LAY HONG BERHAD ( LHB OR THE COMPANY ) CONDITIONAL LETTER OF INTENT IN RELATION TO THE PROPOSED ACQUISITION OF 100% INTEREST IN TAKASO SC (THAILAND) LIMITED, A WHOLLY-OWNED SUBSIDIARY OF TAKASO RESOURCES BERHAD 1. INTRODUCTION The Board of Directors of LHB ( Board ) wishes to announce that the Company has on 2 October 2015 received an acceptance from Takaso Resources Berhad ( TRB or Vendor ), the conditional letter of intent ( LOI ) in relation to the proposed acquisition of 200,000 units of ordinary shares of THB100 each in Takaso SC (Thailand) Limited ( TSC ) ( Target Shares ), representing 100% interest in TSC ( Proposed Acquisition ). 1.1 Details of the Proposed Acquisition Pursuant to the non-binding LOI, LHB and TRB (the Parties ) have the intention to subsequently enter into a definitive Sale and Purchase of Shares Agreement ( SPSA ) for the Proposed Acquisition on the terms and subject to the conditions contained in the definitive SPSA. The Proposed Acquisition is subject to a legal, financial, commercial, operational, environmental and taxation due diligence to be conducted by LHB. In connection with such due diligence, TRB will provide LHB with full access to the premises, books and records and senior employees of TSC. 2. INFORMATION ON TSC TSC is a private limited company incorporated on 27 November 2013 under the laws of Thailand. TSC has an issued and paid-up share capital of THB 20,000,000.00 comprising 200,000 ordinary shares of THB100 each which is equivalent to RM2,115,000.00. TSC is currently dormant and is intended for the distribution and marketing of rubber related products and manufacturing and marketing of food business. TSC is the legal owner of the properties bearing postal address of No.88 Moo 4 Kanchanavanich Road, Pang-la Sub District, Sadao District, Songkhla, Thailand (the Property ) for the purpose for the above intended business. The Property was purchased for THB25,000,000.00 equivalent to RM3,016,525.00 at an exchange rate of RM0.120661 as at 1 October 2015. Information on the Property is as follows:- (a) Type of property. : (b) Building : Factory, together with the piece of land (a) Land plot no. 16, area 12 rai 3 ngan 43-9/10 sq.wah, and plot no. 17, area 3 rai 1 ngan 02-9/10 sq.wah (25,788 square meters) located in Kanchanavanich Road, Sadao, Songkhla, Thailand. (b) 2 factories building and office with a total area of 1
3,200 square meter constructed on the land (c) Tenure : Freehold (d) Land Size (square metres) 25,788 square meters (e) Floor Area (square metres) 3,200 square metres Based on the latest audited financial statements for the financial year ended 31 July 2014, TSC recorded a net loss of approximately THB 790,000.00 and net assets of THB 19,210,000.00 equivalent to RM95,322.19 and RM2,317,897.81 respectively at an exchange rate of RM0.120661 as at 1 October 2015. No valuation has been carried out on the Property.. 3. INFORMATION ON TRB TRB is a public limited company listed in the Main Market of Bursa Malaysia Securities Berhad since 1999. As at 2 October 2015, the authorised share capital of TRB is RM100,000,000.00 comprising 400,000,000 ordinary shares of RM0.25 each and its issued and paid-up share capital is RM51,431,199.75 comprising 205,724,799 ordinary shares of RM0.25 each. The principal activity of TRB is that of investment holding. 4. SALIENT TERMS OF THE LOI 4.1 Target Shares LHB proposes to buy the full legal and beneficial interest in the Target Shares free from all encumbrances. The Target Shares are wholly-owned by the Vendor in the following proportions: Name of Vendor Number of Shares Shareholding (%) TRB 199,997 99.99% TEE TZE CHERN* 1 0.0033% YONG MONG HUAY* 1 0.0033% SU SEONG YEEN* 1 0.0033% *held in trust for the TRB as required by the Thailand authority 2
4.2 Price Subject to due diligence and a definitive SPSA, the indicative consideration for the Target Shares is RM9,000,000.00 (Ringgit Malaysia Nine Million Only) to be satisfied in cash. The payments terms and manner shall be set out in the definitive SPSA. 4.3 Assumptions LHB has calculated the indicative consideration taking into consideration of the following assumptions ( Assumptions ): (a) That all accounts of TSC to date are true fair accurate at the relevant point in time; (b) TRB representations to LHB are accurate and true and does not contain any material omission; and (c) That approval from the Board of Investment in Thailand and Factory Operation Licence from Department of Industrial Works of the Ministry of Industry Thailand ( Approvals ) have already been obtained in respect of the Property and in respect of its ability to carry out TSC s intended business of distribution and marketing of rubber related products and manufacturing and marketing of food business at the Property. 4.4 Legal Documentations The above terms will be reflected in the appropriate legal documentation (the Transaction Documents ), including the abovesaid SPSA to be agreed between the Parties and/or the Directors of TSC. The SPSA will contain warranties, indemnities and restrictive covenants by the Company and the Directors of TSC in favour of LHB as is usual for a transaction of this nature, including warranties and indemnities in respect of the Property and the Assumptions abovelisted, subject to amendment for matters arising from due diligence. 4.5 Conditions Precedent The Proposed Transaction is conditional upon the following conditions precedent being obtained/fulfilled: (a) LHB conducting, and being satisfied with the results of, financial, legal, taxation and commercial investigations into TSC and any other reports and investigations that LHB decides are necessary; (b) agreement to the Transaction Documents on mutually acceptable terms; (c) all necessary corporate approvals (including approval of LHB and Vendor s shareholders) for the Proposed Transaction and/or the Transaction Documents being obtained; (d) all necessary regulatory and other consents being granted in a form satisfactory to LHB; (e) all necessary third party consents to change of control/the assignment or transfer of contracts being granted in a form satisfactory to the LHB; and (f) such other conditions as LHB may reasonably consider necessary. 4.6 Term In the event that LHB or TRB fail to execute the Transaction Documents by 31 December 2015, either LHB or TRB may terminate these heads of terms by written notice to the other. 3
5. BASIS OF ARRIVING AT THE INDICATIVE PURCHASE PRICE The indicative purchase price of RM9,000,000.00 is approximately the total investment cost of TRB since the acquisition of TSC on 27 November 2013, subject to the completion of the due diligence on TSC by LHB. The indicative purchase price of RM9,000,000.00 comprises of initial cost incurred for the acquisition of TSC and the Property, further capital outlay for the upkeep and renovation of the Property in order to obtained the Approvals and also operating expenses for TSC. The indicative purchase price is approximately the total investment cost of TRB. 6. EFFECTS OF THE PROPOSED ACQUISITION 6.1 Earnings The Proposed Acquisition is not expected to have any material impact on LHB Group s earnings for the current financial year ending 31 March 2016. 6.2 Net Assets ( NA ) and Gearing The Proposed Acquisition is not expected to have any material impact on LHB Group s net assets and gearing for the current financial year ending 31 March 2016. 6.3 Share Capital and Substantial Shareholders Shareholdings The Proposed Acquisition has no impact on the issued and paid-up share capital of the Company and the substantial shareholders shareholdings of the Company as the Proposed Acquisition will be satisfied entirely by cash. 7. RATIONALE FOR THE PROPOSED ACQUISITION The Proposed Acquisition is part of LHB business expansion in chicken processing and further food processing in overseas with the objective to export to regional countries and is expected to contribute positively to LHB Group s revenue, profit and cash flow from the financial year ending 31 March 2017 onwards. LHB sees that local base market is already saturated with chicken base products to further expand locally. Therefore an option is to expand overseas to tap into new growth. This acquisition fits perfectly well with the Group s expansion plans as the Group has experience in chicken processing, further process and portioning which is the Group s specialisation. Being located in Thailand allows the Group to venture out into new possibilities of exporting to countries such as Japan and European countries as Thailand is considered as approved country to export to the mentioned countries. This acquisition also will open up possibilities of backward integration into broiler farming integration as one business unit by itself. 8. SOURCES OF FUNDING FOR THE PROPOSED ACQUISITION The purchase price is expected to be funded by both internally-generated funds and/or bank borrowings of which the breakdown of the funding has yet to be determined at this juncture. 4
9. APPROVALS REQUIRED No approval is required for the Company for the LOI and the Proposed Acquisition. 10. STATEMENT BY THE BOARD Having considered all aspects of the LOI and Proposed Acquisition, the Board is of the opinion that the salient terms of LOI is in the best interest of the Company and the LOI and Proposed Acquisition will not be detrimental to the interest of the minority shareholders. 11. DIRECTORS AND MAJOR SHAREHOLDERS INTEREST Save for Mr Tan Ooi Jin who is an Independent Director of LHB and TRB, without any shareholding in LHB and TRB, none of the directors, major shareholders of the Company and/or persons connected to them have any interest, whether direct or indirect, in the LOI and the Proposed Acquisition. 12. HIGHEST PERCENTAGE RATIO The highest percentage ratio applicable for the Proposed Acquisition pursuant to Paragraph 10.02(g) of Bursa Malaysia Securities Berhad Main Market Listing Requirements is 6.58% based on the latest audited financial statements of LHB Group for the financial year ended 31 March 2015. 13. DOCUMENT FOR INSPECTION The LOI is available for inspection during normal office hours at the registered office of LHB, No. 9, Jalan Bayu Tinggi 2A/KS6, Taipan 2 Batu Unjur, 41200 Klang, Selangor from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. 14. OTHERS The Company will make the required announcement upon signing of the SPSA or in the event that the LOI s terms are extended or expired. This announcement is dated 2 October 2015. 5