APEX-PAL INTERNATIONAL LTD. (Company Registration Number 199604816E) (Incorporated in the Republic of Singapore) HEADS OF AGREEMENT FOR THE PROPOSED SUBSCRIPTION IN THE ISSUED AND PAID-UP SHARE CAPITAL OF GRIFFIN REAL ESTATE INVESTMENT HOLDINGS PTE. LTD. ( GREIH ) AND THE PROPOSED JOINT VENTURE (AS DEFINED HEREIN) (AN INTERESTED PERSON TRANSACTION AND A DISCLOSEABLE TRANSACTION AS DEFINED IN CHAPTER 9 AND CHAPTER 10 RESPECTIVELY OF THE LISTING MANUAL ( LISTING MANUAL ) OF THE SINGAPORE EXCHANGE SECURITIES TRADING LIMITED ( SGX-ST )) 1. INTRODUCTION 1.1 The Board of Directors (the Board ) of Apex-Pal International Ltd (the Company ) wishes to announce that the Company has, on 16 March 2010, entered into a legally binding Heads of Agreement ( HOA ) with Gryphon Real Estate Investment Corporation Pte. Ltd. ( GREIC ) and Griffin Real Estate Investment Holdings Pte. Ltd. ( GREIH ), in relation to the proposed subscription by the Company and GREIC for shares in GREIH (the Proposed Subscription ) and the proposed joint venture between the Company, GREIC and GREIH (the Proposed Joint Venture ). Further details of the Proposed Subscription and Proposed Joint Venture are set out below. The Company, GREIC and GREIH shall hereinafter be collectively referred to as the Parties. 2. INFORMATION ON THE PROPOSED SUBSCRIPTION AND THE PROPOSED JOINT VENTURE 2.1 Details of GREIH and the Proposed Joint Venture GREIH is a private company limited by shares incorporated in Singapore, and as at the date hereof, GREIH has an issued and paid-up share capital of S$20,000 consisting of 20,000 shares ( GREIH Shares ) which is wholly owned by GREIC. Pursuant to the HOA, the Company, GREIC and GREIH have agreed to form the Proposed Joint Venture, whereby GREIH is the joint venture company and will undertake the business of real estate investment and other property related transactions (the Investment Business ). On 11 November 2009, GREIH exercised an option ( Option ) to purchase 60 strata units within a commercial property located at 470 North Bridge Road, North Bridge Commercial Complex, Singapore (the Property ). Details of the Property are set out in Appendix 1 hereto. Under the terms of the Option, the purchase price of the Property is S$46,000,000 (excluding goods and services tax) ( Property Consideration ). Pursuant to a valuation conducted on the Property by Colliers International Consultancy & Valuation (Singapore) Pte Ltd on an as-is basis (where the date of inspection was 25 January 2010), the valuation price of the Property is S$46,000,000 and is equivalent to the Property Consideration. The Property Consideration will be funded from (i) bank borrowings to be taken up by GREIH, (ii) loans from GREIC and (iii) loans from the holding company of GREIC, being ERC Holdings Pte. Ltd.. Upon the execution of the JVA (as defined herein) and GREIH s completion of the purchase of the Property, the Company will make a further announcement. 1
2.2 Key Terms of the HOA A. Subscription of GREIH Shares Pursuant to the HOA, the Parties have agreed to form the Proposed Joint Venture through the joint venture company, GREIH, with a registered share capital of not less than S$16,200,000. The Company and GREIC will respectively subscribe for GREIH Shares as follows: (a) (b) the Company shall subscribe for 4,000,000 GREIH Shares for a total subscription price of S$4 million in cash ( Consideration ), constituting 24.69% of the enlarged issued and paid-up capital of GREIH; GREIC shall subscribe for 12,180,000 GREIH Shares for a total subscription price of S$12.18 million, and following such subscription of GREIH Shares, GREIC shall hold a total of 12,200,000 GREIH Shares constituting 75.31% of the enlarged issued and paid-up capital of GREIH. B. Conditions Precedent Pursuant to the HOA, the obligations of the Parties in relation to the Proposed Subscription and Proposed Joint Venture shall be subject to, inter alia, the following conditions precedent: (i) (ii) (iii) (iv) (v) the entering into a definitive legally binding subscription and joint venture agreement ( JVA ) between the Parties in relation to the Proposed Subscription and the Proposed Joint Venture within 120 days upon the signing of the HOA, subject to agreement by the Parties to extend the date by which they will enter into the JVA; the completion of a legal due diligence exercise on GREIH to the satisfaction of the Company, and there being no fact or circumstances discovered by the Company pursuant to the legal due diligence exercise which would, in the opinion of the Company, be of material significance in the context of the Proposed Subscription and Proposed Joint Venture; the approval of the shareholders of the Company in respect of the Proposed Subscription and the Proposed Joint Venture (as an interested person transaction as defined in Chapter 9 of the Listing Manual) and such approval not being withdrawn or becoming subject to any conditions; the approval of the SGX-ST and the clearance of the SGX-ST for the issue of the circular to the shareholders of the Company relating to the Proposed Subscription and the Proposed Joint Venture (as an interested person transaction as defined in Chapter 9 of the Listing Manual) and such approval remaining in full force and effect; and the relevant consents, waivers or approvals of the shareholders of the Parties if required by their constitutional documents, shareholders agreements (if any) or the laws of Singapore or any other applicable laws, being obtained for the Proposed Subscription and the Proposed Joint Venture and such approval not being withdrawn or becoming subject to any conditions. 2
2.3 The source of funds for the subscription of GREIH Shares by the Company The Proposed Subscription and Proposed Joint Venture to be entered into by the Company will be funded through bank borrowings. 2.4 GREIH as an associated company of the Company Subject to the approval of the shareholders of the Company to the Proposed Subscription and the Proposed Joint Venture, the Proposed Subscription and the Proposed Joint Venture would result in GREIH becoming an associated company (as defined in the Listing Manual) of the Company. 2.5 Details of interested person transactions with Mr Andy Ong Siew Kwee and/or his associates Save for the Proposed Subscription and the Proposed Joint Venture, there are no other undisclosed interested person transactions entered into between the Company and Mr Andy Ong Siew Kwee and/or his associates for the period commencing from 1 January 2010 to the date of this announcement. 2.6 Details of all interested person transactions for the current financial year Save for the Proposed Subscription and the Proposed Joint Venture, there are no interested person transactions entered into by the Company for the period commencing from 1 January 2010 to the date of this announcement. 2.7 Details of directors (if any) to be appointed in connection with the Proposed Subscription and Proposed Joint Venture No person is proposed to be appointed as a director to the Company in connection with the Proposed Subscription and Proposed Joint Venture. 3. RATIONALE FOR THE PROPOSED SUBSCRIPTION AND THE PROPOSED JOINT VENTURE Pursuant to the Proposed Subscription and Proposed Joint Venture, the Company will own 24.69% of the issued and paid-up capital of GREIH. After GREIH s completion of the purchase of the Property, the Parties intend to renovate the Property. Following the completion of the renovation of the Property, GREIH is expected to earn rental revenue by renting units in the Property for use as, inter alia, retail outlets, food and beverage outlets and a private school. The Board is of the view that the Company may lease a unit in the Property to operate a food and beverage outlet in the future if conditions are favourable, and pursuant to the Proposed Subscription and Proposed Joint Venture, the Company may be able to enjoy a stronger bargaining position in its negotiation of rental rates for a lease of a unit in the Property. The Board is also of the view that the Company s investment in GREIH pursuant to the Proposed Subscription and Proposed Joint Venture is for the long term investment purposes of the Company. The Board also believes that there is a potential for appreciation in the value of the Property in the future. 3
4. REQUIREMENTS UNDER THE LISTING RULES 4.1 Listing Rule 905 of the Listing Manual The Company is an entity at risk within the meaning of Chapter 9 of the Listing Manual in relation to the Proposed Subscription and the Proposed Joint Venture. Mr Andy Ong Siew Kwee is an interested person within the meaning of Chapter 9 of the Listing Manual in relation to the Proposed Subscription and the Proposed Joint Venture by virtue of the following: (a) (b) Mr Andy Ong Siew Kwee is an independent director of the Company; Mr Andy Ong Siew Kwee is a director of each of GREIC and GREIH. As at the date of this announcement, (i) GREIH is the wholly-owned subsidiary of GREIC and (ii) GREIC is the wholly-owned subsidiary of ERC Holdings Pte. Ltd. Mr Andy Ong Siew Kwee has an aggregate interest of 83.64% (1) in the issued and paid-up capital of ERC Holdings Pte. Ltd.. (1) Mr Andy Ong Siew Kwee owns 81.78% of the issued and paid-up capital of ERC Holdings Pte. Ltd. and his sister owns 1.86% of the issued and paid-up capital of ERC Holdings Pte. Ltd.. Accordingly, GREIC and GREIH are associates of Mr Andy Ong Siew Kwee under the Listing Manual and are deemed to be interested persons within the meaning of Chapter 9 of the Listing Manual in the context of the Proposed Subscription and the Proposed Joint Venture. Save as disclosed in this announcement, none of the directors of the Company or controlling shareholders of the Company has any interest, direct or indirect, in the Proposed Subscription and the Proposed Joint Venture. Based on the latest audited financial statements of the Company and its subsidiaries (the Group ) as at the date of this announcement, being the financial statements for the financial year ended 31 December 2008, the Group s latest audited net tangible assets is S$10,245,000. As the Consideration exceeds the financial threshold prescribed under Listing Rule 906(1) of the Listing Manual, being 5% of the Group s latest audited net tangible assets ( NTA ) as at 31 December 2008, the approval of the shareholders of the Company for the Proposed Subscription and the Proposed Joint Venture is required pursuant to Listing Rule 906 of the Listing Manual. 4.2 Listing Rule 1006 of the Listing Manual The relative figures for the Proposed Subscription computed on the applicable bases set out in Listing Rule 1006 (being the basis under Listing Rule 1006(c) only) of the Listing Manual are as set out below : Basis under Listing Rule 1006(c): The aggregate value of the Consideration for the GREIH Shares to be subscribed by the Company compared with the Company s market capitalisation. 14.45% (1) Note: (1) Determined by dividing the Consideration of S$4 million with the market capitalisation of the Company of S$27.69 million (which market capitalisation is determined by multiplying the number of shares of 4
the Company in issue (excluding treasury shares) by the weighted average price of such shares of the Company transacted on 15 March 2010 of S$0.195 per share with the issued share capital of the Company of 142,000,000 shares (excluding treasury shares) as at 15 March 2010). Having regard to the above, the Proposed Subscription is also a Discloseable Transaction under Rule 1010 of the Listing Manual. 5. FINANCIAL EFFECTS The following pro forma financial effects are purely for illustrative purposes only and may not reflect the actual financial position and performance of the Group after completion of the Proposed Subscription and the Proposed Joint Venture. The following pro forma financial effects are based on the unaudited consolidated financial statements of the Group for the financial year ended 31 December 2009 ( FY2009 ). 5.1 Effect on NTA per share of the Company ( Share ) and gross gearing ratio of the Group The effects of the Proposed Subscription and the Proposed Joint Venture on the unaudited consolidated NTA per Share and gross gearing ratio of the Group for FY2009, assuming that the Proposed Subscription and the Proposed Joint Venture had been effected at the end of FY2009 are as follows: Before the Proposed Subscription and the Proposed Joint Venture After the Proposed Subscription and the Proposed Joint Venture (1) NTA (S$'000) 19,351 15,427 Number of issued and paid up ordinary Shares at the end of FY2009 ( 000) 142,000 142,000 NTA per Share (cents) 13.63 10.86 Total liabilities 26,769 30,769 Gross gearing ratio 1.38 1.99 Notes: (1) The calculations are based on the assumptions that: (a) following the completion of the renovation of the Property, GREIH will earn rental revenue by renting units in the Property for use as, inter alia, retail outlets, food and beverage outlets and a private school; (b) GREIH s projections for its net profit for its first year of operations is S$875,000; and (c) the Company, with its 24.69% shareholdings in GREIH, is expected to record its share of net profit (being the Company s projected share of profit in the first year of GREIH s operations less the Company s cost of borrowings) of S$76,000. 5
5.2 Effect on earnings per Share ( EPS ) The effects of the Proposed Subscription and the Proposed Joint Venture on the unaudited EPS for FY2009, assuming that the Proposed Subscription and the Proposed Joint Venture had been effected at the beginning of FY2009, are as follows: Before the Proposed Subscription and the Proposed Joint Venture After the Proposed Subscription and the Proposed Joint Venture (1) Profits after taxation (S$ 000) 3,262 3,338 Weighted average number of ordinary Shares in issue in FY2009 ('000) EPS (cents) 142,000 142,000 2.30 2.35 Notes: (1) The calculations are based on the assumptions that: (a) following the completion of the renovation of the Property, GREIH will earn rental revenue by renting units in the Property for use as, inter alia, retail outlets, food and beverage outlets and a private school; (b) GREIH s projections for its net profit for its first year of operations is S$875,000; (c) the Company, with its 24.69% shareholdings in GREIH, is expected to record its share of net profit (being the Company s projected share of profit in the first year of GREIH s operations less the Company s cost of borrowings) of S$76,000; and (d) the increase in EPS is due to the share of profits less cost of borrowings. 6. OTHER INFORMATION In connection with the Proposed Subscription and the Proposed Joint Venture, Mr Andy Ong Siew Kwee will step down from his position as the Lead Independent Director of the Company and will remain as an independent director of the Company. Mr Andy Ong Siew Kwee shall also abstain from making any recommendation on or voting on any directors and shareholders resolutions in relation to the Proposed Subscription and the Proposed Joint Venture. 7. SHAREHOLDERS APPROVAL For the reasons set out in this announcement, the Proposed Subscription and the Proposed Joint Venture will require the approval of the shareholders of the Company. Following the execution of the JVA, the shareholders of the Company will receive in due course, a circular which will provide them with further information on the Proposed Subscription and the Proposed Joint Venture ( Circular ). 6
8. INTENTION OF MR DOUGLAS FOO PEOW YONG IN RESPECT OF HIS SHARES Mr Douglas Foo, who is a substantial shareholder of the Company and owns and controls approximately 65.28% (constituting direct interest and deemed interest) of the existing share capital of the Company, has undertaken to vote and/or procure his nominees to vote in favour of the shareholders resolution to approve the Proposed Subscription and the Proposed Joint Venture in respect of his Shares (whether directly or indirectly owned), subject to (i) the execution of the JVA, (ii) the approval of the SGX-ST in respect of the Circular and the issue and despatch of the Circular, and (iii) any such directions or instructions as may be given from time to time by SGX-ST or any other relevant competent authority. 9. AUDIT COMMITTEE OPINION & INDEPENDENT FINANCIAL ADVISER The Audit Committee of the Company will be obtaining an opinion from an independent financial adviser in relation to the Proposed Subscription and the Proposed Joint Venture following the execution of the JVA. DMG & Partners Securities Pte Ltd has been appointed as the independent financial adviser to advise the directors of the Company who are deemed independent for the purposes of the Proposed Subscription and Proposed Joint Venture (being Douglas Foo Peow Yong, Foo Lilian, Lim Chee Yong and Chan Wing Leong who are directors of the Company for the time being other than Directors who are deemed interested in the Proposed Subscription and Proposed Joint Venture) ( Non-interested Directors ). 10. DOCUMENTS FOR INSPECTION The following documents are available for inspection by the Company s shareholders during normal business hours at the registered office of the Company s Singapore Share Registrar, Boardroom Corporate & Advisory Services Pte. Ltd., at 50 Raffles Place, #32-01 Singapore Land Tower, Singapore 048623 for three (3) months from the date hereof: (a) (b) the HOA; and the summary letter of valuation addressed to GREIH from Colliers International Consultancy & Valuation (Singapore) Pte Ltd dated 27 January 2010 and the valuation report from Colliers International Consultancy & Valuation (Singapore) Pte Ltd dated 8 February 2010 in respect of the Property. BY ORDER OF THE BOARD Foo Lilian Director Apex-Pal International Ltd 16 March 2010 7
APPENDIX 1 PROPERTY 470 North Bridge Road, North Bridge Commercial Complex, Singapore 188735 Unit Nos. 1 #01-04 2 #01-05 3 #02-01 4 #02-03 5 #02-04 6 #02-05 7 #02-06 8 #02-07 9 #02-08 10 #02-09 11 #02-10 12 #02-11 13 #03-01 14 #03-02 15 #03-03 16 #03-04 17 #03-05 18 #03-06 19 #03-07 20 #03-08 21 #03-09 22 #03-10 23 #03-11 24 #03-12 25 #04-01 26 #04-02 27 #04-03 28 #04-04 29 #04-05 30 #04-06 31 #04-07 32 #04-08 33 #04-09 8
34 #04-10 35 #04-11 36 #04-12 37 #05-01 38 #05-02 39 #05-03 40 #05-04 41 #05-05 42 #05-06 43 #05-07 44 #05-08 45 #05-09 46 #05-10 47 #05-11 48 #05-12 49 #06-01 50 #06-02 51 #06-03 52 #06-04 53 #06-05 54 #06-06 55 #06-07 56 #06-08 57 #06-09 58 #06-10 59 #06-11 60 #06-12 9