitewash Resolution. Any recommendation made by the Independent Directors in respect of the Proposed Transactions shall remain their responsibility. Our recommendation may not be used and/or relied on by any other person for any purpose at any time and in any manner except with our prior written consent in each specific case. Our recommendation is governed by the laws of Singapore, and are strictly limited to the matters stated in this letter and do not apply by implication to any other matter. Yours faithfully Deloitte and Touche Corporate Finance Pte Ltd Jeff Pirie Director A-23

244 APPENDIX B: LETTER FROM DTCF IN RESPECT OF THE IPT MANDATE LETTER FROM THE INDEPENDENT FINANCIAL ADVISER TO THE INDEPENDENT DIRECTORS IN RESPECT OF THE INTERESTED PERSON TRANSACTIONS MANDATE RESOLUTION Deloitte & Touche Corporate Finance Pte Ltd 6 Shenton Way #32-00 DBS Building Tower Two Singapore December 2006 The Independent Directors CityAxis Holdings Limited 1A Lorong Telok Singapore Dear Sirs, THE RESOLUTION TO GRANT THE MANDATE TO ENTER INTO THE PROPOSED INTERESTED PERSON TRANSACTIONS For the purpose of this letter, capitalised terms not otherwise defined shall have the meanings given to them in the circular dated 11 December 2006 to the shareholders of the Company (the Circular ). 1. INTRODUCTION On 23 August 2006, the Company announced that it had entered into the Injection Agreement pursuant to which it had agreed to purchase from ISHPL the entire issued share capital of IOFPL. Upon completion of the Proposed Acquisition but before the Placement, ISHPL and/or its nominee(s) will own an aggregate of 9,982,000,000 Shares, representing approximately 98.67% of the enlarged total number of issued Shares of the Company. Accordingly, upon completion of the Proposed Acquisition, PT ISM (which owns 83.84% of ISHPL) and the Salim Group (which has an indirect interest 51.5% in PT ISM) will become controlling shareholders and therefore interested persons of the Company. Under Chapter 9 of the listing manual of the SGX-ST (the Listing Manual ), an issuer may seek a general mandate from shareholders for transactions with interested persons that are recurring and of a revenue or trading nature or those necessary for its day-to-day operations. Transactions conducted under such a general mandate are not subject to the thresholds under Chapter 9 of the Listing Manual, which requires shareholders approval and/or an immediate announcement in respect of the transaction if the value of the transaction is equal to or exceeds certain thresholds. The Directors envisage that, upon completion of the Proposed Acquisition, certain transactions set out on pages 144 and 145 of the Circular (the Interested Person Transactions ) between, the Group and its associated companies which are entities at risk, if any, (collectively, the Listco Group ) and members of the PT ISM Group and/or the Salim Group which are recurrent or necessary for the day-to-day operations of the enlarged Group, will occur from time to time. As such, the Directors are seeking a shareholders mandate (the IPT Mandate ) so that the Listco Group may enter, in its normal course of business, into the Interested Person Transactions with the classes of interested persons as set out on page 144 of the Circular (the Interested Persons ), provided that such transactions are made on normal commercial terms and are not prejudicial to the interests of the Company and its minority shareholders (the Minority Shareholders ). B-1

245 APPENDIX B: LETTER FROM DTCF IN RESPECT OF THE IPT MANDATE 2. TERMS OF REFERENCE Deloitte & Touche Corporate Finance Pte Ltd ( DTCF ) has, in accordance with the requirements of Chapter 9 of the Listing Manual, been appointed as the independent financial adviser to the Independent Directors to opine as to whether the methods or procedures for determining the transaction prices of the Interested Person Transactions in connection with the proposed IPT Mandate, as set out on pages 143 to 148 of this Circular, are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and the Minority Shareholders. This letter has been prepared for inclusion in the Circular to be issued by CityAxis Holdings Limited (formerly known as ISG Asia Limited) in relation to the Proposed Acquisition. We have not been involved, whether directly or indirectly, in any aspect of the discussions on the scope of the proposed IPT Mandate and the categories of the Interested Person Transactions. We have also not been involved in the deliberations leading up to the decision by the Directors to obtain the IPT Mandate or the methods or procedures proposed to be adopted by the Listco Group to ensure that the Interested Person Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and the Minority Shareholders. In providing our opinion, we have held discussions with certain Directors and management of the Company. We have not independently verified information furnished by such Directors and management of the Company nor any representation or assurance made by them (whether written or verbal). Accordingly, we do not, whether expressly or implied, warrant or accept responsibility for the accuracy, completeness or adequacy of such information, facts, representations or assurances. Nevertheless, the Directors have confirmed to us that, to the best of their knowledge and belief, the information provided to us (whether written or verbal) by themselves and the management of the Company, as well as the information contained in the Circular constitutes a full and true disclosure in all respects of all facts relating to the IPT Mandate and that there is no information the omission of which would make any of the information contained herein or in the Circular inaccurate, incomplete or misleading in any respect. We have made reasonable enquiries and used our judgment in assessing such information and have found no reason to doubt the reliability of such information. We have further assumed that all statements of fact, belief, opinion and intention made by the Directors in the Circular have been made after due and careful enquiry. We were also not required or authorised to obtain, and we have not obtained, any quotation or transaction price from third parties for the sale, purchase, provision or supply of services and/or products similar to those which are to be covered by the IPT Mandate, and therefore are not able to, and will not compare the transactions with similar transactions with third parties. We have not evaluated and have not been requested to opine on, and we do not express any opinion on, the strategic or commercial merits or the risks of the Interested Person Transactions, the IPT Mandate or the prospects or earnings potential of the Company, and such evaluation shall remain the responsibility of the Directors. As such, we do not warrant or make any representation in relation to the merits of the Interested Person Transactions and the IPT Mandate. Our terms of engagement do not require us to conduct, and we have not conducted a comprehensive review of the business, operations and financial condition of the Listco Group and the Interested Person Transactions. We have neither conducted an audit of the Interested Person Transactions nor do we warrant the implementation of the methods or procedures for determining the transaction prices in relation to the Interested Person Transactions by the Listco Group. Our opinion as set forth in this letter is based on prevailing market, economic, industry, monetary and other applicable conditions, our analysis of the information provided in the Circular as well as information provided to us by the Directors and management of the Company as of the Latest Practicable Date. Accordingly, our opinion does not take into account any event, condition or information which occurs after the Latest Practicable Date. We assume no responsibility to update, revise or reaffirm our opinion in the light of any subsequent development after the Latest Practicable Date that may affect our opinion contained herein. B-2

246 APPENDIX B: LETTER FROM DTCF IN RESPECT OF THE IPT MANDATE Our opinion in relation to the IPT Mandate should be considered in the context of the entirety of this letter and the Circular. 3. EVALUATION OF THE REVIEW PROCEDURES FOR INTERESTED PERSON TRANSACTIONS In arriving at our opinion as to whether the methods or procedures for determining the transaction prices of the Interested Person Transactions are sufficient to ensure that the Interested Person Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and the Minority Shareholders, we have taken into consideration the following: (i) (ii) (iii) the Interested Person Transactions as set out on pages 144 to 145 of the Circular; the methods and review procedures for the Interested Person Transactions as set out under the heading Guidelines and Review Procedures for Interested Person Transactions on pages 146 to 148; and the rationale for and benefits of the IPT Mandate as set out on pages 145 to 146 of the Circular. Without qualifying our opinion, we note that the PT ISM Group is a significant customer of the Target Group representing 28.0% of the Target Group s revenue in the financial year ended 31 December The degree of dependence on the PT ISM Group as a customer of the Target Group is a risk factor that has been set out for the benefit of the Shareholders in Section 13.2 of the Circular. We recommend that Independent Shareholders read this section of the Circular carefully. The degree of dependence on the PT ISM Group as a customer is a fact which Independent Shareholders should be aware of when considering the resolution in respect of the IPT Mandate. 4. OUR CONCLUSION Based on our evaluation of the methods or procedures to be used for determining the transaction prices for the Interested Person Transactions and subject to the qualifications made in this letter, we are of the opinion that the methods or procedures for the Interested Person Transactions as set out on pages 146 to 148 of the Circular, if adhered to, are sufficient to ensure that the Interested Person Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and the Minority Shareholders. We have prepared this letter for the use of the Independent Directors of the Company for their consideration of the IPT Mandate. Any recommendation made by the Independent Directors shall remain their sole responsibility. Neither the Company nor the Directors may reproduce, disseminate or quote this letter (or any part thereof) for any purpose at any time and in any manner without our prior written consent. Our opinion should not be relied on as an indication of the merits of the Interested Person Transactions, the Listco Group or the Shares to any potential investor of the Company nor a recommendation to any future shareholder of the Company as to how such shareholder should vote on the renewal of the IPT Mandate, if such is obtained for the Interested Person Transactions in the future. As each potential investor and future shareholder of the Company may have different investment objectives and considerations, they should seek appropriate professional advice that is tailored to their circumstances. This letter 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 faithfully, Deloitte & Touche Corporate Finance Pte Ltd Jeff Pirie Director B-3

247 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE December 2006 The Board of Directors CityAxis Holdings Limited 1A Lorong Telok Singapore Dear Sirs: We report on the unaudited proforma consolidated financial information set out in pages C-3 to C-92 of the circular dated 11 December 2006 to the shareholders (the Circular ) of CityAxis Holdings Limited (the Company ) (formerly known as ISG Asia Limited) in connection with the proposed acquisition of the oil palm plantation and edible oil businesses of PT Indofood Sukses Makmur Tbk ( PT ISM ), through the acquisition of its subsidiary, Indofood Oil & Fats Pte. Ltd, ( Proposed Acquisition ), after disposing of its own existing property and construction services businesses. The Company and the subsidiary companies under the Proposed Acquisition are referred to as the Proforma Group for the purposes of these unaudited proforma consolidated financial information. For the avoidance of doubt, the Proforma Group excludes the Plantation Companies stated in Note 43. The unaudited proforma consolidated financial information have been prepared for illustrative purposes only and based on certain assumptions and after making certain adjustments to show what: - (i) the financial results and changes in equity of the Proforma Group for the financial years ended 31 December 2003, 2004 and 2005 and for the six month period ended 30 June 2006 would have been if the Proforma Group structure (as described in Note 2 to the unaudited proforma consolidated financial information) as at the date of this Report had been in place on 1 January 2003; (ii) the financial position of the Proforma Group as at 31 December 2005 and as at 30 June 2006 would have been if the Proforma Group structure as at the date of this report had been in place on that date; and (iii) the consolidated cash flow of the Proforma Group for the financial year ended 31 December 2005 and for the six month period ended 30 June 2006 would have been if the Proforma Group structure as at the date of this report had been in place since 1 January The unaudited proforma consolidated financial information, because of their nature, may not give a true picture of the Proforma Group s actual financial results, financial position, changes in equity and cash flows. The unaudited proforma consolidated financial information is the responsibility of the Directors of the Company. Our responsibility is to express an opinion on the proforma consolidated financial information based on our work. We carried out procedures in accordance with Singapore Statement of Auditing Practice: SAP 24 : Auditors and Public Offering Documents. Our work, which involved no independent examination of the underlying financial statements, consisted primarily of comparing the unaudited proforma consolidated financial information to the financial statements of each entity in the Proforma Group or where information is not available in the financial statements, to accounting records, considering the evidence supporting the adjustments and discussing the unaudited proforma consolidated financial information with the Directors of the Company. C-1

248 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 The Board of Directors CityAxis Holdings Limited In our opinion, (a) the unaudited proforma consolidated financial information has been properly prepared: (i) (ii) in a manner consistent with the format of the financial statements and the accounting policies of the Proforma Group, which are in accordance with Singapore Financial Reporting Standards, and on the basis set out in Note 2 to the unaudited proforma consolidated financial information. (b) each material adjustment made to the information used in the preparation of the unaudited proforma consolidated financial information is appropriate for the purpose of preparing such unaudited proforma consolidated financial information. Yours faithfully, ERNST & YOUNG Certified Public Accountants Singapore Partner-in-charge: Vincent Toong Weng Sum C-2

249 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 A. UNAUDITED PROFORMA CONSOLIDATED PROFIT AND LOSS ACCOUNTS The financial results of the Proforma Group, after making such adjustments as considered appropriate, are set out below: Year ended Six month period 31 December ended 30 June Notes Rp million Rp million Rp million Rp million Rp million Revenue 4 4,886,637 4,032,089 3,589,609 1,559,625 1,693,214 Cost of Sales 5 (4,015,829) (2,861,697) (2,510,807) (1,053,746) (1,362,467) Gross profit 870,808 1,170,392 1,078, , ,747 (Losses)/gains arising from changes in fair value of biological assets 13 (230,316) (6,157) 100,001 94, ,224 Other operating income 6 11,028 21,680 40,983 11,464 21,243 Selling and distribution costs (149,467) (131,100) (155,089) (63,113) (60,165) General and administrative expenses (182,402) (153,132) (180,958) (75,812) (78,314) Other operating expenses 7 (42,485) (12,994) (6,475) (6,847) (7,473) Profit from operations 8 277, , , , ,262 Financial income 9 197,618 66,874 16,919 10,174 4,195 Financial expenses 10 (65,598) (40,752) (42,768) (14,078) (45,231) Profit before taxation 409, , , , ,226 Tax expense 11 (133,970) (274,534) (243,855) (140,134) (158,866) Profit for the year/period 275, , , , ,360 Attributable to : Equity holders of the Company 242, , , , ,453 Minority interests 32,752 70,231 64,928 34,644 27, , , , , ,360 Earnings per share (in Rupiah) 12 - basic diluted The accompanying accounting policies and explanatory notes form an integral part of the financial information. C-3

250 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 B. UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEETS The balance sheets of the Proforma Group as at 31 December 2005 and 30 June 2006 set out below has been prepared on the basis that the Proforma Group structure at the date of this report has been in place: As at As at 31 December 30 June Notes Rp million Rp million Non-current assets Biological assets 13 1,661,523 2,207,830 Property, plant and equipment , ,642 Prepaid land premiums and deferred land right acquisition costs , ,223 Assets not used in operations ,088 Investment in convertible bonds 17 50,300 Advance for convertible bonds ,792 Goodwill 18 36,852 39,034 Claims for income tax refund 19 53, ,855 Deferred tax assets 20 73,864 72,601 Other non-current assets 21 53,448 77,529 Total non-current assets 3,128,599 3,501,714 Current assets Inventories , ,156 Trade and other receivables , ,198 Prepaid value-added tax 45, ,609 Advances to suppliers 24 70,802 47,266 Available-for-sale investments , ,563 Cash and cash equivalents , ,228 Total current assets 1,490,443 1,541,020 Total assets 4,619,042 5,042,734 Current liabilities Trade payables and accruals 27 1,054, ,176 Advances from customers 28 9,291 2,787 Interest-bearing loans and borrowings , ,335 Income taxes payable 10,191 17,596 Total current liabilities 1,259, ,894 Non-current liabilities Interest-bearing loans and borrowings , ,819 Other payables 30 25,263 17,319 Estimated liabilities for employee benefits 31 66,245 76,987 Deferred tax liabilities , ,731 Total non-current liabilities 736,371 1,159,856 Total liabilities 1,995,805 2,072,750 Net assets 2,623,237 2,969,984 Attributable to equity holders of the Company Share capital 32 26,285 26,285 Share premium 33 9,191 9,191 Reserves 2,085,357 2,334,454 2,120,833 2,369,930 Minority interests 502, ,054 Total equity 2,623,237 2,969,984 The accompanying accounting policies and explanatory notes form an integral part of the financial information. C-4

251 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 C. UNAUDITED PROFORMA CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY The unaudited proforma consolidated statements of changes in shareholders equity for the financial years ended 31 December 2003, 2004 and 2005 and six month periods ended 30 June 2005 and 2006 are as follows: Attributable to equity holders Minority Total of the Proforma Group interests equity Share Share Other* Revenue Total capital premium reserves reserve reserves Rp million Rp million Rp million Rp million Rp million Rp million Rp million At 1 January ,285 9,191 (3,366) 3,372,574 3,369, ,986 4,056,670 Unrealised gain on changes in fair value of available-for-sale investments 3,928 3, ,297 Dividend (Note 35) (1,350,000) (1,350,000) (161,940) (1,511,940) Foreign currency translation movement (905) (905) (905) Net profit for the financial year 242, ,464 32, ,216 Balance at 31 December ,285 9,191 (343) 2,265,038 2,264, ,167 2,823,338 At 1 January ,285 9,191 (343) 2,265,038 2,264, ,167 2,823,338 Unrealised gain on changes in fair value of available-for-sale investments 7,921 7, ,879 Dividend (Note 35) (450,000) (450,000) (56,570) (506,570) Foreign currency translation movement 3,616 3,616 3,616 Net profit for the financial year 570, ,046 70, ,277 Balance at 31 December ,285 9,191 11,194 2,385,084 2,396, ,786 2,969,540 * Please refer to Note 34 for details of other reserves. C-5

252 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 C. UNAUDITED PROFORMA CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (cont d) Attributable to equity holders Minority Total of the Proforma Group interests equity Share Share Other* Revenue Total capital premium reserves reserve reserves Rp million Rp million Rp million Rp million Rp million Rp million Rp million At 1 January ,285 9,191 11,194 2,385,084 2,396, ,786 2,969,540 Unrealised gain on changes in fair value of available-for-sale investments 45,496 45,496 5,554 51,050 Net deficit on business combination (178) (178) (20) (198) Dividend (Note 35) (900,000) (900,000) (112,935) (1,012,935) Minority interest of acquired subsidiaries 7,091 7,091 Foreign currency translation movement 1,129 1,129 1,129 Net profit for the financial year 542, ,632 64, ,560 Balance at 31 December ,285 9,191 57,819 2,027,538 2,085, ,404 2,623,237 At 1 January ,285 9,191 11,194 2,385,084 2,396, ,786 2,969,540 Unrealised gain on changes in fair value of available-for-sale investments 11,541 11,541 1,383 12,924 Dividend (Note 35) (900,000) (900,000) (112,935) (1,012,935) Minority interest of acquired subsidiaries Foreign currency translation movement Net profit for the financial period 287, ,727 34, ,371 Balance at 30 June ,285 9,191 23,137 1,772,811 1,795, ,888 2,292,312 At 1 January ,285 9,191 57,819 2,027,538 2,085, ,404 2,623,237 Unrealised gain on changes in fair value of available-for-sale investments 13,914 13,914 1,695 15,609 Minority interest of acquired subsidiaries 68,048 68,048 Foreign currency translation movement (270) (270) (270) Net profit for the financial period 235, ,453 27, ,360 Balance at 30 June ,285 9,191 71,463 2,262,991 2,334, ,054 2,969,984 * Please refer to Note 34 for details of other reserves. The accompanying accounting policies and explanatory notes form an integral part of the financial information. C-6

253 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 D. UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF CASH FLOWS Cash flows from operating activities Year ended Six month 31 December period ended June 2006 Rp million Rp million Profit before taxation 851, ,226 Adjustments to reconcile profit before tax to net cash provided by operating activities: Depreciation and amortisation 94,631 54,150 Allowance for doubtful debts 9,500 Unrealised foreign exchange losses/(gains) arising from financing transactions and foreign currency translation movement 5,396 (2,342) Changes in fair value of long-term receivables 2, Loss on write-off of property, plant and equipment 2 64 Changes in fair value of biological assets (100,001) (257,224) Excess of net assets of acquiree over investment cost (Note 36) (25,916) Gain on sale of property, plant and equipment (6,104) (3,360) Gain on sale of prepaid land premium (1,070) Changes in provision for dismantling cost (1,425) (254) Changes in estimated liability for employee benefits 17,358 11,443 Interest income (16,919) (4,195) Interest expense 42,768 45,231 Operating profit before changes in working capital 873, ,099 Changes in working capital Other non-current assets (47,497) (34,870) Inventories (100,792) 37,522 Receivables (22,050) (8,122) Prepaid value-added taxes (30,408) (144,184) Payables (61,651) 250,508 Cash flow generated from operations 611, ,953 Interest received 16,919 4,195 Interest paid (42,768) (45,231) Income tax paid (293,394) (59,769) Net cash flow from operating activities 292, ,148 C-7

254 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 D. UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF CASH FLOWS (cont d) Cash flows from investing activities Year ended Six month 31 December period ended June 2006 Rp million Rp million Acquisition of property, plant and equipment (157,754) (94,897) Advance for investment in convertible bonds (145,792) Acquisition of available-for-sale investments (70,451) Acquisition of subsidiaries, net of cash acquired (Note 36) (62,427) (9,926) Investment in convertible bonds (50,300) Acquisition of biological assets (28,184) (26,411) Advances for purchases of factory equipment (2,968) (2,713) Acquisition of assets not used in operations (4,137) Advances to/(from) KKPA projects 9,220 (11,139) Proceeds from disposal of property, plant and equipment 7,494 4,737 Proceeds from disposal of prepaid land premium 2,002 Proceeds from disposal of assets not used in operations ,003 Proceeds from investment in convertible bonds 50,300 Net cash (used in)/generated from investing activities (504,965) 56,956 Cash flows from financing activities Payment of cash dividends (1,012,935) Repayment of obligations under capital lease (710) Proceeds of interest-bearing loans and borrowings 166, ,793 Repayment of short-term interest bearing loans and borrowings (414,607) Net proceeds/(payment) of amount due to related parties 805,933 (249,606) Payments arising from share capital reductions (Note 2) (388,200) Net cash used in financing activities (41,685) (406,620) Net decrease in cash and cash equivalents (254,626) (84,516) Cash and cash equivalents at the beginning of the financial year/period 529, ,744 Cash and cash equivalents at the end of the financial year/period (Note 26) 274, ,228 The accompanying accounting policies and explanatory notes form an integral part of the financial information. C-8

255 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION These notes form an integral part of and should be read in conjunction with the accompanying unaudited proforma consolidated financial information. 1. General CityAxis Holdings Limited (the Company ) (formerly known as ISG Asia Limited) is incorporated and domiciled in Singapore. The registered office and principal place of business of the Company is located at 1A Lorong Telok, Singapore The principal activities of the Company and its subsidiary companies before the Disposal (as described in Note 2 below) are providing project management services, facilities management, engineering and fitting out works and services and interior design services and investment holding. The companies under the Proposed Acquisition (as described in Note 2 below) are vertically integrated edible oil & fats producers with their operations spanning oil palm seed breeding, cultivation of oil palm, production and refining of CPO and coconut oil, marketing of end products and brand management, as disclosed in Note 2(d) below. The country of incorporation and principal activities of the companies under the Proposed Acquisition are also disclosed in Note 2(d). The Company and the subsidiary companies under the Proposed Acquisition are referred to as the Proforma Group for the purposes of these unaudited proforma consolidated financial information. For the avoidance of doubt, the Proforma Group exclude the Plantation Companies stated in Note 43. Upon completion of the Proposed Acquisition, PT Indofood Sukses Makmur Tbk ( PT ISM ), incorporated in Indonesia, and First Pacific Company Limited, incorporated in Hong Kong, will be the penultimate and ultimate parent company of the Proforma Group, respectively. 2. Basis of presentation of the unaudited proforma consolidated financial information On 11 July 2006, the Company entered into a sale and purchase agreement to dispose of its existing business and its investments in certain subsidiary companies for S$13.6 million ( Disposal ) in the manner described in Note 2(a) below. Following the completion of the Disposal and the disposal of other remaining business, the Company will no longer be involved in property or construction services industry. On 23 August 2006, the Company entered into a conditional sale and purchase agreement to acquire the oil palm plantation and edible oil, and rubber plantation businesses of PT ISM through the acquisition of its 83.84% held subsidiary ( Proposed Acquisition ) in the manner described in Note 2(b) below. The unaudited proforma consolidated financial information have been prepared for inclusion in the circular to the shareholders of the Company (the Circular ) in connection with the Proposed Acquisition after the effects of disposal of the existing business. C-9

256 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 2. Basis of presentation of the unaudited proforma consolidated financial information (cont d) The objective of the unaudited proforma consolidated financial information is to illustrate what the financial results, position, cash flow and changes in equity would have been had the Disposal and Proposed Acquisition been completed and the Proforma Group structure (as described in Note 2(d) below) had been in place on 1 January (a) Disposals of existing businesses by the Company On 11 July 2006, the Company announced the disposal of substantially all of its and its subsidiaries existing businesses pursuant to a sale and purchase agreement of the same date between the Company and Interior Services Group Plc (the Disposal ) for a cash consideration of S$13.6 million. Such Disposal was completed on 30 October The Company completed the disposal of its remaining businesses on 30 November The Company intends to distribute the net cash proceeds of the disposals by way of a dividend and/or capital reduction so that immediately thereafter and prior to the completion of the Proposed Acquisition there shall remain cash amount of not less than S$5.0 million in the Company. The shareholders of the Company approved the capital reduction and cash distribution on 23 October For the purpose of these unaudited proforma consolidated financial information, it has been assumed that there are no business activities of the Company for the financial years ended 31 December 2003, 2004 and 2005 and six month periods ended 30 June 2005 and 2006, and there are no assets and liabilities as at 31 December 2005 and 30 June 2006 except for cash balance and shareholders equity of S$5.0 million, respectively. (b) Proposed acquisition of oil palm plantation and edible oil businesses On 23 August 2006, the Company entered into a conditional sale and purchase agreement with PT ISM to acquire the entire shares owned by Indofood Singapore Holdings Pte Ltd ( ISHPL ), a company incorporated and domiciled in Singapore, in Indofood Oil & Fats Pte. Ltd. ( IOFPL ), a company incorporated and domiciled in Singapore, for a purchase consideration of S$392,691,880 to be satisfied by the allotment and issue of 9,982,000,000 new shares in the capital of the Company at S$ per share. ISHPL is a 83.8%-owned subsidiary of PT ISM. ISHPL holds 100.0% equity interest in IOFPL, which in turn holds 90.0% equity interest in PT Salim Ivomas Pratama ( PT SIMP ). Prior to the Proposed Acquisition, PT ISM restructured its oil palm plantation and edible oil businesses as follows: (i) PT Intiboga Sejahtera ( PT IBS ), PT Sawitra Oil Grains ( PT SOG ), PT Gentala Artamas ( PT GA ), PT Pratiwimba Utama ( PT PU ) and PT Bitung Menado Oil Industry ( PT BML ) (the Merged Entities ) merged with PT SIMP with effect from 1 June These six companies are Indonesian-incorporated subsidiaries of PT ISM. Pursuant to the merger, all rights, assets, receivables, obligations, and operations of PT IBS, PT SOG, PT GA, PT PU and PT BML have been transferred by law to PT SIMP, and the Merged Entities will be dissolved without being liquidated. Each of the company s shareholders, creditors and relevant regulatory approvals were completed on 16 August C-10

257 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 2. Basis of presentation of the unaudited proforma consolidated financial information (cont d) (ii) ISHPL and IOFPL were incorporated in Singapore as investment holding companies. IOFPL is wholly-owned by ISHPL. (iii) (iv) IOFPL will subscribe for 90.0% in the issued share capital of PT SIMP via an issue of new shares to IOFPL by PT SIMP. IOFPL will fund such subscription through temporary bank financing of approximately Rp2,277.5 billion. Prior to the issue of new shares described in Note 2(b)(iii) above, PT SIMP will return capital of approximately Rp388.2 billion to its shareholders. As PT ISM owns 80.0% of the outstanding shares of PT SIMP and, directly and indirectly, 100.0% of the outstanding shares of the other Merged Entities, the merger and acquisition of 90.0% interest in PT SIMP by IOFPL constitutes a restructuring transaction among entities under common control and will be accounted for in the manner similar to a pooling of interest method. Such manner of presentation reflects the economic substance of the companies acquired by PT SIMP, which were under common control throughout the relevant periods, as a single economic enterprise, although the legal parent-subsidiary company relationships may not have been established. For the purpose of these unaudited proforma consolidated financial information, it has been assumed that the merger has occurred and was completed on 1 January 2003, the beginning of the earliest period presented. It is also assumed that the issue of new shares by PT SIMP as described in Note 2(b)(iii) above did not result in any net increase in the cash and cash equivalents or bank borrowings of the Proforma Group. The proposed return of capital to shareholders, as described in Note 2(b)(iv) above, is included under other payables in the unaudited proforma consolidated balance sheet as at 31 December 2005 and was approved by the Ministry of Law and Human Rights of Indonesia in June Consequently, (a) all transactions and balances between Merged Entities have been eliminated, including unrealised profits from sales of goods that are not recognised until the related assets had been sold to third parties; (b) the deferred tax assets and deferred tax liabilities of the Merged Entities were set off, except where there is no right of set-off; and, (c) the prepaid value-added tax and value-added tax payable of the Merged Entities were also set-off, except for the VAT arising from the merger transaction and where there is no right of set-off. (c) Basis of presentation The unaudited proforma consolidated financial information of the Proforma Group are prepared for illustrative purposes only and are based on certain assumptions and after making adjustments to show what: (i) the consolidated financial results and changes in equity of the Proforma Group for the financial years ended 31 December 2003, 2004 and 2005 and six month periods ended 30 June 2005 and 2006 would have been if the Proforma Group structure as described on Note 2(d) below, had been in place since 1 January 2003; and C-11

258 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 2. Basis of presentation of the unaudited proforma consolidated financial information (cont d) (ii) the consolidated financial position of the Proforma Group as at 31 December 2005 and 30 June 2006 would have been if the Proforma Group structure, as described in Note 2(d) below, had been in place at that date; and (iii) the consolidated cashflow of the Proforma Group for the financial year ended 31 December 2005 and for the six month period ended 30 June 2006 would have been if the Proforma Group structure, as described in Note 2(d) below, had been in place since 1 January The unaudited proforma consolidated profit and loss account and the related notes for the six month period ended 30 June 2005 were prepared based on unaudited management financial statements and have been included for the purposes of information only. The objective of the proforma consolidated financial information is to show what the historical financial information might have been had the Proforma Group existed since 1 January However, the unaudited proforma consolidated financial information of the Proforma Group is not necessarily indicative of results of the operations or related effects on the financial position that would have been attained had the Proforma Group actually existed earlier. The unaudited proforma consolidated financial information of the Proforma Group have been compiled based on the following: (i) unaudited proforma consolidated financial statements of PT SIMP for the financial years ended 31 December 2003, 2004 and 2005 and six month period ended 30 June 2006, prepared in accordance with International Financial Reporting Standards (reported by Public Accountants Firm, Purwantono, Sarwoko & Sandjaja ( PSS ), Indonesia) which is based on: (a) the consolidated financial statements of PT SIMP for the years ended 31 December 2003, 2004 and 2005 and six month period ended 30 June 2006, which were audited by Prasetio, Sarwoko & Sandjaja (currently known as Purwantono, Sarwoko & Sandjaja) under generally accepted accounting principles in Indonesia; and (b) the financial statements of the Merged Entities for the years ended 31 December 2003, 2004 and 2005 and six month period ended 30 June 2006, which are also audited by PSS for PT IBS, PT BML and PT SOG, and by Public Accountants Firm Johan, Malonda, Astika & Rekan for PT PU and PT GAM under generally accepted accounting principles in Indonesia. (ii) unaudited financial statements of the remaining companies in the Proforma Group which have no audit requirement in their respective country of incorporation or which are insignificant to the Proforma Group. The auditors reports on the audited consolidated financial statements of PT SIMP and the Merged Entities mentioned in (i)(a) and (b) above were not subject to any qualification for each of the three years ended 31 December 2003, 2004 and 2005 and six month period ended 30 June C-12

259 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 2. Basis of presentation of the unaudited proforma consolidated financial information (cont d) The Proposed Acquisition will result in ISHPL holding approximately 98.7% of the enlarged issued share capital of the Company immediately upon completion of the Proposed Acquisition. Hence, for accounting purposes, IOFPL would be deemed to be the acquirer and the Company as the legal parent. This is in line with the concept of reverse acquisition described in FRS103-Business Combinations. FRS 103 states that in a reverse acquisition, the cost of the business combination is deemed to have been incurred by the deemed acquirer in the form of equity instruments issued to the owners of the legal parent. FRS 103 allows the total fair value of all the issued equity instruments of the legal parent before the business combination to be used as the basis for determining the cost of the combination. Given that the Company is the deemed acquiree, goodwill could arise due to the difference between the fair value of the identifiable net assets of the Company (which would be the cash balance of S$5.0 million) and the total fair value of the Company s issued shares before the Proposed Acquisition which may be based on its market price or other acceptable basis. As FRS 103 requires goodwill to be determined at the date of acquisition (the date on which the acquirer effectively obtains control of the acquiree), goodwill arising from the Proposed Acquisition will need to be computed at the completion of the Proposed Acquisition when the shareholders of IOFPL effectively obtains control of the Company and therefore, could be materially different from the assumption used in the following paragraph. Any goodwill arising thereon will be accounted for in accordance with the accounting policies of the Company. For the purpose of these unaudited proforma consolidated financial information, the fair value of the Company s issued shares before the Proposed Acquisition is assumed to be equal to the fair value of the identifiable net assets of the Company, and accordingly no goodwill arises as a result of the Proposed Acquisition. (d) Proforma Group Upon completion of the Disposal and Proposed Acquisition, the Company will have the following subsidiary companies: Percentage of Name of subsidiary Country of equity held by the companies incorporation Proforma Group Principal activities % Held by the Company Indofood Oil & Fats Pte Ltd (IOFPL) Singapore Investment holding Held by Indofood Oil & Fats Pte Ltd PT Salim Ivomas Pratama Indonesia Ownership of oil palm (PT SIMP) plantations, mills and production of cooking oil, margarine, fats, and other related products C-13

260 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 2. Basis of presentation of the unaudited proforma consolidated financial information (cont d) Percentage of Name of subsidiary Country of equity held by the companies incorporation Proforma Group Principal activities % Held by the PT Salim Ivomas Pratama PT Indoagri Inti Plantation Indonesia Investment holding, (PT IIP) management services and transportation Silveron Investments Limited Mauritius Investment holding (SIL) PT Kebun Mandiri Sejahtera Indonesia Ownership of rubber (PT KMS) plantations PT Manggala Batama Perdana Indonesia Investment company (PT MBP) PT Sarana Inti Pratama Indonesia Research and development, (PT SAIN) oil palm seed breeding and ownership of oil palm plantations Held by PT Indoagri Inti Plantation PT Gunung Mas Raya (PT GMR) Indonesia Ownership of oil palm plantations and mills PT Indriplant (PT IP) Indonesia Ownership of oil palm plantations and mills PT Serikat Putra (PT SP) Indonesia Ownership of oil palm plantations and mills PT Cibaliung Tunggal Indonesia Ownership of oil palm Plantations (PT CTP) plantations Held by Silveron Investments Limited Asian Synergies Limited British Virgin Investment holding (ASL) Islands PT Kebun Ganda Prima Indonesia Ownership of oil palm (PT KGP) plantations Held by Asian Synergies Limited PT Citranusa Intisawit Indonesia Ownership of oil palm (PT CNIS) plantations and processing of oil palm Held by PT Sarana Inti Pratama PT Riau Agrotama Plantation Indonesia Ownership of oil palm (PT RAP) plantations PT Citra Kalbar Sarana Indonesia Ownership of oil palm (PT CKS) plantations PT Jake Sarana Indonesia Ownership of oil palm (PT JS) plantations C-14

261 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies 3.1 Basis of preparation These unaudited proforma consolidated financial information of the Proforma Group have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ). The unaudited proforma consolidated financial information of the Proforma Group have been prepared on the historical cost basis, except for (a) biological assets and available-for-sale investments which are stated at fair values; and (b) receivables and payables arising from future commodity contracts transactions which are determined based on the quoted market prices of the commodities. The unaudited proforma consolidated financial information are presented in Indonesian Rupiah ( Rp ) and all values are rounded to the nearest million (Rp million) except when otherwise indicated. 3.2 Changes in accounting policies The accounting policies have been consistently applied by the Proforma Group throughout the relevant period, except for the changes in accounting policies discussed below. (a) Adoption of new FRS On 1 January 2005, the following FRS mandatory for the Proforma Group for annual financial periods beginning on or after 1 January 2005 and the impact of these on the Proforma Group s accounting policies are as follows : (i) FRS 39, Financial Instruments: Recognition and Measurement FRS 39 requires financial assets within the scope of FRS 39 to be classified as either (a) financial assets at fair value through profit or loss; (b) loans and receivables; (c) held-to-maturity investments; or, (d) available-for-sale financial assets, as appropriate. Financial liabilities other than derivative financial instruments within the scope of FRS 39 were measured at amortised costs using the effective interest rate method. Any difference between the carrying values and amortised costs are recognised in the proforma consolidated profit and loss accounts. Investment securities that are classified as available-for-sale financial assets are carried at fair values, with changes in fair values charged to equity, while receivables and payables from future commodity contracts are stated at quoted market prices of the related commodities. Long-term loans to employees are carried at amortised cost using the effective interest method. Cash in banks, trade and other receivables, trade and other payables, accrued expenses and short-term borrowings are carried at cost since their carrying amounts approximate their fair values. Investments in convertible bonds and the related advances for such investments are carried at cost as their carrying amounts approximate their fair values. Investments in other unlisted ordinary shares which are each below 20% equity ownership are similarly carried at cost. C-15

262 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.2 Changes in accounting policies (cont d) (ii) FRS 102 : Share-based Payment FRS 102 requires an entity to recognise share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. The adoption of FRS 102 had no impact to the Proforma Group. (iii) FRS 103, Business Combinations, FRS 36 (revised), Impairment of Assets and FRS 38 (revised), Intangible Assets FRS 103 has been adopted for business combinations on or after 1 January The option of limited retrospective application of FRS 103 has not been taken up, thus avoiding the need to restate past business combinations. After initial recognition, FRS 103 requires goodwill acquired in a business combination to be carried at cost less any accumulated impairment losses. Under FRS 36 Impairment of Assets, impairment reviews are required annually, or more frequently if there are indications that goodwill might be impaired. FRS 103 prohibits the amortisation of goodwill. FRS 103 requires that, after reassessment, any excess of the acquirer s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities over the cost of the business combination should be recognised immediately in profit or loss. FRS 103 prohibits the recognition of negative goodwill in the balance sheet. The revised FRS 103 also affects the recognition of restructuring provisions arising upon an acquisition. FRS 103 now only permits an entity to recognise an existing liability contained in the acquiree s financial statements on acquisition. Previously, this type of restructuring provision could be recognised by the acquirer regardless of whether the acquiree had recognised this type of liability. The adoption of FRS 103 did not result in any transitional adjustments. In accordance with the new accounting policy, the positive goodwill of Rp36.9 billion and negative goodwill of Rp25.9 billion arising from the acquisitions in 2005 have been carried in the proforma consolidated balance sheet as at 31 December 2005 and credited to the proforma consolidated profit and loss account for the year ended 31 December 2005, respectively. C-16

263 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.2 Changes in accounting policies (cont d) (iv) FRS 105, Non-Current Assets Held for Sale and Discontinued Operations The Proforma Group has applied FRS 105 prospectively in accordance with the transitional provisions of FRS 105. Previously under the superseded FRS 35, the Proforma Group would have recognised a discontinued operation at the earlier of the parent entity entering into a binding sale agreement; or the board of directors approving and announcing a formal disposal plan. FRS 105 now requires an operation to be classified as discontinued when the criteria to be classified as held for sale have been met or the Proforma Group has disposed of the operation. Held for sale is when the carrying amount of an operation will be recovered principally through a sale transaction and not through continuing use. The result of this change in accounting policy is that a discontinued operation is recognised by the Proforma Group at a later point than under FRS 35 due to the stricter recognition criteria under FRS 105. The adoption of FRS 105 had no material impact to the Proforma Group. On 1 January 2006, the adoption of the following FRS are mandatory for the Proforma Group for annual periods beginning on or after 1 January 2006 and the impact of these on the Proforma Group s accounting policies are as follows : (i) FRS 39 Financial Instruments: Recognition and Measurement Amendment for financial guarantee contracts amended the scope of FRS 39 to include financial guarantee contracts issued. The amendments addresses the treatment of financial guarantee contracts by the issuer. Under the amended FRS 39 financial guarantee contracts are recognised initially at fair value and generally remeasured at the higher of the amount determined in accordance with FRS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with FRS 18 Revenue. Amendment for hedges of forecast intragroup transactions amended FRS 39 to permit the foreign currency risk of a highly probable intragroup forecast transaction to qualify as the hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and that the foreign currency risk will affect the financial statements. Amendments for the fair value option restricted the use of the option to designate any financial asset or any financial liability to be measured at fair value through profit or loss. C-17

264 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.2 Changes in accounting policies (cont d) (ii) INT FRS 104, Determining Whether an Arrangement Contains a Lease This interpretation requires the determination of whether an arrangement is, or contains a lease to be based on the substance of the arrangement and requires an assessment of whether the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. The adoption of the amendments to FRS 39 and INT FRS 104 above had no material impact to the Proforma Group. (b) Adoption of revised FRS The Proforma Group adopted the following revised standards mandatory for annual financial periods beginning on 1 January 2005 and on 1 January 2006 : (i) FRS 21 (revised), The Effects of Changes in Foreign Exchange Rates - effective on or after 1 January 2005 The revised FRS 21 now requires any goodwill arising on the acquisition of a foreign subsidiary and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition to be treated as assets and liabilities of the foreign operation and translated at the closing rate accordingly. In accordance with the transitional provisions of the revised FRS 21, this change in accounting policy is adopted prospectively to all acquisitions occurring after 1 January Any goodwill on business combinations prior to 1 January 2005 is deemed to be in the currency of the parent company and as a result of which, comparative figures are not restated. (ii) FRS 19 (revised); Employee Benefits Rates - effective on or after 1 January 2006 The revised standard requires additional disclosure relating to information on trends in the assets and liabilities in the defined benefit plans and the assumptions underlying the components of the defined benefit cost. Adoption of this standard will result in additional disclosures in the financial statements. C-18

265 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.2 Changes in accounting policies (cont d) (iii) Other new and revised FRSs adopted In addition, the Proforma Group adopted the following new and revised standards: Effective on or after 1 January 2005 FRS 1 (revised), FRS 2 (revised), FRS 8 (revised), FRS 10 (revised), FRS 16 (revised), FRS 17 (revised), FRS 19 (revised), FRS 24 (revised), FRS 27 (revised), FRS 28 (revised), FRS 32 (revised), FRS 33 (revised), Presentation of Financial Statements Inventories Accounting Policies, Changes in Accounting Estimates and Errors Events after the Balance Sheet Date Property, Plant and Equipment Leases Employee Benefits Related Party Disclosures Consolidated and Separate Financial Statements Investments in Associates Financial Instruments: Disclosure and Presentation Earnings Per Share The adoption of the revised FRSs stated above did not result in any significant change in the accounting policies of the Proforma Group. (c) FRS and INT FRS in issue but not yet effective The Proforma Group has not adopted the following FRS and INT FRS that have been issued but are only effective for annual financial periods beginning after 1 January 2006: (i) (ii) FRS 107, Financial Instruments: Disclosure (effective for annual financial period beginning on or after 1 January 2007) This standard requires quantitative disclosures of nature and extent of risks arising from financial instruments in addition to the disclosures currently required under FRS 32. Adoption of this standard will result in additional disclosures in the financial statements. INT FRS 107, Applying the Restatement Approach under FRS 29 Financial Reporting in Hyperinflationary Economies (effective for annual financial periods beginning on or after 1 March 2006) INT FRS 108, Scope of FRS 102 (effective for annual financial periods beginning on or after 1 May 2006) INT FRS 109, Reassessment of Embedded Derivatives (effective for annual financial periods beginning on or after 1 June 2006) FRS 40, Investment Property (effective for annual financial periods beginning on or after 1 January 2007) These standards do not apply to the activities of the Proforma Group. C-19

266 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.3 Significant accounting estimates and judgements Estimates, assumptions concerning the future and judgments are made in the preparation of the proforma consolidated financial information. They affect the application of the Proforma Group s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) (b) Pension and employee benefits The determination of the Proforma Group s obligations and cost for pension and employee benefits liability is dependent on its selection of certain assumptions used by independent actuaries in calculating such amounts. Those assumptions include among others, discount rates, future annual salary increase, annual employee turn-over rate, disability rate, retirement age and mortality rate. Actual results that differ from the Proforma Group s assumptions are recognised immediately in the proforma consolidated profit and loss accounts as and when they occur. While the Proforma Group believes that its assumptions are reasonable and appropriate, significant differences in the Proforma Group s actual experience or significant changes in the Proforma Group s assumptions may materially affect its estimated liabilities for pensionable and employee benefits and net employee benefits expense. The carrying amount of the Proforma Group s estimated liabilities for employee benefits as at 31 December 2005 and 30 June 2006 were Rp66.2 billion and Rp77.0 billion respectively. Depreciation of property, plant and equipment The cost of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these property, plant and equipment to be within 3 to 25 years. These are common life expectancies applied in the oil palm, copra and their respective derivatives industries. Changes in the expected level of usage and technological development could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. The carrying amount of the Proforma Group s property, plant and equipment as at 31 December 2005 and 30 June 2006 were Rp733.8 billion and Rp810.6 billion respectively. C-20

267 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.3 Significant accounting estimates and judgements (cont d) (c) Biological assets The Proforma Group carries its oil palm and rubber plantations at fair value less estimated point-of-sale costs, which require extensive use of accounting estimates. Significant components of fair value measurement were determined using assumptions including average lives of plantations, period of being immature and mature plantations, yield per hectare and annual discount rates. The amount of changes in fair values would differ if there are changes to the assumptions used. Any changes in fair values of these plantations would affect the Proforma Group s proforma consolidated profit and loss accounts and equity. The carrying amount of the Proforma Group s biological assets as at 31 December 2005 and 30 June 2006 were Rp1,661.5 billion and Rp2,207.8 billion respectively. (d) (e) Financial assets and liabilities The Proforma Group carries certain financial assets and liabilities at fair values, which requires extensive use of accounting estimates. While significant components of fair value measurement were determined using verifiable objective evidences, the amount of changes in fair values would differ if the Proforma Group utilised a different valuation methodology. Any change in fair values of these financial assets and liabilities would affect directly the Proforma Group s proforma consolidated profit and loss accounts. The carrying amount of financial assets carried at fair values as at 31 December 2005 and 30 June 2006 were Rp268.6 billion and Rp308.7 billion respectively. The carrying amount of financial liabilities carried at fair values as at 31 December 2005 and 30 June 2006 were Rp45.9 billion and Rp64.2 billion respectively. Income taxes Significant judgment is involved in determining provision for income taxes. There are certain transactions and computation for which the ultimate tax determination is uncertain during the ordinary course of business. The Proforma Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final income tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred income tax in the year in which such decision is made by the taxation authority. The carrying amount of the Proforma Group s tax payables as at 31 December 2005 and 30 June 2006 were Rp10.2 billion and Rp17.6 billion respectively. C-21

268 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.3 Significant accounting estimates and judgements (cont d) (f) Allowances for inventories Allowance for inventories is estimated based on the best available facts and circumstances, including but not limited to, the inventories own physical conditions, their market selling prices, estimated costs of completion and estimated costs to be incurred for their sales. The provisions are re-evaluated and adjusted as additional information received affects the amount estimated. The carrying amount of the Proforma Group s inventories as at 31 December 2005 and 30 June 2006 were Rp535.1 billion and Rp500.2 billion respectively. Critical judgments made in applying accounting policies The following are judgments made by management in the process of applying the Proforma Group s accounting policies that have the most significant effects on the amounts recognised in the proforma consolidated financial information. (a) (b) Classification of financial assets and financial liabilities The Proforma Group determines the classification of certain of assets and liabilities as financial assets and financial liabilities by judging if they meet the definition set out in FRS 32. Accordingly, the financial assets and financial liabilities are accounted for in accordance with the Proforma Group s accounting policies set out in this note. Asset impairment Impairment review is performed when certain impairment indications are present. In the case of goodwill, such assets are subject to annual impairment test and whenever there is an indication that such asset may be impaired. Management has to use its judgement in determining if there are any indications of impairment. Purchase accounting requires extensive use of accounting estimates to allocate the purchase price to the fair market values of the assets and liabilities purchased, including intangible assets and contingent liabilities. The Proforma Group s business acquisitions have resulted in goodwill. Under FRS 103, such goodwill is not amortised and subject to a periodic impairment testing. The carrying amount of the Proforma Group s goodwill as at 31 December 2005 and 30 June 2006 were Rp36.9 billion and Rp39.0 billion respectively. Determining the fair values of biological assets at the date of business combination, which require the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the Proforma Group to make estimates and assumptions that can materially affect its unaudited proforma consolidated financial information. Future events could cause the Proforma Group to conclude that biological assets are impaired. The preparation of estimated future cash flows involves significant estimations. While the Proforma Group believes that its assumptions are appropriate and reasonable, significant changes in its assumptions may materially affect its assessment of recoverable values and may lead to future additional impairment charge under FRS 36. The carrying amount of the Proforma Group s biological assets is disclosed in Note 3.3(c) above. C-22

269 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.3 Significant accounting estimates and judgements (cont d) (c) Allowance for doubtful debts The Proforma Group evaluates specific accounts where it has information that certain customers are unable to meet their financial obligations. In these cases, the Proforma Group uses judgment, based on the best available facts and circumstances, including but not limited to, the length of its relationship with the customer and the customer s current credit status based on third party credit reports and known market factors, to record specific allowance against amount due from such customers to reduce its receivable to the amount the Proforma Group expects to collect. These specific allowances are re-evaluated and adjusted as additional information received affects the amounts of allowance for doubtful debts. The carrying amount of the Proforma Group s trade receivables before allowance for doubtful debts as at 31 December 2005 and 30 June 2006 were Rp273.5 billion and Rp282.9 billion respectively. 3.4 Functional and foreign currency (i) Functional currency Management has determined the currency of the primary economic environment in which the Proforma Group operates, that is its functional currency, to be Indonesian Rupiah. Sales prices and major costs of providing goods and services including major operating expenses are transacted in Indonesian Rupiah. (ii) Foreign currency transactions Transactions in foreign currencies are measured in the respective functional currencies and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities at the balance sheet date denominated in foreign currencies are translated at the closing rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The exchange rate between Rupiah and US Dollar, computed by taking the average of the buying and selling rates of exchange prevailing at the last banking transaction date of the year, as published by Bank Indonesia, as at 31 December 2005 and 30 June 2006 were Rp9,830 and Rp9,300 respectively. Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the proforma consolidated profit and loss accounts except for exchange differences arising on monetary items that form part of the Proforma Group s net investment in foreign subsidiary companies, which are recognised initially in a separate component of equity as foreign currency translation reserve in the proforma consolidated balance sheets and recognised in the proforma consolidated profit and loss accounts on disposal of the subsidiary. C-23

270 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.4 Functional and foreign currency (cont d) Differences on foreign currency borrowings that provide a hedge against a net investment in a foreign operation are also taken directly to the foreign currency translation reserve until the disposal of the net investment, at which time they are recognised in the proforma consolidated profit and loss accounts. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in the foreign currency translation reserve. (iii) Foreign currency translation The results and financial position of foreign operations are translated into Rupiah using the following procedures: Assets and liabilities for each balance sheet presented are translated at the closing rate ruling at that balance sheet date; and Income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions. All resulting exchange differences are recognised in a separate component of equity within other reserves. Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the balance sheet date. Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiary companies before 1 January 2005 are deemed to be assets and liabilities of the parent company and are recorded in SGD at the rates prevailing at the date of acquisition. On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to that foreign operation is recognised in the proforma consolidated profit and loss account as a component of the gain or loss on disposal. 3.5 Principles of consolidation The proforma consolidated financial information comprise the financial statements of all the entities within the Proforma Group. The financial statements are prepared for the same reporting date. Consistent accounting policies are applied for like transactions and events in similar circumstances. All intra-group balances, transactions, income and expenses, and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full. Subsidiary companies are consolidated from the date of acquisition, being the date on which the Proforma Group obtains control, and continue to be consolidated until the date that such control ceases. C-24

271 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.5 Principles of consolidation (cont d) Acquisition of subsidiary companies are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Any excess of the cost of the business combination over the Proforma Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated below. Any excess of the Proforma Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised in the proforma consolidated profit and loss accounts on the date of acquisition. Minority interests represent the portion of profit or loss and net assets in subsidiary companies not held by the Proforma Group. They are presented in the proforma consolidated balance sheets within equity, separately from the parent shareholders equity, and are separately disclosed in the proforma consolidated profit and loss accounts. 3.6 Subsidiary companies A subsidiary is an entity over which the Proforma Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Proforma Group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors. 3.7 Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. Subsequent to initial recognition, property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Such cost also includes the initial estimation of costs of dismantling and removing the item and restoring the sites of CPO refinery plants, and fractionation plants and margarine plants on which they are located, and the cost of replacing part of such property, plant and equipment when that cost is incurred. Depreciation of an asset begins when it is available for use and is computed on a straight-line method over the estimated useful lives of the asset as follows: Buildings and improvements 5 to 25 years Furniture, fixtures and office equipment 4 to 10 years Heavy equipment and transportation equipment 3 to 8 years Machinery and plant equipment 5 to 20 years C-25

272 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.7 Property, plant and equipment (cont d) The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying amount of an item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising from the derecognition of the asset is included in the proforma consolidated profit and loss accounts in the year the asset is derecognised. The residual values, useful life and depreciation method are reviewed at each financial period to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. The cost of construction-in-progress represents all costs incurred on the construction of the assets. The accumulated costs will be reclassified to the appropriate property, plant and equipment account when the construction is completed. No depreciation is provided on construction-inprogress. Interest on borrowings to finance the construction of property, plant and equipment is capitalised during the period of time that is required to complete and prepare each asset for its intended use. Repair and maintenance are taken to the proforma consolidated profit and loss accounts during the period in which they are incurred. The cost of major renovation and restoration is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Proforma Group, and is depreciated over the remaining useful life of the asset. Asset under a finance lease is recognised at the lower of the present value of the minimum lease payments and the fair value of the asset. Land right that has a limited useful life is depreciated in a manner that reflects the benefits to be derived from it, which represents prepaid land premiums and is presented as Prepaid Land Premiums and Deferred Land Rights Acquisition Costs in the unaudited proforma consolidated balance sheets. Costs associated with the legal transfer or renewal of land title, such as legal fees, land survey and re-measurement fees, taxes and other related expenses, are deferred and amortised using the straight-line method over the legal terms of the related land rights. C-26

273 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.8 Biological assets Biological assets, which include mature and immature oil palm plantations and rubber plantations, are stated at fair values less estimated point-of-sale costs. Oil palm trees have an average life that ranges from 23 to 25 years, with the first three years as immature and the remaining years as mature, while rubber trees have an average life at the same range, with the first five years as immature, and the remaining years as mature. As market determined prices or values are not readily available for plantations in its present condition, the Proforma Group uses the present value of expected net future cash flows (excluding any future cash flows for financing the assets, taxation, or re-establishing plantations after harvest) from the asset, discounted at a current market determined pre-tax rate in determining fair values. Gains or losses arising on initial recognition of plantations at fair value less estimated point-of-sale costs and from the change in fair value less estimated point-of-sale costs of plantations at each reporting date are included in the proforma consolidated profit and loss accounts for the period in which they arise. In general, an oil palm plantation takes about three years to reach maturity from the time seedlings are planted to the field. Rubber plantations are considered mature when at least 70.0% of the trees per block are tapable and, the circumference of the trunk of the tree is 45 centimeter ( cm ) or more at the height of 160 cm from the ground. 3.9 Assets not used in operations The Group carries its assets not yet used in operations at the lower of their carrying amounts and fair value less costs to sell, since their carrying amounts are to be recovered principally through sales transactions rather than through continuing use Advances to/(from) KKPA projects Certain subsidiaries of the Proforma Group develop plantations under the Primary Credit Cooperative for Member ( Kredit Koperasi Primer Anggota or the KKPA ) scheme for farmers who are members of KUD ( Koperasi Unit Desa ). The Proforma Group assumes responsibility for developing oil palm plantations to the productive stage using bank loans provided specifically for this purpose. When the plantation is at its productive stage, it is considered to be completed and is transferred to the landholders. From the time the plantations are handed over, the farmers sell the harvest to the Proforma Group and pay the instalment for the credit investment through deduction from the sales proceeds. Cost incurred during development up to conversion of the oil palm plantations are capitalised as KKPA plantations. The accumulated development costs are presented in the proforma consolidated balance sheets net of funds received from banks. The difference between the accumulated development cost of plantations and their conversion value (or recoverable value) is charged to the proforma consolidated profit and loss accounts. C-27

274 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.10 Advances to/(from) KKPA projects (cont d) The funds received from KUD for the development of the plantations less accumulated costs incurred are presented in the proforma consolidated balance sheets as Advances from KKPA Projects. The accumulated costs incurred less the funds received from KUD for the development of the plantations are presented in the proforma consolidated balance sheets as Advances to KKPA Projects Intangible assets (a) Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Proforma Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Proforma Group s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Proforma Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated: (i) (ii) Represents the lowest level within the Proforma Group at which the goodwill is monitored for internal management purposes; and Is not larger than a segment based on either the Proforma Group s primary or the Proforma Group s secondary reporting format. A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated are tested for impairment annually and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. C-28

275 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.11 Intangible assets (cont d) (b) Negative goodwill Negative goodwill arising on acquisition represents the excess of the acquirer s interest in the net fair values of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition. Any negative goodwill arising on acquisition is reassessed and any negative goodwill in excess of the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised immediately in the proforma consolidated profit and loss accounts on the date of acquisition. (c) Other intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. The amortisation expense on intangible assets with finite lives is recognised in the proforma consolidated profit and loss accounts through each line item according to the function. Intangible assets with indefinite useful lives are tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the useful life assessment continues to be supportable. (d) Research and development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is recognised only when the group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete and the ability to measure reliably the expenditure during the development. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use or more frequently when an indication of impairment arises during the reporting year. Upon completion, the development costs is amortised over the estimated useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the proforma consolidated profit and loss accounts when the asset is derecognised. C-29

276 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.12 Impairment of non-financial assets The Proforma Group assesses at each annual reporting period whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset (i.e. an intangible asset with an indefinite useful life, an intangible asset not yet available for use, or goodwill acquired in a business combination) is required, the Proforma Group makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the proforma consolidated profit and loss accounts as impairment losses. An assessment is made at each annual reporting period as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss for an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Reversal of an impairment loss is recognised in the proforma consolidated profit and loss accounts. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. The Proforma Group does not reverse in a subsequent period, any impairment loss recognised for goodwill. C-30

277 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.13 Financial assets Financial assets within the scope of FRS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. Financial assets are recognised on the proforma consolidated balance sheets when, and only when, the Proforma Group becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Proforma Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Proforma Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. (a) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category financial assets at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivative financial instruments are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. Gains or losses on investments held for trading are recognised in the proforma consolidated profit and loss accounts. Financial assets may be designated at initial recognition as at fair value through profit or loss if the following criteria are met : (i) (ii) (iii) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or losses on them on a different basis; or the assets are part of a group of financial assets which are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management strategy; or the financial asset contains an embedded derivative that would need to be separately recorded. C-31

278 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.13 Financial assets (cont d) (b) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Proforma Group has the positive intention and ability to hold the assets to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long-term investments that are intended to be heldto-maturity, such as bonds, are subsequently measured at amortised cost using the effective interest method. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount and minus any reduction for impairment or uncollectibility. This calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in the proforma consolidated profit and loss accounts when the investments are derecognised or impaired, as well as through the amortisation process. (c) (d) Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the proforma consolidated profit and loss accounts when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-for sale financial assets are measured at fair value with gains or losses being recognised in Other Reserves until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the proforma consolidated profit and loss accounts. Interest earned on the investments is reported as interest income using the effective interest rate. Dividends earned on investments are recognised in the proforma consolidated profit and loss accounts when the right of payment has been established. The fair value of investments that are actively traded in organised financial markets is determined by reference to the relevant quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis and option pricing models. C-32

279 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.13 Financial assets (cont d) Investments in equity and debt instruments and the related advances for the said investments that do not have quoted market prices in an active market are carried at cost as either (i) carrying amounts are approximate their fair values; or, (ii) their fair values cannot be reliably measured. (e) Financial liabilities The Proforma Group recognises a financial liability on its proforma consolidated balance sheets when, and only when, it becomes a party to the contractual provisions of the instrument. Such a financial liability is initially recognised at its fair value plus directly attributable transaction cost. After initial recognition, financial liabilities are carried at costs or notional amounts as either (i) their carrying amounts approximate their fair values; or, (ii) they are re-priced frequently, except for trade payables arising from future commodity contract transactions which are determined based on quoted market prices of the commodities. Financial liabilities may be designated at initial recognition as at fair value through profit or loss if the following criteria are met : (i) (ii) (iii) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognising gains or losses on them on a different basis; or the liabilities are part of a group of financial liabilities which are managed and their performance is evaluated on a fair value basis in accordance with a documented risk management strategy; or the financial liability contains an embedded derivative that would need to be separately recorded Derivative financial instruments Future commodity contracts The Group applies the provisions of FRS 39, Financial Instruments: Recognition and Measurement. FRS 39 requires that all of the following conditions to be met for a hedging relationship to qualify as hedge accounting: (a) at the inception of the hedge there is formal designation and documentation of the hedging relationship and the Proforma Group s risk management objective and strategy for undertaking the hedge; (b) the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk; (c) for cash flow hedges, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss; (d) The effectiveness of the hedge can be reliably measured; and, (e) the hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated. The related receivables and payables arising from the above transaction is carried in the proforma consolidated balance sheets as regular financial instruments and are carried at fair values based on the quoted market prices of the related commodity. C-33

280 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.15 Investment in convertible bonds Investment in convertible bonds are classified according to the accounting policies for financial assets as stated in Note Cash and cash equivalents Cash and cash equivalents comprise cash on hand and in banks, and short term deposits with an original maturity of 3 months or less at the time of placements and not restricted as to use. Cash and cash equivalents carried in the proforma consolidated balance sheets are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note Trade and other receivables Trade and other receivables are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note An allowance is made for uncollectible amounts when there is objective evidence that the Proforma Group will not be able to collect the debt. Bad debts are written off when identified. Further details on the accounting policy for impairment of financial assets are stated in Note Impairment of financial assets The Proforma Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. (a) Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-tomaturity investments carried at amortised cost has been incurred, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate (that is the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognised in the proforma consolidated profit and loss accounts. In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Proforma Group will not be able to collect all the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible. C-34

281 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.18 Impairment of financial assets (cont d) If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the proforma consolidated profit and loss accounts, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. (b) (c) Financial assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods. Available-for-sale financial assets When changes in the fair value of an available-for-sale financial asset have been recognised directly in equity, and there is objective evidence that the asset is impaired, the accumulated losses that had been recognised directly in equity are removed from equity and recognised in the proforma consolidated profit and loss accounts even though the financial asset has not been derecognised. Impairment losses recognised in the proforma consolidated profit and loss accounts for an investment in an equity instrument classified as available-for-sale are not reversed through the proforma consolidated profit and loss accounts. When, in a subsequent period, the fair value of a debt instrument classified as available-forsale increases, and such increase can be objectively related to an event occurring after the impairment loss was recognised in the proforma consolidated profit and loss accounts, the impairment loss is reversed, with the amount of the reversal recognised in the proforma consolidated profit and loss accounts. Reversals in respect of equity instruments classified as available-for-sale are not recognised in the proforma consolidated profit and loss accounts. C-35

282 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.19 Inventories Inventories are valued at the lower of cost and net realisable value. Cost is calculated using weighted-average method. Cost incurred in bringing each product to its present location and condition is accounted for as follows: Raw materials, goods in transit, - purchase cost; spare parts and factory supplies Finished goods and work in progress - cost of direct materials and labor and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale Trade and other payables Liabilities for trade and other amounts payable are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the proforma consolidated profit and loss accounts when the liabilities are derecognised as well as through the amortisation process Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the proforma consolidated profit and loss accounts when the liabilities are derecognised as well as through the amortisation process Borrowing costs Borrowing costs are generally expensed as incurred. Borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are being incurred. Borrowing costs are capitalised until the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. C-36

283 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.23 Derecognition of financial assets and liabilities (a) Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: The contractual rights to receive cash flows from the asset have expired; or The Proforma Group retains the contractual rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or The Proforma Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Proforma Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Proforma Group s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the assets and the maximum amount of consideration that the Proforma Group could be required to repay. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that has been recognised directly in equity is recognised in the proforma consolidated profit and loss accounts. (b) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the proforma consolidated profit and loss accounts. C-37

284 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.24 Provisions Provisions are recognised when the Proforma Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. The provision is released if it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation Employee benefits (a) Defined contribution plans The Proforma Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed. Certain subsidiary companies in the Proforma Group have defined contribution retirement plans covering all of its qualified permanent employees. The Proforma Group s contributions to the funds are computed at 10.0% and 7.0% of the basic pensionable income for staff and non-staff employees, respectively. The related liability arising from the difference between the cumulative funding since the establishment of the program and the cumulative pension costs charged to the proforma consolidated profit and loss accounts during the same period is recognised as estimated liabilities for employee benefits in the proforma consolidated balance sheets. (b) Defined benefit plans The Proforma Group also provides additional provisions for employee service entitlements in order to meet the minimum benefits required to be paid to qualified employees, as required under the Indonesian Labor Law No.13/2003 (the Labor Law ). The said additional provisions, which are unfunded, are estimated using actuarial calculations based on the report prepared by an independent firm of actuaries. Actuarial gains or losses are recognised in the proforma consolidated profit and loss accounts when the net cumulative unrecognised actuarial gains or losses at the end of the previous reporting year exceed 10.0% of the defined benefit obligation at that date. Such gains or losses in excess of the 10.0% corridor are amortised on a straight-line method over the expected average remaining service years of the covered employees. Past service cost is recognised as an expense on a straight-line basis over the average period until the benefit become vested. To the extent that the benefit is already vested immediately following the introduction of, or changes to, the employee benefit program, the Proforma Group recognises past service cost immediately. The related estimated liability for employee benefits is the aggregate of the present value of the defined benefit obligation at balance sheet date and actuarial gains and losses not recognised, less past service cost not yet recognised. C-38

285 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.26 Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies : (a) (b) (c) (d) There is a change in contractual terms, other than a renewal or extension of the arrangement; A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; There is a change in the determination of whether fulfilment is dependent on a specified asset; or There is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b). (a) As lessee Finance leases, which transfer to the Proforma Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the proforma consolidated profit and loss accounts. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Proforma Group will obtain ownership by the end of the lease term. Any excess of sales proceeds over the carrying amount of an asset in a sale-and-leaseback transaction is deferred and amortised over the lease term. Operating lease payments are recognised as an expense in the proforma consolidated profit and loss accounts on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. (b) As lessor Leases where the Proforma Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. C-39

286 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.26 Leases (cont d) (c) Prepaid land premiums Prepaid land premiums for land lease payments under operating leases are initially stated at cost and subsequently recognised as an expense in the proforma consolidated profit and loss accounts on a straight-line basis over the lease terms (Note 3.7) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Proforma Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (a) (b) (c) Sale of goods Revenue from sales arising from physical delivery of palm based products, soya beans, other edible oils, oil seeds and other agricultural commodities is recognised when significant risks and rewards of ownership of goods are transferred to the buyer, which generally coincide with their delivery and acceptance. Interest income Interest income is recognised as interest accrues (using the effective interest method) unless collectibility is in doubt. Rental and storage income Rental and storage income is recognised on a straight-line basis over the lease terms. (d) Dividend income Dividend income is recognised when the right to receive payment is established Taxes (a) Current tax Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the proforma consolidated profit and loss accounts because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Proforma Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. C-40

287 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.28 Taxes (cont d) (b) Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiary companies, except where the Proforma Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that future taxable income will allow the deferred tax assets to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Proforma Group intends to settle its current tax assets and liabilities on a net basis. (c) Sales tax Revenues, expenses and assets are recognised net of the amount of Value-Added Tax ( VAT ) except: Where the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Receivables and payables that are stated with the amount of VAT included. The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the proforma consolidated balance sheets. C-41

288 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 3. Summary of significant accounting policies (cont d) 3.29 Related parties A party is considered to be related to the Proforma Group if it possesses the ability (directly or indirectly) to control or exercise significant influence over the operating and financial decisions of the Proforma Group or vice-versa and/or subject to common control or common significant influence Segmental reporting A segment is a distinguishable component of the Proforma Group that is engaged in providing certain products, or in providing products within a particular economic environment, which is subject to risks and rewards that are different from those of other segments. Segment information is presented in respect of the Proforma Group s business and geographical segments. The primary format, business segment, is based on the Proforma Group s management and internal reporting structure. Inter-segment pricing, if any, is determined on an arm s length basis. Segment revenue, expenses, results, and assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. They are determined before intra-group balances and intra-group transactions are eliminated. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. 4 Revenue Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Sale of palm based products, edible oils, oil seeds and other agricultural commodities 4,886,637 4,032,089 3,589,609 1,559,625 1,693, Cost of sales Year ended Six month period 31 December ended 30 June Raw materials used 1,561,619 1,474,594 1,264, , ,523 Purchase of merchandise for trading activities 1,533, , , ,704 99,109 Changes in work in progress and finished goods inventories 123, ,899 (12,126) (25,442) (23,304) Labour and overheads 734, , , , ,090 Depreciation and amortisation 62,705 70,666 77,594 37,665 45,049 4,015,829 2,861,697 2,510,807 1,053,746 1,362,467 C-42

289 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 6. Other operating income Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Allowance for doubtful debts written back 9,500 Net gains on foreign exchange 13,177 3,299 Excess of net asset of acquiree over investment costs (Note 36) 25,916 Gain on disposal of property, plant and equipment 859 1,803 6,104 1,705 3,360 Gain on sale of prepaid land premium 1,070 Gains on changes in estimates of provision for asset dismantling costs 947 1,425 1, Gains on future commodity contract transactions 4, ,892 Net tank operation surpluses Others 4,385 6,700 6,267 7,641 1,740 Total 11,028 21,680 40,983 11,464 21, Other operating expenses Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Net losses on foreign exchange 22,167 2,312 1,250 Losses on sale of available-for-sale investments 2,615 2,631 Losses on changes in estimates of provision for asset dismantling costs 1,213 Tax authority s correction of value-added and other taxes 3,770 1, ,161 Net tank operation losses 7,554 2,324 Losses on future commodity contract transactions 1,417 2,688 Loss on write-off of property, plant and equipment Others 6,379 2,879 3,458 2,219 4,248 Total 42,485 12,994 6,475 6,847 7,473 C-43

290 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 8. Profit from operations Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million (i) (ii) The following items have been included in arriving at profit from operations: Charging/(crediting): Depreciation of property, plant and equipment 72,666 78,230 87,329 42,631 48,533 Amortisation of prepaid land premiums and deferred land rights acquisition costs 8,343 6,536 6,635 3,280 4,884 Amortisation of other deferred charges 476 1, Amortisation of deferred gain on sale-and-leaseback transactions (641) (535) (143) (95) (13) Research and development costs 10,543 11,158 4,958 1,358 2,571 Operating lease rentals 2,355 2,048 2,068 1,069 1,068 Employee benefits during the financial year/period included : - Wages and salaries 222, , , , ,399 - Contribution to defined contribution pension plan 8,304 8,859 9,540 4,702 5,282 - Other post-employment benefits (Note 31) 16,579 16,087 17,358 5,350 11,443 - Training and education costs 7,412 8,918 11,097 4,125 7, , , , , , Financial income Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Interest income : - Current accounts and time deposits 44,122 26,626 13,304 7,704 3,434 - Other receivable from a shareholder and related parties 145,091 31,152 2,735 1, Available-for-sale investments 7,129 8,108 - Others 1, Total 197,618 66,874 16,919 10,174 4,195 C-44

291 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 10. Financial expenses Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Interest expense : - Due to a shareholder 47,816 32,679 36,908 12,809 33,830 - Bank loans 15,815 7,039 5,176 1,094 11,160 - Bank charges Finance leases Others Total 65,598 40,752 42,768 14,078 45, Income tax The major components of income tax expense are as follows: Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Income tax in respect of profit for the year/period : - current income tax 221, , , ,782 67,173 - deferred income tax/(reversal) (101,650) 1,705 25,009 29,863 60, , , , , ,431 (Over)/under provision in respect of prior years/periods: - current income tax (2,983) 2,646 3,433 2,984 2,013 - deferred income tax 16,824 (1,793) (3,871) ,422 Tax expense 133, , , , ,866 A reconciliation between the product of profit multiplied by the applicable tax rate and tax expense are as follows: Profit before taxation as per proforma consolidated profit and loss accounts 409, , , , ,226 Tax expense at the applicable tax rates 122, , , , ,026 Non-taxable income (17,532) (10,191) (13,870) (3,720) (2,791) Non-deductible expenses 14,799 4,574 2, ,196 Under/(over) provision in respect of prior years/periods 13, (438) 3,489 31,435 Others 517 Tax expense 133, , , , ,866 Companies in Indonesia are generally subject to progressive tax rates up to a maximum of 30.0%. C-45

292 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 12. Earnings per share Basic earnings per share amounts are calculated by dividing profit for the year attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year/period. For the purpose of basic and diluted earnings per share computation, the number of ordinary shares outstanding during the year/period is assumed to be 1,011,700,000 shares based on the enlarged share capital after the Proposed Acquisition and consolidation of every 10 existing shares into 1 share. The following reflects the profit attributable to the shareholders of the Company used in the basic and diluted earnings per share computation: Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Profit attributable to the shareholders 242, , , , ,453 There were no dilutive potential ordinary shares as at 31 December 2003, 2004 and 2005 and 30 June 2005 and Biological assets Biological assets comprise oil palm plantations and rubber plantations with the following movements in their carrying value: At fair value As at As at 31 December 30 June Rp million Rp million At 1 January 2005/1 January ,369,477 1,661,523 Additions 28,184 26,411 Additions from acquired subsidiaries 163, ,672 1,561,522 1,950,606 Gains arising from changes in fair value less estimated point-of-sale costs 100, ,224 At 31 December 2005/30 June ,661,523 2,207,830 C-46

293 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 13. Biological assets (cont d) Mature oil palm trees produce Fresh Fruit Bunches ( FFB ), which are used to produce Crude Palm Oil ( CPO ) and Palm Kernel Oil ( PKO ). The fair values of oil palm plantations are determined using the discounted future cash flows of the underlying plantations. The expected future cash flows of the oil palm plantations are determined using the forecast market price of FFB which is largely dependent on the projected selling prices of CPO and PKO in the market. Significant assumptions made in determining the fair values of the oil palm plantations are as follows: (a) (b) (c) no new planting or re-planting activities are assumed; oil palm trees have an average life that ranges from 23 to 25 years, with the first three years as immature and the remaining years as mature; yield per hectare of oil palm trees is based on a guideline issued by the Indonesian Oil Palm Research Institute ( Pusat Penelitian Kelapa Sawit ), which varies with the average age of oil palm trees; (d) the discount rates used in 2003, 2004, 2005 and 2006 are 19.6%, 21.7%, 20.5% and 19.8% per annum, respectively, (such a discount rate represent the asset specific rate for the Proforma Group s plantation operations which are applied in the discounted future cash flows calculation); and, (e) the projected selling price of CPO from 2005 to 2015 is based on the reference issued by the World Bank with the latest update dated 30 May Mature rubber trees produce cup lump. The fair values of rubber plantations are determined using the discounted future cash flows of the underlying plantations. The expected future cash flows of the rubber plantations are determined using the forecast market price of cup lump which are based on the projected selling price of Rubber Smoke Sheet 1 ( RSS1 ). Significant assumptions made in determining the fair values of the rubber plantations are as follows: (a) (b) (c) (d) no new planting or re-planting activities are assumed; rubber trees have an average life that ranges from 23 to 25 years, with the first five years as immature and the remaining years as mature; discount rates used in 2005 and 2006 are 20.5% and 19.3% per annum, respectively (such discount rate represents the asset specific rate for the Proforma Group s plantations operations which is applied in the discounted future cash flows calculation); and, the projected selling price of RSS1 from 2005 to 2015 is based on the reference issued by the World Bank with the latest update dated 30 May C-47

294 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 13. Biological assets (cont d) During 2003, 2004 and 2005 and six month period ended 30 June 2006, the Proforma Group plantations produced 1.3 million tonnes, 1.4 million tonnes, 1.3 million tonnes and 0.6 million tonnes of FFB, respectively. On the other hand, the fair value of FFB harvested during 2003, 2004 and 2005 and six month period ended 30 June 2006, determined at the point of harvest, amounted to Rp838 billion, Rp1,047 billion, Rp894 billion and Rp370 billion, respectively. The production volume and fair value of cup lump harvested since the acquisition date of PT KMS to 31 December 2005 is insignificant. The Proforma Group plantations produced 2.2 thousand tonnes of cup lump for the six month period ended 30 June 2006 and with a fair value of Rp19 billion. Total area of mature oil palm plantations is approximately 52.8 thousand hectares, 53.5 thousand hectares, 56.9 thousand hectares and 59.2 thousand hectares as at 31 December 2003, 2004 and 2005 and 30 June 2006, respectively, while the total area of mature rubber plantations is approximately 5.0 thousand hectares as at 31 December 2005 and 30 June On the other hand, total area of immature oil palm plantations is approximately 1.6 thousand hectares, 0.9 thousand hectares, 4.5 thousand hectares and 4.6 thousand hectares as at 31 December 2003, 2004 and 2005 and 30 June 2006, respectively. There are no immature rubber plantations. Oil palm plantations of PT CKS and PT RAP are used as collateral to secure loans obtained from PT Bank Mandiri (Persero) Tbk (Note 37(a)). The carrying amount of the related biological assets of PT CKS and PT RAP are Rp0.6 billion and Rp29.6 billion respectively as at 30 June Property, plant and equipment Heavy equipment Furniture, Buildings and Machinery and trans- fixtures improve- and plant portation and office ments equipment equipment equipment Total Rp million Rp million Rp million Rp million Rp million Cost At 1 January , , ,091 46,287 1,146,526 Additions 61,759 65,669 25,247 5, ,754 Additions from acquired subsidiaries 7,835 9,645 5, ,159 Disposals (737) (579) (10,618) (60) (11,994) At 31 December , , ,789 51,916 1,315,445 Accumulated depreciation At 1 January , ,239 78,676 33, ,922 Depreciation charge during the year 13,910 41,607 26,525 5,287 87,329 Disposals (470) (416) (9,667) (51) (10,604) At 31 December , ,430 95,534 38, ,647 Net carrying amount At 31 December , ,565 84,255 12, ,798 C-48

295 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 14. Property, plant and equipment (cont d) Heavy equipment Furniture, Buildings and Machinery and trans- fixtures improve- and plant portation and office ments equipment equipment equipment Total Rp million Rp million Rp million Rp million Rp million Cost At 1 January , , ,789 51,916 1,315,445 Additions 34,947 47,813 9,177 2,960 94,897 Additions from acquired subsidiaries 7, , ,074 Reclassification 16, ,847 Disposals and write-off (639) (10,385) (172) (11,196) At 30 June , , ,181 55,642 1,431,067 Accumulated depreciation At 1 January , ,430 95,534 38, ,647 Depreciation charge during the period 8,329 23,268 14,029 2,907 48,533 Disposals and write-off (466) (9,117) (172) (9,755) At 30 June , , ,446 41, ,425 Net carrying amount At 30 June , ,238 84,735 13, ,642 Assets under construction Property, plant and equipment of the Proforma Group at 31 December 2005 and 30 June 2006 include expenditure for building and machinery in the course of construction amounting to Rp37.5 billion and Rp99.9 billion respectively. Capitalisation of borrowing costs There was no capitalisation of borrowing costs for the financial year and period ended 31 December 2005 and 30 June Assets pledged as security There were no property, plant and equipment pledged to secure the borrowings of the Proforma Group as at 31 December 2005 and 30 June C-49

296 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 15. Prepaid land premiums and deferred land right acquisition costs As at As at 31 December 30 June Rp million Rp million At 1 January 2005/1 January , ,878 Addition 2,524 7,131 Addition from acquired subsidiaries 45,964 31,940 Disposal (932) Amortisation charge during the year/period (6,635) (4,884) Total 163, ,133 Less : Current portion (presented as part of Trade and other receivables account (Note 23) (4,910) (4,910) At 31 December 2005/30 June , ,223 Prepaid land premiums and deferred land right acquisition costs are in respect of: (a) (b) PT BML s titles of ownership on its land rights, which cover a total area of 346,552 square meters, are all in the form of Building Usage Rights ( Hak Guna Bangunan or HGB ), which expire between 2007 and The titles of ownership of PT IBS on its land rights are in the form of HGB, which expire in 2007, and in the form of HGB on Harbor Use Rights ( Hak Penggunaan Pelabuhan or HPL ) from PT Pelabuhan Indonesia (Persero) ( Pelindo ) II and Pelindo III, which expire on various dates from 2021, and from 2010 to 2021, respectively. The HGB land rights cover a total area of 11,892 square meters, while the HGB on HPL land rights cover an area 122,848 square meters. Costs associated with the legal transfer or renewal for titles of a portion of these land rights are recognised as deferred land rights acquisition cost. As at 31 December 2005 and 30 June 2006, the Proforma Group s land rights covering total land area of 109,134 hectares and 93,117 hectares respectively, represents Business Usage Rights ( Hak Guna Usaha or HGU ), Building Usage Rights ( Hak Guna Bangunan or HGB ) and Usage Rights ( Hak Pakai ). Out of these land rights, the titles covering an area of 871 hectares are still in-process of approval with the National Land Affairs Agency ( Badan Pertanahan NasionaI ) as at the date of this report. The legal terms of the existing land rights of the Proforma Group expire on various dates between 2016 and C-50

297 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 15. Prepaid land premiums and deferred land right acquisition costs (cont d) PT SOG s land rights covering an area of approximately 18,526 hectares in the form of HGB or HPL from Perlindo I and Perlindo II expire in Prepaid land premiums represent the cost of land rights owned by the Proforma Group and are amortised on a straight line basis over their useful lives/terms ranging from 12 to 27 years. Deferred land rights acquisition costs represents cost associated with the legal transfer or renewal for titles of land rights such as, among others, legal fees, land survey and re-measurement fees, taxes and other related expenses. They are deferred and amortised using the straight-line method over the legal tenure of the related land rights which range from 14 to 35 years. 16. Assets not used in operations The assets not used in operations, comprising of land, machinery and equipment, relate to assets which are not yet used in the operations. In May 2006, certain assets with a carrying value of Rp155.9 billion were sold to PT ISM at their carrying value and the remaining assets have been reclassified to property, plant and equipment as at 30 June Investment in and advance for convertible bonds (a) Investment in convertible bonds On 24 November 2005, PT SIMP entered into a Sale and Purchase and Assignment with Success Cheer Limited, British Virgin Islands, for the purchase of convertible bonds issued by PT Pelayaran Tahta Bahtera ( PT PTB ) with face value of US$0.5 million which can be converted to 5,000 shares. These convertible bonds will mature in The purchase price amounted to US$5.0 million (approximately Rp50.3 billion). On 3 January 2006, PT SIMP submitted its conversion notice to PT PTB. Based on Notarial Deed No. 3 of Margarreta Binyola, S.H., dated 6 January 2006, PT PTB issued 5,000 new shares to PT SIMP with total par value of Rp5.0 billion. As a result, PT PTB became a 90.9% owned subsidiary of the Proforma Group. On 30 May 2006, the Proforma Group s interest in PT PTB was disposed to PT ISM at cost. (b) Advance for convertible bonds On 15 December 2005, PT SIMP entered into Convertible Bond Purchase Agreement with Beeager Investments Limited ( BIL ), a company under British Virgin Islands laws, for the purchase of convertible bonds issued by PT Sarana Inti Pratama ( PT SAIN ) with face value of US$3.6 million which can be converted to 36,200 shares. These convertible bonds will mature in The purchase price amounted to US$16.4 million. Out of the US$16.4 million, PT SIMP paid US$14.8 million (approximately Rp145.8 billion) or 90.0% of the purchase price as an advance for investment in convertible bonds. Pursuant to the terms of the agreement, the remaining balance of 10.0% amounting to US$1.6 million (approximately Rp16.1 billion) was paid on 20 June 2006, and PT SAIN issued 36,200 new shares to PT SIMP with a total par value of Rp36.2 billion. C-51

298 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 18. Goodwill As at As at 31 December 30 June Rp million Rp million At 1 January 2005/1January ,852 Additions (Note 36) 36,852 2,182 At 31 December 2005 and 30 June ,852 39,034 Goodwill arising from the acquisition of SIL and its subsidiaries was allocated to 2 individual cashgenerating units for impairment testing at 31 December 2005 as follows : Rp million Plantation estate of PT KGP 29,140 Plantation estate of PT CNIS 7,712 Total 36,852 The recoverable amounts of the above plantation estates are determined based on a value in use calculation using cash flow forecast based on management s expectations covering up to 22-year periods for the plantation estates of PT KGP and PT CNIS, which represents the long cycle productive lives of the oil palm trees. The expected inflation rate of the economy used in the said forecast is based on both external information sources and internal assessment, while the risk-free rate used in the said forecast is based on the yield of the Indonesian Government 10-year bonds which reflects the current risk-free rate in Indonesia. Key assumptions used in the said cash flow forecast are as follows: projected selling prices of CPO based on the forecast with reference issued by the World Bank and other third party sources; discount rates of 16.5% per annum and 18.3% per annum PT KGP and PT CNIS respectively; and growth rate used to extrapolate the cash flow beyond the projection periods mentioned above is 4.0%. C-52

299 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND THE SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 18. Goodwill (cont d) The goodwill arising from the acquisition of PT SAIN and its subsidiaries was allocated to 4 individual cash-generating units at 30 June 2006 as follows : Rp million Plantation estate of PT SAIN 1,681 Plantation estate of PT RAP 338 Plantation estate of PT CKS 152 Plantation estate of PT JS 11 Total 2,182 Since the acquisition of PT SAIN and its subsidiaries took place on 21 June 2006, management believes that the carrying amount of goodwill should not be less than its recoverable amount as at 30 June The goodwill will be assessed for impairment at the financial year end in accordance with the Proforma Group s accounting policy. 19. Claims for income tax refund Claims for income tax refund represent advance tax payments made by the Proforma Group which can be credited against the Proforma Group s future corporate income tax payable. C-53

300 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 20. Deferred taxation Proforma consolidated balance sheets Proforma consolidated profit and loss accounts Deferred tax assets Year ended Six month period As at 31 December ended 30 June 31 December 30 June Rp million Rp million Rp million Rp million Rp million Rp million Rp million Tax loss carry forward 61,288 41,111 17,855 (7,565) 8,237 2,632 (22,655) Property, plant and equipment 37,019 47,120 (5) (150) 5,934 Prepaid land premium and deferred land rights acquisition costs 4,036 3,806 4,036 (230) Employee benefits 17,546 20,698 4,951 2,480 4,943 1,605 3,152 Deferred inter-company profits 5,157 11,417 9,899 (4,742) (2,962) 6,260 Allowance for doubtful accounts 2,944 2,607 (2,944) Revaluation of loans to employees to fair value 888 1, Allowance for decline in market value of inventories (133) 462 Deferred gains on sale and-lease back transactions 10 (205) (173) (56) (10) Obligation under finance lease (7) (2) (35) Offset between deferred tax assets and deferred tax liabilities (55,141) (53,147) Total deferred tax assets 73,864 72,601 Deferred tax liabilities Biological assets (394,591) (537,730) 69,095 1,848 (30,000) (28,452) (77,167) Property, plant and equipment (82,328) (90,019) (6,549) (6,228) (6,970) (3,141) (2,462) Prepaid land premium and deferred land rights acquisition costs (22,057) (22,107) (320) (320) (462) (161) (155) Deferred loss on sale-and-leaseback transactions (28) (22) Obligation under finance leases (2) (117) Deferred inter-company profits (125) Offset between deferred tax assets and deferred tax liabilities 55,141 53,147 Total deferred tax liabilities (443,863) (596,731) Deferred tax income/(expense) 84, (21,138) (30,368) (89,680) Deferred tax assets and liabilities cover the future tax consequences attributable to differences between the financial and tax reporting bases of assets and liabilities and the benefits of tax loss carryforwards. C-54

301 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 21. Other non-current assets As at 31 December As at June 2006 Rp million Rp million Advances and deposits for purchases 20,753 9,873 Loans to employees 10,840 15,029 Long-term prepayments 7,611 9,549 Long-term receivables 1,756 1,690 Investments in shares of stock 1,309 1,313 Advances to KKPA projects (Note 37 (a)) 29,683 Others 11,179 10,392 Total 53,448 77,529 Advances and deposits for purchases Advances and deposits for purchases mainly relate to the payments made to suppliers and contractors in relation to the purchases of capital equipment and raw materials. Loans to employees The Proforma Group provides non-interest bearing loans to officers and employees subject to certain terms and criteria. Such loans, which are being collected through monthly salary deductions for five years, are carried at amortised cost using the effective interest method at discount rates of 13.3% and 12.5% for 31 December 2005 and 30 June 2006, respectively. Investments in shares of stock Investments in shares of stock represent unquoted equity investments in third party entities, with ownership interest of less than 20.0%. 22. Inventories As at 31 December As at June 2006 Rp million Rp million Raw materials 213, ,071 Work in progress 1,474 4,455 Finished goods 188, ,573 Goods in transit 6,077 4,453 Spare parts, factory supplies and others 125, ,604 Total inventories at lower of cost and net realisable value 535, ,156 The amount of inventory write-down recognised as an expense 391 1,931 C-55

302 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 23. Trade and other receivables Financial assets As at 31 December As at June 2006 Rp million Rp million Trade receivables from third parties 204, ,178 Trade receivables from related parties 68, ,755 Other receivables from a shareholder and related party 15, Receivables under future commodity contracts 44,839 65,135 Others 13,371 6,378 Less : Allowance for doubtful debts (9,500) 3,871 6, , ,988 Non-financial assets Prepayments 5,347 21,019 Prepaid land premiums (current portion) (Note 15) 4,910 4,910 Claims for tax refund from taxation authority 3,235 4,281 13,492 30,210 Total trade and other receivables 351, ,198 Trade receivables from related parties are non-interest bearing, unsecured and are generally on 7 day to 45 day terms. Other receivables from a shareholder are unsecured, bear interest at rates ranging from 3.0% to 14.0% per annum and repayable on demand. Other receivable from a related party is unsecured and non-interest bearing. All related party receivables are to be settled in cash. Receivables incurred from future commodity contracts are carried at their respective quoted market prices. Future commodity contract transactions are further discussed in Note 37. Trade and other receivables are denominated in the following currencies: Indonesian Rupiah 192, ,725 US dollars 158, , , ,198 C-56

303 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 23. Trade and other receivables (cont d) An analysis of the trade receivables aging schedule is as follows: As at 31 December As at June 2006 Rp million Rp million Current 209, ,392 Overdue: 1-30 days 36,186 29, days 11,717 15, days 5,343 1,662 More than 90 days 11,108 18, , ,933 As the Proforma Group s trade receivables relate to a large number of diversified customers, there is no concentration of credit risk. Trade receivables are non-interest bearing and are generally on 14 to 42 day terms for credit payments. 24. Advances to suppliers Advances to suppliers represent advance payments to suppliers and contractors in relation to the purchase of raw materials, machinery and equipment, spare parts, and certain non-trade transactions are shown below : As at 31 December As at June 2006 Rp million Rp million Trade 63,675 42,281 Non-trade 7,127 4,985 70,802 47,266 Advances to suppliers are unsecured, interest-free and obligations of the suppliers are expected to be fulfilled within the next twelve months. 25. Available-for-sale investments As at 31 December As at June 2006 Rp million Rp million Quoted shares, at fair values 212, ,563 The fair values of equity investments are based on quoted market prices. C-57

304 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 26. Cash and cash equivalents As at 31 December As at June 2006 Rp million Rp million Cash on hand and in banks 190, ,528 Short term deposits 84,265 35,700 Cash and cash equivalents 274, ,228 Cash in bank balances earn interest at floating annual interest rates based on daily bank deposit rates. Time deposits are made for varying periods ranging from one day to three months, depending on the immediate cash requirements of the Proforma Group, and earn interest at rates ranging from 0.7% to 13.0% per annum. 27. Trade payables and accruals As at 31 December As at June 2006 Rp million Rp million Financial liabilities Trade payables to related parties 7,743 7,703 Trade payables to third parties 67,417 79,347 Other payables to a shareholder and related parties 494, ,402 Advances from shareholders 370,148 Payables under future commodity contracts 45,871 64, , ,612 Non-financial liabilities Accrued expenses 28,723 49,024 Other taxes payable 11, ,653 Others 28,211 28,887 68, ,564 Total payables and accruals 1,054, ,176 Trade payables are normally settled on 7 to 60 day credit payments terms. Payables incurred on future commodity contract transactions are carried at their respective quoted market prices. Trade payables to related parties are non-interest bearing, unsecured and normally settled on 14 to 60 day terms. Other payables to a shareholder are unsecured, bear interest at rates ranging from 6.0% to 14.8% per annum and repayable on demand. Other payables to related parties are unsecured and non-interest bearing. C-58

305 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 27. Trade payables and accruals (cont d) Advances from shareholders of Rp370.1 billion as at 31 December 2005 refer to the proforma adjustment relating to the proposed return of capital to shareholders in connection with PT SIMP group restructuring as described in Note 2(b). The return of capital to shareholders was approved by the Ministry of Law and Human Rights of Indonesia in June Trade and other payables are denominated in the following currencies : As at 31 December As at June 2006 Rp million Rp million Indonesian Rupiah 836, ,740 US Dollars 216,599 86,496 Euro Others ,054, ,176 An analysis of the trade payables aging schedule is as follows: Current 63,290 65,276 Overdue: 1-30 days 7,229 11, days 1,396 8, days More than 90 days 2,759 2,156 Total 75,160 87, Advances from customers Advances from customers represent advance payments relating to the sale of finished goods, are trade in nature, unsecured, interest-free, and the obligations to the customers are expected to be fulfilled within the next twelve months. C-59

306 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 29. Interest-bearing loans and borrowings Current As at Maturity Effective 31 December As at date interest rate June 2006 Note % Rp million Rp million US$15.0 million working capital facility March % to 7.1% 147, ,500 (a) US$5.0 million pre-export financing loan October % to 7.4% 28,271 8,835 (b) Rp10.0 billion working capital term-loan June % to 14.7% 10,000 10,000 (c) Total 185, ,335 Non-current Due to a shareholder August % to 15.0% 175, ,900 (d) Rp50.0 billion investment loan 2007 to % to 14.8% 26,000 50,000 (e) US$25.0 million bank loan March 2009 LIBOR + 1.8% 232,500 (f) Rp83.0 billion investment credit facility % 26,397 (g) Rp85.0 billion investment facility % 12,022 (g) Total 201, ,819 Note : (a) Working capital facility, which was obtained by PT BML from Citibank N.A. ( Citibank ), can be availed in Rupiah or US Dollar denominations and is covered by a corporate guarantee from PT ISM. (b) (c) (d) (e) (f) (g) Pre-export financing loan is obtained by PT BML from PT Bank Rabobank International Indonesia and covered by a corporate guarantee from PT ISM. On 1 March 2005, PT BML obtained working capital loan from Citibank which can be availed in Rupiah or US Dollar denominations. This loan is covered by a corporate guarantee from PT ISM. The amount due to a shareholder refers to an unsecured and interest bearing loan by PT BML from PT ISM which is unsecured and will mature on 5 August Investment loan from PT Bank Central Asia Tbk ( PT BCA ) was obtained in 2005 by PT CNIS and PT KGP and are covered by a corporate guarantee from PT SIMP. In March 2006, PT SIMP obtained credit facility from Sumitomo Mitsui Banking Corporation, Singapore, which is covered by a corporate guarantee from PT ISM. Investment credit facilities from PT Bank Mandiri (Persero) Tbk ( PT Mandiri ) were obtained in 2004 by PT RAP and PT CKS, newly acquired subsidiaries in Such credit facilities are secured by their respective plantations and corporate guarantees from PT SIMP, PT SAIN and a minority shareholder of PT SAIN. C-60

307 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 30. Other payables As at 31 December As at June 2006 Rp million Rp million Provision for asset dismantling costs 14,949 14,695 Advance from KKPA projects (Note 37(a)) 9,676 2,058 Deferred income Deferred gains on sale-and-leaseback transactions 34 25,263 17,319 Provision for asset dismantling costs Provision for asset dismantling cost represents estimated liability of costs to dismantle, remove and restore the sites of refinery and margarine plants located at Jakarta, and Surabaya, East Java Province. Gains or losses of changes in estimates of provision for assets dismantling cost are presented as part of Other operating income or Other operating expenses in the proforma consolidated profit and loss accounts as shown in Note 6 and 7 respectively. The resulting outflows of economic benefits of this provision are expected to take place in Employee Benefits Certain subsidiaries of the Proforma Group have defined contribution retirement plans covering substantially all of their qualified permanent employees. The said retirement plans were approved by the Ministry of Finance of the Republic of Indonesia in February The pension plans assets were previously managed by Dana Pensiun Salim Ivomas Pratama and Dana Pensiun Salim Indoplantation until 31 May On 1 June 2005, the Proforma Group transferred the management of the assets of their defined contribution retirement plans to Dana Pensiun Lembaga Keuangan (Manulife Indonesia) ( DPLK ) in accordance with the agreement for pension program management (Perjanjian Pengelolaan Program Pensiun). Pursuant to the said agreement, the Proforma Group paid their monthly contributions from February 2006 to DPLK Manulife. The Proforma Group s contributions to the funds are computed at 10.0% and 7.0% of the basic pensionable income for staff and non-staff employees, respectively. Total pension cost charged to operations in 2003, 2004 and 2005 and for the six month periods ended 30 June 2005 and 30 June 2006 are disclosed in Note 8(ii). On top of the benefits provided under the abovementioned defined contribution retirement plans, the Proforma Group has also recorded additional provisions for employee service entitlements in order to meet the minimum benefits required to be paid to the qualified employees, as required under the Labour Law. The amounts of such additional provisions were determined based on actuarial computations prepared by an independent firm of actuaries, PT Sentra Jasa Aktuaria, using the Projected Unit Credit method which are covered by their reports dated 19 June As at 31 December 2005 and 30 June 2006, the balance of the related actuarial liability for employee benefits amounted to Rp66.2 billion and Rp77.0 billion respectively, which is presented as Estimated Liabilities for Employee Benefits in the proforma consolidated balance sheets. C-61

308 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 31. Employee Benefits (cont d) As at 31 December As at June 2006 Rp million Rp million Estimated liability for employee benefits Present value of employee benefits obligation in addition to the defined contribution scheme 96, ,544 Unrecognised net actuarial gain (766) (2,149) Unrecognised past service cost (28,994) (28,408) Post employment benefits liability 66,245 76,987 Changes in the present value of the defined benefit obligation are as follows: As at 31 December As at June 2006 Rp million Rp million Benefit obligation at beginning of year/period 49,994 66,245 Current service cost 8,987 5,124 Interest cost on benefit obligation 9,147 5,341 Amortisation of past service cost 1, Gains on curtailment and settlement (1,949) (15) Net actuarial (gain)/loss recognised during the year/period (527) 136 Benefits paid (1,107) (701) Benefit obligation at end of year/period 66,245 76,987 The following tables summarise the component of net employee benefits expense recognised in the proforma consolidated profit and loss accounts and the amounts recognised in the proforma consolidated balance sheets: Net employee benefit expense Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Current service cost 5,909 6,326 8,987 1,823 5,124 Interest cost on benefit obligation 6,136 7,693 9,147 2,550 5,341 Amortisation of past service cost 1,572 1,685 1, Gains on curtailment and settlement (1,949) (15) Net actuarial loss/(gain) recognised during the year/period 2, (527) 136 Net employee benefit expense (Note 8) 16,579 16,087 17,358 5,350 11,443 C-62

309 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 31. Employee Benefits (cont d) The principal assumptions used in determining post-employment obligations for the Proforma Group s plan are as follows: Annual discount rate : 10.0% in 2003, and 11.0% in 2004, 2005 and 2006 Future annual salary increase : 7.0% in 2003, and 8.0% in 2004, 2005 and 2006 Annual employee turn-over rate : 6.0% for employee under 30 years old and decreasing linearly until 0% at the age of 52 years Disability rate : 10.0% per year from mortality rate Retirement age : 55 years of age Mortality rate : Indonesian mortality table Share capital As at 31 December 2005 and 30 June 2006 No. of shares Rp million Issued and fully paid Ordinary shares 1,011,700,000 26,285 As discussed in Note 2, the share capital of the Proforma Group as at 31 December 2005 and 30 June 2006 are presented as if the Proposed Acquisition occurred at the beginning of the earliest period presented (1 January 2003) and after the consolidation of every 10 existing shares into 1 share. The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. Each ordinary share carries one vote per share without restriction. 33. Share premium Share premium reserve arises from additional paid-up capital in PT SIMP. 34. Other reserves Other reserves comprise unrealised gains/losses on investments in available-for-sale securities and foreign currency translation differences. 35. Dividends PT SIMP distributed dividends amounting to Rp1,500.0 billion (Rp4,000,000 per share), Rp500.0 billion (Rp1,333,333 per share) and Rp1,000.0 billion (Rp2,666,667 per share) in 2003, 2004 and 2005, respectively. Furthermore, certain subsidiaries of PT SIMP have distributed dividends to their minority shareholders in 2003, 2004 and 2005 totaling Rp11.9 billion, Rp6.6 billion and Rp12.9 billion, respectively. There are no dividends declared, proposed or paid for the six month period ended 30 June C-63

310 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 36. Acquisition of subsidiary companies (a) Acquisition of Silveron Investments Limited, Mauritius ( SIL ) On 29 December 2004, PT SIMP entered into a Conditional Sale and Purchase Agreement with Reserve Cash Limited, Hong Kong, to purchase the latter s 100.0% equity interest in SIL. The total purchase consideration amounted to Rp175.0 billion, 90.0% of which or Rp157.5 billion was paid by PT SIMP as an advance for investment in convertible bonds in PT SIMP paid the remaining 10.0% of the purchase consideration or Rp17.5 billion on 27 June 2005, the effective date for this acquisition. SIL has 100.0% direct and indirect equity interests in two oil palm plantations companies, namely PT KGP and PT CNIS (the latter through ASL). The acquisition is accounted for using the purchase method. Goodwill arising from this acquisition amounted to Rp36.9 billion and presented as part of non-current assets in the proforma consolidated balance sheet (Note 18). (b) (c) Acquisition of PT Kebun Mandiri Sejahtera ( PT KMS ) On 24 November 2005, PT SIMP signed a Sales and Purchase Agreement with PT Arka Kirana Sawita ( PT AKS ) for the purchase of the latter s 93.4% ownership in PT KMS, an entity engaged in the operations and maintenance of rubber plantations, for a total consideration of Rp75.0 billion. Since the acquisition cost is lower than PT SIMP s equity share in the fair values of the underlying identifiable assets and liabilities acquired, PT SIMP reassessed the identification and measurement of the identifiable assets and liabilities of the acquiree and the measurement of the cost of the combination, and recognised immediately in the proforma consolidated profit and loss accounts the excess of Rp25.9 billion remaining after that reassessment. Acquisition of PT Sarana Inti Pratama ( PT SAIN ) On 15 December 2005, PT SIMP entered into Convertible Bond Purchase Agreement with Beeager Investments Limited, British Virgin Islands, for the purchase of the convertible bonds issued by PT SAIN with face value of US$3.6 million, which can be converted into 36,200 ordinary shares. The total purchase price of the convertible bond, which will mature in 2008, amounted to US$16.4 million. Out of the said total amount of purchase consideration, PT SIMP has paid 90.0% or US$14.8 million (approximately Rp145.8 billion) as an advance. Pursuant to the terms of the agreement, the remaining balance of 10.0% amounting to US$1.6 million (approximately Rp16.1 billion) was paid on 2 June On 20 June 2006, PT SIMP submitted its conversion notice to PT SAIN. Accordingly, on 21 June 2006, PT SAIN issued 36,200 new shares to PT SIMP with total par value of Rp36.2 billion and PT SAIN became 70.0% owned subsidiary company. C-64

311 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 36. Acquisition of subsidiary companies (cont d) The fair value of the identifiable assets and liabilities of SIL, PT KMS and PT SAIN at the date of acquisitions were: SIL and PT KMS PT SAIN As at 31 December 2005 As at 30 June 2006 Carrying value Fair value Carrying value Fair value Rp million Rp million Rp million Rp million Property, plant and equipment 9,546 23,159 7,261 14,074 Biological assets 111, ,861 42, ,672 Deferred tax asset 33,961 12,134 9,475 9,475 Prepaid land premiums and deferred land right acquisition costs 8,005 45,964 12,418 31,940 Inventories 3,827 3,827 2,583 2,583 Trade and other receivables 8,127 8,127 2,516 2,516 Cash and cash equivalents 30,073 30,073 5,378 5,378 Other assets 5,312 5,312 35,849 35,849 Total identifiable assets 210, , , ,487 Interest-bearing loans and borrowings 23,000 23,000 38,419 38,419 Deferred tax liability 9, ,927 Other liabilities ,315 20,315 Trade and other payables 13,140 13,140 4,853 4,853 Total identifiable liabilities 36,861 46,302 63, ,514 Minority interests 7,946 7,091 16,372 68,048 Net assets 165, ,064 38, ,925 Goodwill arising on acquisition 36,852 # 2,171 Negative goodwill arising on acquisition 10,936 2,171 Total cost of business combination 250, ,096 # Arising from acquisition of Arising from acquisition of PT KMS At the date of acquisition on 21 June 2006, PT SAIN s net assets included goodwill of Rp11.0 million arising from the acquisition of its subsidiaries (PT RAP, PT CKS and PT JS). C-65

312 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 36. Acquisition of subsidiary companies (cont d) The total cost of combination comprised costs directly attributable to the combination. Cash outflow on acquisition is as follows: As at 31 December As at June 2006 Rp million Rp million Cash paid 250, ,096 Advances for convertible bonds paid (157,500) (145,792) Net cash of the acquired subsidiaries (30,073) (5,378) Net cash outflow 62,427 9,926 From the date of acquisition, SIL and PT KMS have contributed Rp29.9 billion of net losses to the proforma consolidated profit and loss accounts of the Proforma Group for The acquisition of PT SAIN was only completed on 21 June 2006 and therefore PT SAIN did not contribute any profit to the proforma consolidated profit and loss accounts for the six month period ended 30 June It is not practicable to disclose the revenue and profit before taxation of the Proforma Group, as though the acquisitions have taken place at the beginning of the year, as the information on fair value of biological assets at the beginning of the year is not available to management. 37. Commitments and contingencies (a) Advances to/(from) KKPA projects PT CNIS, PT KGP, PT CKS and PT RAP, subsidiaries of the Proforma Group, develop plantations projects under the KKPA scheme. The development of plantations is financed by a credit investment facility granted by a designated bank to the farmers through the Koperasi Unit Desa ( KUD ) as the representatives of the farmers. Upon completion of the plantation projects, PT CNIS, PT KGP, PT CKS and PT RAP shall hand over the aforesaid projects to the farmers. Under the KKPA Scheme, when the plantations start to mature, the farmers are obliged to sell all their harvest to these companies, who shall then pay the instalments for the credit investment facilities obtained from the designated bank using funds deducted from the farmers sales proceeds. The credit investment facilities under the KKPA scheme for the development of the plantations by PT CNIS and PT KGP are financed by PT Bank Permata Tbk while the development of the plasma plantations by PT RAP and PT CKS is financed by PT Bank Mandiri (Persero) Tbk. The development of the plasma plantations by PT CKS is jointly financed by PT Bank Mandiri (Persero) Tbk of 80.0% and PT CKS of 20.0%. The total facilities to be provided by PT CKS amounts to Rp25.7 billion and the outstanding balance as at 30 June 2006 amounted to Rp3.7 billion. C-66

313 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 37. Commitments and contingencies (cont d) In addition to the above scheme, PT RAP and PT CKS provided temporary funding to the KUDs to repay interest to be paid to the lenders since the related plantations have not yet matured. These loans will be repaid by the KUDs once the plantations are matured and ready to be harvested. The details as at 31 December 2005 and 30 June 2006 are : As at 31 December 2005 As at 30 June 2006 Facility Area of KKPA Facility Area of KKPA Amount Plantations Amount Plantations Rp million Hectares Rp million Hectares PT CNIS KUD Tut Wuri Handayani I 148,384 5, ,384 5,000 KUD Tut Wuri Handayani II 160,099 5, ,099 5,000 PT KGP KUD Semegah 164,298 5, ,298 5,000 PT RAP KUD Asmoja 108,880 5,000 PT CKS KUD Cinta Kasih 102,770 5, ,781 15, ,431 25,000 Loans Cost of Funds provided development of received by PT CKS plantations from KUD and PT RAP Total Rp million Rp million Rp million Rp million Beginning balance at 1 January ,110 (186,056) (11,946) Additions during the year 34,851 (32,581) 2,270 Ending balance at 31 December ,961 (218,637) (9,676) Acquisition of subsidiary companies 132,834 (129,889) 2,945 Additions during the period 28,205 (16,546) 26,025 37,684 Adjustments (3,328) (3,328) Ending balance at 30 June ,672 (365,072)* 26,025 27,625 Presented within: - other non-current assets 29,683 - other non-current liabilities (2,058) 27,625 * Including loans from nucleus plantation companies. C-67

314 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 37. Commitments and contingencies (cont d) The above loan facilities are secured against receivables from the farmers arising from sales of FFB, the related oil palm plantations and corporate guarantees from PT CNIS and PT KGP, as follows: - guarantees to a maximum amount of Rp472.7 billion at 30 June 2006 from PT CNIS and PT KGP; and, - guarantees to a maximum amount of Rp211.7 billion at 30 June 2006 from PT RAP and PT CKS. (b) Future commodity contracts transactions The future commodity contracts entered into with several foreign entities by certain subsidiary companies are primarily intended to hedge their exposures on risks of losses arising from the fluctuations in prices of the commodities that they are trading. The future commodity contracts are not designated as hedges for accounting purposes. The fair values of the related net receivables arising from the outstanding/open future commodity contracts were determined based on the relevant quoted market prices. The contractual amounts to be received from the outstanding contracts relate to contracts to sell the following commodities: As at 31 December As at June 2006 Rp million Rp million Crude palm oil 21,091 Crude coconut oil 121,597 57,137 Crude palm kernel oil 11,599 2, ,287 59,706 January 2006 July 2006 to Maturity dates to June 2006 October 2006 As at 31 December As at June 2006 Rp million Rp million Year/period end fair values : - Positive fair value 44,839 65,135 - Negative fair value (45,871) (64,160) Net fair value (1,032) 975 C-68

315 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 37. Commitments and contingencies (cont d) (c) Litigation against PT BML Land at Bitung, North Sulawesi In February 2001, several individuals filed a civil claim against PT BML at the District Court of Bitung, North Sulawesi. The plaintiffs alleged that PT BML was unlawfully controlling land of an area of approximately 1.2 hectares located in North Sulawesi Province, which the individuals claimed to own. The land has a carrying value of Rp million as at 31 December In October 2001, the District Court of Bitung rejected the plaintiffs claim and the plaintiffs appealed against this decision to the High Court of Manado. On appeal, the High Court of Manado reaffirmed the decision of the District Court of Bitung. The plaintiffs filed their appeal against this decision to the Indonesian Supreme Court in October 2002 and the proceedings are pending as at 30 June Management believes that the legal suit has no basis and will finally be settled in favour of PT BML. Land at Manado, North Sulawesi In September 2004, several individuals filed a civil claim against, inter alia, PT BML at the District Court of Manado. The individuals alleged that PT BML unlawfully controlled a plot of land of approximately 2,200.0 square metres located in North Sulawesi province, which the individuals claimed to own. The plaintiffs claim was for compensation of Rp 4.7 billion. In July 2006, the District Court of Manado rejected the plaintiffs claim. The plaintiffs have appealed against this decision to the High Court of Manado and the proceedings are pending as at 30 June Management believes that the legal suit has no basis and will finally be settled in favour of PT BML. (d) Operating lease commitments As Lessee The Proforma Group has entered into commercial leases to lease land and buildings. These non-cancellable operating leases have remaining lease terms between 3 months to 10 years. Future minimum lease payments under non-cancellable operating lease are as follows: Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Within one year 1,498 1,492 1,586 1,586 1,586 After one year but not more than five years 4,245 2,736 1,322 2, ,743 4,228 2,908 3,701 2,115 C-69

316 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 37. Commitments and contingencies (cont d) As Lessor The Proforma Group has entered into a short-term commercial lease on its tanks. Operating lease income recognised in the proforma consolidated profit and loss accounts for the six month periods ended 30 June 2005 and 2006 amounted to Rp2.8 billion and Rp3.9 billion, respectively. The future minimum rentals receivable under the non-cancellable operating lease within one year at 30 June 2006 is Rp1.0 billion. 38. Related party disclosures In addition to those related party information provided elsewhere in the relevant notes to the unaudited proforma consolidated financial information, the following are the significant transactions between the Proforma Group and related parties (who are not members of the Proforma Group) that took place during the financial years ended 31 December 2003, 2004 and 2005 and six month periods ended 30 June 2005 ( HY2005 ) and 30 June 2006 ( HY2006 ) at the terms agreed between the parties: A Minority Other shareholder share- Related related Nature of transactions Year (PT ISM) holders companies parties Rp million Rp million Rp million Rp million Sales of goods , ,180 43, , ,798 12, , ,287 6,582 HY , ,162 1,841 HY , ,862 1,525 Purchase of goods, ,607 processing fees, ,417 management fees and others ,513 HY2005 2,523 Purchases of packaging , ,633 HY ,176 HY ,380 Land transportation ,516 services, pump services ,034 and communication facilities ,796 HY2005 3,752 HY2006 3,184 Interest income , , , HY2005 1, HY C-70

317 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 38. Related party disclosures (cont d) A Minority Other shareholder share- Related related Nature of transactions Year (PT ISM) holders companies parties Rp million Rp million Rp million Rp million Interest expense , , ,908 HY ,809 HY ,830 Dividends paid ,200, , , , , ,000 HY , ,000 Tank rental HY HY Office rental HY HY Insurance HY2006 2,715 Freight expenses HY ,847 Gain on sale of prepaid land premium HY2006 1,070 Since 1996, a related party has granted the Proforma Group the right to use a parcel of land located at North Jakarta with an aggregate area of approximately 19,875 square metres under a lease agreement dated 1 June The Proforma Group made a one-time payment amounting to Rp11.0 billion in 1996 as prepaid rental for the lease period from June 1996 to June 2016 with no requirement for further rental payment. The Proforma Group amortise the prepaid lease rental over 20 years on a straight line basis and the annual amortisation charge amounts to Rp550.0 million. C-71

318 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 38. Related party disclosures (cont d) Compensation of key management personnel of the Proforma Group Year ended Six month period 31 December ended 30 June Rp million Rp million Rp million Rp million Rp million Salaries and short-term employee benefits 42,339 37,279 35,710 10,942 10,069 Termination benefits 2,019 6,706 5, Post-employment benefits 6,304 12,877 15,196 7,598 14,835 Total compensation paid to the key management personnel 48,643 52,175 57,612 23,680 25,764 Comprise amounts paid to : - Directors of the Proforma Group 10,201 7,593 10,330 2,988 4,214 - Other key management personnel 38,442 44,582 47,282 20,692 21,550 48,643 52,175 57,612 23,680 25, Financial risk management objectives and policies The Proforma Group s principal financial instruments, other than derivatives, comprise bank loans and other interest-bearing loans, and cash and short-term time deposits and available-for-sale investments. The main purpose of these financial instruments is to raise funds for the Proforma Group s operations. The Proforma Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. It is and has been the Proforma Group s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Proforma Group s financial instruments are market risk (including currency risk and price risk), credit risk, liquidity risk, and fair value and cash flow interest rate risk. The directors review and agree policies for managing each of these risks, which are described in more details as follows: (a) Fair value and cash flow interest rate risk The value of the Proforma Group s investments in fixed rate debentures/debt securities fluctuate as a result of changes in market interest rates and the changes in their values are recognised in the Proforma Group s equity. Proforma Group s interest rate risk mainly arises from loans and borrowings for working capital. Borrowings at variable rates expose the Proforma Group to fair value interest rate risk. There are no loans and borrowings of the Proforma Group at fixed interest rates. C-72

319 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 39. Financial risk management objectives and policies (cont d) The table below sets out the Proforma Group s exposure to interest rate risk. Included in the table are the assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. Interest bearing Within 6 6 to 12 More than Non-interest months months 1 year bearing Total Rp million Rp million Rp million Rp million Rp million As at 31 December 2005 Assets Investment in convertible bonds 50,300 50,300 Advance for convertible bonds 145, ,792 Other non-current assets - loans to employees 10,840 10,840 Trade and other receivables 14, , ,749 Available-for-sale investments 212, ,955 Cash and cash equivalents 271,495 3, ,744 Liabilities Long-term interest-bearing loans and borrowings 201, ,000 Trade and other payables and accruals 462,851 30, ,557 1,042,538 Short-term interest-bearing loans and borrowings 185, ,721 Advances from customers 9,291 9,291 As at 30 June 2006 Assets Other non-current assets - loans to employees 15,029 15,029 Trade and other receivables 364, ,179 Available-for-sale investments 228, ,563 Cash and cash equivalents 185,723 4, ,228 Liabilities Long-term interest-bearing loans and borrowings 468, ,819 Trade and other payables and accruals 349, , ,523 Short-term interest-bearing loans and borrowings 8, , ,335 Advances from customers 2,787 2,787 For working capital borrowings, the Proforma Group may seek to mitigate its interest rate risk by passing it on to its customers. C-73

320 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 39. Financial risk management objectives and policies (cont d) (b) Foreign currency risk The Proforma Group s functional and reporting currency is the Indonesian Rupiah. The Proforma Group faces foreign exchange risk as its borrowings, export sales and the costs of certain key purchases which are either denominated in the United States dollars or whose price is significantly influenced by their benchmark price movements in foreign currencies (mainly United States Dollars) as quoted on international markets. To the extent that the revenue and purchases of the Proforma Group are denominated in currencies other than Indonesian Rupiah, and are not evenly matched in terms of quantum and/or timing, the Proforma Group has exposure to foreign currency risk. The Proforma Group does not have any formal hedging policy for foreign exchange exposure. However, in relation to the matters discussed in the preceding paragraph, the fluctuations in the exchange rates between Indonesian Rupiah and United States Dollar provide some degree of natural hedge for the Proforma Group s foreign exchange exposure. (c) Commodity price risk The Group is exposed to commodity price risk due to certain factors, such as weather, government policy, level of demand and supply in the market and the global economic environment. Such exposure mainly arises from its purchase of CPO where the profit margin on sale of its finished products may be affected if the cost of CPO (which is the main raw material used in the refinery plants to manufacture cooking oils and fats products) increases and the Group is unable to pass such cost increases to its customers. In addition, the Group is also subject to fluctuations in the selling price of its manufactured CNO and the purchase price of copra (being the raw material used in the manufacture of CNO). The Group s policy is to minimise the risks arising from the fluctuations in the commodity prices by being partly self-sufficient in CPO as this provides a hedge against such cost fluctuations. To the extend it is unable to do so, the pro forma Group may minimise such risks through forward contracts. As such, it may also be exposed to commodity price risk as changes in fair value of future commodity contracts are recognised directly in the proforma consolidated profit and loss accounts. (d) Credit risk The Proforma Group is exposed to credit risk arising from the credit granted to its customers. To mitigate this risk, it has policies in place to ensure that sales of products are made only to creditworthy customers with proven track record or good credit history. It is the Proforma Group s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. For export sales, the Proforma Group requires cash against the presentation of documents of title. For domestic sales, the Proforma Group may grant its customers credit terms up to 45 days from the issuance of invoice. The Proforma Group has policies that limit the amount of credit exposure to any particular customer, such as, requiring sub-distributors to provide bank guarantees. In addition, receivable balances are monitored on an ongoing basis to reduce the Proforma Group s exposure to bad debts. C-74

321 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 39. Financial risk management objectives and policies (cont d) (d) Credit risk (cont d) When a customer fails to make payment within the credit terms granted, the Proforma Group will contact the customer to act on the overdue receivables. If the customer does not settle the overdue receivable within a reasonable time, the Proforma Group will proceed to commence legal proceedings. Depending on the Proforma Group s assessment, specific provisions may be made if the debt is deemed uncollectible. To mitigate from the credit risk, the Proforma Group will cease the supply of all products to customers in the event of late payment and/or default. The Proforma Group has no concentration of credit risk. (e) Liquidity risk The Proforma Group manages its liquidity profile to be able to finance its capital expenditure and service its maturing debts by maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities. The Proforma Group regularly evaluates its projected and actual cash flow information and continuously assesses conditions in the financial markets for opportunities to pursue fundraising initiatives. These initiatives may include bank loans and borrowings and equity market issues. 40. Financial instruments The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm s-length transaction, other than in a forced or liquidation sale situation. (a) Financial instruments carried at fair value or amortised cost The fair values of the quoted shares is based on their respective market prices. Net receivables and payables arising from future commodity contracts are stated based on their quoted market prices. Long-term loans to employees are carried at amortised cost using the effective interest method and the discount rates used are the current market incremental lending rate for similar types of lending. (b) Financial instruments with carrying amounts that approximate their fair values The fair value of cash and cash equivalents, current trade and other receivables, current trade and other payables, current/short-term bank loans and accrued expenses approximate their carrying values due to their short-term nature. The fair value of non-current borrowings (namely long-term loans and amount due to a related party) approximates their carrying value as they bear floating interest rates and are re-priced frequently. C-75

322 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 40. Financial instruments (cont d) (c) Financial instruments carried at amounts other than fair values Investments in other unquoted ordinary shares representing ownership interest of below 20.0% equity ownership are carried at cost as their fair value cannot be reliably measured. Investment in convertible bonds and advance on investment in convertible bonds as at 31 December 2005 are carried at cost as their fair values cannot be reliably measured. 41. Segment information The primary segment reporting format is determined to be business segments as the Proforma Group s risk and rates of return are affected predominantly by differences in the products produced. The secondary segment is determined to be geographical segment based on the geographical location of the Proforma Group s customers. The operating businesses are organised and managed separately according to the nature of the products provided, with each segment representing a strategic business unit that offers different products, and serves different markets. The Cooking Oil and Fats segment include the manufacture of cooking oil, margarine and shortening, fats and other related products. The Commodities segment includes the trading of palm-based products with physical and non-physical delivery, as well as the manufacturing and sale of CNO and its derivatives products. The Plantations segment includes the development and maintenance of oil palm and rubber plantations, and other business activities relating to oil palm processing. Transfer prices between business segments are set on an arm s length basis in a manner similar to transactions with third parties. Segment revenues, segment expenses and segment results include transfers between business segments. Those transfers are eliminated for purposes of consolidation. C-76

323 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 41. Segment information (cont d) Business segments The following table presents proforma revenue and profit and certain proforma asset and liability information regarding the Proforma Group s business segments: Year ended 31 December 2003 Cooking oil Plantations and fats Commodities Eliminations Total Rp million Rp million Rp million Rp million Rp million Revenue Sales to external customers 1,076,870 2,190,695 1,619,072 4,886,637 Inter-segments sales 20, ,302 (515,729) Total sales 1,076,870 2,211,122 2,114,374 (515,729) 4,886,637 Results Segment results 375,467 (21,179) (46,402) (8,553) 299,333 Net finance revenue 132,020 Net foreign exchange loss on interest -bearing loans and borrowings (22,167) Profit before income tax 409,186 Income tax expense (133,970) Profit for the year 275,216 Assets and liabilities Segment assets 2,847, ,500 1,222,065 (341,960) 4,562,389 Deferred tax assets 10,319 Claims for tax refund 70,776 Unallocated assets 25,381 Total assets 4,668,865 Segment liabilities 105, , ,377 (328,455) 723,670 Unallocated liabilities 695,694 Deferred tax liabilities 361,961 Income taxes payable 64,201 Total liabilities 1,845,526 Other segment information Capital expenditure 108,148 9,138 17, ,338 Depreciation and amortisation 31,896 33,149 15,799 80,844 Losses arising from changes in fair value of biological assets 230, ,316 Provision for employee benefits 5,939 9,185 1,455 16,579 C-77

324 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 41. Segment information (cont d) Year ended 31 December 2004 Cooking oil Plantations and fats Commodities Eliminations Total Rp million Rp million Rp million Rp million Rp million Revenue Sales to external customers 279,459 2,526,126 1,226,504 4,032,089 Inter-segments sales 1,033,032 7,336 62,305 (1,102,673) Total sales 1,312,491 2,533,462 1,288,809 (1,102,673) 4,032,089 Results Segment results 775,967 75,112 34,434 (10,001) 875,512 Net finance revenue 26,122 Net foreign exchange gain on interest -bearing loans and borrowings 13,177 Profit before income tax 914,811 Income tax expense (274,534) Profit for the year 640,277 Assets and liabilities Segment assets 2,935, , ,816 (135,308) 4,330,037 Deferred tax assets 11,716 Claims for tax refund 24,021 Unallocated assets 28,996 Total assets 4,394,770 Segment liabilities 69, , ,083 (84,135) 412,025 Unallocated liabilities 565,633 Deferred tax liabilities 363,270 Income taxes payable 84,302 Total liabilities 1,425,230 Other segment information Capital expenditure 226,221 29,153 2, ,962 Depreciation and amortisation 37,566 32,108 16,267 85,941 Losses arising from changes in fair value of biological assets 6,157 6,157 Provision for employee benefits 5,755 7,370 2,962 16,087 C-78

325 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 41. Segment information (cont d) Year ended 31 December 2005 Cooking oil Plantations and fats Commodities Eliminations Total Rp million Rp million Rp million Rp million Rp million Revenue Sales to external customers 225,619 2,537, ,812 3,589,609 Inter-segments sales 941,474 42,562 59,424 (1,043,460) Total sales 1,167,093 2,579, ,236 (1,043,460) 3,589,609 Results Segment results 776,975 51,858 7,436 43, ,576 Net finance costs (25,849) Net foreign exchange loss on interest -bearing loans and borrowings (2,312) Profit before income tax 851,415 Income tax expense (243,855) Profit for the year 607,560 Assets and liabilities Segment assets 2,861,963 1,029, ,312 (113,658) 4,461,086 Deferred tax assets 73,864 Claims for tax refund 53,966 Unallocated assets 30,126 Total assets 4,619,042 Segment liabilities 468, , ,176 (76,971) 784,881 Unallocated liabilities 756,870 Deferred tax liabilities 443,863 Income taxes payable 10,191 Total liabilities 1,995,805 Other segment information Capital expenditure 158,345 24,871 6, ,075 Depreciation and amortisation 44,411 34,473 15,747 94,631 Gains arising from changes in fair value of biological assets 100, ,001 Provision for employee benefits 8,900 8, ,358 C-79

326 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 41. Segment information (cont d) Six month period ended 30 June 2005 Cooking oil Plantations and fats Commodities Eliminations Total Rp million Rp million Rp million Rp million Rp million Revenue Sales to external customers 66,083 1,131, ,920 1,559,625 Inter-segments sales 471,536 26,427 (497,963) Total sales 537,619 1,131, ,347 (497,963) 1,559,625 Results Segment results 411,459 31,564 10,822 13, ,659 Net finance costs (3,904) Net foreign exchange loss on interest -bearing loans and borrowings (1,250) Profit before income tax 462,505 Income tax expense (140,134) Profit for the period 322,371 Assets and liabilities Segment assets 2,647, , ,072 (131,227) 4,110,342 Deferred tax assets 17,990 Claims for tax refund 30,594 Unallocated assets 29,398 Total assets 4,188,324 Segment liabilities 517, , ,212 (94,334) 769,869 Unallocated liabilities 693,709 Deferred tax liabilities 409,352 Income taxes payable 23,082 Total liabilities 1,896,012 Other segment information Capital expenditure 63,682 2, ,018 Depreciation and amortisation 20,813 17,233 8,132 46,178 Gains arising from changes in fair value of biological assets 94,838 94,838 Provision for employee benefits 3,707 1,643 5,350 C-80

327 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 41. Segment information (cont d) Cooking oil Plantations and fats Commodities Eliminations Total Rp million Rp million Rp million Rp million Rp million Six month period ended 30 June 2006 Revenue Sales to external customers 94,929 1,215, ,028 1,693,214 Inter-segments sales 445,056 11,574 1,310 (457,940) Total sales 539,985 1,226, ,338 (457,940) 1,693,214 Results Segment results 492,659 16,582 (23,153) (26,125) 459,963 Net finance costs (41,036) Net foreign exchange loss on interest -bearing loans and borrowings 3,299 Profit before income tax 422,226 Income tax expense (158,866) Profit for the period 263,360 Assets and liabilities Segment assets 3,504, , ,054 (198,194) 4,838,422 Deferred tax assets 72,601 Claims for tax refund 101,855 Unallocated assets 29,856 Total assets 5,042,734 Segment liabilities 378, , ,661 (153,433) 831,269 Unallocated liabilities 627,154 Deferred tax liabilities 596,731 Income taxes payable 17,596 Total liabilities 2,072,750 Other segment information Capital expenditure 105,552 8,452 7, ,308 Depreciation and amortisation 28,590 18,373 7,187 54,150 Gains arising from changes in fair value of biological assets 257, ,224 Provision for employee benefits 5,495 4,832 1,116 11,443 C-81

328 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 41. Segment information (cont d) Geographical segments All of the Proforma Group s assets are located in Indonesia. The following table presents sales to customers based on the geographical location of the customers: Revenue Eliminations Total Region Rp million Rp million Rp million Year ended 31 December 2003 Domestic 3,010,869 (515,729) 2,495,140 Export Asia 1,724,170 1,724,170 Europe 490, ,476 Africa, Middle East and Oceania 154, ,605 America 22,246 22,246 Segment revenue 5,402,366 (515,729) 4,886,637 Year ended 31 December 2004 Domestic 3,634,329 (1,102,673) 2,531,656 Export Asia 697, ,295 Europe 418, ,384 Africa, Middle East and Oceania 161, ,260 America 223, ,494 Segment revenue 5,134,762 (1,102,673) 4,032,089 Year ended 31 December 2005 Domestic 3,396,662 (1,043,460) 2,353,202 Export Asia 486, ,921 Europe 206, ,947 Africa, Middle East and Oceania 147, ,074 America 395, ,465 Segment revenue 4,633,069 (1,043,460) 3,589,609 Six month period ended 30 June 2005 Domestic 1,500,046 (497,963) 1,002,083 Export Asia 409, ,455 Europe 71,502 71,502 Africa, Middle East and Oceania 71,229 71,229 America 5,356 5,356 Segment revenue 2,057,588 (497,963) 1,559,625 C-82

329 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 41. Segment information (cont d) Revenue Eliminations Total Region Rp million Rp million Rp million Six month period ended 30 June 2006 Domestic 1,616,113 (457,940) 1,158,173 Export Asia 234, ,816 Europe 158, ,423 Africa, Middle East and Oceania 77,353 77,353 America 64,449 64,449 Segment revenue 2,151,154 (457,940) 1,693, Statement of adjustments (i) The following adjustments have been made in arriving at the unaudited proforma consolidated profit and loss accounts of the Proforma Group for the financial years ended 31 December 2003, 2004 and 2005 and six month periods ended 30 June 2005 and For the financial year ended 31 December 2003 As per Proforma unaudited adjustment to As per proforma the unaudited unaudited consolidated proforma proforma profit and loss consolidated consolidated account of profit and loss profit and loss PT SIMP account account Rp million Rp million Rp million Revenue 4,886,637 4,886,637 Cost of Sales (4,015,829) (4,015,829) Gross profit 870, ,808 Losses arising from changes in fair values of biological assets (230,316) (230,316) Other operating income 11,028 11,028 Selling and distribution costs (149,467) (149,467) General and administrative expenses (182,402) (182,402) Other operating expenses (42,485) (42,485) Profit from operations 277, ,166 Financial income 197, ,618 Financial expenses (65,598) (65,598) Profit before taxation 409, ,186 Tax expense (133,970) (133,970) Profit for the year 275, ,216 Attributable to : Equity holders of the Company 269,405 (26,941) 242,464 Minority interests 5,811 26,941 32, , ,216 C-83

330 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 42. Statement of adjustments (cont d) For the financial year ended 31 December 2004 As per Proforma unaudited adjustment to As per proforma the unaudited unaudited consolidated proforma proforma profit and loss consolidated consolidated account of profit and loss profit and loss PT SIMP account account Rp million Rp million Rp million Revenue 4,032,089 4,032,089 Cost of Sales (2,861,697) (2,861,697) Gross profit 1,170,392 1,170,392 Losses arising from changes in fair values of biological assets (6,157) (6,157) Other operating income 21,680 21,680 Selling and distribution costs (131,100) (131,100) General and administrative expenses (153,132) (153,132) Other operating expenses (12,994) (12,994) Profit from operations 888, ,689 Financial income 66,874 66,874 Financial expenses (40,752) (40,752) Profit before taxation 914, ,811 Tax expense (274,534) (274,534) Profit for the year 640, ,277 Attributable to : Equity holders of the Company 633,384 (63,338) 570,046 Minority interests 6,893 63,338 70, , ,277 C-84

331 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 42. Statement of adjustments (cont d) For the financial year ended 31 December 2005 As per Proforma unaudited adjustment to As per proforma the unaudited unaudited consolidated proforma proforma profit and loss consolidated consolidated account of profit and loss profit and loss PT SIMP account account Rp million Rp million Rp million Revenue 3,589,609 3,589,609 Cost of Sales (2,510,807) (2,510,807) Gross profit 1,078,802 1,078,802 Gains arising from changes in fair values of biological assets 100, ,001 Other operating income 40,983 40,983 Selling and distribution costs (155,089) (155,089) General and administrative expenses (180,958) (180,958) Other operating expenses (6,475) (6,475) Profit from operations 877, ,264 Financial income 16,919 16,919 Financial expenses (42,768) (42,768) Profit before taxation 851, ,415 Tax expense (243,855) (243,855) Profit for the year 607, ,560 Attributable to : Equity holders of the Company 602,924 (60,292) 542,632 Minority interests 4,636 60,292 64, , ,560 C-85

332 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 42. Statement of adjustments (cont d) Six month period ended 30 June 2005 As per Proforma unaudited adjustment to As per proforma the unaudited unaudited consolidated proforma proforma profit and loss consolidated consolidated account of profit and loss profit and loss PT SIMP account account Rp million Rp million Rp million Revenue 1,559,625 1,559,625 Cost of Sales (1,053,746) (1,053,746) Gross profit 505, ,879 Gains arising from changes in fair value of biological assets 94,838 94,838 Other operating income 11,464 11,464 Selling and distribution costs (63,113) (63,113) General and administrative expenses (75,812) (75,812) Other operating expenses (6,847) (6,847) Profit from operations 466, ,409 Financial income 10,174 10,174 Financial expenses (14,078) (14,078) Profit before taxation 462, ,505 Tax expense (140,134) (140,134) Profit for the period 322, ,371 Attributable to : Equity holders of the Company 319,697 (31,970) 287,727 Minority interests 2,674 31,970 34, , ,371 C-86

333 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 42. Statement of adjustments (cont d) Six month period ended 30 June 2006 As per Proforma unaudited adjustment to As per proforma the unaudited unaudited consolidated proforma proforma profit and loss consolidated consolidated account of profit and loss profit and loss PT SIMP account account Rp million Rp million Rp million Revenue 1,693,214 1,693,214 Cost of Sales (1,362,467) (1,362,467) Gross profit 330, ,747 Gains arising from changes in fair value of biological assets 257, ,224 Other operating income 21,243 21,243 Selling and distribution costs (60,165) (60,165) General and administrative expenses (78,314) (78,314) Other operating expenses (7,473) (7,473) Profit from operations 463, ,262 Financial income 4,195 4,195 Financial expenses (45,231) (45,231) Profit before taxation 422, ,226 Tax expense (158,866) (158,866) Profit for the period 263, ,360 Attributable to : Equity holders of the Company 261,615 (26,162) 235,453 Minority interests 1,745 26,162 27, , ,360 C-87

334 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 42. Statement of adjustments (cont d) The following adjustments have been made in arriving at the unaudited proforma consolidated balance sheets of the Proforma Group as at 31 December 2005 and 30 June As per Proforma unaudited adjustment to As per proforma the unaudited unaudited consolidated proforma proforma balance sheet consolidated consolidated As at 31 December 2005 of PT SIMP balance sheet balance sheet Rp million Rp million Rp million Non-current assets Biological assets 1,661,523 1,661,523 Property, plant and equipment 733, ,798 Prepaid land premiums and deferred land rights acquisition cost 158, ,968 Assets not used in operations 160, ,088 Investments in convertible bonds 50,300 50,300 Advance for investments in convertible bonds 145, ,792 Goodwill 36,852 36,852 Claims for income tax refund 53,966 53,966 Deferred tax assets 73,864 73,864 Other non-current assets 53,448 53,448 Total non-current assets 3,128,599 3,128,599 Current assets Inventories 535, ,096 Trade and other receivables 351, ,006 Prepaid value added tax 45,840 45,840 Advances to suppliers 70,802 70,802 Available-for-sale investments 212, ,955 Cash and cash equivalents 244,618 30, ,744 Total current assets 1,460,317 30,126 1,490,443 Total assets 4,588,916 30,126 4,619,042 Current liabilities Trade payables and accruals 684, ,148 1,054,231 Advances from customers 9,291 9,291 Interest-bearing loans and borrowings 185, ,721 Income taxes payable 10,191 10,191 Total current liabilities 889, ,148 1,259,434 C-88

335 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 42. Statement of adjustments (cont d) As per Proforma unaudited adjustment to As per proforma the unaudited unaudited consolidated proforma proforma balance sheet consolidated consolidated As at 31 December 2005 of PT SIMP balance sheet balance sheet Rp million Rp million Rp million Non-current liabilities Interest-bearing loans and borrowings 201, ,000 Other payables 25,263 25,263 Estimated liabilities for employee benefits 66,245 66,245 Deferred tax liabilities 443, ,863 Total non-current liabilities 736, ,371 Total liabilities 1,625, ,148 1,995,805 Net assets 2,963,259 (340,022) 2,623,237 Share capital and reserves Share capital 623,210 (596,925) 26,285 Share premium 9,191 9,191 Reserves 2,313,815 (228,458) 2,085,357 2,946,216 (825,383) 2,120,833 Minority interests 17, , ,404 Total equity 2,963,259 (340,022) 2,623,237 C-89

336 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 42. Statement of adjustments (cont d) As per Proforma unaudited adjustment to As per proforma the unaudited unaudited consolidated proforma proforma balance sheet consolidated consolidated As at 30 June 2006 of PT SIMP balance sheet balance sheet Rp million Rp million Rp million Non-current assets Biological assets 2,207,830 2,207,830 Property, plant and equipment 810, ,642 Prepaid land premiums and deferred land right acquisition costs 192, ,223 Assets not used in operations Investment in convertible bonds Advance for convertible bonds Goodwill 39,034 39,034 Claims for income tax refund 101, ,855 Deferred tax assets 72,601 72,601 Other non-current assets 77,529 77,529 Total non-current assets 3,501,714 3,501,714 Current assets Inventories 500, ,156 Trade and other receivables 385, ,198 Prepaid value added tax 189, ,609 Advances to suppliers 47,266 47,266 Available-for-sale investments 228, ,563 Cash and cash equivalents 160,372 29, ,228 Total current assets 1,511,164 29,856 1,541,020 Total assets 5,012,878 29,856 5,042,734 Current liabilities Trade payables and accruals 734, ,176 Advances from customers 2,787 2,787 Interest-bearing loans and borrowings 158, ,335 Income taxes payable 17,596 17,596 Total current liabilities 912, ,894 C-90

337 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 42. Statement of adjustments (cont d) As per Proforma unaudited adjustment to As per proforma the unaudited unaudited consolidated proforma proforma balance sheet consolidated consolidated As at 30 June 2006 of PT SIMP balance sheet balance sheet Rp million Rp million Rp million Non-current liabilities Interest-bearing loans and borrowings 468, ,819 Other payables 17,319 17,319 Estimated liabilities for employee benefits 76,987 76,987 Deferred tax liabilities 596, ,731 Total non-current liabilities 1,159,856 1,159,856 Total liabilities 2,072,750 2,072,750 Net assets 2,940,128 29,856 2,969,984 Share capital and reserves Share capital 253,061 (226,776) 26,285 Share premium 9,191 9,191 Reserves 2,590,891 (256,437) 2,334,454 2,853,143 (483,213) 2,369,930 Minority interests 86, , ,054 Total equity 2,940,128 29,856 2,969,984 In arriving at the unaudited proforma consolidated profit and loss accounts for the financial years ended 31 December 2003, 2004 and 2005 and six month periods ended 30 June 2005 and 2006, and unaudited proforma consolidated balance sheets as at 31 December 2005 and 30 June 2006 of the Proforma Group, proforma adjustments have been made to: (i) (ii) (iii) (iv) include the cash balance of the Company amounting to approximately Rp30.0 billion (S$5 million) as described in Note 2(a); include the return of capital to shareholders in connection with PT SIMP group restructuring as described in Note 2(b); reflect the effects of accounting the Proposed Acquisition as reverse acquisition as described in Note 2(c); and reflect the minority interest in PT SIMP based on the Proforma Group structure as described in Note 2(d). C-91

338 APPENDIX C: REPORT ON EXAMINATION OF UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIOD ENDED 30 JUNE 2006 UNAUDITED PROFORMA CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005 AND SIX MONTH PERIODS ENDED 30 JUNE 2005 AND 2006 E. PROFORMA FINANCIAL EFFECT OF THE PROPOSED ACQUISITION 43. Events after balance sheet date On 16 August 2006, PT SIMP entered into a Conditional Sale and Purchase Agreement with Rascal Holdings Limited ( RHL ), a related party, to acquire the entire 60.0% interest owned by RHL in the following entities and their subsidiary companies (the Plantation Companies ) for a total consideration of Rp125.0 billion to be satisfied by cash: i) PT Mega Citra Perdana ( PT MCP ) ii) PT Mentari Subur Abadi ( PT MSA ) iii) PT Swadaya Bhakti Negaramas ( PT SBN ) The Plantation Companies are incorporated and domiciled in Indonesia, and own an aggregate land bank of approximately 85,541 hectares in East and Central Kalimantan and South Sumatra, of which approximately 2,844 hectares have already been planted with oil palm (immature oil palm plantations). The summarised financial information of the Plantation Companies based on their audited financial statements for the financial year ended 31 December 2005 prepared under generally accepted accounting principles in Indonesia are as follows : PT MCP PT MSA PT SBN Rp million Rp million Rp million Balance sheet : Non current assets 63, Current assets 7, Current liabilities (16,489) (1,117) (262) Non current liabilities (2,397) 52, Profit and loss account : Revenue Gross loss (99) Loss from operations (1,207) (133) (96) Net loss (90) (65) The independent shareholders of PT ISM approved the proposed acquisition on 16 October The completion of the proposed acquisition is subject to the satisfactory completion of other conditions precedent, including obtaining regulatory approvals from relevant Authorities in Indonesia. C-92

339 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP 1. INFORMATION ON THE MEMBERS OF THE NEW BOARD AND THE PROPOSED NEW KEY EXECUTIVES The principal present and past directorships of each member of the new Board following the completion of the Proposed Acquisition, held in the five years preceding the Latest Practicable Date, excluding directorships held in the Company, are as follows:- Name Principal Present Directorships Principal Past Directorships Lee Kwong Foo Proforma Group Companies Proforma Group Companies Edward Nil Nil Other Companies PT Eka Lumintas Gas Supply Pte. Ltd. Keppel Land Limited Manhatten Resources Limited PT Bayan Resources Other Companies Nil Benny Setiawan Proforma Group Companies Proforma Group Companies Santoso Nil Nil Other Companies Commissioner PT Indofood Sukses Makmur Tbk PT Indosiar Visual Mandiri Tbk Director First Pacific Company Limited PT Indocement Tunggal Prakarsa Tbk Others Member of the Advisory Board of Philippine Long Distance Telephone Company Other Companies President Commissioner PT Dwi Mitra Nusantara Commissioner PT Fast Food Indonesia Tbk Director PT Estetika Binagriya Cesar Manikan Proforma Group Companies Proforma Group Companies dela Cruz President Commissioner Nil PT Salim Ivomas Pratama Director Indofood Oil & Fats Pte. Ltd. Other Companies President Commissioner PT Gizindo Primanusantara Other Companies Director PT Indofood Fritolay Makmur PT Surya Rengo Container Commissioner PT Nestle Indofood Citarasa Indonesia Vice President Director PT Indofood Sukses Makmur Tbk Director Indofood Singapore Holdings Pte. Ltd. D-1

340 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Name Principal Present Directorships Principal Past Directorships Tjhie Tje Fie Proforma Group Companies Proforma Group Companies Commissioner Nil PT Salim Ivomas Pratama Director Indofood Oil & Fats Pte. Ltd. Other Companies President Commissioner PT Indosentra Pelangi PT Intranusa Citra Commissioner PT Ciptakemas Abadi PT Mileva Makmur Mandiri PT Surya Rengo Container Other Companies President Commissioner PT Argha Giri Perkasa Director PT Mekar Prima Lestari Director PT Indofood Sukses Makmur Tbk Indofood Singapore Holdings Pte. Ltd. Mulyawan Tjandra Proforma Group Companies Proforma Group Companies President Director Director PT Salim Ivomas Pratama PT Kebun Mandiri Sejahtera Other Companies Director PT Indofood Sukses Makmur Tbk Other Companies Commissioner PT Ciptasubur Nusajaya PT Permai Dianpusaka President Director PT Bitung Menado Oil Industry PT Sawitra Oil Grains Vice President Director PT Intiboga Sejahtera Director PT Mandarabhakti Pertiwi PT Pratama Setia Wisesa PT Sentosa Subur Abadi Gunadi Proforma Group Companies Proforma Group Companies President Director President Director PT Cibaliung Tunggal Plantations PT Kebun Mandiri Sejahtera PT Gunung Mas Raya PT Indoagri Inti Plantation PT Perusahaan Dagang Perkebunan dan Industri Serikat Putra PT Perusahaan Perkebunan, Industri dan Dagang Indriplant Vice President Director PT Salim Ivomas Pratama D-2

341 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Name Principal Present Directorships Principal Past Directorships Other Companies President Director PT Sentosa Subur Abadi Other Companies President Commissioner PT Intiboga Sejahtera PT Sawitra Oil Grains PT Pusaaka Intani Vice-President Commissioner PT Sarana Tempa Perkasa Commissioner PT Ciptasubur Nusajaya PT Permai Dianpusaka President Director PT Lestari Subur Abadi PT Mandarabhakti Pertiwi PT Pratama Setia Wisesa PT Tirtakencana Kreasimas Moleonoto Tjang Proforma Group Companies Proforma Group Companies Vice President Director Commissioner PT Cibaliung Tunggal Plantations PT Kebun Mandiri Sejahtera PT Gunung Mas Raya PT Indoagri Inti Plantation President Director PT Perusahaan Dagang Perkebunan dan Industri Serikat Putra PT Sarana Inti Pratama PT Perusahaan Perkebunan, Industri dan Dagang Indriplant PT Salim Ivomas Pratama Other Companies President Director PT Sarana Tempa Perkasa PT Indotruba Timur Director Pacsari Pte Ltd PT Sentosa Subur Abadi Other Companies Commissioner PT Bitung Menado Oil Industry PT Sawitra Oil Grains PT Intiboga Sejahtera President Director PT Cakra Kumala Indah PT Indoselor Manunggal PT Lestari Subur Abadi PT Mandarabhakti Pertiwi PT Pasir Penyu PT Pratama Setia Wisesa PT Pusakasinar Dianabadi PT Tirtakencana Kreasimas PT Cipta Subur Nusajaya Director PT Intimegah Bestari Pertiwi PT Permai Dianpusaka PT Pusaka Intani PT Salim Agroplantation D-3

342 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Name Principal Present Directorships Principal Past Directorships Lim Hock San Proforma Group Companies Proforma Group Companies Nil Nil Other Companies Ascendas Pte Ltd Interra Resources Limited Gallant Venture Ltd. Health Sciences Authority Keppel Corporation Limited Mount Alvernia Hospital Singapore Land Limited United Industrial Corporation Limited United Test and Assembly Center Ltd Other Companies Advanced Materials Technologies Pte Ltd Civil Aviation Authority of Singapore Keppel Tat-Lee Finance Limited (now known as KTF Limited) MPC Holdings Ltd Singapore Soviet Shipping Co. Private Ltd. (in creditors voluntary winding up) Yongnam Holdings Ltd Goh Kian Chee Proforma Group Companies Proforma Group Companies Nil Nil Other Companies Asiamedic Limited Other Companies John Hancock International Pte Ltd Hendra Susanto Proforma Group Companies Proforma Group Companies Nil Nil Other Companies PT Premium Solusi Indonesia Other Companies PT ING Indonesia Bank The principal present and past directorships of each of the Proposed New Key Executives, held in the five years preceding the Latest Practicable Date are as follows:- Name Principal Present Directorships Principal Past Directorships Tan Agustinus Proforma Group Companies Proforma Group Companies Dermawan Director Director PT Cibaliung Tunggal Plantations PT Kebun Mandiri Sejahtera PT Gunung Mas Raya PT Sarana Inti Pratama PT Indoagri Inti Plantation PT Perusahaan Dagang Perkebunan dan Industri Serikat Putra PT Perusahaan Perkebunan, Industri dan Dagang Indriplant PT Salim Ivomas Pratama Other Companies Director PT Indotruba Timur PT Sentosa Subur Abadi PT Tirtakencana Kreasimas Other Companies President Director PT Cakra Kumala Indah PT Intimegah Bestari Pertiwi Director PT Ciptasubur Nusajaya PT Indoselor Manunggal PT Lestari Subur Abadi PT Mandarabhakti Pertiwi PT Pasir Penyu PT Pratama Setia Wisesa PT Pusakasinar Dianabadi D-4

343 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Name Principal Present Directorships Principal Past Directorships Mak Mei Yook Proforma Group Companies Proforma Group Companies Nil Nil Other Companies Nil Other Companies Nil Save as disclosed below, none of the members of the new Board or the Controlling Shareholders of the Company being individuals immediately after the completion of the Proposed Acquisition or the Proposed New Key Executives:- (a) (b) (c) (d) (e) (f) (g) (h) (i) has had at any time during the last 10 years, an application or a petition under any bankruptcy laws of any jurisdiction filed against him or against a partnership of which he was a partner at the time when he was a partner or at any time within 2 years from the date he ceased to be a partner; has had at any time during the last 10 years, an application or a petition under any law of any jurisdiction filed against an entity (not being a partnership) of which he was a director or an equivalent person or a key executive, at the time when he was a director or an equivalent person or a key executive of that entity or at any time within 2 years from the date he ceased to be a director or an equivalent person or a key executive of that entity, for the winding up or dissolution of that entity or, where that entity is the trustee of a business trust, that business trust, on the ground of insolvency; has any unsatisfied judgment against him; has ever been convicted of any offence, in Singapore or elsewhere, involving fraud or dishonesty which is punishable with imprisonment, or has been the subject of any criminal proceedings (including any pending criminal proceedings of which he is aware) for such purpose; has ever been convicted of any offence, in Singapore or elsewhere, involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or has been the subject of any criminal proceedings (including any pending criminal proceedings of which he is aware) for such breach; has at any time during the last 10 years, had judgment entered against him in any civil proceedings in Singapore or elsewhere involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or a finding of fraud, misrepresentation or dishonesty on his part, or has been the subject of any civil proceedings (including any pending civil proceedings of which he is aware) involving an allegation of fraud, misrepresentation or dishonesty on his part; has ever been convicted in Singapore or elsewhere of any offence in connection with the formation or management of any entity or business trust; has ever been disqualified from acting as a director or an equivalent person of any entity (including the trustee of a business trust), or from taking part directly or indirectly in the management of any entity or business trust; has ever been the subject of any order, judgment or ruling of any court, tribunal or governmental body permanently or temporarily enjoining him from engaging in any type of business practice or activity; D-5

344 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP (j) has ever, to his knowledge, been concerned with the management or conduct, in Singapore or elsewhere, of the affairs of:- (i) (ii) (iii) (iv) any corporation which has been investigated for a breach of any law or regulatory requirement governing corporations in Singapore or elsewhere; any entity (not being a corporation) which has been investigated for a breach of any law or regulatory requirement governing such entities in Singapore or elsewhere; any business trust which has been investigated for a breach of any law or regulatory requirement governing business trusts in Singapore or elsewhere; or any entity or business trust which has been investigated for a breach of any law or regulatory requirement that relates to the securities and futures industry in Singapore or elsewhere, in connection with any matter occurring or arising during the period when he was so concerned with the entity or business trust; or (k) has been the subject of any current or past investigation or disciplinary proceedings, or has been reprimanded or issued any warning, by the Monetary Authority of Singapore or any other regulatory authority, exchange, professional body or government agency, whether in Singapore or elsewhere. Mr Lim Hock San has been a director of Singapore Soviet Shipping Co. Private Ltd. ( SSSCPL ) since 28 April On 10 March 2003, SSSCPL was put in voluntary creditors liquidation. The liquidation process is still ongoing as at the Latest Practicable Date. SSSCPL is an associated company of United Industrial Corporation Limited and was directly managed by two joint managing directors. Mr Lim was not engaged in the day-to-day management of SSSCPL. Since 1993, Mr Anthoni Salim has been a director of Bintan Lagoon Resort Ltd. In April 2005, Bintan Lagoon Resort Ltd was placed under compulsory winding-up. The liquidation process is ongoing as at the Latest Practicable Date. Mr Anthoni Salim was not engaged in the day-to-day management of Bintan Lagoon Resort Ltd. Mr Anthoni Salim was a defendant in legal proceedings commenced in Indonesia by PT Adhya Tirta Batam ( PT ATB ) against PT Batamindo Investment Cakrawala ( PT BIC ) and, inter alia, its directors who include Mr Anthoni Salim. PT ATB alleged, inter alia, that PT BIC s business activity of water extraction in Batam breached PT ATB s alleged exclusive right to water exploitation in Batam Island. PT ATB also claimed that PT BIC under the management of the other defendants failed to act honestly in registering and notifying its business activities to the Indonesian authorities. PT ATB, inter alia, sought a declaration that PT BIC be dissolved. On 14 November 2006, PT ATB and PT BIC submitted their deed of settlement to the Indonesian Courts, and on 28 November 2006, the Indonesian Courts rendered a settlement judgement verdict for the amicable settlement of this matter. On 16 October 2006, PT Sweet Indolampung ( PT Sweet ), PT Indolampung Perkasa ( PT ILP ), PT Gula Putih Mataram ( PT GPM ), PT Indolampung Distillery ( PT ILD ) and PT Garuda Pancaarta ( PT GPA ) filed a civil claim against 53 parties at the Indonesian Courts, and on the same date PT ILP and PT GPA filed a civil claim against 48 parties at the Indonesian Courts (the Civil Claims ). The defendants in both civil claims include Marubeni Corporation ( Marubeni ), The Sumitomo Trust and Banking Co, Ltd., Singapore Branch, Sumitomo Mitsui Banking Corporation, Branch of Singapore, the liquidation team of the Indonesian Banking Restructuring Agency, the Finance Minister of the Republic of Indonesia and the Minister of Law and Human Rights of the Republic of Indonesia, Mr Anthoni Salim and Mr Benny Setiawan Santoso. PT Sweet, PT ILP, PT GPM and PT ILD ( Sugar Companies ) were companies previously controlled by the Salim family. Certain shares in these companies were transferred to the Indonesian government in D-6

345 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP 1998 as part of the Salim family s debt repayment to the Indonesian government. The shares in the Sugar Companies were put up for sale by the Indonesian government through an open tender involving a due diligence process conducted by PricewaterhouseCoopers after the aforementioned transfer by the Salim family. PT GPA was the successful bidder of shares in the Sugar Companies and purchased them from the Indonesian government. In August 2006, Marubeni, a major creditor of the Sugar Companies, made a demand for repayment of overdue indebtedness owing by the Sugar Companies in the amount of approximately US$140 million and interest in arrears of approximately US$35 million (the Marubeni Indebtedness ). The Marubeni Indebtedness arose out of the financing and refinancing of the construction of the sugarcane refinery factories, supply of plant and machinery and agricultural equipment to the Sugar Companies. The Marubeni Indebtedness has been registered with the Central Bank of Indonesia in accordance with applicable Indonesian rules and regulations. Tax on interest has also been paid before the sale to PT GPA. Details of the Marubeni Indebtedness were also disclosed to bidders of the Sugar Companies, including PT GPA, as part of the due diligence process for the open tender. In response to, and to avoid Marubeni s demand, the plaintiffs have filed the Civil Claims wherein they have made allegations that, inter alia, certain of the defendants had fabricated debts and security over the assets of the Sugar Companies relating to the Marubeni Indebtedness. Mr Anthoni Salim and Mr Benny Setiawan Santoso intend to defend the Civil Claims and proceedings are pending as at the Latest Practicable Date. There is no shareholding qualification for the Directors of the Company in its Articles of Association. 2. SHARE CAPITAL OF THE COMPANY As at the Latest Practicable Date, there is only one class of shares in the capital of the Company and all the issued Shares are fully paid-up. The rights and privileges attached to its Shares are stated in the Articles of Association. The Shares, as well as the Consideration Shares, are registered shares. Shareholders are not entitled to pre-emptive rights to purchase Shares under the Articles of Association of the Company or Singapore law. The issued share capital of the Company as at 1 January 2005 was S$15,334,788 divided into 135,000,000 Shares. There was no change to the Company s issued share capital between 1 January 2005 and 31 December As at the Latest Practicable Date:- (i) (ii) (iii) no person has, or has the right to be given, an option to subscribe for any Shares; no option to subscribe for Shares has been granted to, or was exercised by, any Director or the CEO of the Company; and none of the Shares are held by or on behalf of the Company. There were no changes in the share capital of the Company in the three years prior to the Latest Practicable Date. There are no restrictions on the free transferability of the Shares which are fully paid-up under the Articles of Association of the Company. D-7

346 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP 3. MATERIAL CONTRACTS OF THE GROUP The following contracts (not being contracts entered into in the ordinary course of business of the Company or its subsidiaries (as the case may be)) have been entered into by the Company and/or its subsidiaries within the two years preceding the Latest Practicable Date and are, or may be, material:- (a) (b) (c) (d) (e) (f) (g) (h) Supplemental to Conditional Sale and Purchase Agreement dated 10 June 2005 between Lien Hoe Corporation Bhd ( Lien Hoe ) and the Company, pursuant to which the terms of the Conditional Sale and Purchase Agreement dated 22 October 2003 in respect of the Company s proposed acquisition of certain property-owning companies from Lien Hoe, were amended and replaced; Further Supplemental Agreement dated 10 December 2005 between Lien Hoe and the Company pursuant to which the cut-off date as contemplated in the Supplemental to Conditional Sale and Purchase Agreement dated 10 June 2005 was extended from 10 December 2005 to 31 March 2006; Sale and Purchase Agreement dated 11 July 2006 between the Company and ISG Plc in relation to the disposal of substantially all of the Company s interests in its existing businesses of providing project management, facilities management, engineering and fittingout works and services, and interior design services, by way of the transfer of the entire issued share capital of ISG Asia Investment (Hong Kong) Limited for a cash consideration of S$13.6 million, and containing, inter alia, representations, warranties and indemnities given by each party to the other, and limitations on liability in respect of certain of such representations and warranties; the Injection Agreement, which contains, inter alia, warranties, representations and indemnities on the part of the Company, PT ISM and the Existing Major Shareholders (and which contains limitation(s) on liabilities in respect of certain of the foregoing (including the liability of the Existing Major Shareholders under such indemnity not exceeding the current percentage of their aggregate shareholding interest in the Company, namely 37.22%, under certain circumstances)); deeds of undertaking dated 23 August 2006 from each of the Existing Major Shareholders in favour of the Company, PT ISM and ISHPL which provide, inter alia, that they shall vote or procure the voting of all Shares which they own and have an interest in, in favour of the resolutions to be proposed at the EGM; deeds of undertaking dated 24 August 2006 from First Pacific Investments (B.V.I.) Limited and First Pacific Investments Limited, in favour of, inter alia, the Company, which provide, inter alia, that they shall, to the extent permitted by listing rules of the Hong Kong Stock Exchange, vote their respective shares in First Pacific in favour of the resolutions which are to be proposed at the special general meeting of the shareholders of First Pacific to approve the transactions contemplated by the Injection Agreement (including the Proposed Acquisition and the Placement); deed of undertaking dated 29 August 2006 from First Pacific in favour of PT ISM and the Company, which provides that it shall procure its subsidiaries to vote all their shares in PT ISM in favour of the resolutions which are to be proposed at the extraordinary general meeting of the shareholders of PT ISM to approve the transactions contemplated by the Injection Agreement (including the Proposed Acquisition) if, inter alia, it is permitted to do so under the listing rules of the Hong Kong Stock Exchange; the PT ISM and Salim Group deeds of undertaking referred to in Section 18.4 of this Circular; D-8

347 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP (i) (j) (k) (l) (m) (n) (o) Supplemental Agreement dated 27 October 2006 to Conditional Sale and Purchase Agreement dated 11 July 2006 between the Company and ISG Plc, amending certain terms of the Sale and Purchase Agreement dated 11 July 2006 between the same parties; Agreement in respect of Assumption of Obligations dated 27 October 2006 between ISG Asia Engineering (M) Sdn Bhd ( ISGAE ), ISG Asia Technical Services Sdn Bhd and ISG Asia (Malaysia) Sdn Bhd setting out, inter alia, prior arrangements agreed to by the parties pertaining to the respective parties obligations under the Completed Works, the Works in Progress and the Assumed Contracts (each term as defined in the agreement) in connection with the completion of the transfer and restructuring of certain business and undertaking of ISGAE on the terms set out in the agreement referred to in paragraph 3(c) of this Appendix D; Deed of Assignment of Trade Retentions dated 27 October 2006 entered into between ISGAE in favour of ISG Asia Technical Services Sdn Bhd and the Company pursuant to which ISGAE agreed to assign the rights, title and interest in under or arising out of certain trade retentions owing from certain debtors including ISG Asia (Malaysia) Sdn Bhd, to ISGAE; the Sale and Purchase Agreement dated 30 November 2006 between the Company and Maniscoco Sdn Bhd in relation to the disposal of the Company s entire stake of 490,000 ordinary shares in the capital of CityAxis Engineering Sdn Bhd (formerly known as ISG Asia Engineering (M) Sdn Bhd) to Maniscoco Sdn Bhd for a total consideration of RM1,500,000, pursuant to the Second Disposal; the Agreement for Escrow Arrangement dated 30 November 2006 between the Company, Maniscoco Sdn Bhd and Megat Najmuddin Leong & Co. ( MNLC ) in relation to the appointment of MNLC as escrow agent in relation to the transfer of the Company s 490,000 shares in CityAxis Engineering Sdn Bhd to Maniscoco Sdn Bhd; the Sale and Purchase Agreement dated 30 November 2006 between the Company and CSI Concepts (S) Pte Ltd in relation to the disposal of the Company s two (2) ordinary shares in CityAxis Leasing (Singapore) Pte Ltd (formerly known as ISG Asia Leasing (Singapore) Pte Ltd), representing the entire issued share capital of CityAxis Leasing (Singapore) Pte Ltd, to CSI Concepts (S) Pte Ltd for a consideration of S$1.00, pursuant to the Second Disposal; and the Sale and Purchase Agreement dated 30 November 2006 between the Company and Tan Cheong Siew in relation to the disposal of the Company s two (2) ordinary shares in CityAxis Group Services (M) Sdn Bhd (formerly known as ISG Asia Holdings (M) Sdn Bhd), representing the entire issued share capital of CityAxis Group Services (M) Sdn Bhd, to Tan Cheong Siew for a total consideration of RM2.00, pursuant to the Second Disposal. 4. SHARE PRICE The share prices of the Company are set out below:- (a) the annual highest and lowest market prices for the three most recent completed FYs Financial Year High Low (S$) (S$) D-9

348 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP (b) the highest and lowest market prices for each financial quarter of the two most recent financial years ended 31 December 2005 and the last three most recent completed financial quarters Quarter High Low (S$) (S$) 2004: 1st quarter : 2nd quarter : 3rd quarter : 4th quarter : 1st quarter : 2nd quarter : 3rd quarter : 4th quarter : 1st quarter : 2nd quarter : 3rd quarter (c) the highest and lowest market prices for each month for the most recent six months Month High Low (S$) (S$) June July August September October November Source: Bloomberg LP (d) (e) the last transacted price of the Shares on the SGX-SESDAQ on 22 August 2006, being the Market Day immediately preceding the date of the announcement of the entry by the Company into the Injection Agreement was S$0.115; and the last transacted price of the Shares on the SGX-SESDAQ on 7 December 2006, being the Market Day immediately preceding the Latest Practicable Date was S$ EXPENSES The estimated expenses (based on circumstances known to the Company as at the Latest Practicable Date, which may change) for the Proposed Transactions which will be borne by the Company in the event the Proposed Acquisition is completed including fees of the financial adviser, independent financial adviser, auditors and reporting accountants, legal counsels and all other incidental expenses, are set out below:- S$ Additional listing fees 75,600 Professional fees and charges 4,500,000 Miscellaneous expenses 400,000 Total estimated expenses 4,975, INTERESTS OF EXPERTS AND OTHER RELATIONSHIPS No expert named in this Circular is employed on a contingent basis by any member of the Target Group, or has a material interest, whether direct or indirect, in the shares of any member of the Target Group, or has a material economic interest, whether direct or indirect, in the Target Group, including an interest in the success of the Proposed Transactions. D-10

349 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP CIMB-GK does not, in the reasonable opinion of the Directors, have any material relationship with the Target Group. By way of disclosure, it is noted that:- (a) (b) PT CIMB-GK Securities Indonesia, a related company of CIMB-GK, is the financial adviser to PT ISM in respect of the PT ISM Group Restructuring and the Proposed Acquisition; and CIMB-GK acted as financial adviser to the Company in relation to the First Disposal. CIMB- GK will act as global co-ordinator for the Placement. 7. MEMORANDUM & ARTICLES OF ASSOCIATION Memorandum of Association The Company s objects and purposes are set out in Clause 3 of the Company s Memorandum of Association. The Memorandum also states, amongst other things, that the liability of members of the Company is limited, and that the objects for which the Company is established include those of an investment and holding company. A full text of the Memorandum of Association of the Company is available for inspection at the registered office of the Company. Articles of Association An extract of the Articles of Association of the Company on certain provisions relating to the directors of the Company, the rights, preferences and restrictions attaching to each class of shares, changes in capital, changes in the respective rights of the various classes of shares, and any time limit after which a dividend entitlement will lapse, are set out below. Defined terms bear the meanings ascribed to them in the Articles of Association of the Company. A full text of the Articles of Association of the Company is available for inspection at the registered office of the Company. There is no limitation on the right to own shares, including limitations on the right of non-resident or foreign shareholders to hold or exercise voting rights on the shares imposed by law or by the constituent documents of the Company. (a) Power of Directors to contract with the Company Powers of Directors to contract with Company (96) (1) No Director or intending Director shall be disqualified by his office from contracting or entering into any arrangement with the Company either as vendor, purchaser or otherwise nor shall such contract or arrangement or any contract or arrangement entered into by or on behalf of the Company in which any Director shall be in any way interested be avoided nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason only of such Director holding that office or of the fiduciary relation thereby established but every Director shall observe the provisions of Section 156 of the Act relating to the disclosure of the interests of the Directors in contracts or proposed contracts with the Company or of any office or property held by a Director which might create duties or interests in conflict with his duties or interests as a Director and any contract or arrangement to be entered into by or on behalf of the Company in which any Director shall be in any way interested shall be subject to any requirements that may be imposed by the Exchange. No Director shall vote in respect of any contract, arrangement or transaction in which he is so interested as aforesaid or in respect of any allotment of shares in or debentures of the Company to him and if he does so vote his vote shall not be counted but this prohibition as to voting shall not apply to:- D-11

350 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP (i) (ii) (iii) (iv) any arrangement for giving to him any security or indemnity in respect of money lent by him or obligations undertaken by him for the benefit of the Company; or any arrangement for the giving by the Company of any security to a third party in respect of a debt or obligation of the Company for which he himself has assumed responsibility in whole or in part under a guarantee or indemnity or by the deposit of a security; or any contract by him to subscribe for or underwrite shares or debentures of the Company, or any contract or arrangement with any other company, corporation or body in which he is interested only as a director or other officer or creditor of or as a shareholder in or beneficially interested in the shares thereof. Relaxation of restriction on voting Ratification by General Meeting (96) (2) A Director, notwithstanding his interest, may be counted in the quorum present at any meeting where he or any other Director is appointed to hold any office or place of profit under the Company, or where the Directors resolve to exercise any of the rights of the Company (whether by the exercise of voting rights or otherwise) to appoint or concur in the appointment of a Director to hold any office or place of profit under any other company, or where the Directors resolve to enter into or make any arrangements with him or on his behalf pursuant to these Articles or where the terms of any such appointment or arrangements as hereinbefore mentioned are considered, and he may vote on any such matter other than in respect of the appointment of or arrangements with himself or the fixing of the terms thereof. Notwithstanding Articles 96(1)(i) to (iv) above, a Director shall not vote in respect to any contract or arrangement or proposed contract or arrangement in which he has directly or indirectly a personal material interest. (96) (3) The provisions of this Article may at any time be suspended or relaxed to any extent and either generally or in respect of any particular contract, arrangement or transaction by the Company in General Meeting, and any particular contract, arrangement or transaction carried out in contravention of this Article may be ratified by Ordinary Resolution of the Company. (b) Remuneration Fees (92) (1) The fees of the Directors shall be determined from time to time by the Company in General Meetings and such fees shall not be increased except pursuant to an Ordinary Resolution passed at a General Meeting where notice of the proposed increase shall have been given in the notice convening the Meeting. Such fees shall be divided among the Directors in such proportions and manner as they may agree and in default of agreement equally, except that in the latter event any Director who shall hold office for part only of the period in respect of which such fee is payable shall be entitled only to rank in such division for the proportion of fee related to the period during which he has held office. Extra remuneration (92) (2) Any Director who is appointed to any executive office or serves on any committee or who otherwise performs or renders services, which, in the opinion of the Directors, are outside his ordinary duties as a Director, may be paid such extra remuneration as the Directors may determine, subject however as is hereinafter provided in this Article. D-12

351 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Remuneration of Director (92) (3) Notwithstanding Article 92(2), the remuneration in the case of a Director other than an Executive Director shall be payable by a fixed sum and shall not at any time be by commission on or percentage of the profits or turnover, and no Director whether an Executive Director or otherwise shall be remunerated by a commission on or percentage of turnover. Expenses (93) The Directors shall be entitled to be repaid all traveling or such reasonable expenses as may be incurred in attending and returning from meetings of the Directors or of any committee of the Directors or General Meetings or otherwise howsoever in or about the business of the Company in the course of the performance of their duties as Directors. Pensions to Directors and Dependents Benefits for employees Remuneration of Managing Director Alternate Directors (94) Subject to the Act, the Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director or former Director who had held any other salaried office or place of profit with the Company or to his widow or dependants or relations or connections and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance. (95) The Directors may procure the establishment and maintenance of or participate in or contribute to any non-contributory or contributory pension or superannuation fund or life assurance scheme or any other scheme whatsoever for the benefit of and pay, provide for or procure the grant of donations, gratuities, pensions, allowances, benefits or emoluments to any persons (including Directors and other officers) who are or shall have been at any time in the employment or service of the Company or of the predecessors in business of the Company or of any subsidiary company, and the wives, widows, families or dependants of any such persons. The Directors may also procure the establishment and subsidy of or subscription and support to any institutions, associations, clubs, funds or trusts calculated to be for the benefit of any such persons as aforesaid or otherwise to advance the interests and well-being of the Company or of any such other company as aforesaid or of its Members and payment for or towards the insurance of any such persons as aforesaid, and subscriptions or guarantees of money for charitable or benevolent objects or for any exhibition or for any public, general or useful object. (100) The remuneration of a Managing Director (or any Director holding an equivalent appointment) shall from time to time be fixed by the Directors and may subject to these Articles be by way of salary or commission or participating in profits or by any or all of these modes but he shall not under any circumstances be remunerated by a commission on or a percentage of turnover. (109) (1) Any Director of the Company may at any time appoint any person who is not a Director or an alternate of another Director and who is approved by a majority of his Co-Directors to be his Alternate Director and may at any time remove any such Alternate Director from office. An Alternate Director so appointed shall be entitled to receive from the Company such proportion (if any) of the remuneration otherwise payable to his appointor as such appointor may by notice in writing to the Company from time to time direct, but save as aforesaid he shall not in respect of such appointment be entitled to receive any remuneration from the Company. Any fee paid to an Alternate Director shall be deducted from the remuneration otherwise payable to his appointor. D-13

352 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP (c) Borrowing Directors borrowing powers (124) The Directors may at their discretion exercise every borrowing power vested in the Company by its Memorandum of Association or permitted by law and may borrow or raise money from time to time for the purpose of the Company and secure the payment of such sums by mortgage, charge or hypothecation of or upon all or any of the property or assets of the Company including any uncalled or called but unpaid capital or by the issue of debentures (whether at par or at discount or premium) or otherwise as they may think fit. Article 124, like any other provision in the Articles, may be amended by a special resolution of the Company s shareholders. (d) Retirement Age Limit and Shareholding Qualification Vacation of office of Director (102) (1) Subject as herein otherwise provided or to the terms of any subsisting agreement, the office of a Director shall be vacated on any one of the following events, namely:-... (viii) subject to the provisions of the Act at the conclusion of the Annual General Meeting commencing next after he attains the age of 70 years. Qualifications (91) A Director need not be a Member and shall not be required to hold any share qualification in the Company and shall be entitled to attend and speak at General Meetings but subject to the provisions of the Act he shall not be of or over the age of 70 years at the date of his appointment. (e) (f) Share rights and restrictions The Company currently has one class of shares, namely, ordinary shares. Dividends and distribution Payment of dividends (129) The Directors may, with the sanction of the Company, by Ordinary Resolution declare dividends but (without prejudice to the powers of the Company to pay interest on share capital as hereinbefore provided) no dividend shall be payable except out of the profits of the Company. Apportionment of dividends Payment of preference and interim dividends (130) Subject to the rights of holders of shares with special rights as to dividend (if any), all dividends shall be declared and paid according to the amounts paid on the shares in respect whereof the dividend is paid, but (for the purposes of this Article only) no amount paid on a share in advance of calls shall be treated as paid on the share. All dividends shall be apportioned and paid pro rata according to the amount paid on the shares during any portion or portions of the period in respect of which the dividend is paid, but if any share is issued on terms providing that it shall rank for dividend as from a particular date such shares shall rank for dividend accordingly. (131) Notwithstanding Article 130, if, and so far as in the opinion of the Directors, the profits of the Company justify such payments, the Directors may pay fixed preferential dividends on any express class of shares carrying a fixed preferential dividend expressed to be payable on a fixed date on the half-yearly or other dates (if any) prescribed for the payment D-14

353 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP thereof by the terms of issue of the shares, and subject thereto may also from time to time pay to the holders of any other class of shares interim dividends thereon of such amounts and on such dales as they may think fit. Dividends not to bear interest Unclaimed dividends Payment of dividend in specie Dividends payable by cheque Effect of transfer (133) No dividend or other moneys payable on or in respect of a share shall bear interest against the Company. (137) The payment by the Directors of any unclaimed dividends or other moneys payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof. All dividends unclaimed after being declared may be invested or otherwise made use of by the Directors for the benefit of the Company and any dividend unclaimed after a period of six years from the date of declaration of such dividend may be forfeited and if so shall revert to the Company but the Directors may at any time thereafter at their absolute discretion annul any such forfeiture and pay the dividend so forfeited to the person entitled thereto prior to the forfeiture. For the avoidance of doubt no Member shall be entitled to any interest, share of revenue or other benefit arising from any unclaimed dividends, howsoever and whatsoever. (138) The Company may, upon the recommendation of the Directors, by Ordinary Resolution direct payment of a dividend in whole or in part by the distribution of specific assets and in particular of paid up shares or debentures of any other company or in any one or more of such ways, and the Directors shall give effect to such Resolution, and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all parties and may vest any such specific assets in trustees as may seem expedient to the Directors. (139) Any dividend or other moneys payable in cash on or in respect of a share may be paid by cheque or warrant sent through the post to the registered address of the Member or person entitled thereto or, if several persons are registered as joint holders of the share or are entitled thereto in consequence of the death or bankruptcy of the holder, to any one of such persons or to such person and such address as such persons may by writing direct Provided that where the Member is a Depositor, the payment by the Company to the Depository of any dividend payable to a Depositor shall to the extent of the payment discharge the Company from any further liability in respect of the payment. Every such cheque and warrant shall be made payable to the order of the person to whom it is sent or to such person as the holder or joint holders or person or persons entitled to the share in consequence of the death or bankruptcy of the holder may direct and payment of the cheque if purporting to be endorsed or the receipt of any such person shall be a good discharge to the Company. Every such cheque and warrant shall be sent at the risk of the person entitled to the money represented thereby. (140) A transfer of shares shall not pass the right to any dividend declared on such shares before the registration of the transfer. D-15

354 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP (g) Rights, Preferences and Restrictions Rights attached to certain shares (9) (1) Preference shareholders shall have the same rights as ordinary shareholders as regards receiving of notices, reports and balance sheets and attending General Meetings of the Company. Preference shareholders shall also have the right to vote at any meeting convened for the purpose of reducing the capital or winding up or sanctioning a sale of the undertaking of the Company or where the proposal to be submitted to the meeting directly affects their rights and privileges or when the dividend on the preference shares is more than six months in arrears. (9) (2) The Company has power to issue further preference capital ranking equally with, or in priority to, preference shares from time to time already issued or about to be issued. Variation of rights (10) (1) If at any time the share capital is divided into different classes, the special rights attached to any class (unless otherwise provided by the terms of issue of the shares of (that class) may, subject to the provisions of the Act, whether or not the Company is being wound up, only be made, varied or abrogated with the sanction of a Special Resolution passed at a separate General Meeting of the holders of shares of the class and to every such Special Resolution the provisions of Section 184 of the Act shall, with such adaptations as are necessary, apply. To every such separate General Meeting the provisions of these Articles relating to General Meetings shall mutatis mutandis apply; but so that the necessary quorum shall be two persons at least holding or representing by proxy or by attorney one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy or by attorney may demand a poll. Provided always that where the necessary majority for such a Special Resolution is not obtained at the Meeting, consent in writing if obtained from the holders of three-fourths of the issued shares of the class concerned within two months of the Meeting shall be as valid and effectual as a Special Resolution carried at the Meeting. Rights of Preference Shareholders Creation or issue of further shares with special rights Form of transfer of shares (10) (2) The repayment of preference capital other than redeemable preference capital or any other alteration of preference shareholder rights, may only be made pursuant to a special resolution of the preference shareholders concerned. PROVIDED ALWAYS that where the necessary majority for such a special resolution is not obtained at the Meeting, consent in writing if obtained from the holders of three-fourths of the preference shares concerned within two months of the Meeting, shall be as valid and effectual as a special resolution carried at the Meeting. (11) The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall, unless otherwise expressly provided by the terms of issue of the shares of that class or by these Articles as are in force at the time of such issue, be deemed to be varied by the creation or issue of further shares ranking equally therewith. (21) Subject to these Articles, any Member may transfer all or any of his shares but every instrument of transfer of the legal title in shares must be in writing and in the form for the time being approved by the Directors and the Exchange. Shares of different classes shall not be comprised in the same instrument of transfer. The Company shall accept for registration transfers in the form approved by the Exchange. D-16

355 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Execution (22) The instrument of transfer of a share shall be signed by or on behalf of the transferor and the transferee and be witnessed, provided that an instrument of transfer in respect of which the transferee is the Depository shall not be ineffective by reason of it not being signed or witnessed for by or on behalf of the Depository. The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register of Members. Person under disability Directors power to decline to register Terms of registration of transfers (23) No share shall in any circumstances be transferred to any infant, bankrupt or person of unsound mind. (24) (1) Subject to these Articles, the Act or as required by the Exchange, there shall be no restriction on the transfer of fully paid up shares (except where required by law or the rules, bye-laws or listing rules of the Exchange) but the Directors may in their discretion decline to register any transfer of shares upon which the Company has a lien and in the case of shares not fully paid up may refuse to register a transfer to a transferee of whom they do not approve. If the Directors shall decline to register any such transfer of shares, they shall give to both the transferor and the transferee written notice of their refusal to register as required by the Act. (24) (2) The Directors may decline to register any instrument of transfer unless:- (i) such fee not exceeding S$2 (or such other sum as may be approved by the Exchange from time to time) as the Directors may from time to time require, is paid to the Company in respect thereof; (ii) (iii) the instrument of transfer, duly stamped in accordance with any law for the time being in force relating to stamp duty, is deposited at the Office or at such other place (if any) as the Directors appoint accompanied by the certificates of the shares to which it relates, and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer and, if the instrument of transfer is executed by some other person on his behalf, the authority of the person so to do; and the instrument of transfer is in respect of only one class of shares. Retention of transfers (25) (1) All instruments of transfer which are registered may be retained by the Company, but any instrument of transfer which the Directors may decline to register shall (except in the case of fraud) be returned to the person depositing the same. (25) (2) Subject to any legal requirements to the contrary, the Company shall be entitled to destroy all instruments of transfer which have been registered at any time after the expiration of six years from the date of registration thereof and all dividend mandates and notifications of change of address at any time after the expiration of six years from the date of recording thereof and all share certificates which have been cancelled at any time after the expiration of six years from the date of the cancellation thereof and it shall be conclusively presumed in the favour of the Company that every entry in the Register of Members purporting to have been made on the basis of an instrument of transfer or other documents so destroyed was duly and properly made and every D-17

356 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP instrument of transfer so destroyed was a valid and effective instrument duly and property registered and every share certificate so destroyed was a valid and effective certificate duly and properly cancelled and every other document hereinbefore mentioned so destroyed was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company. PROVIDED that:- (i) (ii) (iii) the provisions aforesaid shall apply only to the destruction of a document in good faith and without notice of any claim (regardless of the parties thereto) to which the document might be relevant; nothing herein contained shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any circumstances which would not attach to the Company in the absence of this Article; and references herein to the destruction of any document include references to the disposal thereof in any manner. Closing of Register Renunciation of allotment Indemnity against wrongful transfer (26) The Register of Members and the Depository Register may be closed at such times and for such period as the Directors may from time to time determine, provided always that the Registers shall not be closed for more than thirty days in the aggregate in any year. Provided always that the Company shall give prior notice of such closure as may be required to the Exchange, stating the period and purpose or purposes for which the closure is made. (27) (1) Nothing in these Articles shall preclude the Directors from recognising a renunciation of the allotment of any share by the allottee in favour of some other person. (27) (2) Neither the Company nor its Directors nor any of its Officers shall incur any liability for registering or acting upon a transfer of shares apparently made by sufficient parties, although the same may, by reason of any fraud or other cause not known to the Company or its Directors or other Officers, be legally inoperative or insufficient to pass the property in the shares proposed or professed to be transferred, and although the transfer may, as between the transferor and transferee, be liable to be set aside, and notwithstanding that the Company may have notice that such instrument of transfer was signed or executed and delivered by the transferor in blank as to the name of the transferee or the particulars of the shares transferred, or otherwise in defective manner. And in every such case, the person registered as transferee, his executors, administrators and assigns, alone shall be entitled to be recognised as the holder of such shares and the previous holder shall, so far as the Company is concerned, be deemed to have transferred his whole title thereto. Calls on shares (32) The Directors may from time to time make such calls as they think fit upon the Members in respect of any money unpaid on their shares (whether on account of the nominal value of the shares or by way of premium) and not by the terms of the issue thereof made payable at fixed times, and each Member shall (subject to receiving at least fourteen days notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked or postponed as the Directors may determine. D-18

357 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Time when made (33) A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed and may be made payable by instalments. Interest on calls Sum due to allotment Power to differentiate (34) If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on the sum due from the day appointed for payment thereof to the time of actual payment at such rate not exceeding ten per cent per annum as the Directors determine, but the Directors shall be at liberty to waive payment of such interest wholly or in part. (35) Any sum (whether on account of the nominal value of the share or by way of premium) which by the terms of issue and allotment of a share becomes payable upon allotment or at any fixed date shall for all purposes of these Articles be deemed to be a call duly made and payable on the date on which, by the terms of issue, the same becomes payable, and in case of non-payment all the relevant provisions of the Articles as to payment of interest and expenses, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. (36) The Directors may on the issue of shares differentiate between the holders as to the amount of calls to be paid and the times of payments. (h) General Meetings Annual General Meeting (60) (1) Subject to the provisions of the Act, the Company shall in each year hold a General Meeting in addition to any other meetings in that year to be called the Annual General Meeting, and not more than fifteen months shall elapse between the date of one Annual General Meeting of the Company and that of the next. The Annual General Meeting shall be held at such time and place as the Directors shall appoint. Extraordinary General Meetings Calling of Extraordinary General Meetings (60) (2) All General Meetings other than Annual General Meetings shall be called Extraordinary General Meetings. (61) The Directors may, whenever they think fit, convene an Extraordinary General Meeting and Extraordinary General Meetings shall also be convened on such requisition or, in default, may be convened by such requisitionists as provided by Section 176 of the Act. If at any time there are not within Singapore sufficient Directors capable of acting to form a quorum at a meeting of Directors, any Director may convene an Extraordinary General Meeting in the same manner as nearly as possible as that in which meetings may be convened by the Directors. Notice of meetings (62) (1) Subject to the provisions of the Act as to Special Resolutions and special notice and the calling of meetings at short notice, at least fourteen days notice in writing (exclusive both of the day on which the notice is served or deemed to be served and of the day for which the notice is given) of every General Meeting shall be given in the manner hereinafter mentioned to such persons (including the Auditors) as are under the provisions herein contained entitled to receive notice from the Company and at least fourteen days notice of such Meeting shall be given by advertisement in the daily press and in writing to the Exchange. D-19

358 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP (62) (2) The accidental omission to give notice to, or the non-receipt by any person entitled thereto, shall not invalidate the proceedings at any General Meeting. Contents of notice (63) (1) Every notice calling a General Meeting shall specify the place and the day and hour of the Meeting and there shall appear with reasonable prominence in every such notice a statement that a Member entitled to attend and vote is entitled to appoint a proxy to attend and to vote instead of him and that a proxy need not be a Member of the Company. Notice of Annual General Meeting Nature of special business to be specified (63) (2) In the case of an Annual General Meeting, the notice shall also specify the Meeting as such. (63) (3) In the case of any General Meeting at which business other than routine business is to be transacted (special business), the notice shall specify the general nature of the special business, and if any resolution is to be proposed as a Special Resolution or as requiring special notice, the notice shall contain a statement to that effect. Special business (64) All business shall be deemed special that is transacted at any Extraordinary General Meeting, and all that is transacted at an Annual General Meeting shall also be deemed special, with the exception of sanctioning a dividend, the consideration of the accounts and balance sheet and the reports of the Directors and Auditors, and any other documents required to be annexed to the balance sheet, electing Directors in place of those retiring by rotation or otherwise and the fixing of the Directors remuneration and the appointment and fixing of the remuneration of the Auditors or determining the manner in which such remuneration is to be fixed. Any notice of a meeting called to consider special business shall be accompanied by a statement regarding the effect of any proposed resolution in respect of such special business. Quorum (65) No business shall be transacted at any General Meeting unless a quorum is present at the time the meeting proceeds to business. Save as herein otherwise provided, two Members present in person shall form a quorum. For the purpose of this Article, Member includes a person attending by proxy or by attorney or as representing a corporation which is a Member. Provided that (i) a proxy representing more than one Member shall only count as one Member for the purpose of determining the quorum; and (ii) where a Member is represented by more than one proxy such proxies shall count as only one Member for the purpose of determining the quorum. Adjournment if quorum not present (66) If within half an hour from the time appointed for the Meeting a quorum is not present, the Meeting if convened on the requisition of Members shall be dissolved. In any other case it shall stand adjourned to the same day in the next week at the same time and place, or to such other day and at such other time and place as the Directors may determine, and if at such adjourned Meeting a quorum is not present within half an hour from the lime appointed for holding the Meeting, the Meeting shall be dissolved. D-20

359 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Adjournment (69) The Chairman may, with the consent of any Meeting at which a quorum is present (and shall if so directed by the Meeting), adjourn the Meeting from time to time and from place to place, but no business shall be transacted at any adjourned Meeting except business which might lawfully have been transacted at the Meeting from which the adjournment took place. When a meeting is adjourned for fourteen days or more, notice of the adjourned Meeting shall be given as in the case of the original Meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned Meeting. Voting rights of Members Voting rights of Members (76) Subject and without prejudice to any special privileges or restrictions as to voting for the time being attached to any special class of shares for the time being forming part of the capital of the Company each Member entitled to vote may vote in person or by proxy or attorney, and (in the case of a corporation) by a representative. On a show of hands every Member who is present in person or by proxy or attorney, or in the case of a corporation by a representative, shall have one vote provided that if a Member is represented by two proxies, only one of the two proxies as determined by their appointor shall vote on a show of hands and in the absence of such determination, only one of the two proxies as determined by the Chairman (or by a person authorised by him) shall vote on a show of hands and on a poll, every Member who is present in person or by proxy, attorney or representative shall have one vote for each share which he holds or represents Provided Always That notwithstanding anything contained in these Articles, a Depositor shall not be entitled to attend any General Meeting and to speak and vote thereat unless his name is certified by the Depository to the Company as appearing on the Depository Register not earlier than 48 hours before that General Meeting (the cut-off time ) as a Depositor on whose behalf the Depository holds shares in the Company. For the purpose of determining the number of votes which a Depositor or his proxy may cast on a poll, the Depositor or his proxy shall be deemed to hold or represent that number of shares entered in the Depositors Securities Account at the cut-off time as certified by the Depository to the Company, or where a Depositor has apportioned the balance standing to his Securities Account as at the cut-off time between two proxies, to apportion the said number of shares between the two proxies in the same proportion as specified by the Depositor in appointing the proxies; and accordingly no instrument appointing a proxy of a Depositor shall be rendered invalid merely by reason of any discrepancy between the number of shares standing to the credit of that Depositor s Securities Account as at the cut-off time, and the true balance standing to the Securities Account of a Depositor as at the time of the relevant general meeting, if the instrument is dealt with in such manner as aforesaid. (77) Where there are joint holders of any share any one of such persons may vote and be reckoned in a quorum at any Meeting either personally or by proxy or by attorney or in the case of a corporation by a representative as if he were solely entitled thereto but if more than one of such joint holders is so present at any meeting then the person present whose name stands first in the Register of Members or the Depository Register (as the case may be) in respect of such share shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased Member in whose name any share stands shall for the purpose of this Article be deemed joint holders thereof. D-21

360 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Voting rights of Members of unsound mind (78) If a Member be a lunatic, idiot or non-compos mentis, he may vole whether on a show of hands or on a poll by his committee, curator bonis or such other person as properly has the management of his estate and any such committee, curator bonis or other person may vote by proxy or attorney, provided that such evidence as the Directors may require of the authority of the person claiming to vote shall have been deposited at the Office not less than forty-eight hours before the time appointed for holding the Meeting. Right to vote (79) Subject to the provisions of these Articles, every Member either personally or by attorney or in the case of a corporation by a representative and every proxy shall be entitled to be present and to vote at any General Meeting and to be reckoned in the quorum thereat in respect of shares fully paid and in respect of partly paid shares where calls are not due and unpaid. Resolutions in writing (67) Subject to the Act, a resolution in writing signed by every Member of the Company entitled to vote or being a corporation by its duly authorised representative shall have the same effect and validity as an Ordinary Resolution of the Company passed at a General Meeting duly convened, held and constituted, and may consist of several documents in the like form, each signed by one or more of such Members. Method of voting (70) At any General Meeting a resolution put to the vote of the Meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded:- (i) (ii) (iii) (iv) by the Chairman of the meeting; or by at least two Members present in person or by proxy (where a Member has appointed more than one proxy, any one of such proxies may represent that member) or attorney or in the case of a corporation by a representative and entitled to vote thereat; or by any Member or Members present in person or by proxy (where a Member has appointed more than one proxy, any one of such proxies may represent that member) or attorney or in the case of a corporation by a representative or any number or combination of such Members, holding or representing not less than one-tenth of the total voting rights of all the Members having the right to vote at the Meeting; or by a Member or Members present in person or by proxy (where a Member has appointed more than one proxy, any one of such proxies may represent that member) or attorney or in the case of a corporation by a representative or any number or combination of such Members, holding or representing shares in the Company conferring a right to vote at the Meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right. Provided always that no poll shall be demanded on the election of a Chairman or on a question of adjournment. Unless a poll is so demanded (and the demand is not withdrawn) a declaration by the Chairman that a resolution has been carried or carried unanimously or by a particular majority or lost and an entry to that effect in the minute book shall be conclusive evidence of the fact without proof of the number or proportion D-22

361 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP of the votes recorded in favour of or against the resolution. A demand for a poll may be withdrawn. Taking a poll (71) If a poll is duly demanded (and the demand is not withdrawn) it shall be taken in such manner (including the use of ballot or voting papers or tickets) as the Chairman may direct and the result of a poll shall be deemed to be the resolution of the Meeting at which the poll was demanded. The Chairman may, and if so requested shall, appoint scrutineers and may adjourn the Meeting to some place and time fixed by him for the purpose of declaring the result of the poll. Votes counted in error Chairman s casting vote Time for taking a poll Continuance of business after demand for a poll (72) If any votes are counted which ought not to have been counted or might have been rejected, the error shall not vitiate the result of the voting unless it is pointed out at the same Meeting or at any adjournment thereof, and not in that case unless it shall in the opinion of the Chairman be of sufficient magnitude. (73) Subject to the Act and the requirements of the Exchange, in the case of equality of votes, whether on a show of hands or on a poll, the Chairman of the Meeting at which the show of hands takes place or at which the poll is demanded shall be entitled to a second or casting vote in addition to the votes to which he may be entitled as a Member or as proxy of a Member. (74) A poll demanded on any question shall be taken either immediately or at such subsequent time (not being more than thirty days from the date of the Meeting) and place as the Chairman may direct. No notice need be given of a poll not taken immediately. (75) The demand for a poll shall not prevent the continuance of a Meeting for the transaction of any business, other than the question on which the poll has been demanded. (i) Change in capital Issue of New Shares (8) Subject to the Act, no shares may be issued by the Directors without the prior approval of the Company in General Meeting but subject thereto and to Article 52, and to any special rights attached to any shares for the time being issued, the Directors may issue, allot or grant options over or otherwise deal with or dispose of the same to such persons on such terms and conditions and at such time and subject or not to the payment of any part of the amount thereof in cash as the Directors may think fit, and any shares may be issued in such denominations or with such preferential, deferred, qualified or special rights, privileges or conditions as the Directors may think fit, and preference shares may be issued which are or at the option of the Company are liable to be redeemed, the terms and manner of redemption being determined by the Directors, provided always that:- (i) (ii) no shares shall be issued which results in a transfer of a controlling interest in the Company without the prior approval of the Members in a General Meeting; the total nominal value of issued preference shares shall not exceed the total nominal value of the issued ordinary shares at any time; D-23

362 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP (iii) (iv) (v) (vi) the rights attaching to shares of a class other than ordinary shares shall be expressed in the resolution creating the same; where the capital of the Company consists of shares of different monetary denominations, the voting rights shall be prescribed in such manner that a unit of capital in each class when reduced to a common denominator, shall carry the same voting power when such right is exercisable; no shares shall be issued at a discount, except in accordance with the Act; and any issue of shares for cash to Members holding shares of any class shall be offered to such Members in proportion as nearly as may be to the number of shares of such class then held by them and the second sentence of Article 52(1) with such adaptations as are necessary shall apply. Power to increase capital (50) The Company in General Meeting may from time to time by Ordinary Resolution, whether all the shares for the time being authorised shall have been issued or all the shares for the time being issued shall have been fully called up or not, increase its capital by the creation of new shares of such amount as may be deemed expedient. Rights and privileges of new shares Issue of new shares (51) Subject to any special rights for the time being attached to any existing class of shares, the new shares shall be issued upon such terms and conditions and with such rights and privileges annexed thereto as the General Meeting resolving upon the creation thereof shall direct and if no direction be given as the Directors shall determine; subject to the provisions of these Articles and in particular (but without prejudice to the generality of the foregoing) such shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of the Company or otherwise. (52) (1) Subject to any direction to the contrary that may be given by the Company in General Meeting or except as permitted under the Exchange s listing rules, all new shares shall before issue be offered to the Members in proportion, as nearly as the circumstances admit, to the amount of the existing shares to which they are entitled or hold. The offer shall be made by notice specifying the number of shares offered, and limiting a time within which the offer, if not accepted, will be deemed to be declined, and, after the expiration of that time, or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered, the Directors may dispose of those shares in such manner as they think most beneficial to the Company. The Directors may likewise so dispose of any new shares which (by reason of the ratio which the new shares bear to shares held by persons entitled to an offer of new shares) cannot, in the opinion of the Directors, be conveniently offered under this Article. (52) (2) Notwithstanding Article 52(1) above but subject to the Act, the Directors shall not be required to offer any new shares to members to whom by reason of foreign securities laws such offers may not be made without registration of the shares or a prospectus or other document, but to sell the entitlements to the new shares on behalf of such Members in such manner as they think most beneficial to the Company. D-24

363 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP New shares otherwise subject to provisions of Articles (53) Except so far as otherwise provided by the conditions of issue or by these Articles, any capital raised by the creation of new shares shall be considered part of the original ordinary capital of the Company and shall be subject to the provisions of these Articles with reference to allotments, payment of calls, lien, transfer, transmission, forfeiture and otherwise. Power to consolidate, cancel and subdivide shares (54) (1) The Company may by Ordinary Resolution:- (i) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (ii) (iii) (iv) cancel any shares which, at the date of the passing of the Resolution, have not been taken or agreed to be taken by any person or which have been forfeited and diminish the amount of its share capital by the amount of the shares so cancelled; subdivide its shares or any of them into shares of a smaller amount than is fixed by the Memorandum of Association (subject, nevertheless, to the provisions of the Act), provided always that in such subdivision the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; and subject to the provisions of these Articles and the Act, convert any class of shares into any other class of shares. Power to purchase or acquire its issued shares Power to reduce capital (54) (2) Subject to and in accordance with the provisions of the Act, the Company may authorise the Directors in General Meeting to purchase or otherwise acquire any of its issued ordinary shares on such terms as the Company may think fit and in the manner prescribed by the Act. All shares repurchased or otherwise reacquired by the Company shall be cancelled and the amount by which the Company s issued share capital is diminished on the cancellation of the shares repurchased or otherwise reacquired shall be transferred to an account called the Capital Redemption Reserve. (55) The Company may by Special Resolution reduce its share capital, any capital redemption reserve fund or share premium account in any manner and subject to any incident authorised and consent required by law. (j) Limitations on rights of non-resident or foreign shareholders to hold or exercise voting rights on the Shares Save as described above, there are no limitations imposed by Singapore law or by the Articles of Association of the Company on the rights of Shareholders who are regarded as non-residents of Singapore or foreign shareholders, to hold or exercise their voting rights on their Shares. D-25

364 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP 8. MATERIAL LICENCES The material licences of the Target Group as at the Latest Practicable Date are set out below:- Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry PT CNIS Approval for the company as a limited importer with Identification No. 137/APIT/2006/PMA Investment Coordinating Board ( BKPM ) 13 March 2006 This licence does not require renewal Approval of the planting of palm trees with Registration No. 1512/ Menhutbun-II/99 Minister of Forestry and Plantation Republic of Indonesia 27 September 1999 Valid as long as company conducts plantation business Approval for domestic investment facilities relating to change of the company s status to Domestic Investment with Approval No. 01/61.00/V/PMDN/2003 Head of BKPM Daerah ( BKPMD ) West Kalimantan 8 April 2003 This approval does not require renewal Approval regarding the change in the company s production and sales plan with Registration No. 01/61.00/III/PMDN/2003 Head of BKPMD West Kalimantan 9 June 2003 This approval does not require renewal Approval relating to the company s change of status from domestic investment to become foreign investment with Approval No. 122/V/PMA/2004 BKPM 10 December 2004 This approval does not require renewal Approval regarding the company s change of capital and source of funds with Registration No. 122/III/PMA/2005 BKPM 7 February 2005 This approval does not require renewal Approval regarding change in manpower plan and source of funds with Registration No. 592/III/PMA/2005 BKPM 31 May 2005 This approval does not require renewal Approval for environmental impact assessment with Approval No /414/DP2DL-D Head of Mining and Environmental Impact Control Office of Sanggau Regency 17 October 2003 This approval does not require renewal PT IBS (1) Approval for the company as a Limited Importer with Approval Letter No. 279/APIT/1992/ PMDN last amended by Decision Letter No 47/ P-APIT/PMDN/2005 BKPM 17 September 1992 last amended on 26 April 2005 This licence does not require renewal 1 By operation of Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, PT SIMP assumes the rights and obligations under the relevant licences. D-26

365 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Approval for the company s domestic investment facilities relating to the palm oil refinery located at Surabaya City with Approval No. 229/I/PMDN/1002 BKPM 23 July 1992 N/A (2) Industrial Business Licence No. 917/T/Industri/1994 relating to palm oil refinery BKPM Issued on 23 December 1994; taking effect from the commercial production date on January 1994 Valid as long as the company is in production Approval for the merger of PT Sajang Heulang and PT Margi Uvocrinejaya with Letter No. 77/III/PMDN/1995 BKPM 20 February 1995 This licence does not require renewal Industrial Business Licence No. 659/T/Industri/1996 relating to PT IBS production, marketing plans, investment and manpower arrangement in the crude palm oil refinery industry BKPM 14 October 1996 Valid as long as the company is in production Approval for expansion of domestic investment relating to PT IBS CPO refinery with Approval No. 257/II/PMDN/1996 BKPM 19 November 1996 N/A (2) Approval for the company s domestic investment relating to the second expansion of the PT IBS-Surabaya CPO refinery with Approval No. 14/II/PMDN/1999 BKPM 29 March 1999 N/A (2) Approval Letter No. 251/Industri/1999 regarding the Industrial Business License (first expansion of PT IBS- Jakarta and IBS-Surabaya s CPO refinery) BKPM 29 April 1999 N/A (2) Approval Letter No. 97/II/PMDB/2000 relating to the fiscal facilities and temporary expansion of the company's domestic investment BKPM 21 September 2000 N/A (2) Approval Letter No. 01/II/PMDN/2001 relating to the fiscal facilities and temporary expansion of the company s domestic investment for project located at Jalan Jembatan Tiga Blok F and G North Jakarta BKPM 1 March 2001 N/A (2) Approval Letter No. 10/III/PMDN/2001for the changes of investment plan and financing source BKPM 3 April 2001 N/A (2) 2 N/A denotes no expiry date shown on the relevant licence, certificate or approval. D-27

366 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Decision of the Chairman of BKPM No. 110/T/Industri/2001 on PT IBS expansion licence BKPM June 2000 Valid as long as the company is in business Decree No. 281/T/Industri/2002 on PT IBS expansion licence BKPM 2 October 2002, and effective from February 2002 Valid as long as the company is in production Decree No. 44/31/T/Industri/2004 on PT IBS business expansion licence Chairman of BKPMD of DKI Jakarta 5 May 2004 and took effect since the production commercial date of PT IBS on October 2001 Valid as long as the company is in production Approval relating to the expansion of the company's project located at Deli Serdang Residency, Province of North Sumatra with Approval No. 114/II/PMDN/2005 Head of BKPM 6 December December 2008 Approval No. 48/III/PMDN/ 2006 relating to the amendment of expansion project plan BKPM 17 April 2006 N/A (2) Approval for the environmental management and supervision plan for the area located at Jalan Jembatan Tiga Block F and G North Jakarta with Approval No. 96/ Commission of Environmental Impact Analysis 26 June 1992 This licence does not require renewal as long as PT IBS doesn t make significant changes to its business activities Approval for Electricity Usage with Licence No. 5961/44/600.3/2000 Director General of Electricity and Energy Improvement 29 August August 2005 (This is in the process of renewal under the name of PT SIMP) Approval for Electricity Usage with Licence No. 40/2003 Mining Office in Jakarta 23 June June D-28

367 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry PT CTP Approval for business licence with Approval No / Industrial and Trade Office DKI Jakarta Province 29 July 2005 Valid as long as the company conducts its business activities, but with an obligation to re-register every five years Approval of the company s plantation business with Approval No. HK.350/371/Dj.Bun.5/V/2001 Minister of Agriculture 9 May 2001 Valid as long as the company conducts its plantation business Approval of environmental licences with Letter No. 2839/II/DAR/1999 Head of Standardization and Environment/He ad of AMDAL Commission Department of Forestry and Plantation 23 December 1999 This licence does not require renewal PT IIP Approval for trade business with Licence No / Regional Office of the Department of Industry and Trade, Republic of Indonesia at DKI Jakarta Province 11 August 2005 Valid as long as the company conducts its business, but with an obligation to re-register every 5 years PT IP Approval for the company as a Limited Importer with Identification Number 231/APIT/ 1988/PMDN (as amended by Letter No. 14/P-APIT/P/2002) BKPM 15 August 1988 as amended on 15 May 2002 This approval does not require renewal Approval for the company s plantation business with Licence No. 200/Menhutbun-VII/2000 Minister of Forestry and Plantation 10 March 2000 Valid as long as the company conducts its plantation business Approval for palm tree plantation and CPO and palm kernel refinery industry located at Indragiri Hulu Regency, Riau with Registration No. 240/I/PMDN/1986 BKPM 24 October 1986 Valid as long as the company conducts its plantation business Approval relating to, inter alia, the company's palm tree plantation and its refinery into CPO and palm kernel, the project location, the type of production with Licence No. 504/T/ Perkebunan-Industri/1999 BKPM 15 September 1999 This licence does not require renewal D-29

368 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Approval relating to the environmental management and supervision plan of the company s plantation and factory for palm tree processing with Approval Letter No. 028/RKL-RPL/BA/XII/94 Minister of Agriculture for and on behalf of the Chairman of Agribusiness Agency 8 December 1994 This approval does not require renewal PT JS Approval for the company s trading business with Licence No. 385/Dinas 04.01/USDAG/X/2004 Head of Trade and Industry Office of Pekanbaru 27 October 2004 Valid as long as the company conducts its business, with an obligation to reregister every 5 years Approval of the plantation of palm trees occupying a 14,000 Ha area located at Sepauk Municipality, Sintang Regency with Letter No. 525/0186/ Dishutbun-IV/05 Regent of Sintang 4 February February 2007 Approval of a palm tree plantation occupying + 19,000 Ha land at Sepauk Municipality, Sintang Regency with Permit No. 047/2005 Regent of Sintang 18 February February 2008 PT KGP Principal Licence for Plantation Cultivation of palm trees with License No. HK.350/E5.1014/11.96 Minister of Agriculture Republic of Indonesia 26 November 1996 This licence does not require renewal Approval for domestic investment facilities relating to the integrated palm tree plantation and processing in Sanggau Regency, West Kalimantan with Approval No. 23/I/PMDN/1996 BKPM 3 January 1996 This approval does not require renewal Approval of foreign investment relating to the integrated palm tree plantation and processing in Sanggau Regency, West Kalimantan with Approval No. 35/V/PMA/1996. Amended by Letter No. 350/III/PMA/1996, Letter No. 772/III/PMA/2004, Letter No. 841/III/PMA/2004, Letter No. 123/III/PMA/2005, Letter No. 591/III/PMA/2005 and most recently by Letter No. 511/B.2/A.7/2005 Head of BKPM 18 April 1996 amended on 27 May 1996, 10 August 2004, 31 August 2004, 7 February 2005, 31 May 2005 and most recently on 23 December 2005 This approval does not require renewal Approval on the Environmental Assessment (ANDAL), RKL, RPL and Executive Summary of KGP No /429/DP2DL-D Head of AMDAL Commission Sanggau Regency, Head of Mining and Environment Impact Office 12 December 2005 This approval does not require renewal D-30

369 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry PT KMS Approval of the company s plantation of rubber trees occupying a 10,000 Ha area located in Penajam Pasir East Kalimantan with Licence No. HK.350/E4.784/10.89 as amended by Letter No. HK.350/E4.123/02.93 Minister of Agriculture Republic of Indonesia 7 October 1989 as amended on 24 February 1993 This approval does not require renewal Approval for domestic investment with Approval No. 790/I/PMDN/1989 BKPM 20 November 1989 This approval does not require renewal Approval for trade business licence No / Industrial and Trade Office DKI Jakarta Province 8 May 2006 Valid as long as PT KMS conducts its business activities, but with an obligation to re-register every five years Approval on the Environmental Impact Assessment (ANDAL) of KMS No. RC.220/466/B/III/1994 Secretariat General Minister of Agriculture, Republic of Indonesia 17 March 1994 This approval does not require renewal Approval on RKL-RPL Rubber plantation and manufacturing No. 019/ RKL-RPL/BA/X/94 Head of Agribusiness on behalf of Minister of Agriculture, Republic of Indonesia 18 October 1994 N/A (2) PT SAIN Approval for trade business with Licence No. 0038/ Head of Trade and Industry Office of Jakarta 10 January 2005 Valid as long as PT SAIN conducts its business, but with an obligation to re-register every five years Approval for the developing of a ha of the nucleus plantation area of palm tree which is located at Senama Nenek Village, Tapung Municipality, Kampar Regency, Riau Province with Letter No. 387/HK.300/E2.1/12/2005 Director General of Plantation, Department of Agriculture 30 December 2005 N/A (2) PT SIMP Approval for the company as a Limited Importer with Identification No. 513/APIT/PMDN/1996 and amended by Decision Letter No. 12-P-APIT/P/2002 BKPM 23 October 1996 and amended on dated 15 May 2002 This approval does not require renewal D-31

370 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Approval of the company s plantation of palm trees occupying a 21,384 Ha area in Kubu Bengkalis Riau with Licence No. 203/Menhutbun-VII/2000 Minister of Forestry and Plantation 10 March 2000 Valid as long as the company conducts its plantation business Approval for domestic investment relating to the for integrated palm oil estate corps with processing unit to become CPO and palm kernel located in Bengkalis Municipal, Riau Province with Approval No. 218/I/PMDN/1995 BKPM 24 April 1995 N/A (2) Approval of, inter alia, the company's integrated palm tree plantation with its processing unit to become CPO and palm kernel, the project location, the type of production and investments with Licence No. 511/T/ Perkebunan-Industri/1999 BKPM 16 September 1999 taking effect from the commercial production date, i.e., October 1989 Valid for as long as the company conducts its business Approval relating to the environmental management and supervision plan of the company s palm trees plantation and refinery under the name of PT Ivo Mas Tunggal with Approval Letter No. 029/RKL-RPL/BA/XII/94 Minister of Agriculture for and on behalf of the Chairman of Agribusiness Body 8 December 1994 N/A (2) Approval for the Temporary Storage of Hazardous and Toxic Waste by Decree No. 336/2005 State Minister of Environment 14 November November 2008 Approval for the Utilization of Waste Water of Palm Tree Factory for the palm tree plantation at Kebun Kayangan (Decree No. 04/Bapedalda/2006), palm tree plantation at Kebun Balam (Decree No. 05/Bapedalda/2006), palm tree plantation at Kebun Sungai Dua (Decree No. 07/Bapedalda/2006) Bapedalda 15 March March 2011 PT SOG (3) Approval for trade business with Licence No / Jakarta Office of Industry and Trade 2 December 2004 Valid as long as the company conducts its business, but with an obligation to re-register every five years 3 By operation of Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, PT SIMP assumes the rights and obligations under the relevant licences. D-32

371 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Registration at the Belawan Office of Port Administration for collection and, stockpiling/delivery of palm oil and caustic soda (Approval No. 09/AL.62/ADPEL.BLW-06) Belawan Office of Port Administration, Directorate General of Sea Transport 20 December December 2006 PT BML (4) Approval for the company as a Limited Importer in the palm oil industry with Identification No N and amended to Identification No N Director of Import of the Department of Trade 22 June 1993 and amended on 18 May 2005 Valid for as long as the company operates Approval for the company as a Certain Exporter Company (TPPET) Producer of palm oil, CPO and frying oil based on Decision Letter No. 178/Dirjen- IKAH/PET/VIII/1999 Directorate General of Chemical Industry, Agro and Wood Products 13 August 1999 Valid as long as the company exports its commodities Approval to conduct palm oil extraction with annual capacity of 50,220MT of palm oil and 26,730MT of pellet based on Letter No. 2571/DPJE/1972 Directorate General of Light Industry and Rural handicraft 10 October 1972 Permanent Approval of, inter alia, the company s production of frying oil, palm oil and pellet, amount of investment, number of workers and includes all equipment/storage/ and production proceeds of the company, with Licence No. 077/DJAI/IUT-1/PMDN/II/83 Minister of Industry 19 February 1983 Valid as long as the company operates Approval of the company s production, total investment and number of workers with Licence No. 001/DJAI/ IUT-/NONPMA-PMDN/I/1988 Minister of Industry 4 January 1988 Valid as long as the company operates Approval relating to, inter alia, the production of Household Cleaning Products, investment and number of employees of the company with Approval No. 021/I.T/A.I/Sulut/89 Minister of Industry 30 August 1989 Valid as long as the company operates Approval for Crude Oil Industry (Food Oil) from Vegetables relating to, inter alia, the investment plan and production of the company located in Moutong Village, Municipality Moutong, District of Donggala with Approval No. 49/DJAI/PP/D/II/III/93 Minister of Industry 8 March 1993 Valid until 7 March By operation of Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, PT SIMP assumes the rights and obligations under the relevant licences D-33

372 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Approval for Water Excavation by the Company based on Decision Letter No /DESDM/BTG/166/XII/2004 Head of Office of Energy and Mineral Resources of Bitung 28 December December 2007 Approval for the usage of 10 units of generator (9 units with the capacity of 1,000 KVA and 1 unit with the capacity of 562 KVA) based on Decision Letter No /DESDM/BTG/19/V/2005 Head of Office of Energy and Mineral Resources of Bitung 6 May May 2010 Approval for the Building and Owning Water and Land in form of Sea Transportation Facility/Special Harbour in Bitung based on Letter No. KM.394/T/Phb-75 Minister of Transportation 22 August 1975 N/A (2) Approval to Build Special Harbour for Palm Oil Industry in Desa Kadoodan, Municipal Bitung Tengah, Bitung, North Sulawesi based on Letter No. B XXV- 1639/PP72 Directorate General Sea Transportation 29 September 1994 N/A (2) Approval of Operation Special Harbour for Palm Oil in Moutong based on Letter No. B-662/PP.72 Directorate General of Sea Transportation 1 August 1997 N/A (2) Approval to operate special harbour for Palm Oil in Moutong, Central Sulawesi based on Letter No. SK.42/AL.003/ PHB-97 Minister of Transportation 9 September 1997 N/A (2) Approval to manage Harbour I, II, dan III for private use in working area of Bitung Harbour, together with PT (Persero) Pelabuhan IV, Bitung branch, based on the Decision Letter No. KP.339 of 2002 Minister of Transportation 29 November 2002 N/A (2) Approval for Producing Household Support Goods based on the Decision Letter of the Minister of Health No. 1756/PKRT/98 Minister of Health 24 March 1998 Valid as long as the company remains active Approval for domestic investments relating to, inter alia, the company s palm oil extraction project with Approval No. 1407/Sekr/SPPMDN/71 Domestic Investment Technical Committee 29 September 1971 This approval does not require renewal D-34

373 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Approval for the transfer of investment facilities from PT PP Berdikari to PT BML based on Application Letter No. 184/A/Sek/70 N/A 22 December 1970 This approval does not require renewal Approval for the business expansion in palm oil extraction business located in Municipal of Bitung, Minahasa, North Sulawesi based on Approval Letter BKPM No. B-08/A/SP-01b./BKPM/V/75 BKPM 22 May 1975 This approval does not require renewal Approval for the company s cooking oil business in Municipality of Bitung, Minahasa, North Sulawesi based on the Approval Letter No. B-13/A/SP.01.b/BKPM/VII/1975 BKPM 5 July 1975 N/A (2) Approval for the company s fresh palm oil and pellet business located in Kadoodan, municipality of Central Bitung, North Sulawesi with Approval No. 303/T/INDUSTRI/94 BKPM 28 April 1994, taking effect from the time the company commercially produces in February 1988 Valid as long as the company is in production Approval for the company s Palm Oil Extraction business located in Gio Village, Municipality of Moutong, Donggala, Central Sulawesi based on the Approval Letter No. 689/T/INDUSTRI/1996 BKPM 24 October 1996, taking effect from the time the company commercially produces in August 1995 Valid as long as the company is in production Approval for the Expansion of Industrial Business relating to the company s project in Moutong with Licence No. 318/T/Industri/1998 BKPM 16 July 1998, taking effect from the time the company commercially produces in January 1998 Valid as long as the company is in production Approval for the Expansion of company s project in Bitung, Menado, North Sulawesi with Licence No. 553/T/Industri/1999 BKPM 19 October 1999, taking effect from the time the company commercially produces in May 1999 Valid as long as the company is in production D-35

374 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Approval for the Expansion of company s project in Bitung, Gorontalo with Approval No. 15/T/Industri/2002 BKPM 16 January 2002 taking effect from the time the company commercially produces in June 2002 Valid as long as the company is in production Approval for extraction of palm oil and palm oil processing in Bitung, Menado, North Sulawesi No. 116/T/Industri/2000 BKPM 13 November 2000 This approval does not require renewal Approval for the change of name from PT Bitung Menado Oil Ltd to PT Bitung Menado Oil Industry based on Letter No. 1582/B.1/A.6/2005 BKPM 19 September 2005 This approval does not require renewal Approval of electricity usage with Licence No /DESDM/BTG/IV/2006 Department of Mining and Energy, Regional Office of Bitung 12 April 2006 N/A (2) PT SP Approval for the company as a limited BKPM 30 May 1988 N/A (2) importer in the palm tree plantation and amended business including its processing into on 16 May 2002 palm oil and kernel palm oil with Identification No. 135/APIT/1988/PMDN as amended by the Decision Letter No. 15/P-APIT/P/2002 Approval to conduct palm tree plantation business with Approval No. 201/Menhutbun-VII/2000 Minister of Forestry and Plantations 10 March 2000 Valid as long as the company conducts plantation business Approval for domestic investment relating to palm tree plantation and its refinery into a CPO or palm kernel, located at Kampar Regency, Riau and Labuhan Batu Regency, North Sumatera with Approval No. 95/I/PMDN/1987 BKPM 30 March 1987 This approval does not require renewal Approval to the company to conduct permanent business in the Integrated palm tree plantation and its processing to crude palm oil and palm kernel oil based on Decision Letter No. 512/T/Perkebunan-Industri/1999 BKPM 16 September 1999, taking effect from the time the company commercially produces in November 1992 Valid as long as the company conducts business D-36

375 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Approval for environmental impact analysis with Approval No. 037/ANDAL/ RKL-RPL/BA/II/1996 Minister of Agriculture cq. Head of Agribusiness Agency 16 February 1996 This approval does not require renewal PT CKS Approval to conduct palm plantation business in the Municipal of Sepauk and Tempunak, Sintang No. 525/0636/Dishutbun-IV/04 Mayor of Sintang 18 May May 2006 (This is in the process of renewal) Approval for large business permit No. 323/Dinas.04.01/ USDAG/IX/2004 Head of Industry and Trade Office of Pekanbaru 18 September 2004 Valid as long as CKS still conducts its business activities, with the obligation to re-register every five years PT GMR Approval for the company as a limited importer in the palm tree plantation business including its processing into palm oil and kernel palm oil with Identification No. 95/APIT/1993/PMDN as amended by 13/P-APIT/P/2002 BKPM 10 May 1993 and amended on 15 May 2002 This licence does not require renewal Approval for palm tree plantation business in Bagan Sinembah, Rimba Melintang Rokan Hilir Riau with Approval No. HK.350/187/Bun.5/III/2001 Minister of Agriculture 16 March 2001 This licence does not require renewal Approval for domestic investment relating to an integrated Palm Tree plantation with its processing unit to crude palm oil and kernel oil, located in the Residence of Bengkalis, Province of Riau with Approval Letter No. 36/I/PMDN/1993 BKPM 4 February 1993 This licence does not require renewal Approval for change of investment plan with Approval No. 102/III/PMDN/1997 BKPM 14 March 1997 N/A (2) Approval for the granting of a permanent business permit relating to palm tree plantation and processing of crude palm oil and kernel palm oil in Balam Village, Sempurna, Bangko Jaya, District of Kubu, Residence of Bengkalis, Province of Riau with Approval No. 514/T/Perkebunan-Industry/1999 Head of BKPM 16 September 1999 This licence does not require renewal D-37

376 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Approval concerning the Management/Planning Monitoring (RKL/RPL) of Palm Tree Plantation and Oil Factory located at Sungai Rumbia and Sungai Bangko, District of Kubu and Bangko, Residence of Bengkalis, Province of Riau based on Letter No. 001/RKL-RPL/BA/VI/1994 Minister of Agriculture 24 June 1994 N/A (2) Approval for Environmental Evaluation Study for Palm Tree Plantation and Processing Factory based on Letter No. RC.220/1261/B/VII/93 Department of Agriculture 28 July 1993 N/A (2) PT RAP Approval for medium scale business permit with Permit No. 1032/Dinas.04.01/USDAG/IX/2004 Trade and Industry Office of Pekanbaru 6 September 2004 Valid as long as PT RAP still conducts its business activities, but with an obligation to re-register every five years Approval to conduct palm tree plantation business activity in Nanga Silat, Pangeran Village, Municipality of Silat Hilir, Regency of Kapuas Hulu, Province of Kalimantan based on Letter No. 534 PA Regional Office of Transmigration and Public Dwelling of West Kalimantan 2 February 1999 N/A (2) Approval allowing the company to establish a palm tree plantation business with Joint Venture Investor Cooperation (Pola Patungan Kooperasi Investor) based on Decision No. 341/Kpts/HK.350/Dj.Bun/4/2001 Minister of Agriculture 27 April 2001 N/A (2) Approval to obtain a location permit to conduct a palm tree plantation business on an area of 18,000 acres, located at the Village of Miau Merah, Pangeran, Perigi, Penai, Nanga Nuar, Sungai Sena and Setunggul, Municipality of Silat Hilir, Regency of Kapuas Hulu based on Decision No. No. 75 Year 2001 Regent of Kapuas Hulu 10 July 2001 N/A (2) Approval concerning the Extension of Location Permit for PT RAP for the Purpose of Palm Tree Plantation located at the Municipality of Silat Hilir, Regency of Kapuas Hulu with Approval No. 167 Year 2004 Regent of Kapuas Hulu 19 October 2004 N/A (2) D-38

377 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Company Type of Licence and Scope Licensing or Regulatory Body Date of Issue Date of Expiry Approval to the company s Land Acquisition Process and the Plant Partnership Model based on Letter No. 525/929/Disperhut/Bun-B Regent of Kapuas Hulu 20 December 2005 N/A (2) PT PU Major Business Licence No / for trading of goods and provision of services Industrial and Trade Office of South Jakarta 20 December 2005 This licence does not require renewal PT GA (5) Large scale business licence No. 187/02/ , for trading of goods Industrial and Trade Office of North Jakarta 15 December 2005 Valid as long as the company still conducts its business activities, but with an obligation to re-register every five years PT MBP Registration Certificate of Commodity Futures Trading No. 64/BAPPEBTI/SEP/XII/2000 for conducting futures trading Department of Industry and Trade 13 December 2000 This certificate does not require renewal 9. INTELLECTUAL PROPERTY The trademarks registered by the Target Group as at the Latest Practicable Date are set out below:- Registration No. Trademark / Copyright Number Class Expiry Date Remarks A. Registered by PT IBS* in Indonesia 1. Olina Blenda Amanda Amanda Amanda Vitamas Olindo Indosari Olin Koperja Choc-O-Gloss Glossy Plus Smas (H, P) Simas (H, P) In process of extension 5 By operation of Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, PT SIMP assumes the rights and obligations under this licence. * Under Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, all assets and rights of PT IBS have been transferred by law to PT SIMP as of 1 June D-39

378 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Registration No. Trademark / Copyright Number Class Expiry Date Remarks 15. Simas (H, P) In process of extension 16. Simas (H, P) In process of extension 17. Simas (Hijau, Enak) IDM Simas (H, P) Simas (H, P) Simas (H, P) Sunrise (label In process of extension matahari terbit) 22. Delima (H,P) IDM Delima Queen s Palmix Borneo IDM Cornoli In process of extension 28. Ayam Alas In process of extension 29. Vico (Hitam, Putih) In process of extension 30. Vico (Warna) In process of extension 31. Cornola In process of extension 32. Kinibalu In process of extension 33. Mayung In process of extension 34. Merolin Merolina Mahakam In process of extension 37. Andalas In process of extension 38. Afdhal Kepiting Al-Baaru IBS Viking Palmia Kencana Mustika Wahid Wahid IBS Burung Unta CBA CAB CAB Delima Queen s Gunung Kerinci Bhineka Bineka Burung Unta Emerald Krakatau D-40

379 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Registration No. Trademark / Copyright Number Class Expiry Date Remarks 61. Ciremay Flobamor Rinjani Barito Sinabung Sibayak Dempo Singgalang Gunung Slamet Summer Cocona Celebes Soyola Emeralda Bunaken Archipelago Tambora Memberamo Sasando Toba Palmia Super Cake Palmia Evita IDM Sunglow IDM Minyaqu IDM Simas Spesial D N/A In the process of registration 87. Happy Salad Oil R B. Registered by PT IBS in other jurisdictions 88. Amanda China 89. Simas China 90. Simas Philippines 91. Simas Philippines 92. Palmia Philippines 93. Amanda Philippines C. Registered by PT BML* in Indonesia 94. Bimoli January Bimoli August Bimoli December 2011 * Under Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, all assets and rights of PT BML have been transferred by law to PT SIMP as of 1 June D-41

380 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Registration No. Trademark / Copyright Number Class Expiry Date Remarks 97. Bimoli December Bimoli January Bimoli December Coco March Meteor July 2002 In process of extension 102. Bimoli Bio June Bimoli Bio June Bimoli Super Olein June Bimoli Crispy January Bimoli August 2006 In process of extension 107. Bimoli Spesial D October 2005 In process of application D. Registered by PT BML in other jurisdictions 108. Bimoli Registered in Malaysia 109. Bimoli Registered in Vietnam 110. Bimoli Registered in China 111. Bimoli Special Registered in China 112. Bimoli T99/03829H Registered in Singapore 113. Bimoli 620/ Registered in Saudi Arabia 114. Bimoli Registered in Philippines 10. FIXED ASSETS AND PROPERTIES As at 30 June 2006, the following material tangible fixed assets and material properties (including land rights and location permits) are owned by the Target Group:- Land and Building Brief Description / Owner / Location Type of Asset Major Encumbrance Usage PT SIMP Bengkalis, Riau Right to Cultivate (Hak Guna Usaha) ( HGU ) (No.2) Approximately 9, hectares of land Palm Oil Mill and Oil palm plantations Commencing from 17 February 1990 and expiring on 31 December 2023 Bengkalis, Riau HGU (No.3) Commencing from 17 February 1990 and expiring on 31 December 2023 Approximately 10, hectares of land Oil palm plantations Bengkalis, Riau HGU (No.4) Commencing from 29 July 1999 and expiring on 29 July 2034 Approximately 1, hectares of land Oil palm plantations D-42

381 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner / Location Type of Asset Major Encumbrance Usage Rokan Hilir, Riau Land Use Right (Hak Guna Bangunan) ( HGB ) (No.1) Approximately hectares of land Palm Oil Mill and Housing Commencing from 19 December 2003 and expiring on 18 December 2033 Rokan Hilir, Riau HGB (No.2) Commencing from 19 December 2003 and expiring on 18 December 2033 Approximately hectares of land Palm Oil Mill and Housing Rokan Hilir, Riau HGU title in process Approximately hectares of land Oil palm plantations Lubuk Pakam, Medan HGB (No. 395) Commencing from 2 July 1998 and expiring on 24 September 2017 Approximately 4.5 hectares of land Refinery, Office and Warehouse PT GMR Rokan Hilir, Riau HGU (No.5) Commencing from 10 October 2003 and expiring on 9 October 2028 Approximately hectares of land Oil palm plantations Rokan Hilir, Riau HGU (No.6) Commencing from 10 October 2003 and expiring on 9 October 2028 Approximately hectares of land Oil palm plantations Rokan Hilir, Riau HGU (No.1) Commencing from 19 January 2001 and expiring on 18 January 2036 Approximately 2, hectares of land Palm Oil Mill and Oil palm plantations Rokan Hilir, Riau HGU (No.2) Commencing from 19 January 2001 and expiring on 18 January 2036 Approximately 10, hectares of land Oil palm plantations Rokan Hilir, Riau Right to Use (Hak Pakai) ( HP ) (No.112) Approximately hectares of land Oil palm plantations Commencing from 3 September 2004 and expiring on 6 June 2029 D-43

382 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner / Location Type of Asset Major Encumbrance Usage Rokan Hilir, Riau HP (No.142) Commencing from 3 September 2004 and expiring on 6 June 2029 Approximately hectares of land Oil palm plantations Rokan Hilir, Riau HP (No.394) Commencing from 26 July 2005 and expiring on 18 March 2030 Approximately hectares of land Oil palm plantations Rokan Hilir, Riau HP (No.807) Commencing from 7 June 2006 and expiring on 7 June 2031 Approximately hectares of land Oil palm plantations PT CTP Bengkalis, Riau HGU (No.5) Commencing from 30 July 1999 and expiring on 30 July 2034 Approximately 4, hectares of land Oil palm plantations Jakasetia, Bekasi, Jawa Barat HGB (No.2795) Commencing from 19 July 1996 and expiring on 9 December 2015 Approximately hectares of land Warehouse for Documents Rokan Hilir, Riau HP (No.806) Commencing from 7 June 2006 and expiring on 7 June 2031 Approximately hectares of land Oil palm plantations Rokan Hilir, Riau HP (No.20) Commencing from 7 June 2006 and expiring on 7 June 2031 Approximately hectares of land Oil palm plantations Rokan Hilir, Riau HP (No.19) Commencing from 7 June 2006 and expiring on 7 June 2031 Approximately hectares of land Oil palm plantations PT SP Kampar, Riau HGU (No.141) Commencing from 25 November 1999 and expiring on 25 November 2034 Approximately 12, hectares of land Palm Oil Mill and Oil palm plantations D-44

383 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner / Location Type of Asset Major Encumbrance Usage PT IP Indragiri Hulu, Riau HGU (No.1) Commencing from 13 July 1987 and expiring on 31 December 2021 Approximately 2, hectares of land Oil palm plantations Indragiri Hulu, Riau HGU (No.2) Commencing from 13 July 1987 and expiring on 31 December 2021 Approximately 3, hectares of land Palm Oil Mill and Oil palm plantations PT KGP Sanggau, Kalimantan Barat HGU (No.01) Commencing from 18 November 1997 and expiring on 18 November 2032 Approximately 19, hectares of land * * This does not include 5,000 hectares of land under the Plasma Programme Oil palm plantations PT CNIS Sanggau, Kalimantan Barat HGU (No.09) Commencing from 11 June 2002 and expiring on 11 June 2037 Approximately 1, hectares of land Oil palm plantations Sanggau, Kalimantan Barat HGB (No.06) Commencing from 20 April 2004 and expiring on 20 April 2034 Approximately hectares of land Palm Oil Mill Sanggau, Kalimantan Barat HGB (No.04) Commencing from 20 April 2004 and expiring on 20 April 2034 Approximately hectares of land Palm Oil Mill Sanggau, Kalimantan Barat HGB (No.05) Commencing from 20 April 2004 and expiring on 20 April 2034 Approximately hectares of land Palm Oil Mill Sanggau, Kalimantan Barat HGB (No.03) Commencing from 20 April 2004 and expiring on 20 April 2034 Approximately hectares of land Palm Oil Mill D-45

384 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner / Location Type of Asset Major Encumbrance Usage Sanggau, Kalimantan Barat HGB title in process of being obtained Approximately 7.93 hectares of land Palm Oil Mill Sanggau, Kalimantan Barat Ijin Lokasi (No /IL-1999) Commencing from 29 October 1999 and expiring on 29 October 2002 Approximately 5, hectares of land * * This Ijin Lokasi was previously for 17,500 hectares of land, of which 5,926 hectares of land remain subject to this Ijin Lokasi, 1,574 hectares of land have been converted to HGU (No.09) and 10,000 hectares of land are subject to the Plasma Programme Oil palm plantations PT KMS Pasir, Kalimantan Timur HGU (No.13) Commencing from 23 December 1998 and expiring on 2 December 2033 Approximately 5, hectares of land Rubber plantations Pasir, Kalimantan Timur HGU (No.14) Commencing from 23 December 1998 and expiring on 2 December 2033 Approximately 2, hectares of land Rubber plantations PT RAP Kapuas Hulu, Kalimantan Barat HGU (No.3) Commencing from 9 September 2004 and expiring on 9 September 2039 Approximately 2, hectares of land Oil palm plantations Kapuas Hulu, Kalimantan Barat Location Permit (SK Ijin Lokasi) ( Ijin Lokasi ) (No.167 of 2004) Approximately 15, hectares of land * Will be used as oil palm plantations Commenced from 10 July 2001 and expired on 10 July 2003; extended up to 19 October 2005, and is currently in the process of being extended. * This includes 5,000 hectares of land under the Plasma Programme PT CKS Sintang, Kalimantan Barat Ijin Lokasi (No.183 of 2004) Commencing from 2 July 2004 and expiring on 2 July 2007 Approximately 20, hectares of land * * This includes 5,000 hectares of land under the Plasma Programme To be cultivated as oil palm plantations D-46

385 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner / Location Type of Asset Major Encumbrance Usage PT JS Sintang, Kalimantan Barat Ijin Lokasi (No.047 of 2005) Commencing from 18 Feb 2005 and expiring on 18 Feb 2008 Approximately 19, hectares of land * * This includes 5,000 hectares of land under the Plasma Programme To be cultivated as oil palm plantations PT SAIN Kampar, Riau HP (No.117) Commencing from 18 October 2005 and expiring on 19 August 2028 Approximately hectares of land Oil palm plantations (Plant Breeding Project) Kampar, Riau HP (No.118) Commencing from 18 October 2005 and expiring on 19 August 2028 Approximately hectares of land Oil palm plantations (Plant Breeding Project) Kampar, Riau HP (No.119) Commencing from 18 October 2005 and expiring on 19 August 2028 Approximately hectares of land Oil palm plantations (Plant Breeding Project) Kampar, Riau HP (No.120) Commencing from 18 October 2005 and expiring on 19 August 2028 Approximately hectares of land Oil palm plantations (Plant Breeding Project) Kampar, Riau HP (No.121) Commencing from 18 October 2005 and expiring on 19 August 2028 Approximately hectares of land Oil palm plantations (Plant Breeding Project) Kampar, Riau HP (No.122) Commencing from 18 October 2005 and expiring on 19 August 2028 Approximately hectares of land Oil palm plantations (Plant Breeding Project) Kampar, Riau HP (No.123) Commencing from 18 October 2005 and expiring on 19 August 2028 Approximately hectares of land Oil palm plantations (Plant Breeding Project) Kampar, Riau HP (No.124) Commencing from 18 October 2005 and expiring on 19 August 2028 Approximately hectares of land Oil palm plantations (Plant Breeding Project) D-47

386 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner / Location Type of Asset Major Encumbrance Usage Kampar, Riau HP (No.125) Commencing from 18 October 2005 and expiring on 19 August 2028 Approximately hectares of land Oil palm plantations (Plant Breeding Project) Pekanbaru, Riau HGB (No.28) Commencing from 15 July 2004 and expiring on 15 July 2024 Approximately hectares of land Office Pekanbaru, Riau HGB (No.29) Commencing from 15 July 2004 and expiring on 15 July 2024 Approximately hectares of land Office Pekanbaru, Riau HGB (No.30) Commencing from 15 July 2004 and expiring on 15 July 2024 Approximately hectares of land Office Pekanbaru, Riau HGB (No.31) Commencing from 15 July 2004 and expiring on 15 July 2024 Approximately hectares of land Office Pekanbaru, Riau HGB (No.32) Commencing from 15 July 2004 and expiring on 15 July 2024 Approximately hectares of land Office Pekanbaru, Riau HGB (No.33) Commencing from 15 July 2004 and expiring on 15 July 2024 Approximately hectares of land Office PT SIMP (formerly owned by PT IBS) (1) Pluit Karang Indah, Jakarta HGB (No.3609) Commencing from 24 October 1990 and expiring on 17 October 2010 Approximately hectares of land Residential Buildings (1) Under Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, all assets and rights of the relevant company have been transferred by law to PT SIMP as of 1 June D-48

387 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner / Location Type of Asset Major Encumbrance Usage Jalan Alor Tanjung Priok, Tanjung Priok, Jakarta HGB (No.518) Commencing from 10 May 2002 and expiring on 9 May 2022 Approximately hectares of land * * This land is leased pursuant to an agreement with the Indonesian Port Authority No. 566/7/20/C.TPK-02 dated 7 June 2002, for the period commencing from 3 June 2002 and expiring on 30 December 2021 Reserved for Factory Buildings Papanggo, Tanjung Priok, Jakarta HGB (No.1263) Commencing from 1 July 1987 and expiring on 26 January 2007 Approximately hectares of land Warehouse Buildings Papanggo, Tanjung Priok, Jakarta HGB (No.2508) Commencing from 13 July 1994 and expiring on 26 January 2007 Approximately hectares of land Warehouse Buildings Jalan Tanjung Tembaga, Surabaya, Jawa Timur HGB (No.12) Commencement date is not stated but expires on 30 November 2011 Approximately hectares of land Refinery, Office and Warehouse Jalan Tanjung Tembaga, Surabaya, Jawa Timur HGB (No.122) Commencing from 29 January 1996 and expiring on 30 November 2010 Approximately hectares of land Refinery, Office and Warehouse Jalan Tanjung Tembaga, Surabaya, Jawa Timur HGB (No.123) Commencing from 29 January 1996 and expiring on 30 November 2010 Approximately hectares of land Refinery, Office and Warehouse Jalan Tanjung Tembaga, Surabaya, Jawa Timur HGB (No.124) Commencing from 29 January 1996 and expiring on 31 December 2012 Approximately 0.16 hectares of land Refinery, Office and Warehouse Jalan Tanjung Tembaga, Surabaya, Jawa Timur HGB (No.193) Commencing from 13 February 2003 and expiring on 31 August 2016 Approximately hectares of land Warehouse Buildings D-49

388 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner / Location Type of Asset Major Encumbrance Usage PT SIMP (formerly owned by PT SOG) (1) Perak Barat Surabaya, Jawa Timur HGB (No.97) Commencing from 20 September 1995 and expiring on 22 August 2014 Approximately hectares of land Office PT SIMP (formerly owned by PT BML) (1) Dondo Tojo Una Una Sulawesi Tengah HGB (No.3) Commencing from 27 July 2006 and expiring on 27 July 2036 Approximately hectares of land Warehouse Birobuli Donggala Sulawesi Tengah HGB (No.5) Commencing from 12 June 1987 and expiring on 13 April 2007 Approximately hectares of land Warehouse Office Sario Tumpaan Manado Sulawesi Utara HGB (No.6) Commencing from 26 August 1992 and expiring on 4 July 2012 Approximately hectares of land Office Birobuli Donggala Sulawesi Tengah HGB (No.153) Commencing from 15 October 1992 and expiring on 16 October 2012 Approximately hectares of land Warehouse Moutong Tengah Donggala Sulawesi Tengah HGB (No.3) Commencing from 17 April 1995 and expiring on 30 April 2015 Approximately hectares of land Copra Crushing Plant and Warehouse Housing Gio Donggala Sulawesi Tengah HGB (No.1) Commencing from 16 October 1995 and expiring on 24 September 2024 Approximately hectares of land Warehouse Office Housing Kadoodan Bitung Sulawesi Utara HGB (No.270) Commencing from 30 June 1998 and expiring on 24 September 2027 Approximately hectares of land Copra Crushing Plant and Refinery Warehouse Office Housing D-50

389 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner / Location Type of Asset Major Encumbrance Usage Pakadoodan Bitung Sulawesi Utara HGB (No.86) Commencing from 30 June 1998 and expiring on 24 September 2027 Approximately hectares of land Warehouse Housing Kupa Kupa Tobelo Selatan Maluku Utara HGB title in process of being obtained Approximately 4.00 hectares of land Vacant Copra Crushing Plant (under construction) Other Material Tangible Fixed Assets and Material Properties Brief Description / Owner Location Type of Asset Major Encumbrance Usage PT SIMP Graha Inti Fauzi, Office Furniture & - Furniture Office use Jakarta Fixture - Air Condition - Fitting Transportation - Vehicle Employee use Equipment Rokan Hilir, Riau Machinery & - Palm Oil Mills Production Equipment - Kernel Crushing Production Plant - Generator Power Supply - Water Pump Water Supply Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Infrastructure - Land Improvement Infrastructure - Bridges Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep PT GMR Rokan Hilir, Riau Machinery & - Palm Oil Mills Production Equipment - Kernel Crushing Production Plant - Generator Power Supply - Water Pump Water Supply Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Infrastructure - Land Improvement Infrastructure - Bridges Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep D-51

390 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner Location Type of Asset Major Encumbrance Usage PT CTP Rokan Hilir, Riau Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Infrastructure - Land Improvement Infrastructure - Bridges PT SP Kampar, Riau Machinery & - Palm Oil Mills Production Equipment - Generator Power Supply - Water Pump Water Supply Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Infrastructure - Land Improvement Infrastructure - Bridges Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep PT IP Indragiri Hulu, Riau Machinery & - Palm Oil Mills Production Equipment - Generator Power Supply - Water Pump Water Supply Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Infrastructure - Land Improvement Infrastructure - Bridges Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep PT KGP Sanggau, Machinery & - Generator Power Supply West Kalimantan Equipment - Water Pump Water Supply Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Infrastructure - Land Improvement Infrastructure - Bridges Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep D-52

391 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner Location Type of Asset Major Encumbrance Usage PT CNIS Sanggau, Machinery & - Generator Power Supply West Kalimantan Equipment - Water Pump Water Supply Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Infrastructure - Land Improvement Infrastructure - Bridges Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep PT KMS Pasir, Machinery & - Generator Power Supply East Kalimantan Equipment - Water Pump Water Supply Pasir, Office Furniture & - Furniture Office use West Kalimantan Fixture - Air Condition - Fitting - Computer Infrastructure - Land Improvement Infrastructure - Bridges Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep PT RAP Kapuas Hulu, Machinery & - Generator Power Supply West Kalimantan Equipment - Water Pump Water Supply Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep PT CKS Sintang, Machinery & - Generator Power Supply West Kalimantan Equipment - Water Pump Water Supply Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep D-53

392 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner Location Type of Asset Major Encumbrance Usage PT SAIN Pekanbaru, Riau Machinery & - Generator Power Supply Equipment - Water Pump Water Supply Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Infrastructure - Land Improvement Infrastructure - Bridges Transportation - Tractor, Excavator, Used in plantation Equipment Loader, Trailer - Truck, Dump Truck, Tank Truck, Jeep PT SIMP (formerly Jakarta Factory, Machinery & - Refinery plant Production Process owned by PT Jembatan Tiga, Equipment - Fractionation plant IBS) (2) Jakarta - Margarine plant - Bottling plant - Tinning plant - Storage Tanks Office Furniture & - Air conditioner Office use Fixture - Table & Chairs - Computers & Printers - Filling cabinet Transportation - Vehicle Employee use Equipment Surabaya Factory, Machinery & - Refinery plant Production Process Tanjung Tembaga, Equipment - Fractionation plant Surabaya - Margarine plant - Bottling plant - Tinning plant - Hydrogenation plant - Storage Tanks Office Furniture & - Air conditioner Office use Fixture - Table & Chairs - Computers & Printers - Filling cabinet Transportation - Vehicle Employee use Equipment Lubuk Pakam, Machinery & - Refinery plant Production Process Medan Equipment - Fractionation plant - Storage Tanks Office Furniture & - Air conditioner Office use Fixture - Table & Chairs - Computers & Printers - Filling cabinet Transportation - Vehicle Assets for own use Equipment (2) Under Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, all assets and rights of the relevant company have been transferred by law to PT SIMP as of 1 June D-54

393 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Brief Description / Owner Location Type of Asset Major Encumbrance Usage PT SIMP (formerly Tanjung Priok Port, Equipment - Storage Tanks CPO Storage owned by Jakarta PT SOG) (3) Belawan, Medan Equipment - Storage Tanks CPO Storage Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Transportation - Vehicle Assets for own use Equipment Jembatan Tiga, Office Furniture & - Furniture Assets for own use Jakarta Fixture - Air Condition - Fitting - Computer Transportation - Vehicle Assets for own use Equipment PT SIMP Moutong Machinery & - Copra crushing Production Process Equipment plant - Workshop Repair & - Storage Tanks Maintenance Storage Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Transportation - Vehicle Factory Operational Equipment - Wooden Vessel Transportation inter factory Bitung Machinery & - Copra crushing Production Process Equipment plant - Refinery plant Production Process - Fractionation plant Production Process - Palm kernel Production Process crushing plant - Workshop Repair & Maintenance - Tin Filling Production Process - Laboratorium Quality control - Waste Water Environment Treatment - Storage tanks Storage Office Furniture & - Furniture Office use Fixture - Air Condition - Fitting - Computer Transportation - Vehicle Assets for own use Equipment - Wooden Vessel Transportation inter factory Note : As at 30 June 2006 (3) Under Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, all assets and rights of the relevant company have been transferred by law to PT SIMP as of 1 June D-55

394 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Each of PT CKS and PT RAP has entered into separate Credit Investment Agreements each dated 6 July 2004 (as amended by Credit Investment Agreements dated 31 July 2006) with Bank Mandiri Tbk pursuant to which the said bank has agreed to provide financing to PT CKS and PT RAP, and pursuant to which each of PT CKS and PT RAP has agreed to grant in favour of Bank Mandiri Tbk:- (i) (ii) floating charges over their respective machinery and equipment, office furniture and fixtures, and transportation equipment; and mortgages over their respective buildings, oil palms and certificated oil palm plantation land. Save as disclosed, none of the Target Group s material tangible fixed assets above are subject to any major encumbrance. The following are the material properties leased to the Target Group as at the Latest Practicable Date: Approximate Gross Area Description / Location Term (m 2 ) Use of Property Agreements with Anthoni Salim dated 31 March 1990 (for Ownership Right No. 578) ( 31 March Agreement ) and 2 October 1991 (for Ownership Right No. 591) (the 2 October Agreement ) Jalan Jembatan Tiga Blok F and G, North Jakarta 1 March Agreement commencing from 31 March 1990 and expiring on the date falling 6 months after notice of termination is given by the lessor. 2 October Agreement commencing from 2 October 1991 and expiring on the date falling 6 months after notice of termination is given by the lessor. 31 March Agreement - 13,360 2 October Agreement - 4,470 Refinery, warehouse and office Lease agreement with PT Adithya Suramitra dated 1 June 1996 Jalan Jembatan Tiga Blok F and G, North Jakarta Commencing from 1 June 1996 and expiring on 31 May ,875 Warehouse and tank farm Agreement with the Indonesian Port Authority No. B. VIII-6131/BLW-US.15 dated 20 February 2002 Jl. Ujung Baru, Belawan - Port of Belawan, Medan Commencing from 1 July 2001 and expiring on 30 June ,605 Tank farm and other supporting infrastructure Agreement with the Indonesian Port Authority No. 566/5/19/C.TPK-02 dated 23 April 2002 Tanjung Priok, North Jakarta Commencing from 1 January 2002 and expiring on 31 December ,921 Tank farm and office D-56

395 APPENDIX D: ADDITIONAL INFORMATION ON THE COMPANY AND THE TARGET GROUP Approximate Gross Area Description / Location Term (m 2 ) Use of Property Agreement with the Indonesian Port Authority No. 566/1/9/C.TPK-02 dated 23 January 2002 Tanjung Priok, North Jakarta Commencing from 1 January 2002 and expiring on 31 December ,218 Refinery (currently not in use) Agreement with the Indonesian Port Authority No. 144/PJ.2.01/C.TPR.95 dated 19 December 1995 Addendum No. HK.0501/82/TPR.2005 dated 28 April Commencing from 19 January 1995 and expiring on 30 April ,000 Tank farm Tanjung Perak, Surabaya D-57

396 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS The following is for general information only and does not purport to be a comprehensive description or exhaustive statement of applicable laws and regulations. This description is based on laws, regulations and interpretations now in effect and available as at the Latest Practicable Date. The laws, regulations and interpretations, however, may change at any time, and any change could be retroactive. These laws and regulations are also subject to various interpretations and the relevant authorities or the courts could later disagree with the explanations or conclusions set out below. SINGAPORE Exchange Controls Singapore has an Exchange Control Act which seeks to confer powers, and impose duties and restrictions, in relation to gold, currency, payments, securities, debts and the import, export, transfer and settlement of property, and for purposes connected with those matters. However, the Monetary Authority of Singapore has on 25 May 1978 issued a notice stating, inter alia, that with effect from 1 June 1978, all persons are exempted from the provisions, obligations, etc. imposed under various sections of the Exchange Control Act and therefore, no exchange control formalities or approvals are required for all forms of payments or capital transfers. BRITISH VIRGIN ISLANDS Exchange Controls There are currently no British Virgin Islands governmental laws, decrees, regulations or other legislation in force that may affect (i) the import or export of capital from the British Virgin Islands; and (ii) the remittance of dividends, interest or other payments made to shareholders who are not resident in the British Virgin Islands by an international business company of the British Virgin Islands, save for interest payable to or for the benefit of an individual resident in the European Union. MAURITIUS Exchange Controls Payments made to or by a company incorporated in Mauritius are not restricted by any exchange control regulations in Mauritius, and there are no governmental laws, decrees, regulations or other legislation in Mauritius that may affect the following:- (a) (b) the import or export of capital, including the availability of cash and cash equivalents for use by the Group; and the remittance of dividends, interest or other payments to non-resident holders of the Company s securities. INDONESIA Exchange Controls The Indonesian Rupiah is the lawful currency of the Republic of Indonesia. According to Law No. 23 of 1999 on Bank Indonesia (this being the Central Bank of Indonesia)( BI ), as amended by Law No. 3/2004, BI controls the currency and protects the stability of payment instruments. Law No. 24/1999 on Foreign Exchange Flow and Conversion Rate System permits the use of foreign exchange in Indonesia without prejudice to the lawful currency of Indonesia. BI has the right to request information and data concerning foreign exchange activities of all persons and legal entities that are domiciled, or plan to be domiciled in Indonesia for at least one year. BI Regulation No. 4/2/PBI/2002 dated 28 March, 2002 concerning the Monitoring of Foreign Exchange activities by Non-Financial Institutions Companies, as amended by Regulation of Bank Indonesia No. 5/1/PBI/2003 dated 31 January, 2003, and implemented by Circular Letter of Bank Indonesia E-1

397 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS No. 5/24/DSM dated 3 October, 2003 concerning Reporting of Foreign Exchange Flows Conducted by Non-Financial Institution Companies, stipulates that companies having total assets or annual gross sales in the amount of at least Rp100 billion, and (a) (b) carry out foreign exchange activities not conducted through a domestic bank or financial institution; and/or have offshore financial assets and/or liabilities, shall be required to comprehensively, timely and accurately report to Bank Indonesia, their foreign exchange flow activities failing which Bank Indonesia imposes monetary sanctions. Such companies are also required to report their transactions involving foreign exchange flow, amongst other things, the receipt of export earnings and payments for imports, drawings and receipts of foreign borrowings, receipts from settlement of trade receivables, through overseas current accounts. The underlying of the transaction involving foreign exchange flow having a minimum value of US$1,000 or its equivalent, shall be reported in detail, while each transaction having value less than US$1,000 or its equivalent can be reported in a lump sum. In the position report, such companies shall report their offshore financial assets and/or liabilities, both on balance sheet and contingent. In the event that at any time the total asset value or annual sales indicated above decreases to a level below Rp100 billion, such companies in concern are obliged to file the reports so long as they carry out foreign exchange activities. The above amounts of total assets and annual sales may be altered by Bank Indonesia, subject to the current development. Bank Indonesia also has the authority to audit the supporting documents, evidence and records associated with the foreign exchange activities. Indonesia does not restrict the repatriation of capital. Dividends, interest and royalties are freely remittable out of Indonesia, subject to the payment of withholding tax. Overview of Indonesian Land Laws According to the 1945 Constitution of Indonesia, all rights to land are vested in the Indonesian government ( State ) as the representative of the Indonesian people. As such, only the State has full power in respect of, inter alia, the granting of the rights to land and the use of land. Rights to land are regulated by the Basic Agrarian Law (Law No. 5/1960). For legal certainty, all rights to land, their transfer and encumbrance with security rights thereof must be registered with the BPN having jurisdiction over the location of the land, which office is responsible for keeping and maintaining a Land Register Book (referred to in Indonesian as Daftar Buku Tanah) and Land Measurement Register Book (referred to in Indonesian as Daftar Surat Ukur). The Land Registration Office issues a certificate of land as evidence of the holder s right to the land. A mortgage over the land must be reflected on the land certificate as evidence that the land is encumbered with a mortgage for the benefit of the creditor. Types of Right To Land Under Indonesian Law (a) Right of Ownership (referred to in Indonesian as Hak Milik ( HM )) HM is the strongest and the fullest ownership title over a piece of land. HM can only be held by Indonesian nationals. The government of Indonesia determines the legal entities that can own HM. The owner of HM may allow other rights (HGU HP, etc) over its land. This right is similar to the rights of the state to grant rights over land to its citizens. (b) Right to Cultivate (referred to in Indonesian as Hak Guna Usaha ( HGU or Hak Guna Usaha )) HGU gives its holder the right to exploit/use or to cultivate the land. This right is usually given for agricultural purposes (agribusiness) for an initial fixed period not exceeding 35 years and may be extended for 25 years. After the expiration of this term, the holder may apply for a further renewal of the land title for a further 35 years at the maximum. E-2

398 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS An extension and renewal of Hak Guna Usaha is generally granted so long as the utilisation of the land covered by the rights complies with the approved usage of the land when the rights were initially granted to the holder. HGU can be held by Indonesian nationals and corporations incorporated in Indonesia and domiciled in Indonesia (including any joint venture company or foreign investment company incorporated in Indonesia). These land rights can be mortgaged as collateral. Please see the section Granting of Land Rights below. (c) (d) (e) Right of Use (referred to in Indonesian as Hak Pakai ( HP )) HP gives its holder the right to use the respective land. The Hak Pakai may be created over State land or over the Indonesian Hak Pengelolaan (Right to Manage) or the Hak Milik (Ownership Title). If a Hak Pakai is created over State land, the government will issue a decision letter that stipulates the special purpose of the use of that land. If a Hak Pakai is to be created over a Hak Pengelolaan or Hak Milik, the holder of the Hak Pengelolaan or the Hak Milik and the applicant of the Hak Pakai must enter into an agreement concerning the use of such land. This agreement is then submitted to the respective government instance which will use it as the legal ground for the issuance of the Hak Pakai being applied for. It is worth noting that generally the Hak Pakai is granted by the State in respect of land that is State land. It may be granted for a period of up to 25 years, which period is extendable up to 20 years. In Target Group s case, the Hak Pakai relates to land that is used for plantation purposes. Right to Development (referred to in Indonesian as Hak Pengelolaan ( HPL )) HPL is usually granted by the State to government entities or to state-owned enterprises. The holder of HPL could grant HM, Hak Guna Bangunan, or HP to third parties. The holder of HPL may, in addition, contract with third parties for purposes that are consistent with the purposes for which HPL is granted. The holder of HPL has the authority to (i) plan the intended use and utilisation of the land which is the subject matter of the HPL; (ii) use the land for the purposes of carrying out its business; and (iii) deliver or transfer all or any part of the land to third parties on terms and conditions as determined by it, provided that delivery or transfer is in compliance with the Indonesian Basic Agrarian Law. Right to Build (referred to in Indonesian as Hak Guna Bangunan ( HGB )) HGB is a right in land which allows its holder to utilise the land and anything previously or thereafter built upon the land on an exclusive basis for that period. HGB could be granted either by the State, if it is granted over State land, or such persons holding HPL in respect of the land. Under Indonesian law, the certificate of HGB is issued by BPN for a period of up to 30 years. The initial 30-year period may be extended upon request submitted by the HGB holder to BPN for a period of up to 20 years. After the expiration of this term, the holder may apply for a further renewal of the land title for a further 30 years at the maximum. HGB may be transferred to another party and can be held by Indonesian citizens or Indonesian legal entities (including joint venture companies or foreign investment companies incorporated in Indonesia). Granting of Land Rights Land rights from the Indonesian government must be obtained in order to establish an oil palm plantation. Land rights for plantations are in the form of HGU, and give the holder the right to use the land for plantation businesses up to a maximum of 35 years. A holder of HGU rights can generally extend these rights for an additional 25 years. After the expiration of its term, the holder may apply for a further renewal of the land title for another 35 years at the most. An extension and renewal of HGU is generally granted so long as the utilisation of the land covered by the rights complies with the approved usage of the land when the rights were initially granted to the holder. Only Indonesian nationals and corporations incorporated in Indonesia and domiciled in Indonesia (including any joint venture company or foreign investment company incorporated in Indonesia) can hold HGU title. These land rights can be mortgaged as collateral. E-3

399 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS The granting of HGU rights involves primarily four stages, namely: (i) obtaining the Ijin Lokasi (Location Permit); (ii) land relinquishment or acquisition; (iii) application for HGU title; and (iv) land registration and issuance of the land title certificate. The first stage of the process is obtaining the Ijin Lokasi which is an approval, granted by the Indonesian government to a company which permits that company to apply for acquisition of the title with respect to the land covered by the permit in accordance with the prevailing laws and regulations. Pursuant to the Ijin Lokasi, there are certain requirements to be fulfilled, among others, the land relinquishment or acquisition. Following the relinquishment or acquisition, the holder must develop the land, otherwise the holder may lose these rights granted by the government under said Ijin Lokasi. The second stage of the process is the relinquishment or acquisition of the land by the relevant company from the original owner of the land. The relevant company has one to three years to arrange for such relinquishment or acquisition depending on the size of the land. Certain deed or deeds of relinquishment will need to be executed before the Head of the Land Office of the relevant Regency under which jurisdiction the land concerned is located. By such deed of relinquishment, the original land owner releases his/her right on the land back to the State, being considered to be the ultimate holder of all land in Indonesia, for the benefit of the purchaser (the relevant company). By this deed, the land concerned becomes government s land. The third stage, following the execution of the deed of relinquishment, the relevant company can then apply to the Head of BPN/State Minister for Agrarian Affairs via the Head of Land Office at the Provincial level, with a copy to the Land Office of the relevant Regency where the land is located, for the issuance of a Hak Guna Usaha title in the relevant company s name. Based on this application, the Land Office will proceed with its measurement of the land, its examination of the pertaining documents, and request Panitia B to inspect the land. The result of Panitia B s inspection will be reported in its minutes of land inspection. Upon the satisfactory completion of these acts, the Land Office will issue a recommendation to the Head of BPN/State Minister for Agrarian Affairs. If the recommendation is accepted, the Head of BPN/State Minister for Agrarian Affairs will issue a Surat Keputusan Pemberian Hak ( SKPH or Decree on the Granting of the Right) in the name of the relevant company. This SKPH is however only to be regarded as a conditional granting of land rights. Upon the fulfilment of all of the conditions as set forth in the SKPH, including the submission of the original evidence of the retribution payment/administration fee and any other fees, the Land Office of the relevant Regency will register the land and issue the land title certificate under the name of the relevant company. Subject to the timely provision of all required information and the compliance with all applicable requirements and conditions, the Hak Guna Usaha certificate can be expected to be issued within three years after issuance of the Ijin Lokasi. As at 30 June 2006, the Target Group has a land bank of approximately 138,542 hectares (excluding land under the Plasma Programme and land used for oil palm seed breeding), of which approximately 90,121 hectares are currently held under Hak Guna Usaha. Overview of Indonesian Foreign Investment Laws The government of Indonesia periodically issues what is known as the Negative List of Investment (referred to in Indonesian as Daftar Negatif Investasi ( DNI )). The DNI lists those areas in which foreign and domestic investments are prohibited or restricted. In concept, any area not listed in the DNI is open for foreign investment and domestic investment. Foreign investment in this context means investment by a foreign company or individual as a shareholder in an Indonesian company established under the Foreign Investment Law (Law No.1 of 1967, as amended). Such a company is commonly referred to by its Indonesian initials as a PMA company. As a general rule and save for certain industries such as upstream oil and gas and financial services, which are separately regulated, equity investment in Indonesian companies by foreigners is permitted only in a company formed pursuant to the Foreign Investment Law and subject to the supervision and E-4

400 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS control of the Capital Investment Coordinating Board (referred to in Indonesian as Badan Koordinasi Penanaman Modal ( BKPM )). The BKPM is a non-departmental government institution having derivative authority to issue basic investment permits on behalf of the functional industrial ministries. All Indonesian limited liability companies, whether formed under the Foreign Investment Law or otherwise, are also subject to Law No.1 of 1995 concerning limited liability companies ( Law No. 1 of 1995 ). The Law No. 1 of 1995 touches upon a great range of issues, including the duties and liabilities of directors, minority shareholder rights and updated merger provisions. Foreign Shareholding The initial foreign shareholding and divestment requirements applicable to PMA companies were revised and substantially liberalised by Government Regulation No.20/1994 dated 19 May 1994, as amended by Government Regulation No. 83/2001 dated 19 December Pursuant to this regulation, a PMA company can be set up under either of two capital investment structures. The first structure is a joint venture with Indonesian citizens or legal entities in which the maximum initial foreign ownership of the equity in the PMA company is 95%, with no subsequent divestment of the foreign-owned equity required, provided that the PMA company does business in certain key infrastructure industries as noted in paragraph 1(i) below ( Mandatory Joint Venture PMA Company ). The second structure is a joint venture company with foreign ownership that exceeds 95%, provided that it engages in a non-strategic industry ( Voluntary Joint Venture PMA Company ) or a foreign capital investment company, of which 100% of its equity capital is owned by a foreign national or foreign legal entity ( Foreign PMA Company ). Certain salient features of both types of PMA companies are discussed below:- 1. Mandatory Joint Venture PMA Company (i) A Mandatory Joint Venture PMA Company may undertake business operations in certain key infrastructure industries formerly closed (or substantially closed) to foreign investment, including ports, production, transmission and distribution of electric power for the public, telecommunications, shipping, air transport, water, rail transport, nuclear power and mass media. (ii) No subsequent divestment of the foreign-owned equity in the Mandatory Joint Venture PMA Company is required but Indonesian-owned equity may not be reduced or fall below 5% of the issued share capital of the Mandatory Joint Venture PMA Company. 2. Voluntary Joint Venture PMA Company or Foreign PMA Company Pursuant to the PT ISM Group Restructuring, PT SIMP will be converted to a Foreign PMA Company. (i) (ii) A Voluntary Joint Venture PMA Company or Foreign PMA Company may not undertake the businesses listed in paragraph 1(i) above. The shareholding owned by foreign entities in a Foreign PMA Company should be reduced within 15 years after the commencement of commercial production of the Foreign PMA Company. The Decree of the Minister for Mobilization of Investment Funds/ Chairman of BKPM No. 15/SK/1994 dated 29 July 1994 provides that such divestment shall be determined according to the consensus of the relevant parties. The required percentage, if any, of divestment is not stated in the Decree. E-5

401 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS As at the Latest Practicable Date, the following companies in the Target Group are Foreign PMA Companies:- Name of company PT KGP PT CNIS Year of commencement of commercial production Not yet commenced Not yet commenced Failure to carry out the requisite divestment may result in the following sanctions being imposed:- (i) (ii) (iii) (iv) temporary suspension of corporate activities; partial or full revocation of the company s capital investment facilities; partial revocation of licences; or the cancellation or revocation of the Presidential Approval/Approval Notification Letter. Company Registration in Indonesia Law No. 1 of 1995 requires that a limited liability company in Indonesia must have at least 2 shareholders. Under Law No. 1 of 1995, if at any time 100% of the outstanding issued shares are held by only one person, within 6 months of the commencement of such event, shares must be sold to another party, failing which the sole shareholder shall be personally liable for the liabilities of the company. Law No. 1 of 1995 established a minimum capitalisation of Rp20,000,000, unless laws and regulations governing certain types of business activities require different minimum amounts of authorised capital of the company. Under Indonesian law, pursuant to Law No. 3 of 1982 on Mandatory Company Registration, every company in Indonesia (including, inter alia, its branch office, auxiliary branch office, subsidiary, agency, and its representative office) is required to be registered in the Company Registry of the Ministry of Trade. The registration must be conducted within 3 (three) months after the commencement of its business. The registration is valid for a period of 5 years and must be renewed 3 (three) months upon expiry. In the event that the business registration is not renewed on expiry, inter alia, the board of directors of such company shall be held liable and shall be subject to 3 months of imprisonment or a maximum fine of Rp3,000,000.The company registration for PT SIMP s office in Jakarta is valid until The company registration for PT IIP s office in Jakarta is valid until The company registration for PT IP s office in Jakarta is valid until The company registration for PT SP s office in Jakarta is valid until The company registration for PT GMR s office in Jakarta is valid until 2010 and for its office in Rokan Hilir is valid until The company registration for PT CTP s office in Jakarta is valid until The company registration for PT SAIN s office in Jakarta is currently being renewed. The company registration for PT RAP s office in Pekanbaru is valid until The company registration for PT CKS s office in Sintang is valid until 2010 and for its office in Pekanbaru is valid until The company registration for PT JS s office in Pekanbaru is valid until The company registration for PT KMS s office in Jakarta is valid until The company registration for PT KGP s office in Jakarta is currently being renewed. The company registration for PT CNIS s office in Jakarta is valid until 2008 and that for its office in Sanggau is valid until Registration of Certain Resolutions Under Indonesian law, any resolutions of shareholders of a company in respect of a change to the composition of a company s board of directors and/or board of commissioners are required to be registered with the Ministry of Trade ( MOT ), and failure to do so may result in sanctions of imprisonment of up to 3 months or a fine of up to Rp3,000,000 being imposed. In addition, for so long as such registration has not been made with the MOT, the board of directors will be jointly and severally liable for the company s actions. E-6

402 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS Certain Business Licences (a) Permanent business licence Pursuant to Decree of Chairman of BKPM No. 57/SK/2004, the permanent business licence (referred to in Indonesian as Ijin Usaha Tetap) of PMA companies is issued by BKPM and shall be valid for a period of 30 years starting from the commencement of its commercial production/operation. Based on the Elucidation of GR 20/1994, the licence may be renewed for another 30 years with prior consideration by the related Minister, such as the Minister of Industry with regard to matters concerning the production, Minister of Finance with regard to matters concerning to taxation, Minister of Trade with regard to matters concerning export and import, Minister of Environment with regard to matters concerning the management of waste, and any other relevant Ministers. In addition, the 30-year period of a permanent business licence is automatically re-commenced each time the relevant company undertakes an expansion of its foreign investment project approved by the BKPM. As at the Latest Practicable Date, none of the PMA companies in the Target Group has commenced commercial production/operation and therefore each of the PMA companies in the Target Group is not yet obliged to obtain a permanent business licence. Pursuant to Decree of Chairman of BKPM No. 61/SK/2004, PMA companies are required to submit an Investment Activity Report (referred to in Indonesian as Laporan Kegiatan Penanaman Modal ( LKPM )) twice a year for companies that have not obtained a permanent business licence and once a year for those who have obtained a permanent business licence. Failure to submit an LKPM periodic report may cause the imposition of the following sanctions:- a. Refusal of service licences, b. Temporary suspension of production activity, c. Temporary suspension of construction activity, d. Partial or full termination of all investment facilities, e. Revocation of Investment Approval In addition to the PMA companies in the Target Group, there is also a domestic investment (referred to in Indonesian as Penanaman Modal Dalam Negeri, PMDN ) company, namely, PT GMR, PT SP, PT SIMP, PT KMS and PT IP. These companies have obtained permanent business licences which are valid so long as the companies conduct business activities. (b) (c) Business place licence In addition, licences issued by the relevant regional authorities in Indonesia may be required for companies to carry out the regional business activities in the relevant region. For example, PT GMR and PT CNIS are each the holder of a business place licence (referred to in Indonesian as Surat Izin Tempat Usaha ( SITU )) issued by the Regencies of Rokan Hilir and Sanggau respectively, which allows them to carry out the business activities specified in such licence in Riau. The SITU is renewable annually. In the event that the SITU is not renewed on expiry, the relevant company may not be able to continue operation in that area. Others (i) PT IBS and PT BML PT IBS and PT BML holds a power supply business licence (referred to in Indonesian as Izin Usaha Penyediaan Tenaga Listrik ( IUPL )) to use power for its own interest. Unless otherwise renewed, the IUPL of PT IBS and PT BML will expire respectively in June 2008 E-7

403 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS and May By operation of Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, PT SIMP has assumed the rights and obligations under the relevant licences held by PT IBS and PT BML. (ii) PT SIMP, PT SP, PT GMR, PT IP, and PT KMS PT SIMP, PT SP, PT GMR, PT IP and PT KMS holds waste water/sewage treatment licences (referred to in Indonesian as Izin Pemanfaatan Air Hasil Limbah ( IPAL )) in respect of its waste water / sewage treatment activities. The IPAL of PT SP expired in April 2005, and is currently in the process of renewal. Failure to comply with the applicable requirements and prevailing regulations relating to such licence will subject the relevant company to revocation of the same. Failure to hold such licence may subject PT SIMP, PT SP, PT GMR, PT IP and PT KMS to administrative sanctions, such as written warnings, temporary suspension and revocation of business licences. PT SIMP has obtained a Licence of Temporary Storage of Hazardous and Toxic Waste based on the Decree of State Minister of Environment No. 336/2005 dated 14 November 2005, which is valid for 3 years. Based on this Licence, PT SIMP may only temporarily store hazardous and toxic waste in the form of used lubricant for a maximum of 90 days, and must not accept any hazardous and toxic waste from other parties or other activities. Employment Laws in Indonesia The Indonesian Labour Law No. 13/2004, dated 25 March 2003 provides regulations on Industrial Relations. The apparatuses for performing industrial relationships include: 1. Labour Union; 2. Company Regulation; 3. Collective Labour Agreement; 4. Bipartite Cooperation Institution; and 5. Tripartite Cooperation Institution. Labour unions are becoming one of the parties in industrial relations between employers, employees and the government. Every employee/labourer shall be entitled to establish or join the labour union based on Article 104 of Law No. 13/2003. Article 108 of Law No. 13/2003 dated 25 March 2003, requires a company with 10 or more employees to maintain company regulations and have them approved by the Minister of Manpower or other authorised officials setting out its employment policies and benefits ( Company Regulations ). The Company Regulations is valid for a period of 2 years, whereupon they must be renewed. Failure to do so may cause the company to be subject to a penalty at the minimum of Rp5,000,000 and at the maximum of Rp50,000,000. So long as the Company Regulations are in effect, the Labour Union, if it so desires, is entitled to propose for an establishment of a Collective Labour Agreement. The Collective Labour Agreement is made between a Labour Union/Group of Labour Union and Employer/Group of Employer. The Collective Labour Agreement is also valid for 2 (two) years and is extendable for 1 (one) year at the most. E-8

404 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS The validity period of the Company Regulations/Collective Labour Agreement of PT KMS has expired, and it is in the process of applying for renewal of its Company Regulations/Collective Labour Agreement. The validity period of the Company Regulations/Collective Labour Agreement of the following Target Group companies are set out below:- Name of Target Group Company Expiry date of Company Regulations/Collective Labour Agreement PT CKS 24 March 2007 PT CNIS 25 October 2007 PT CTP 23 September 2007 PT GMR 23 September 2007 PT KGP 25 October 2007 PT IP 23 September 2007 PT RAP 31 December 2006 PT SIMP 23 September 2007 PT SP 23 September 2007 PT SAIN and PT IIP are in the process of applying for approval of its Company Regulations/Collective Labour Agreement. Under Law No. 7/1981, a company is also required to submit annual manpower reports to the Ministry of Manpower. In the event that the company fails to submit such a report, the board of directors of such company may be subject to 3 months imprisonment or a maximum fine of Rp1,000,000. Government Regulation No. 14/1993 stipulates that a company which employs 10 persons or more or pays employee salaries exceeding Rp1,000,000 per month is required to participate in a manpower social security program known in Indonesian as Jaminan Sosial Ketenagakerjaan or JAMSOSTEK. JAMSOSTEK is a protection scheme for employees under which employees receives compensation in cash or remuneration for a portion of income which was lost or reduced due to work accident, illness, pregnancy, giving birth, old age and death. The JAMSOSTEK benefit may be received by an employee due to work accident, death, old age and illness, also covers the family of the respective employee. Contribution for causes of work accident, death and illness is borne by the employer, while for O- ASavings is payable jointly by the employer and the employee. JAMSOSTEK includes compulsory programs for occupational accident insurance, life insurance and retirement benefits. Employers are responsible for the entire amount of contributions to the occupational accident insurance and life insurance programs. Contributions for accident insurance range from 0.24% to 1.74% of an employee s wage, depending on the employer s business. The contribution for life insurance is 0.3% of the employee s wage. The contributions for retirement benefits are jointly borne by the employer and employee; the employer s share is 3.7% of wages and the employee s share is 2% of wages. Employee contributions to JAMSOSTEK are collected by the employer through payroll deductions. JAMSOSTEK also includes a health care benefits program. The contribution is 6% for a married employee and 3% for a single employee. An employer who provides better company health insurance to its employees can elect not to join the health care program under JAMSOSTEK. Under Indonesian laws, companies are required to have work permits to employ expatriates. Failure to do so may result in sanctions of imprisonment for a term of between 1 year to 4 years and a penalty of between Rp100,000,000 to Rp400,000,000 being imposed. Environmental Laws in Indonesia The Target Group s operations are subject to Indonesian laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental pollution, including the following laws in Indonesia which seek to regulate and protect the environment against pollution related activities in Indonesia, namely, Law No. 5 of 1990 regarding Conservation of Natural Resources and Ecosystems Law No. 24 of 1992 regarding Spatial Use Management and Law No. 23 of 1997 regarding Environmental Management. E-9

405 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS In addition, regulations relating to environmental protection in Indonesia include, inter alia,:- (a) (b) (c) (d) Government Regulation No. 20 of 1990 regarding Management of Water Pollution; Government Regulation No. 27 of 1999 regarding the Environmental Impact Analysis (Analisis Mengenai Dampak Lingkungan Hidup); Decree of the President of the Republic of Indonesia No. 10 of 2000 regarding the Environmental Impacts Management Agency; and Decree of the President of the Republic of Indonesia No. 32 of 1990 regarding Management of Protected Areas. In June 1990, the Environmental Impact Management Agency (or Badan Pengendalian Dampak Lingkungan) ( BAPEDAL ) was formed to assist the President of the Republic of Indonesia in managing the impact of pollution in Indonesia. The environmental management policies of BAPEDAL focus on the conservation and efficient utilisation of resources, waste minimisation, the reuse and safe disposal of waste, the use of the Environmental Impact Assessment (or Analisis Mengenai Dampak Lingkungan) ( AMDAL ) as a tool for sustainable development of resources, the minimisation of the use of hazardous substances and the management of environmental management support systems such as institutions, laws, incentives, training, laboratories and information systems and increasing public awareness and participation. Since January 7, 2002, the President, based on Presidential Decree No. 2 of 2002, dissolved BAPEDAL. BAPEDAL s tasks and functions were merged into the State Ministry of Environment. The policy to dissolve BAPEDAL does not apply to local (province and district/municipality) BAPEDAL, known as Badan Pengendalian Dampak Lingkungan Daerah (or BAPEDALDA). Every business plan or activities that may cause adverse impact to the environment shall be obligated to make an AMDAL report. The Decree of the State Minister of Environment No. 17/2001 sets out a list of business plans or activities that are subject to AMDAL report, where plantation business is one that is obligated to prepare such assessment. The reporting mechanism of AMDAL is now directed to the BAPEDALDA. Under the Decree of the State Minister for the Environment No. 86 of 2002, a company whose activities are not subject to the AMDAL requirement is still obliged to submit reports on its Environmental Management Efforts (referred to in Indonesian as Upaya Pengelolaan Lingkungan ( UKL )) and Environmental Monitoring Efforts (referred to in Indonesian as Upaya Pemantauan Lingkungan ( UPL )) to the State Minister for the Environment. The AMDAL, UKL and UPL are generally pre-requisite documents prior to the issuance of the permanent business licence. However, the permanent business licence of each of PT BML, PT IBS, PT KMS, PT KGP and PT CTP have been issued prior to the submission of their respective documents of AMDAL, UKL and UPL. There is no sanction for failure to submit the documents of AMDAL, UKL and UPL. However, the relevant governmental authorities may require the submission of the documents of AMDAL, UPL and UKL as prerequisite documents for issuance of any expansion licence to the permanent business licence. By operation of Indonesian law, as a result of the merger under the PT ISM Group Restructuring, inter alia, PT SIMP has assumed the rights and obligations under the relevant licences held by PT BML and PT IBS. Under Law No. 23 of 1997 concerning Environmental Management, the Target Group is also subject to regulations relating to the management of certain materials and waste and is required to obtain a licence in order to operate, and to reduce, process and accumulate such waste. Such licences may be revoked and operations may be required to cease if the regulations relating to such waste are violated. The Indonesian companies in the Target Group are to comply with certain mandatory procedures, as provided in Governmental Regulation No. 4/2001 dated February 5, 2001, concerning the Control over the Environmental Damage and/or Pollution related to Forest and/or Farm Land Fires, that will prevent pollution and damages to the environment when clearing land for its plantations. E-10

406 APPENDIX E: SUMMARY OF RELEVANT LAWS AND REGULATIONS Due to widespread forest fires in Indonesia which are believed to have been caused by companies and individuals clearing land for plantations, the Law No. 18 of 2004 on Plantation requires, among other things, that an individual or company must obtain the following before a plantation business permit can be granted by the government:- (i) (ii) (iii) AMDAL or UKL & UPL; risk management analysis for the business using genetic engineering product; and a statement regarding the ability to provide an emergency system and procedures that can promptly react to emergencies and prevent forest fires. Any company which has obtained a plantation business permit but fails to apply the AMDAL or UKL & UPL and/or environmental risk management analysis and monitoring plan may be subject to the revocation of its plantation business permit. As at the Latest Practicable Date, the directors of the Target Group are not aware of any incident of suspension or revocation of any of its Indonesian companies plantation business permit in the three financial years ended 31 December 2005 or any facts or circumstances which will cause its plantation business permits to be suspended or revoked. As at the Latest Practicable Date, the Indonesian companies in the Target Group have not been subject to penalties and fines relating to any breach in any environmental law and regulation in Indonesia. Food Labelling in Indonesia Pursuant to the regulations stipulated under Law No. 7 of 1996 on Food and Government Regulation No. 69 of 1999 on Label and Food Advertisement, all packaged foods which are sold and distributed in Indonesian territory must be labelled and registered. The regulation further stipulates that the control of the implementation of the provision on the Label and Advertisement shall be performed by the Minister of Health. The relevant body under the Minister of Health, which is assigned for such relevant tasks, is the Drug and Food Supervisory Agency. All labels must be permanently attached on the packaged product. The label must state the name of the product, the list of the composition or ingredients of the food product including any additives and their individual net weights, the name and address of the producer. The expiry date of any food product that has a shelf life must also be stated. Any information and statements on the label including drawings or any other graphic representation claiming that the products have health advantages must be supported by documented scientific facts. E-11

407 APPENDIX F: SUMMARY OF TERMS OF ESOS The following is a summary of the principal terms of the existing CityAxis Share Option Scheme 2002 and is qualified in its entirety by reference to the rules of the CityAxis Share Option Scheme 2002 (the ESOS Rules ). The CityAxis Share Option Scheme 2002 was approved by the then existing shareholders of the Company at an extraordinary general meeting held on 19 June Under the terms of the Injection Agreement, the Company has undertaken to PT ISM and ISHPL to use its best endeavours to procure that pending completion of the Proposed Acquisition, inter alia, it shall not create or issue or agree to create or issue any shares or any securities or options (including under the ESOS). The Scheme is to be administered by the Remuneration Committee of the Company for the time being (the Committee ). Eligibility The following persons, unless they are also controlling shareholders (as defined in the Listing Manual) of the Company or associates of such controlling shareholders, shall be eligible to participate in the Scheme:- (a) (b) any full time confirmed employee of the Company or any of its subsidiaries who has attained the age of 21 and is not an undischarged bankrupt ( Employee ); and any director of the Group ( Eligible Director ). In the event that the Employee or Eligible Director selected by the Committee for participation in the Scheme is a controlling shareholder or associate of a controlling shareholder, his participation in the Scheme and the number and terms of the options to be granted to him pursuant to the Scheme ( Options ) shall be subject to the prior approval of the independent shareholders of the Company in separate resolutions for each such person. Option Entitlements The number of Shares which may be offered to an Employee or an Eligible Director for subscription in accordance with the Scheme shall be determined at the discretion of the Committee who shall take into account criteria such as rank, performance, years of service and potential for future development of the Employee or Eligible Director. However:- (a) (b) the total Options which may be granted to any controlling shareholder or any associate of a controlling shareholder during the Scheme shall comprise Shares of not more than 10% of the Shares available under the Scheme; and the aggregate number of Shares available to controlling shareholders and associates of controlling shareholders shall not exceed 25% of the Shares available under the Scheme. Size and Duration of Scheme The total number of Shares which may be granted under the Scheme shall not exceed 15% of the issued share capital of the Company at any time and from time to time. The Scheme shall continue to be in force at the discretion of the Committee for a period of ten (10) years provided always that the Scheme may continue beyond the above stipulated period with the approval of Shareholders by ordinary resolution at a general meeting and of any relevant authorities which may then be required. Notwithstanding the termination or discontinuance or expiry of the Scheme, any rights accrued to Options which have been granted and accepted will continue to remain valid, whether such Options have been exercised (whether fully or partially) or not. F-1

408 APPENDIX F: SUMMARY OF TERMS OF ESOS Grant of Options An Option may be granted within the period of 60 days, commencing after the fifth Market Day following the date of announcement of the Company s interim or final results. The aforesaid 60-day period may be extended at the discretion of the Committee. Acceptance of Options Options are personal to the Employees or Eligible Directors to whom they are granted and may not be transferred, charged, assigned or otherwise disposed of or encumbered in whole or in part unless approved in writing by the Committee, but may be exercised by the Employee s or Eligible Director s legal personal representative(s) in the event of the death of the Employee or the Eligible Director. An individual who wishes to accept Options granted to him should do so by completing, signing and returning the relevant acceptance form, accompanied by payment of S$1.00 as consideration, within 30 days from the date of such grant, failing which the offer shall automatically lapse. Subscription Price Subject to adjustments under the Scheme, the subscription price for each Share in respect of which an Option is exercisable shall be determined by the Committee, in its absolute discretion, to be either:- (a) (b) a price equivalent to the market price of the Shares for the five consecutive Market Days immediately preceding the date of grant of that Option; or a price which is at up to a 20% discount to the average of the last dealt prices of the Shares as determined by reference to the Business Times, for the five consecutive Market Days immediately preceding the date of grant of that Option, whichever is higher. Exercise of Options Options which are exercisable with no discount to the market price may be exercised one year after the date of grant, and shall cease to be exercisable after the tenth anniversary of the date of grant, unless the Options have been granted to non-executive directors of the Group, in which case they will cease to be exercisable after the fifth anniversary of the date of grant. Options which are exercisable at a discount to the market price may be exercised two years after the date of grant, and shall cease to be exercisable after the tenth anniversary of the date of grant, unless the Options have been granted to non-executive directors of the Group, in which case they will cease to be exercisable after the fifth anniversary of the date of grant. Special provisions relating to the lapsing or earlier exercise of the Options apply in certain circumstances, including the following:- (a) (b) (c) (d) the termination of the employment of an Employee or an Eligible Director ceasing his appointment as an Eligible Director; the ill health, injury or disability of a participant; the bankruptcy of a participant; and the misconduct of a participant. F-2

409 APPENDIX G : TAXATION The discussion below is not intended to constitute a complete analysis of all tax consequences relating to purchase, ownership or disposal of the Shares and does not constitute legal or tax advice. Prospective investors should consult their own tax advisors concerning the tax consequences of their particular situations. This description is based on laws, regulations and interpretations now in effect and available as at the Latest Practicable Date. The laws, regulations and interpretations, however, may change at any time, and any change could be retroactive. These laws and regulations are also subject to various interpretations and the relevant tax authorities or the courts could later disagree with the explanations or conclusions set out below. The statements made herein is limited to a general description of certain tax consequences in Singapore with respect to ownership of the Shares by Singapore investors and do not purport to be a comprehensive or exhaustive description of all tax considerations that may be relevant to a decision to purchase, hold or dispose of the Shares. Nor do the statements address the tax treatment of investors subject to specific rules. Prospective investors should consult their tax advisers regarding Singapore tax and other tax consequences of owning and disposing the Shares. It is emphasised that neither the Company, the Directors, the Target Group nor any other parties involved in the Proposed Transactions accepts responsibility for any tax effects or liabilities resulting from the subscription for, purchase, holding or disposal of the Shares. Dividends payable by the Company on the Shares will be declared and paid to Shareholders in S$. TAXATION IN SINGAPORE Singapore income tax - general The following discussion is limited to a general description of certain tax consequences in Singapore with respect to the purchase, holding or disposal of the Shares. Singapore resident taxpayers, which include individuals who are residing in Singapore and companies which are controlled or managed in Singapore, are subject to Singapore income tax on:- (i) (ii) income that is accrued in or derived from Singapore; and with certain exceptions, foreign income received or deemed to be received in Singapore. With effect from 1 June 2003, tax exemption will be granted to all foreign income in the form of dividends, branch profits and services income which are derived from and have been subject to tax, with certain exceptions, in foreign jurisdictions that have headline tax rates of at least 15%. With effect from the year of assessment 2005, all foreign-sourced income received in Singapore by a Singapore resident individual (not through a partnership) will be exempt from tax. A company will be resident in Singapore if the control and management of its business is exercised in Singapore. A company will usually be regarded as being resident in Singapore if the company s board of directors meets in Singapore to discuss overall management policy and high-level business matters in relation to the business of the company. An individual will be resident in Singapore if he resides in Singapore (except for temporary absences from Singapore) or if he is physically present or exercises an employment (other than as a director of a company) in Singapore for 183 days or more during the calendar year preceding the year of assessment. Non-resident corporate taxpayers, subject to certain exceptions, are also subject to Singapore income tax on:- (i) (ii) income that is accrued in or derived from Singapore; and with certain exceptions, foreign income received or deemed to be received in Singapore. All individuals resident and non-resident, subject to certain exceptions, are subject to income tax on income accrued in or derived from Singapore. G-1

410 APPENDIX G : TAXATION The corporate tax rate in Singapore is currently 20% after allowing for tax exemption on three-quarters of up to the first S$10,000 and up to one-half of the next S$90,000 of a company s chargeable income. The above tax exemption does not apply to Singapore dividends received by companies. The remaining chargeable income (after tax exemption) will be taxed at 20%. Subject to any applicable tax treaty, non-resident taxpayers are subject to withholding tax at the prevailing Singapore corporate tax rate in respect of income derived from technical or management services provided in Singapore or generally 15% in the case of interest, royalty and rental of movable property if such interest, royalty or rental is not derived by the non-resident from any trade or business carried on in Singapore and is not effectively connected with any permanent establishment in Singapore of the nonresident person. The withholding tax rate on royalty payments has been reduced from 15% to 10% with effect from 1 January For a Singapore tax resident individual, the tax rate will vary according to the individual s circumstances but is subject to a maximum marginal rate of 20% for the year of assessment 2007 (i.e. calendar year 2006). The rate was 21% for the year of assessment 2006 (i.e. calendar year 2005). Gains on disposal of the Shares Singapore currently does not have a capital gains tax regime. However, there are no specific laws or regulations which deal with the characterisation of capital gains and hence, where the gains are considered as income from the carrying on of a trade, such gains are considered income and subject to tax. Any gains from the disposal of the Shares are not taxable in Singapore if they are regarded as gains of a capital nature. Dividend distributions As the Company will be tax resident in Singapore, dividends paid by the Company would be considered as sourced from Singapore. Dividends, either in cash or in any other form, received in respect of the Shares by either a resident or non-resident of Singapore are not subject to Singapore withholding tax. Prior to 1 January 2003, Singapore operated an imputation system of taxing dividends declared by companies which are resident in Singapore. Under this system, the tax paid by a company at the prevailing corporate tax rate was in effect imputed to its shareholders when dividends were paid to them. In other words, shareholders receive dividends net of such tax. Shareholders are taxed on the gross amount of dividends (that is, on the amount of net dividends plus the tax credit attached to the dividends). The tax paid by a company effectively was available to its shareholders as a tax credit to offset their Singapore income tax liability. With effect from 1 January 2003, the imputation system has been replaced by the new one-tier corporate tax system. Under the one-tier corporate tax system, dividends paid by Singapore companies will be tax exempt in the hands of shareholders. Under the 5-year transitional period of 1 January 2003 to 31 December 2007, a Singapore resident company with unutilised section 44 balance as at 31 December 2002 may remain under the imputation system for the purpose of paying franked dividends (i.e. dividends that carry tax credit). This is to allow resident companies up to 31 December 2007 to utilise their section 44 balances as at 31 December During the 5-year transitional period, these unutilised section 44 balances as at 31 December 2002 will be subject to downward adjustments if there are amended assessments raised during the transitional period which result in discharge of taxes which has previously been included in the section 44 balances as at 31 December Once a company s section 44 balance is zerorised (i.e. via the payment of franked dividends during the transitional period), the relevant company will automatically move to the onetier corporate tax system. Companies are also allowed to make an irrevocable election to move to the one-tier corporate tax system during the 5-year transitional period and any unutilised section 44 balances remaining shall be forfeited. Once a company is on the one-tier corporate tax system, dividends paid will be tax exempt in the hands of shareholders. G-2

411 APPENDIX G : TAXATION During the transitional period of 1 January 2003 to 31 December 2007, a company which has not moved to the one-tier corporate tax system is still able to pay tax exempt dividends to its shareholders if the company derived qualifying income from approved tax incentives, e.g. Global Trader Programme. Franked dividends received by shareholders during the 5-year transitional period are liable to tax on the gross dividend but are entitled to claim the tax credit against their tax payable. With effect from 1 January 2008, all companies will move on to the one-tier corporate tax system regardless of whether they have any unutilised section 44 balances and all dividends paid by companies after this date will be tax exempt dividends in the hands of the recipients. The Company is under the one-tier corporate tax system. However, foreign shareholders are advised to consult their own tax advisors to take into account the tax laws of their respective countries of residence and the existence of any double taxation agreement which their country of residence may have with Singapore. Dividend income Foreign dividends received on or after 1 June 2003 by corporate taxpayers resident in Singapore, which have been subject to tax in the foreign jurisdictions from which the dividends are derived, would be exempt from tax in Singapore provided that the headline tax in the respective foreign jurisdictions is not less than 15% when such persons receive the dividends. Where tax exemption is not available, corporate taxpayers resident in Singapore may claim tax credit on foreign dividends when the income is subject to tax in Singapore. Under the avoidance of double taxation treaty between Indonesia and Singapore, the tax on the dividend distributed by an Indonesian company, where the recipient of the dividend is a company which owns directly at least 25% of the capital of the company paying the dividend, is at the rate of 10% (15% in other cases). This tax - 10% or 15% - on the dividend, together with the tax the Indonesian company paid in Indonesia on its profits out of which the dividend is paid, is claimable as tax credit against the Singapore tax assessed on the dividend income. The tax credit claimable however would be restricted to the Singapore tax chargeable on the dividend income. However, as mentioned earlier, with the tax of 10% or 15% paid in Indonesia on the dividend and provided that the headline tax in Indonesia at the time when the dividend is subject to tax in Singapore is not less than 15%, the dividend received by a corporate taxpayer that is resident in Singapore would be exempt from tax in Singapore. These rules would apply to dividends received by the Company from the subsidiaries in Indonesia. Where the Company receives foreign dividends for which a tax credit has been allowed, the dividend payments from these foreign dividends to the holders of the Shares will be exempt from tax. The tax credit could be obtained pursuant to an avoidance of double taxation treaty with one of Singapore s treaty partners or it could be unilaterally granted under the Income Tax Act (Chapter 134 of Singapore). Where the credit is available under any of the options above, a special account is to be created for the purposes of ensuring that the payment of exempt dividends is restricted to the amount of the dividends for which foreign tax credit has been allowed. Bonus Issues and Scrip Dividends Under current Singapore tax law and practice, a capitalisation of profits followed by the issue of new shares, credited as fully paid, pro-rata to shareholders ( bonus issue ) does not represent a distribution of dividends by a company to its shareholders. Therefore, a Singapore resident shareholder receiving shares by way of a bonus issue should not have a liability to Singapore tax. When a dividend is to be satisfied wholly or in part in the form of an allotment of ordinary shares credited as fully paid, the dividend declared will be treated as income to its shareholders. However, as the Company is under the one-tier corporate tax system, such a dividend will be exempt from Singapore tax. Similarly, when shareholders are given the right to elect to receive an allotment of ordinary shares credited as fully paid in lieu of cash, the dividend declared will be treated as exempt dividend income and will not be subject to Singapore tax. G-3

412 APPENDIX G : TAXATION Stamp duty No stamp duty is payable on the allotment or holding of the Shares. Stamp duty is payable on an instrument of transfer of the Shares at the rate of S$0.20 for every S$100 or any part thereof computed on the value of the consideration or market value of the Shares whichever is higher. The purchaser is liable for stamp duty, unless otherwise agreed. No stamp duty is payable if no instrument of transfer is executed (such as in the case of scripless shares, the transfer of which does not require instruments of transfer to be executed) or if the instrument of transfer is executed outside Singapore. However, stamp duty may be payable if the instrument of transfer which is executed outside Singapore is received in Singapore. Estate duty Estate duty is payable on the principal value of all property which passes on the death of a person who was domiciled in Singapore at the rate of 5% on the first S$12,000,000 and the remainder at 10%, subject to certain specific exemptions mentioned below. Property includes movable and immovable property of any kind situated in Singapore or being in Singapore and the proceeds of the sale thereof, and in the case of a deceased person who was at the time of his death domiciled in Singapore, includes movable property wherever it may be. Any movable property passing on the death of any person dying on or after 1 January 2002 who at the time of his death was not domiciled in Singapore is exempt from estate duty. As the Company maintains a share register in Singapore, the Shares should be regarded as a movable property situated in Singapore for the purposes of estate duty. There are various exemptions from Singapore estate duty. These include the following:- (i) (ii) (iii) S$9,000,000 of the aggregate value of the deceased s interest in residential house(s) whether occupied by the deceased or not; S$600,000 of the aggregate value of all other property, including any interest in any other nonresidential dwelling house(s) owned by the deceased; and the excess over S$600,000, if any, of the aggregate amount standing to the credit of the deceased at the time of his death in the CPF or in any designated pension or provident fund subject to certain conditions. The 2005 Singapore Budget announced a new relief in estate duty for deaths in quick succession. Under this new relief, beginning from 1 January 2006, when two individuals die within a short period of time of each other and the assets pass from one to the other, the estate duty paid on the earlier death can be deducted from the estate duty payable on the same assets assessed upon the subsequent death of the beneficiary. The relief starts at 100% if the deaths occur within 6 months of each other, graduating to the full estate duty payable if the deaths are more than 2 years apart. Prospective purchasers of the Shares who are individuals, whether or not domiciled in Singapore, should consult their own tax advisors regarding the Singapore estate duty consequences of their investment. Goods And Services Tax ( GST ) The sale of the Shares by an investor belonging in Singapore through the SGX-ST or to another person belonging in Singapore is exempt and not subject to GST. Whereas, the sale of the Shares by an investor who belongs in Singapore through an overseas exchange or to a person belonging outside Singapore is a taxable supply subject to GST at the zero-rate. Only GST incurred by a GST registered investor in the making of zero-rated supplies in the course or furtherance of business can be recovered from the Comptroller of GST. G-4

413 APPENDIX G : TAXATION Services such as brokerage, handling and clearing services rendered by a GST-registered person to an investor belonging in Singapore in connection with the investor s purchase, sale or holding of the Shares will be subject to GST at the current rate of 5%. Similar services rendered to an investor belonging outside Singapore are subject to GST at the zero-rate. Dividends paid to investors are not subject to GST. Individuals, whether or not domiciled in Singapore, should consult their own tax advisors regarding the Singapore tax and estate duty consequences of their ownership of the Shares. TAXATION IN INDONESIA The following discussion is limited to a general description of certain taxation in Indonesia applicable to the members of the Target Group in Indonesia. Corporate tax (a) Tax residency A corporation is classified as resident or non-resident for tax purposes under Indonesian law according to the country of incorporation of the corporation. In Indonesia, resident corporations are taxed on their worldwide income; however, tax credits are allowed for income that is taxed outside the country. Non-residents are taxed only on income derived from Indonesian sources, subject to any relief available under double taxation agreements. However, a non-resident entity with a permanent establishment in Indonesia ( PE ) (such as a branch office) is taxed on (i) the PE s income from its business activities; (ii) the income office arising from business activities, or sales of goods and services in Indonesia of the same type as those sold by the PE in Indonesia; and (iii) all other income, either received or accrued by the head office such as dividends, interest, royalties, rent and other income connected with the use of property, fees for services, etc., provided that the property or activities producing the income is effectively connected with the PE in Indonesia. In Indonesia a PE is generally defined as an operation in which a non-resident establishes a fixed place of business in Indonesia. This would include a management location, a branch office and an office building. A PE may also be established as a result of the non-resident entity s employees providing services in Indonesia for more than 60 days in any 12-month period. Under the double tax agreement between Indonesia and Singapore, the time test to qualify as PE is 90 days in any 12-month period. (b) Income subject to tax Taxable income is defined as any increase in economic prosperity received or accrued by a taxpayer, whether originating from within or outside Indonesia, that may be used for consumption or to increase the recipient s wealth in whatever name and form. It includes any remuneration in connection with work and services, business profits (for this purpose, there is no distinction between operating and capital income), dividends, interest, rent, royalties and other income related to the use of property. Dividend withholding tax must be deducted by the company declaring the dividend. Such dividend withholding tax has to be paid by the company to the State Treasurer (or Kas Negara) not later than the 10th of the following month after the dividend is declared by the shareholders of the company or recording date of the dividend for a public listed company at the shareholders meeting of the company. The applicable tax rate for dividends paid to resident taxpayers is 15%. However dividends received from Indonesian companies by limited liability companies incorporated in Indonesia, co-operatives and state or region-owned entities are exempt from tax if:- (i) (ii) the dividends are paid out of retained earnings; the shareholder holds at least 25% of the company s paid-up capital; and G-5

414 APPENDIX G : TAXATION (iii) the shareholder has other active businesses aside from the share ownership. The applicable tax rate for non-resident shareholders is 20% (or the relevant tax rate applicable under any tax treaty which may be in force between Indonesia and the relevant jurisdiction). (c) Corporate tax rates As at the Latest Practicable Date, the corporate tax rates are as follows:- Tax rate Amount of taxable income for the tax year (%) Up to Rp50 million 10 Between Rp50 million to Rp100 million 15 Above Rp100 million 30 Withholding tax Indonesia has two types of withholding tax, namely, prepayment tax and final tax. Expenses incurred in deriving income subject to final tax are not deductible. Payments made to resident taxpayers and permanent establishments by resident corporate taxpayers, government bodies, activity organizers, permanent establishments, representative offices and certain appointed individuals are subject to withholding tax at the rates specified in the following table:- Tax rate (%) Transaction 10 Land and building rental payments to individuals, companies and permanent establishments (final tax) 6 Rental and other payments for the use of property other than land and buildings 6 Compensation related to management services, and technical services 7.5 Compensation related to professional services, including legal and tax services 15 Dividends payable to individuals and companies 15 Interest, including premiums, discounts and guarantee fees 15 Royalties On the other hand, the following payments made by a government body, resident taxpayer, activity organizer, permanent establishment and representative office to a non-resident taxpayer are subject to withholding tax at 20% (or applicable reduced treaty rate) of the gross amount:- After-tax profits of permanent establishments. Compensation for technical, management and other services. Income derived from the disposal of assets (withholding on estimated net income). Insurance premiums (withholding on estimated net income). Interest including premiums, discounts, guarantee fees and interest rate swap premiums. Royalties, rent and other income with respect to the use of property. G-6

415 APPENDIX G : TAXATION Individuals and organisations resident in Indonesia that derive income from the following business lines are subject to withholding tax at the rates listed below:- For small businesses (final tax) Others (Individuals and other businesses) Construction Services 2% 2% Planning Construction services 4% 4% Supervisory Construction services 4% 4% As at the Latest Practicable Date, the business of the members of the Target Group in Indonesia does not include the above business lines. In order to satisfy the definition of small business, one will have to meet certain income requirements and obtain a certificate issued by the authorised government agency. Value added tax (VAT) and Sales Tax on luxury goods (a) General on VAT VAT is imposed on most goods and services at a rate of 10%. Government regulations can adjust the rate to as low as 5% and as high as 15%. The tax is generally collected by VAT-able firms (entities which deliver taxable goods or services). These firms are required to submit monthly VAT returns. Certain goods and services, however, are exempt from VAT, and as at the Latest Practicable Date include, inter alia,:- Food and beverages served at a hotel, restaurant, food stall and the like Healthcare services Banking, insurance and financial leasing Education services Public transportation services Manpower services Hotels Hotels and food and beverages served at hotels, restaurants, food stalls are subject to 10% development tax. Aside from the above, primary production companies and small businesses (corporations or individuals) with annual sales of less than Rp600 million for goods and services have the option to be exempted from imposing VAT. Exported goods are subject to 0% of VAT; exporters can claim a refund of the input tax (VAT incurred in producing goods for export). The local purchaser of imported goods and services, including intangible goods, is responsible for all payments of VAT on goods and services and customs duty on goods. VAT and customs duty are collected at the port of entry for imported goods. A self-assessed VAT payment mechanism is applied in connection with the following:- (i) (ii) the utilisation of intangible VAT-able goods obtained from outside the Indonesian customs area and utilised within the Indonesian customs area; and the utilisation of VAT-able services obtained from outside the Indonesian customs area and utilised within the Indonesian customs area. G-7

416 APPENDIX G : TAXATION (b) (c) VAT relief Under the current regulations, the Indonesian government provides VAT relief in the form of VAT exemption on importation or acquisition of certain strategic goods, i.e., capital goods used for producing VAT-able goods. Sales Tax on luxury goods Government Regulation No. 145/2000 dated 22 December 2000 details various goods subject to Sales Tax at rates ranging from 10% to 75%. In addition, the rate applicable to many types of goods has been increased. For example:- Housing with floor space over 400 square metres or over or housing with selling price of Rp3,000,000 per square metre or over, apartments, condominiums and town houses of 150 square metres or over or apartments, condominiums and town houses with selling price of Rp4,000,000 per square metre or over, are now subject to 20%. Perfume is subject to 20% (previously 10%). Helicopters and aircraft are now subject to 50% (previously 35%). The maximum rate of Sales Tax has increased to 75%. Examples of goods subject to this maximum rate are:- Sedans/ station wagons/ vans with spark or compression ignition internal combustion reciprocating piston engines exceeding 3,500 cc with seating capacity of less than ten persons Certain types of liquor and wine Indonesia has no rules for insubstantial (minor) imports of goods and services. VAT and customs duty will be imposed on all goods irrespective of their value. Likewise VAT will be imposed on the importation of services irrespective of value. No changes are foreseen in this area despite the fact that the availability of e-commerce transactions will lead to an increase in low value cross-border trade. Indirect tax on land and buildings Tax is imposed on individuals, companies or organisations that have certain rights to or obtain benefits from land, or possess, control or obtain benefits from ownership of land and buildings. The tax is based on the sales value of the land and buildings as determined by the Ministry of Finance. Land value is reassessed every three years in most areas and every year in rapidly developing areas. The current effective tax rate on land and buildings is 0.1% of the sales value. One exception is individual housing worth more than Rp1 billion, which incurs a rate of 0.2%. Buildings whose assessed sales value is not more than Rp12 million are tax-exempt. G-8

417 APPENDIX G : TAXATION Tax treaty between Indonesia and Singapore Indonesia has concluded tax treaties with certain countries, including Singapore. Under the Indonesia-Singapore tax treaty, the rates of withholding tax applicable to payments to recipients in Singapore are as follows:- Withholding tax rate (%) Dividends Substantial Portfolio holdings Interest Royalties Branch Profit tax Singapore / 0* Note: * The applicable withholding tax rate is 0% of interest payments if such interest payments were made in respect of bonds (or other similar instruments) issued by the Indonesian government. As such, payments by the members of the Target Group incorporated in Indonesia to IOFPL and the Company will be subject to withholding tax at the applicable rates under the tax treaty between Indonesia and Singapore. G-9

418 APPENDIX H : CONDENSED FINANCIAL INFORMATION OF PT ISM AND ITS SUBSIDIARIES FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2006 H-1

419 APPENDIX H : CONDENSED FINANCIAL INFORMATION OF PT ISM AND ITS SUBSIDIARIES FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2006 H-2