Translation Information Memorandum TIRATHAI PUBLIC COMPANY LIMITED Head Office and Factory Location : 516/1 Moo.4 Bangpoo Industrial Estate, Samutprakarn, 10280, Thailand. Tel. (66)-2709-4499, (66)-2323-0818, (66)-2709-3237-8 Fax : (66)-2323-0910, (66)-2709-3236 Website : www.tirathai-transformer.com Listing Date May 10, 2006 (First trading day is May 10, 2006) Listing Securities 101,321,250 shares, par Baht 2 per share, totaling Baht 202,642,500 No. of shares offering to public is 30,000,000 shares Secondary Market Market for Alternative Investment (mai) Offering Price Baht 5.75 per share Subscription Date 26-28 April, 2006 Purpose to use the proceeds - To expand its production capacity 30 MB - Debt repayment85 MB - Working capital 50 MB Green Shoe Option -None- Type of Business and Nature of Operation Tirathai Public Company Limited ('the company', 'TRT') manufactures and distributes transformers for local and international market. The transformers are normally 'made to order' under the trademark "TIRATHAI". The company manufactures products and provides service as follows 1.Transformer which classified into 2 types: 1.1 Power Transformer is the transformer used to step down the electric voltage that transmitted from the power plants through the transmission line before passing further to the distribution line. This type of transformer is specified to have capacity of more than 10 MVA or 36Kv or having the greatest capacity of 200 MVA or 230 Kv. The users comprise of an electrical generators such as Electricity Generating Authority of Thailand, Provincial Electricity Authority, Metropolitan Electricity Authority, industrial estates and large industrial plants that use electric current from transmission line. Currently, the company is one of the three manufacturers in Thai market who can produce power transformer. 1.2 Distribution Transformer is used to lower power voltage from distribution line to end user. This type of transformer is specified to have capacity less then 10 MVA or equal to less than 36Kv. Besides, the transformers are further distinguished by the insulation used such as Oil Type and Dry Type Cast Resin. The target customers of Oil Type transformer is the electrical distributors; Provincial Electricity Authority, Metropolitan Electricity Authority, industrial estates and industrial plants that uses electric current from distribution line. Owning to Dry Type Cast Resin transformer has special feature of burning resistant, thus, this type of transformer is generally used in high buildings. Additionally, the company also produces any special type of transformers according to customers' specific need, such as, rectifier transformer and Induction Furnace Transformer that used by chemical industrial plants and metal melting industrial plants. 2. The services TRT are providing to the customers are included installation service, oil filtering and filling service, maintenance, modification and repair and testing of the transformers. Besides, the company also provides transformer rental service to customers Revenue Structure TRT's revenue structure is summarized in the table below. Type of Product and Services 2003 2004 2005 (Million) % (Million) % (Million) % Revenues from power transformers 140.53 19.24 376.63 40.99 393.57 36.08 Revenues from distribution transformers 535.51 73.33 438.78 47.75 593.97 54.45 Revenues from selling of transformers' 6.68 0.91 44.71 4.87 48.91 4.42 components Revenues from services 42.32 5.79 53.55 5.83 43.26 3.97 Other revenues 5.28 0.72 5.19 0.56 11.94 1.09 Total Revenue 730.32 100.00 918.86 100.00 1,090.93 100.00 Revenue from local market 569.21 77.94 615.21 66.95 953.35 87.39 Revenue from international market 113.51 15.54 244.12 26.65 82.38 7.55 Total Revenue 682.72 93.48 860.12 93.61 1,035.73 94.94 Competitiveness The competition is not intense, in which, the company obtains 20 percent of overall market share (30 percent forpower transformer and 15 percent for distribution transformer). Presently, the company is the only domestic manufacture in Thai market that can produce power transformer in which the 2 remaining companies are international companies; Dihen Electric Co., Ltd. and ABB Co., Ltd which have nearly the same production capacity and product quality. For the distribution transformer market, there are 21 domestic manufactures of which only 4 manufacturers; including Ekarat Engineering PCL, Charoenchai Transformer Co., Ltd., Thai Maxwell Electric Co., Ltd., and Thai Trafo Co., Ltd., that has potential to compete with the company while the remaining are small to medium size manufacturers. Target customer 1. In domestic market, the customer can be classified into 3 groups as follows; * State owned enterprise of Electrical Generating - Electricity Generating Authority of Thailand, Provincial Electricity Authority, Metropolitan Electricity Authority * Private sector - most of customer are direct customers, for example, PTT PCL, Banpu PCL, Pa Dang Industry PCL, subsidiary companies of Siam Cement PCL etc. Besides, other customers include hospital, department store and industrial estate. * Project Contractor - normally are international companies, for example, Chiyoda (Thailand) Co., Ltd. Siemens Co., Ltd., Sumsung Engineering Co., Ltd., Foster Wheeler Co., Ltd. etc. 2. In international market, the customers can be classified into 3 groups that are; * State owned enterprise of Electrical Generating * Project Contractor - mostly are international companies especially those in Malaysia and Singapore, the end users of electrical transformer, both of government sector and private sector, normally order the transformers only through project contractors who have responsibility in product procurement and installment of theelectrical transformer in each project. Examples of project contractors are EPAK Engineering, Malaysia, Fuji Electric Co., Ltd., Japan, etc. * Selling Agents: Currently the company appoint 2 selling agents; one is Diahongha in Vietnam and the other is Coris Trading in Brunai. Environmental Impacts The company has never had any litigation cases concerning environmental impacts. In addition, the company is in the process of obtaining the certification of ISO 14001 (environment management systems and standards) and OHSAS 18001 (Occupational Health and Safety Zone) which is expected to be approved by second quarter of 2006. Summary of Material Contracts 1. Agreement between Fuji Electric Systems Co., Ltd. (Japan) and Tirathai PCL Type of Agreement Technical Assistance Agreement Enter Agreement Date 1 July 2001 Expiry Date 30 June 2006 Summary of Contract - It is the technical assistant by Fuji Electric Systems Co., Ltd. to Tirathai to manufacture and design the "Subject Products" as defined below; Subject Products means the following equipment and/or components / parts thereof 1.1 Power Transformers, up to and including the following rating Output Capacity : 30,000 KVA Voltage : 33 KV or below 1.2 Rectifier Transformers, up to and including the following rating Output Capacity : 10,000 KVA Voltage : 33 KV or below 1.3 Induction Furnace transformers, up to and including the following rating Output Capacity : 5,000 KVA Voltage : 22 KV or below - Fuji grants the right to Tirathai to sell the Subject Products in Thailand, Malaysia, and Singapore, however, if a customer in the Philippines, Brunei, Vietnam, Indonesia, Myanmar, Laos or Cambodia, Tirathai shall obtain prior written consent of Fuji. - Compensation of technology transfer comprises of annual royalty fee, and training fee. Termination of Agreement - If the other party defaults in the performance of any of its obligations hereunder and such default is not rectified within sixty (60) days after the defaulting party receives written notice thereof from the non-defaulting party. 2. Agreement between VA TECH EBG Transformaotren Gmbh & Co., (Austria) and Tirathai PCLTechnical Type of Agreement Licence Contract Enter Agreement Date 30 August 2005 (Original agreement was made on 14 January 1994) Expiry Date 9 November 2009 (4th renewal) Summary of Contract - EBG grants the right and license to Tirathai to manufacture power transformers with ratings between 20 and 300 MVA and voltages between 66 upto 230 kV, - EBG grants an exclusive license for the manufacturing of transformers specifically for Thailand and neighboring ASEAN countries (Malaysia, Singapore, Indonesia, Brunei, Philippine) and Indochina (Cambodia, Laos, Vietnam). Products manufactured under license can be exported to the country of the licenser (Austria) and to other countries not mentioned before only with the agreement of the licenser. Tirathai is also entitled to mount the plate "License EBG-Linz/Austria" to the transformers manufactured under this license. - Each party will have to inform the other without delay. Each party is entitled to use such new experience and knowledge of other party without charges during the term of contract. Alterations, which will influence the characteristics and/or the quality of transformers, may be done by TRT only after acceptance by EBG. License Contract Fee comprises of 1) costs incurred by EBG for each type of transformer completely designed and it will be depreciated by TRT in 5 years 2) annual royalty fee calculated from percentage of the gross turnover that TRT achieved with transformers manufactured under this licence contract 3) Training fee (if any) Termination of Agreement - Three months before expiration the contract can be renewed on request of both parties. After the regular expiry of the contract TRT is entitled to exploit the acquired knowledge further on. - If the other party defaults in the performance of any of its obligations hereunder and such default is not rectified within sixty (60) days after the defaulting party receives written notice thereof from the non-defaulting party. Remark : The company has an additional annual software licence fee. 3. Rental contract for warehouse The company has rented the 6-3-62 rai plot of land and 2,997 square meter of building space at 521 Bangpoo Industrial Estate, Sumutprakarn. The contract is summarized below. Tenant : Tirathai Public Company Limited Landlord : Suntex Textile Co., Ltd. Rental period : 3 years from July 1, 2005 to June 30, 2008 Rental fee : Baht 300,000 per month Project Feasibility Study -None- Technical and Management Assistance -None- Future Projects 1. Expansion of Manufacturing Capacity of Power Transformers The Company has planned to expand manufacturing capacity of Power Transformer from 200 MVA at 230 kv to 300 MVA 230 kv. This project will utilize and improve the available space of the existing factory and add more equipments and machines. This whole project requires capital of around 50 MB which has started since the beginning of 2004 and already invested around 21 million baht from its internal cash flow to procured equipments and machine such as the oven and some testing gadgets from the USA and the EU. The company expected to use additional fund of around 29 million baht to complete the expansion project by the end of 2006. After expansion, the company will be able to manufacture 300 MVA at 230kV in 2007. The target customers of the 300 MVA at 230 kv Transformers are the electricity generators in Thailand. 2. Expansion of the International Market The company has planned to penetrate into the international markets especially for the Power Transformer products, focusing on countries that shortage of production capacity or has no capability to produce the products. Although, the company's major foreign market, around 60-70 % of total revenue in foreign market is in Vietnam, TRT plans to expand market to cover countries in this regional such as Brunei, Sri Lanka, India, Malaysia, Singapore and the Philippines which have an opportunity to increase sales in the near future. Following the plan, the company will appoint more selling agent in potential countries, other than Brunei and Vietnam which had already been appointed. Related Transactions Related Companies/ Person : Thai Corrugate Co., Ltd. ("Thai Corrugate") Type of Business : To manufacture and distribute transformer tank, corrugate type, including provide repair and maintenance services on transformer tank. Relationship : TRT has decreased its holding from 59.99% to 9.99% of its stake 1) Type of Transaction : Long term loan, Accrued interest and Interest receivables (Long term loan to Thai Corrugate) Transaction value in 2004 : 13.89 MB 1.54 MB. 0.8 MB Transaction value in 2005 : 13.89 MB 1.54 MB. - MB Pricing policy : previously, Thai Corrugate paid TRT at MLR(TMB) rate. As at October 1, 2005, TRT has adjusted the interest rate to MLR(TMB) + 0.5% per annum and Thai Corrugate has signed the debt acceptance agreement for the accrued interest. Reasonableness and Necessity of the Transaction : TRT had granted the loan to Thai Corrugate when it was a subsidiary company to enhance its financial liquidity during the difficult time when the company was undergone to the debt restructuring process. However, As of October 1, 2005, the company has enter into lending agreement. According to lending agreement, TRT will receive the loan repayment and accrued interest amounting Baht 15.43 million by June 30, 2012. Nevertheless, as at December 31, 2005, TRT has fully reserved this loan and its accrued interest amounting 15.43 MB as a doubtful account. This transaction will not occur again in the future. 2) Type of Transaction : Purchase and Accounts payable (TRT purchases transformer tanks - corrugate type, from Thai Corrugate) (more)