2. DIRECTORS REPORT AND AUDITED FINANCIAL STATEMENTS

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1 (Incorporated in Malaysia) Extract of the Minutes of the Forty-Sixth Annual General Meeting of the Company held at the Meeting Hall, Level 16, Lion Office Tower, No. 1 Jalan Nagasari, Kuala Lumpur on 22 November 2016 at 2.30 pm. 1. SHAREHOLDERS RIGHTS AS TO VOTING Before the Meeting proceeded with the items on the Agenda, the Chairman informed shareholders that as per the Bursa Malaysia Securities Berhad Main Market Listing Requirements, resolutions set out in the notice of any general meeting were to be voted upon by way of a poll. As such, all resolutions tabled at the Meeting would be voted upon by way of a poll. The Chairman then informed that he would exercise his right to demand for a poll in accordance with Article 53 of the Company s Articles of Association in respect of all resolutions to be tabled. In this regard, the Company had appointed Boardroom Corporate Services (KL) Sdn Bhd as the Poll Administrator to conduct the poll and Messrs Ong Boon Bah & Co., a firm of chartered accountants, as the Independent Scrutineers to verify the results of the poll. 2. DIRECTORS REPORT AND AUDITED FINANCIAL STATEMENTS The Directors Report and Audited Financial Statements of the Company for the financial year ended 30 June 2016 ( 2016 AFS ) were laid to the shareholders. The Chairman explained that the 2016 AFS were for discussion only as it did not require shareholders approval under the provisions of Section 169 of the Companies Act, Hence, it would not be put for voting. The Chairman informed that the Minority Shareholder Watchdog Group ( MSWG ) had by a letter dated 17 November 2016 to the Company raised some observations in relation to the Financials of the Group. The Chairman then invited the Group Accountant to take the Floor to share MSWG s observations together with the Management s response thereto as set out in Annexure I, and some information on the business of the Group as well as the results of the Group for the financial year ended 30 June The Meeting then engaged in a question and answer session where questions on the following areas in the Annual Report were raised by shareholders and proxies: (iv) (v) Performance of the Steel Division Impact of the PN 17 status Dormant subsidiaries Performance of the Property Division Revaluation of properties owned by the Group Page 1 of 4

2 Extract of the Minutes of the Forty-Sixth Annual General Meeting In reply to the aforementioned questions, the Chairman and the Managing Director together with the Management provided the following response: (iv) (v) (vi) The Group was supplying its entire production of hot direct reduced iron ( DRI ) to Megasteel Sdn Bhd ( Megasteel ) as feedstock for the production of hot rolled coils ( HRC ) by Megasteel. Megasteel had been suffering losses in the past several years due to excessive dumping of steel products by foreign millers and the decision by the Government to terminate the investigation for the Safeguard Petition on imported HRC had further impacted Megasteel s operations. Resulting therefrom, Megasteel s business was severely affected leading to a temporary cessation of operations and this had affected the business of the Group leading to the temporary shutdown of the Group s DRI plant as the business of the Group s steel operations was very much dependent on the performance of Megasteel. Nevertheless, Megasteel continued to pursue with the Government on protection for HRC and was itself undergoing a debt restructuring exercise. On the loss before tax of RM910 million for the year under review, Management explained that the loss had mainly taken into account the impairment loss on plant and equipment, and trade receivables from Megasteel which was undergoing a debt restructuring exercise. The Company was monitoring its PN17 status and was exploring various opportunities to formulate a regularisation plan to address its financial conditions. On the status of dormant companies, the Group had been implementing cost-cutting measures to reduce costs and in line therewith, Management continued to review the position of the dormant companies before proceeding to liquidate the same, an on-going effort by the Group. The Group s Property Division in Changshu, China had posted commendable results while the involvement of the Group in the local property development was the Twins at Damansara Heights which was a joint venture and had been completed. In relation to the list of properties, the Group had conducted a revaluation exercise on its freehold properties in Kuala Langat in March As for the other properties, the Group would review the need for revaluation as and when required. After having addressed all questions and comments, the Chairman then declared the 2016 AFS duly received. 3. DECLARATION OF POLL RESULTS The poll results in respect of the eight resolutions were as follows: Vote For Vote Against Resolutions No. of Shares % No. of Shares % 1. To approve Directors fees 1,003,740, , To re-elect as Director, Y. Bhg. Tan Sri Dato Seri Dr Aseh bin Haji Che Mat 3. To re-elect as Director, Mr Tan Chee Chai 1,003,752, , ,003,752, , Page 2 of 4

3 Extract of the Minutes of the Forty-Sixth Annual General Meeting Resolutions 4. To re-appoint as Director, Y. Bhg. Tan Sri William H.J. Cheng Vote For Vote Against No. of Shares % No. of Shares % 966,182, , To re-appoint Auditors 1,003,752, , Retention of Y. Bhg. Tan Sri Dato Seri Dr Aseh bin Haji Che Mat as an independent non-executive Director 7. Authority to Directors to Issue Shares 8. Proposed Shareholders Mandate for Recurrent Related Party Transactions 1,003,752, , ,003,752, , ,441, , The Chairman declared the following resolutions duly carried: (iv) (v) (vi) Resolution 1 - THAT the Directors fees amounting to RM220,600 in respect of the financial year ended 30 June 2016 be approved for payment to the Directors. Resolution 2 - THAT Y. Bhg. Tan Sri Dato Seri Dr Aseh bin Haji Che Mat who retired by rotation in accordance with Article 98 of the Company s Articles of Association be re-elected to the Board. Resolution 3 - THAT Mr Tan Chee Chai who was appointed during the financial year and retired in accordance with Article 99 of the Company s Articles of Association be re-elected to the Board. Resolution 4 - THAT pursuant to Section 129(6) of the Companies Act, 1965, Y. Bhg. Tan Sri William H.J. Cheng be and is hereby re-appointed Director of the Company to hold office until the next annual general meeting of the Company. Resolution 5 - THAT the retiring Auditors, Messrs Ernst & Young, be re-appointed Auditors of the Company to hold office until the conclusion of the next annual general meeting and that the Directors be authorised to fix their remuneration. Resolution 6 - Retention of Independent Non-Executive Director. THAT subject to the passing of Resolution 2, Y. Bhg. Tan Sri Dato Seri Dr Aseh bin Haji Che Mat who would have served as an independent non-executive Director of the Company for nine (9) years by December 2016, be and is hereby retained as an independent non-executive Director of the Company to hold office until the next annual general meeting of the Company. Page 3 of 4

4 Extract of the Minutes of the Forty-Sixth Annual General Meeting (vii) Resolution 7 - Authority to Directors to Issue Shares THAT pursuant to Section 132D of the Companies Act, 1965 and subject to the approval of all relevant authorities being obtained, the Directors be and are hereby empowered to issue shares in the Company at any time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion deem fit, provided that the aggregate number of shares issued pursuant to this resolution does not exceed 10% of the issued and paid-up capital of the Company for the time being and that such authority shall continue to be in force until the conclusion of the next annual general meeting of the Company. (viii) Resolution 8 - Proposed Shareholders Mandate for Recurrent Related Party Transactions THAT approval be and is hereby given for the Company and its subsidiaries to enter into recurrent related party transactions of a revenue or trading nature which are necessary for its day-to-day operations as detailed in paragraph 3.3 and with those related parties as set out in paragraph 3.2 of the Circular to Shareholders of the Company dated 31 October 2016 ( Related Parties ) which has been despatched to the shareholders of the Company, provided that such transactions are undertaken in the ordinary course of business and are on normal commercial terms which are consistent with the Group s usual business practices and policies, and on terms not more favourable to the Related Parties than those generally available to the public and are not to the detriment of the minority shareholders; and THAT authority conferred by this ordinary resolution will only continue to be in force until: the conclusion of the next annual general meeting of the Company at which time it will lapse, unless by a resolution passed at the meeting, the authority is renewed; the expiration of the period within which the next annual general meeting of the Company after that date is required to be held pursuant to Section 143(1) of the Companies Act, 1965 (but must not extend to such extension as may be allowed pursuant to Section 143(2) of the Companies Act, 1965); or revoked or varied by resolution passed by the shareholders of the Company in general meeting, whichever is the earlier; and THAT the Directors of the Company be and are hereby authorised to complete and do all such acts and things to give effect to the transactions contemplated and/or authorised by this ordinary resolution which shall include, without limitation, taking any action which the Directors may, in their absolute discretion deem fit, to recover any sums due to the Company under the said transactions or to settle the same. Page 4 of 4

5 Annexure I LION DIVERSIFIED HOLDINGS BERHAD ( LDHB ) (9428-T) (Incorporated in Malaysia) Forty-Sixth Annual General Meeting held on 22 November Management s response to Minority Shareholder Watchdog Group s letter dated 17 November 2016 No. Questions/Issues LDHB s Comments (1) Reqularisation Plan: PN17 & The Auditors basis for disclaimer of opinion The Board failed to address the key issues facing the Company for more than five (5) years. The interest of minority shareholders had been depleting. The Board therefore, must take responsibility and be accountable for the dismal performance of the Company. The Company has the Auditors basis for disclaimer of opinion as mentioned on pages 47 and 48 of the Annual Report 2016 which the Board has failed to address. a) The first issue is related to the net loss incurred by the Group and Company, current liabilities exceeded their current assets, together with other matters discussed in Note 2.1 to the financial statements may cast significant doubt on the Group s and the Company s ability to continue as going concerns. b) The second issue is the management has performed a going concern assessment but did not extend to include the effect of the non-provisioning for the onerous contract. There was an issue related to the departure from Financial Reporting Standards ( FRS ) as disclosed in Note 3.2(h) to the financial statements. The Group s steel business undertaken by Lion DRI Sdn Bhd ( Lion DRI ) and Megasteel Sdn Bhd ( Megasteel ), have been facing a tough time for the last several years due to dumping by foreign steel mills into the country in the absence of effective measures by the Government to protect the local steel industry. The announcement in January 2016 by the Ministry of International Trade and Industry that the Government had terminated the investigation for the Safeguard Petition on imported hot rolled coils ( HRC ) had further impacted Megasteel s operations which resulted in the retrenchment of its staff and temporary cessation of its operations. Lion DRI had also been similarly affected as it is supplying its hot DRI to Megasteel as feedstock for the production of HRC. Hence, the DRI plant had also temporarily shut down its operation to reduce further losses. On 4 April 2016, Megasteel had filed a judicial review on the Government s decision not to proceed with the investigation on Megasteel Safeguard Petition. The next case management of the review will be held on 23 November Our businesses in the Property and CMS Divisions are relatively stable and contributing profit. The Basis for Disclaimer of Opinion highlighted by the Auditors in the 2016 Annual Report is in relation to the tough operating environment for our steel business which resulted in the temporary cessation of operations, and issues on accounting treatments for our major subsidiary, Lion DRI. Page 1 of 2

6 LION DIVERSIFIED HOLDINGS BERHAD Forty-Sixth Annual General Meeting held on 22 November Management s response to Minority Shareholder Watchdog Group s letter dated 17 November 2016 No. Questions/Issues LDHB s Comments (2) Please explain to shareholders on the reasons for the issues above, including the departure from the FRS? The reason for non-provision for the onerous contract in the going concern assessment was that the litigation claim is on-going and it is premature to make any provision at this juncture. The Group entered into contracts of affreightment ( COA ) with a third party freight services provider in year 2008 at the freight rate of USD51 per MT as compared with the then market rates ranging from USD80 to USD100 per MT. In 2009, the freight rate was reduced to USD45.50 per MT. Since then the market rates have decreased to about USD10 to USD15 per MT recently. The departure from Financial Reporting Standard ( FRS ) is related to FRS137 Provisions, Contingent Liabilities and Contingent Assets, where no provision was made despite the Group having a present obligation under the COA which exceeds the economic benefits expected to be received. Since the litigation claim is on-going, it is premature to make any provision at this juncture. (3) We would like the Board to initiate an investigation audit on the above matters. The Board is aware that management had discussed at length with the Auditors, Messrs Ernst & Young, who had carried out an extensive audit on the aforesaid matters and in this regard, the Board is of the opinion that aforesaid matters had been dealt with appropriately during the course of the audit. Page 2 of 2