IKATAN PERKASA SDN BHD ( IPSB ) RM185 MILLION NOMINAN VALUE REDEEMABLE SECURED SERIALBONDS PRINCIPAL TERMS AND CONDITIONS OF THE PROPOSED BONDS ISSUE Issuer : Ikatan Perkasa Sdn Bhd ( IPSB ) Issue : Proposed RM185 million Nominal Value Redeemable Secured Serial Bonds Arranger and Lead Manager : United Overseas Bank (Malaysia) Bhd ( UOBM ) Purpose : To refinance part of the existing borrowings of the Landmarks Group. The amount raised will be utilised as follows:- 1. RM180,000,000 of the Bonds proceeds will be advanced to Teluk Datai Resorts Sdn Bhd ( TDRSB ) for it to settle part of its inter-company loans with the Landmarks Group which will in turn utilise it to settle part of its outstanding borrowings. 2. RM5,000,000 of the remainding proceeds shall be utilised by IPSB to cover part of the issue cost of the Bonds as well as a starting balance. Instrument : Negotiable coupon bearing Bonds, in bearer form evidencing a promise by the Issuer to pay stated RM sums on specified dates. The Bonds will be issued in the following Series:- Series 1 RM 10,000,000 Series 2 RM 10,000,000 Series 3 RM 10,000,000 Series 4 RM 10,000,000 Series 5 RM 10,000,000 Series 6 RM 10,000,000 Series 7 RM 10,000,000 Series 8 RM 10,000,000 Series 9 RM 10,000,000 Series 10 RM 95,000,000 TOTAL - RM 185,000,000 Method of Issue : The Bonds will be fully subscribed on a bought deal basis by the Primary Subscriber on the issue date. The Primary Subscriber may later sell down the Bonds to persons whom will not be deemed to be the public under section 4(6) of the Companies Act (because the Issuer is a private company and section 15 of the Companies Act prohibits a private company making an invitation to the public). 1
Issue Price : The Bonds will be issued at par. Coupon : Series 1 6.25% per annum Series 2 6.50% per annum Series 3 6.75% per annum Series 4 7.00% per annum Series 5 7.25% per annum Series 6 7.50% per annum Series 7 7.60% per annum Series 8 7.70% per annum Series 9 7.80% per annum Series 10 7.90% per annum Tenure : Series 1 2.5 years Series 2 3.0 years Series 3 3.5 years Series 4 4.0 years Series 5 4.5 years Series 6 5.0 years Series 7 5.5 years Series 8 6.0 years Series 9 6.5 years Series10 7.0 years Form and Denomination : The Bonds will be represented by a Global certificate for each series to be deposited with Bank Negara Malaysia and shall be in registered form and will be prescribed under the Scriptless Securities Trading System ( SSTS ) maintained by Bank Negara Malaysia. The Bonds will be issued in denominations of RM100,000. Status : The Bonds will constitute direct, unconditional and secured obligations of IPSB ranking pari passu without any preference or priority amongst themselves. Maturity Date : Series 1 two and a half years from date of issue Series 2 three years from date of issue Series 3 three and a half years from date of Issue Series 4 four years from date of Issue Series 5 four and a half years from date of Issue Series 6 five years from date of issue Series 7 five and a half years from date of issue Series 8 six years from date of Issue Series 9 six and a half years from date of Issue Series 10 seven years from date of Issue Redemption at the option of the Issuer : The Issuer may at any time prior to the Maturity Date, purchase the Bonds by tender for cancellation from the open market. All Bonds purchased and 2
cancelled shall not be available to the Issuer for reissue. The Bond investors for Series 7 to 10 shall provide the Issuer with a one time call option at the end of year 5 based on the par value or a premium to be calculated based on the formula below: Call Premium (%) = PMT [1/i - 1/(i(1+i) n ] Call Premium for Series 6.5 yrs & 7 yrs PMT = [Series Cpn % - 2 yr MGS(%), rate at point of call - 3%] x 100/2 i = (2 yrs MGS(%), rate at point of call + 3%) x ½ n = no. of half years up to maturity of series if Call Premium > 0 then call price = 100% + Call Premium% If Call Premium <= 0 then call price = 100% or par For Series 5.5 yrs and 6 yrs 1 year MGS rate(%) at point of call is used instead. The premium if any shall be payable at the time the redemption is made. Default Interest : Following any failure to pay any amounts under the Bonds a penalty interest rate shall be levied at an additional 1.00% per annum on the amount due on the outstanding Bonds. Security : The Bonds shall be secured by the following:- 1. TDRSB granting a 3 rd party first legal charge over The Datai, a 112-room cum villa resort hotel on the island of Langkawi. 2. TDRSB effecting a 3 rd party legal assignment of the Management Agreement of The Datai dated 24 th February 1993 ( Datai Management Agreement ). This entails a first floating charge over the Operator s Account and the Capital Reserve Account at TDRSB. 3. TDRSB effecting a 3 rd party legal assignment over the cashflows generated by the The Datai net of operating expenditure, management and management incentive fees and the rights, title and interest under or arising out of any insurances on the The Datai. This entails a first floating charge over the Revenue Account and Owner s account at TDRSB. 3
4. Fokus Asas Sdn Bhd ( FASB ) granting a 3 rd party first legal charge over 13,130,173 Shangri- La Hotels (Malaysia) Berhad ( SHMB ) shares and IPSB granting a first party legal charge over 95,824,752 shares in SHMB. 5. FASB effecting a 3 rd party legal assignment and IPSB granting a first party legal assignment over the dividend stream and any proceeds from divestment relating to the SHMB Shares. This entails a first floating charge over the Revenue Account at FASB and IPSB. 6. A first fixed and floating charge over the entire assets of IPSB. 7. Assignment of insurance. 8. A first legal charge over the entire issued & paidup preference share capital of IPSB. 9. A declaration of trust of all rights over and interest in the entire issued & paid-up ordinary share capital of IPSB and the issued and paid-up ordinary share capital of Archipelago (Hotels) East Sdn Bhd ( AHE ) held by Archipelago Resorts Sdn Bhd ( AR ) in favour of the Bondholders for the life of the Bonds. The life of the Bonds will be such time until the Bonds have been redeemed in full or upon realisation of the securities listed in items 1 to 8 above, whichever is the earlier. At the expiry of the life of the Bonds all rights over and interest in the shares will revert to the settlor. The existing securities over the assets of IPSB and FASB will be discharged from the proceeds of the Bonds Issue pursuant to the undertakings referred to in paragraph (3) of the Conditions Precedent. Conditions Precedent : The initial issuance of the Bonds shall be subject to the following conditions, including but not limited to:- 1. Board resolution of Landmarks and IPSB authorising the issuance of the Proposed Bonds. Board resolution of Landmarks, FASB, TDRSB, ARSB, Landmarks Hotel and Realty Sdn Bhd ( LHR ) and IPSB authorising the provision of Security for the Proposed Bonds. 4
2. All prescribed security shall be in full force and effect except for the discharge of the existing securities over the assets of IPSB and FASB. 3. The holders of the existing security over the assets of IPSB and FASB have given undertakings to discharge their securities upon receipt of a specific settlement sum. 4. A valuation report to be furnished by an acceptable professional valuer on The Datai to be acceptable by the Arranger. 5. Approval for the conversion of the land use of the land which The Datai sits on from agriculture use to commercial use in form and substance acceptable to the Legal Counsel. 6. Any other condition deemed necessary by the Legal Counsel Positive Covenants : So long as there are Bonds outstanding, TDRSB, FASB and IPSB shall, among others: 1. Comply with all provisions of the Bond documentation. 2. Preserve and keep in force and effect all consents and rights necessary for the conduct of its business. 3. Open and maintain the Designated Accounts and pay all amounts into such account and make all payments from such account, only as permitted under the Bond documentation. 4. Take out and maintain the necessary insurance policies and promptly notify of any event which will or may give rise to any claim or right of action under the insurances. 5. Such standard and positive covenants for a Bonds issue of this nature and such other covenants as legal counsel may consider necessary for giving effect to the terms herein. Negative Covenants : So long as there are Bonds outstanding, FASB and IPSB shall not, among others: 1. Incur any additional borrowings or grant guarantees, indemnities or similar assurances against financial loss in respect of any 5
indebtedness of any affiliate or third party save and except for IPSB receiving cashflows originating from the dividends and divestment of SHMB shares in the form of subordinated intercompany advances. 2. Amend its Memorandum and Articles of Association in a manner inconsistent with the Bond documentation. 3. Assign its rights or transfer its obligations under the Bond documentation. 4. Sell or transfer any of its assets or in anyway dispose of any of its assets save and except for the SHMB Shares. 5. Enter into any amalgamation, consolidation, merger, reconstruction, dissolution or winding up of itself which may materially affect its ability to perform its obligation 6. Make any additional advances or loans to any party except pursuant to contracts of performance in the ordinary course of business 7. Carry on any other activities or undertake any other investments save and except for rated commercial papers/bonds of at least a rating of AA or P1 by the Rating Agency of Malaysia and/or Malaysian Rating Corporation Berhad. Such papers/bonds having a maturity no longer than the next coupon/principal payment date. 8. Create or permit to subsist any other security interests. 9. Do or suffer to be done any act, matter or thing whereby any insurance may be rendered void, voidable or incapable of being effected, maintained or renewed. 10. Open any accounts other than the Designated Accounts. 11. Enter into any other contracts, agreements or other arrangements or commitments other than the Bond documentation, except in the ordinary course of business. 12. Will not change its share capital except for the issue or transfer to Landmarks Berhad or its 6
100% subsidiary, subject to the creation of a first legal charge over those shares in favour of the Security Trustee. 13. Such standard and negative covenants for an Issue of this nature. 14. Cannot declare dividends unless the Semi Annual Debt Service Coverage Ratio ( SADSCR ) is above 2.0 times before and after such dividend declaration. The SADSCR is defined as the ratio of the balance in the Revenue Account of IPSB at the beginning of the six month period, plus the Net Operating Cash Flow for the six month period and any additional cash injection by the Landmarks Group, to the Issuer s six month debt service obligations under the Bond Issue. Definition of Net Operating Cash Flow Net Operating Cash Flow is operating cash flow after deducting the following: Tax payments Administrative & General expenses Other expenses (including Bond issue costs) But before deducting the Issuer s debt service obligations. So long as there are Bonds outstanding TDRSB shall not, among others: 15. Incur any additional borrowings or grant guarantees, indemnities or similar assurances against financial loss in respect of any indebtedness of any affiliate or third party save and except for TDRSB rolling over the principal and interest of existing subordinated intercompany advances. 16. Amend its Memorandum and Articles of Association in a manner inconsistent with the Bond documentation. 17. Assign its rights or transfer its obligations under the Bond documentation. 18. Enter into any amalgamation, consolidation, merger, reconstruction, dissolution or winding up 7
of itself which may materially affect its ability to perform its obligation 19. Make any additional advances or loans to any party except pursuant to contracts of performance in the ordinary course of business 20. Do or suffer to be done any act, matter or thing whereby any insurance may be rendered void, voidable or incapable of being effected, maintained or renewed. 21. Such standard and negative covenants for an Issue of this nature. Designated Accounts : Designated Accounts are to be set up at: I. TDRSB II. FASB III. IPSB I. Designated Accounts at TDRSB TDRSB is required to open and/or maintain the following accounts:-! Operator s Account! Capital Reserve Account! Revenue Account! Owner s Account TDRSB shall provide a detailed budgeted one-year forecast for the said accounts. The agreement of the operator would be required to create the Designated Accounts at TDRSB Operator s Account & Capital Reserve Account As per The Datai Management Agreement, all monies received by the operator of The Datai including working capital shall be deposited in the Operator s account. Out of such account, the Operator shall pay all Operating Expenses and payments to a Capital Reserve Account up to an amount of 3% of the actual turnover of The Datai for capital goods, furniture, fixtures, furnishing and equipment. The Capital Reserve Account shall be utilised for the replacement of capital goods in The Datai e.g. furniture, fixtures, furnishing and equipment. Operating Expenses shall mean the entire cost and expenses of maintaining, conducting, and supervising the operation of The Datai including the payment of management fees but with the exclusion of the 8
following:! Principal and interest of any borrowings by TDRSB! Any depreciation and amortisation! Tax payable by TDRSB! Quit rent & assessment! Head office administrative & general costs! Insurance premiums taken in relation to The Datai by the Owner Revenue Account Monthly closing balances in the Operator s account accruing to TDRSB as the owner of The Datai which are above RM500,000, shall be deposited into a Revenue account. The funds in this account will first be applied towards the Owner s account up to an amount stipulated in the annual budget for taxes, quit rent & assessment, insurance premiums and head office administrative and general expenses. The Revenue Account will be jointly operated by the Trustee as a joint signatory. Semi-annually proceeds in the Revenue account will be paid out as dividends, interest and loan repayment to IPSB. Owner s Account Permitted expenses from the Owner s Account are:! Tax payable by TDRSB! Quit rent & assessment! Insurance premiums to be taken in relation to The Datai (Fire and Perils Insurance & Consequential loss)! Head office administrative & general costs (To be capped to RM2.5 million a year) II. Designated Accounts at FASB FASB is required to open and maintain a Revenue Account to be jointly operated by the Trustee as a joint signatory. All monies originating from the 13,130,173 SHMB shares pledged by FASB, including dividends and divestment of SHMB shares if any are to be deposited into a Revenue Account. The only permitted withdrawals from the Revenue Account are for the budgeted operating expenses of FASB and the inter-company advances to IPSB. The inter-company advances shall amount to the total cash flows 9
originating from the SHMB shares minus FASB s operating expenses for the year. III. Designated Accounts at IPSB IPSB is required to open and maintain a Revenue Accounts to be jointly operated by the Trustee as a joint signatory. Revenue Account All monies accruing to IPSB is to be deposited in the Revenue Account. This includes:! Dividend income from TDRSB Redeemable Preference Shares ( RPS )! Interest Income from TDRSB! Dividend income from its SHMB shares! Sale proceeds from its SHMB shares! TDRSB inter-company loan repayment! Inter-company advances from FASB! Any other source of funds to IPSB Conditions : To include the following: Funds in the account can only be applied to the following permitted expenses:! Admin & General expenses (To be capped at RM250,000 per year)! Tax payable by IPSB! Other expenses relating to the Bonds issue! Coupon payments on outstanding Bonds! Redemption of Bonds! Purchase of Bonds from the open market by way of tender 1. Landmarks shall maintain its 100% effective interest in and maintain management control of the Issuer, IPSB. 2. IPSB shall maintain a SADSCR of 1.8 times as long as the Bonds are outstanding. In the event that the SADSCR falls below 1.8 times, Landmarks shall have 14 working days to inject additional funds into IPSB to meet the 1.8 times SADSCR, failing which the Trustee shall dispose of up to 29,124,012 SHMB shares to ensure that the 1.8 times SADSCR is met. In the event that after taking the above steps, the SADSCR remains below 1.8 times, the fact that the SADSCR is below 1.8 times will not be an Event of Default. 10
The SADSCR is defined as the ratio of the balance in the Revenue Account at the beginning of the six month period, plus the Net Operating Cash Flow for the six month period and any additional cash injection by the Landmarks Group, to the Issuer s six month debt service obligations under the Bond Issue. 3. IPSB shall have sufficient funds in its Revenue account to redeem the outstanding Bonds upon maturity by the end of the 78th month from issue date. Failing which IPSB shall ensure that it has financial commitments in place by the end of the 78 th month from the issue date to redeem the Bonds upon maturity or else the Trustee shall dispose of IPSB s and/or FASB s SHMB shares (up to a maximum number of 29,124,012 SHMB shares if not sold under (2) above) to realise sufficient funds to redeem the Bonds upon maturity. Should the sale of the 29,124,012 SHMB shares be insufficient to redeem the Bonds upon maturity, the Trustee shall dispose of the remaining SHMB shares held by IPSB and/or FASB three months from the maturity of the Bonds to realise sufficient funds to redeem the Bonds upon maturity. Representation & Warranties : i. IPSB is a company duly established and existing under Malaysian law and has the power and authority to enter into the business in which it is engaged. ii. IPSB has the power to enter into, exercise its rights under and perform its obligations under the Bond documentation. iii. All necessary actions, authorisations and consents required under the Bond documentation have been taken, fulfilled and obtained and remain in full force and effect. iv. IPSB s entry into, exercise of its rights under and performance of the Bond documentation do not and will not violate any existing law or any agreements to which it is a party. v. The Bond documentation create valid and binding obligations which are enforceable on and against IPSB vi. IPSB s assets are free of all security interests except for the existing securities over IPSB s assets which are to be discharged upon settlement by IPSB from the remittance of part of the Bond proceeds, save as provided under the Bond documentation. 11
Trustee : Mayban Trustees Berhad vii. IPSB s audited accounts are prepared in accordance with generally accepted accounting principles and standards. The accounts fairly represent IPSB s financial position. viii. No litigation or arbitration is current or, to IPSB s knowledge, is threatened, which if adversely determined would have a material adverse effect on the ability of IPSB to perform its obligations under the Bond documentation. ix. Such standard representations and warranties for an Issue of this nature and such other covenants as legal counsel may consider necessary for giving effect to the terms herein. Listing : The Bonds will not be listed on any exchange. Taxes : All payments of principal and interest in respect to the Bonds will be made by the Issuer after deducting or withholding any amount for or on account of any present or future taxes or duties of whatsoever nature imposed or levied by the Government of Malaysia or any authority thereof or therein having power to tax and which are required by law to be deducted or withheld. The issuer will not pay any additional amount in respect of any such deduction or withholding or payment of principal or interest for or on account of any such tax and duties. Material Adverse Change : The Arrangers may at any time on or before the closing amend, suspend, delay or terminate the Bond Issue due to but not limited to any material adverse change in financial condition of TDRSB or the Issuer, any material breach of warranties or undertakings by the Issuer and changes or prospective changes in national or international monetary, financial, economic or political conditions which are likely to result in material fluctuations or adverse conditions in the Malaysian inter-bank, foreign exchange or stock markets. Clear Market : From the date the mandate is awarded to the Arranger until the date of signing of the Agreements, no other external borrowings or guarantee facilities should be syndicated or privately placed by the Issuer without the prior written consent of the Arranger that would have the effect of competing with this transaction. 12
Events of Default : To consist of the following:- 1. Failure to make payment of Principal, Coupon or fees under the Bonds and/or Trust Deed within 3 business days of the due date for payment. 2. Failure to repay other indebtedness which, in the reasonable opinion of the Trustee, has a material adverse effect on the Issuer s ability to pay. 3. Any written representation or warranty by the Issuer, Landmarks Berhad, AHE, AR, FASB and/or TDRSB proves to have been untrue in any material respect. 4. Breach of Covenants mentioned herein and such breach is not remedied within 30 days or such longer period agreed by the Trustee. 5. Bankruptcy, winding up, judicial management insolvency, receivership, abandonment etc. of the Issuer. 6. Failure to comply with any of the obligations described herein (other than the failure to pay any sum under this Agreement when due) and if such failure is, in the reasonable opinion of the Trustee, capable of remedy but not remedied to the satisfaction of the Trustee within 14 days from the date of notice of such failure or such longer period as agreed by the Trustee. 7. Any legal proceedings, suite, actions or investigations of any kind whatsoever shall be instituted against the Issuer, AHE, AR, FASB and/or TDRSB which, in the reasonable opinion of the Trustee, will have material adverse effect on the Issuer s ability to perform its obligations. 8. Cross-default relating to other borrowings of the Landmarks Group in excess of RM5 million in aggregate if such cross default is declared or is outstanding for more than 7 days. 9. Government action resulting in condemnation, nationalisation, seizure or expropriation of all or any material part of the property or other assets of the Issuer. 10. Revocation or non-extension or suspension of any licences relating to the Issuer s business or any restrictions imposed by the authorities that may 13
Legal Counsel : Lee Hishammudin. materially and adversely affect the operation of the Issuer or its ability to repay. Other events of default standard to the issues of this nature and where applicable the event(s) shall be material in nature and a reasonable cure period shall be provided. The final documentation shall be in the form and substance satisfactory to all parties. Documentation : The terms and conditions of the Bonds shall be set out in various agreements in form and substance acceptable to the investors, Arranger and the Issuer and shall include standard provisions relating to warranties and representation, undertakings, mergers, acquisition, cross default, force majure, maintenance of financial and cash flow ratios. Governing Law : Laws of Malaysia 14