PROPOSED JOINT VENTURE BETWEEN CAPILLARY ARGOTECH (M) SDN BHD, A WHOLLY-OWNED SUBSIDIARY OF ICB AND DEMETER FARMS SDN BHD IN PEAK PLATFORM SDN BHD General Announcement Reference No IC-091105-59662 Company Name : IRIS CORPORATION BERHAD Stock Name : IRIS Date Announced : 10/11/09 Contact Person : Chang Poh Sheng Designation : Financial Controller Contact Number : 8996 0788 ext 1300 Email address : pschang@iris.com.my Type Subject : Announcement : IRIS CORPORATION BERHAD ( ICB OR THE COMPANY ) PROPOSED JOINT VENTURE BETWEEN CAPILLARY ARGOTECH (M) SDN BHD, A WHOLLY-OWNED SUBSIDIARY OF ICB AND DEMETER FARMS SDN BHD IN PEAK PLATFORM SDN BHD Contents : 1. INTRODUCTION The Board of Directors of ICB ("Board") wishes to announce that Capillary Argotech (M) Sdn Bhd ( CASB ), a wholly-owned subsidiary of ICB, had on 10 November 2009 entered into a Joint Venture and Shareholders' Agreement ("JVA") with Demeter Farms Sdn Bhd ("Demeter") for a proposed joint venture in Peak Platform Sdn Bhd ("JV Co"), a company incorporated in Malaysia, to carry on the business of growing, harvesting and farming, sale, marketing and distribution of rock melons under the trade name Premium Gold ("Business") ( Proposed JV ). Further details of the Proposed JV are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED JV 2.1 Information on the JV Co The JV Co was incorporated in Malaysia under the Companies Act, 1965. As at 12 August 2009, the authorised share capital of the JV Co is RM100,000 comprising 100,000 ordinary shares of RM1.00 each in JV Co ("JV Shares") of which RM2 comprising 2 JV Shares are issued and fully paid-up. Pursuant to the JVA, the JV Co has offered to issue 100 JV Shares to CASB and Demeter ("Parties") and the percentage of ownership of the Parties in the JV Co shall be as follows:- Shareholder Initial Capital Outlay (RM) No of JV Shares to be subscribed % in the issued and paid up share capital of JV Co CASB 60.00 60 60 Demeter 40.00 40 40 Total 100.00 100 100 Accordingly, the Parties shall subscribe the JV Shares at par value of RM1.00 each. Upon subscription of JV Shares, the Parties shall hold the number of JV Shares with the percentage of ownership as stated above ("Agreed Proportion"). The
Parties agree that the capital of the JV Co shall be increased progressively from time to time in accordance with the requirements as determined by the Board, whereby the amount of capital increase shall be in accordance with the respective Agreed Proportion. It is the intention of the Parties that the JV Co shall have an authorised and paid-up share capital of RM1 comprising 100 JV Shares. 2.2 Information on Demeter Demeter was incorporated in Malaysia under the Companies Act, 1965. As at 12 August 2009, the authorised share capital of the Demeter is RM100,000 comprising 100,000 ordinary shares of RM1.00 each in Demeter of which RM1.00 comprising 100 shares are issued and fully paid-up. 2.3 Salient Terms of the JVA The salient terms of the JVA are as follows:- (a) The obligations of the Parties are conditional upon:- (i) the tenancy of the property identified as Lot 47, Jalan Sekolah, Kampung Endah, 42700 Banting, Selangor ( Property ) to CASB from Jabatan Pertanian for the purpose of the Business; (ii) the sub-tenancy of the Property to the Company from CASB for the purpose of the Business; and (iii) such other consents or approvals as may be required of any third party or governmental, regulatory body or competent authority having jurisdiction over the Business of the JV Co or the arrangements contemplated under the JVA ( Approvals ). (b) (c) (d) (e) CASB shall ensure the fulfillment of all the conditions precedent referred to in items 2.3.a (i) and (ii) above; Each party shall render all such assistance as is reasonable to each other in the application and the obtaining of the Approvals including in particular but without limitation furnishing all such information, supplying such documents and doing all such acts and things as may be reasonably required; If any of the Approvals is not granted or granted subject to such conditions that are unacceptable to either party the Parties shall use their best endeavours to act in good faith and with such action as may be necessary and equitable to resolve the matter and the parties shall at all times during the continuance hereof conduct themselves in a manner which reflects the spirit and intent of the JVA. The parties declare that it is their intention that the JVA shall operate between them with fairness and so far as possible without detriment to the interest of either of them; The Board of Directors of the JV Co shall consist of four (4) members as follows:- (i) Demeter - two (2) nominees; (ii) CASB - two (2) nominees; and (iii) The Chairman of the JV Co shall be nominated by CASB. (f) Demeter will solely undertake the Business. In consideration thereof,
Demeter shall be paid the sum equivalent to seventeen percent (17%) of the monthly output of the farm, at the end of every month, for the tenure of the JVA. For the avoidance of doubt the monthly output of farm shall mean the monthly turnover generated by the sale of the rock melons only, before deduction of expenses, outgoings, tax and any other sums; (g) The Parties hereto also agree that in the event that further capital is required by the JV Co such capital needs will be met by any one or more of the following methods:- (i) increase in the issued and paid-up capital of the JV Co in the Agreed Proportion; (ii) shareholders advances to the JV Co; or (iii) credit facilities from financial institutions. and in the most tax efficient manner possible for the JV Company. (h) The initial capital outlay for the Proposed JV is RM100 which shall be contributed to by Demeter and CASB in the Agreed Proportion; 2.4 Liabilities to be assumed by CASB There are no other liabilities, including contingent liabilities and guarantees to be assumed by CASB and/or ICB arising from the Proposed JV. 2.5 Sources of funds ICB and/or CASB will finance its obligations from its internally generated funds. 3. RATIONALE The Proposed JV is consistent with ICB's objective to expand the farming solutions. The Proposed JV also represents an opportunity for ICB and CASB to further expand its revenue in farming solutions. 4. PROSPECTS OF THE JV CO The JV Co will increase the revenue stream of CASB through the sales of its produce, ie. rock melon. In addition, it will be used as a successful model farm to market the AutoPot Systems to potential investors. 5. RISK FACTORS 5.1 Business risk The JV Co is subject to certain risks inherent in the farming solutions businesses. These include but are not limited to the advancement in technology costs, availability of trained skilled workers in environment technologies, increases in the cost of labour, competition, changes in general economic, business and interest rate conditions and changes in the legal environment framework within which the industry operates. Although the ICB Group seeks to limit these risks through expansion of both existing and new markets, developing and maintaining a diversified market network, prudent financial management and efficient operating procedures, investment in automated production line to improve production efficiency, maintaining good business relationship with our customers and suppliers, researching on product development and introducing new innovative products
to the markets, no assurance can be given that any change in the above factors will not have any material adverse effect on the ICB Group's business. 5.2 Political, economic and regulatory considerations Like all business entities, changes in political, economic and regulatory conditions in Malaysia could materially and adversely affect the financial and business prospects for the ICB Group. Amongst the political, economic and regulatory uncertainties are the changes in nullification of existing sales orders and contracts, changes in interest rates and method of taxation and currency exchange rules and contracts. The ICB Group may continue to take effective measures to mitigate such risks. However, there is no assurance that adverse economic, political and regulatory conditions will not materially affect the business activities of the ICB Group. 5.3 Joint Venture Risks The JV Co may potentially expose the ICB Group to new risks including those associated with the assimilation of new operations and personnel, the diversion of financial management resources from existing operations and the inability to successfully integrate the joint venture with its current business. There is no assurance that the anticipated benefits from the joint venture will be realised, and that the ICB Group will be able to generate sufficient revenue from the joint venture to offset the associated joint venture cost. Nevertheless, the Board has and will continue to exercise due care in considering the risks and benefits associated with the Proposed JV and will take appropriate measures in planning the successful integration of this venture with its current business operations. Further, the ICB Group is committed towards the close monitoring of the development of the JV Co's business in order to minimize any implementation issues or delays. 6. EFFECTS OF THE AGREEMENT The effects of the Proposed JV are as follows:- 6.1 Issued and paid-up share capital and substantial shareholders' shareholdings The Proposed JV will not have any effect on the issued and paid-up share capital and the substantial shareholders' shareholdings in ICB as the Proposed JV does not involve the issuance of new shares in ICB. 6.2 Net assets and gearing The Proposed JV is not expected to have any material effect on the net assets of ICB for the financial year ending ("FYE") 31 December 2009. However, in the long term, the Proposed JV is expected to contribute positively to the future net assets of the ICB Group. The Proposed JV is not expected to have any material effect on the gearing of the ICB Group. 6.3 Earnings and earnings per share The Proposed JV is not expected to have any material effect on the earnings and earnings per share of the ICB Group for the FYE 31 December 2009. However, in the long term, the Proposed JV is expected to contribute positively to the future earnings of the ICB Group.
7. APPROVALS REQUIRED The Proposed JV is not subject to approval of ICB shareholders or any relevant government authorities. The Proposed JV is neither conditional nor inter-conditional upon any other corporate proposals currently undertaken by the Company. 8. DIRECTORS AND/OR MAJOR SHAREHOLDERS INTEREST None of the Directors and/or substantial shareholders of the company and/or persons connected to them have any interest, direct or indirect, in the Proposed JV. 9. STATEMENT BY DIRECTORS The Board, having considered all aspects of the Proposed JV (including but not limited to the rationale, prospects of the JV Co and effects of the Proposed JV), is of the opinion that the Proposed JV is fair, reasonable and is in best interest of the ICB Group. 10. ESTIMATED TIMEFRAME FOR COMPLETION OF THE PROPOSED JV Barring unforeseen circumstances, the Proposed JV is expected to be completed by the fourth quarter of 2009. 11. DOCUMENTS FOR INSPECTION The JVA is available for inspection at the registered office of ICB during office hours from Mondays to Fridays at Level 18, The Gardens North Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, for a period of three (3) months from the date of this announcement. This announcement is dated 10 November 2009.