Japan Leisure Hotels Admission Document by Stephen Mansfield

Japan Leisure Hotels Limited

Admission to AIM

Shore Capital and Corporate Limited

Shore Capital Stockbrokers Limited

Bond Street House, 14 Clifford Street, London W1S 4JU Tel: 020 7408 4090

Bond Street House, 14 Clifford Street, London W1S 4JU Tel: 020 7408 4080

Cover photos, left and right, by Androniki Christodoulou www.androniki.com

Placing by Shore Capital

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this Document, you should consult a person authorised under the Financial Services and Markets Act 2000 who specialises in advising on the acquisition of shares and other securities. This Document, which comprises an AIM Admission Document, has been drawn up in accordance with the AIM Rules for Companies published by the London Stock Exchange plc and has been issued in connection with the proposed admission to trading of the ordinary shares of the Company to AIM. This Document does not constitute a prospectus for the purpose of the Prospectus Rules and has not been approved or filed with the Financial Services Authority. No application has been made to list the Ordinary Shares on any exchange other than AIM. Consent has been obtained from the Guernsey Financial Services Commission under the Control of Borrowing (Bailiwick of Guernsey) Ordinances 1959 to 1989 for the Company to raise up to £200 million by the issue of the Ordinary Shares and for the circulation of this Document. Neither the Guernsey Financial Services Commission nor the States of Guernsey Policy Council takes any responsibility for the financial soundness of the Company or for the correctness of any of the statements made or opinions expressed with regard to it. The Company and the Directors of the Company, whose names appear on page 6 of this Document, accept responsibility for the information contained in this Document. To the best of the knowledge of the Company and the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this Document is in accordance with the facts and this Document makes no omission likely to affect the import of such information. Application has been made for the whole of the issued and to be issued ordinary share capital of the Company immediately following the Placing to be admitted to AIM. It is expected that dealings in the Ordinary Shares will commence on AIM on 16 January 2008. AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the Official List of the UK Listing Authority. A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser. Each AIM company is required pursuant to the AIM Rules for Companies to have a nominated adviser. The nominated adviser is required to make a declaration to the London Stock Exchange on Admission in the form set out in Schedule Two to the AIM Rules for Nominated Advisers. The London Stock Exchange has not itself examined or approved the contents of this Document. The AIM Rules for Companies are less demanding than those of the Official List. It is emphasised that no application is being made for admission of the Company’s Ordinary Shares to the Official List. The whole of the text of this Document should be read. Your attention is particularly drawn to the section entitled “Risk Factors” in Part II of this Document.

Japan Leisure Hotels Limited (Incorporated in Guernsey with registered number 47899)

Placing of 6,100,000 Ordinary Shares at 50 pence per share, issue of 12,420,500 Warrants exercisable at 45 pence per share and Admission to trading on AIM Nominated Adviser

Shore Capital and Corporate Limited Broker

Shore Capital Stockbrokers Limited Financial Adviser

West Hill Corporate Finance Limited Ordinary share capital immediately following Admission Authorised Number

Amount

160,000,000

£1,600,000

Issued and fully paid Number Amount Ordinary Shares of 1 pence each

44,100,002

£441,000

Shore Capital and Corporate Limited, which is regulated by the Financial Services Authority, is acting as nominated adviser to the Company (for the purposes of the AIM Rules for Companies). Shore Capital Stockbrokers Limited, which is a member of London Stock Exchange plc and is regulated by the Financial Services Authority, is acting as the broker to the Company (for the purposes of the AIM Rules for Companies). Persons receiving this Document should note that, in connection with the Placing and Admission, Shore Capital is acting exclusively for the Company and no one else and will not be responsible to anyone, other than the Company, for providing the protections afforded to customers of Shore Capital or for advising any other person on the transactions and arrangements described in this Document. West Hill, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively as the Company’s financial adviser and for no one else in connection with Admission and will not be responsible to anyone other than the Company for providing the protections afforded to customers of West Hill or for advising any other person on the contents of this Document. No representation or warranty, express or implied, is made by West Hill as to, and no liability whatsoever is accepted by West Hill in respect of, any of the contents of this Document (without limiting the statutory rights of any person to whom this Document is issued). The responsibilities of Shore Capital and Corporate Limited, as nominated adviser under the AIM Rules for Companies and the AIM Rules for Nominated Advisers, are owed solely to the London Stock Exchange. Shore Capital has not authorised the contents of, or any part of, this Document and no liability is accepted by Shore Capital for the accuracy of any information or opinions contained in this Document or for the omission of any material information. This Document does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for Ordinary Shares in any jurisdiction in which such offer or solicitation is unlawful and, in particular, is not for distribution in or into the United States, Canada, Australia or Japan. Neither the Ordinary Shares nor the Warrants have been nor will be registered under the applicable securities laws of the United States, Canada, Australia or Japan. The distribution of this Document in other jurisdictions may be restricted by law and therefore persons into whose possession this Document comes should infor m themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. In making any investment decision in respect of the Placing, no information or representation should be relied upon in relation to the Placing or in relation to the Placing Shares other than as contained in this Document. No person has been authorised to give any information or make any representation other than that contained in this Document and, if given or made, such information or representation must not be relied upon as having been authorised.

Japan Leisure Hotels Limited

KEY INFORMATION The following information is derived from and should be read in conjunction with, the full text of this Document. The Ordinary Shares are only suitable for investors who understand the potential risk of capital loss, for whom an investment in the Ordinary Shares constitutes part of a diversified investment portfolio and who fully understand and are willing to assume the risks involved in investing in the Company. Investors should not just rely on the information contained in this section. Introduction Japan Leisure Hotels Limited is a newly incorporated, Guernsey registered, closed-ended company, which has been established to assemble a significant chain of Japanese leisure hotels. The Company’s hotels will be managed by New Perspective. On Admission, the Company will complete the acquisition of a portfolio of five hotels assembled by New Perspective for a consideration of £19 million, payable by way of the issue of 38 million new Ordinary Shares. All of these hotels are currently operating as leisure hotels under the ‘Bonita’ brand, are generating attractive returns and have been valued by Colliers at approximately £21 million as at 30 November 2007. The Japan leisure hotel market caters for the significant demand for short stay hotel facilities, which arises from the lack of space and the resulting lack of privacy available to many Japanese couples. It is estimated that on any one day some 2 per cent. of the adult population of Japan visits a leisure hotel. These hotels achieve an average daily occupancy rate of over 200 per cent. creating favourable room economics. The leisure hotel sector in Japan is estimated to have annual gross revenue of more than £17 billion. The investment opportunity The Directors believe that the existing market dynamics make the leisure hotel sector attractive for potential investors. The key drivers are outlined below: Highly fragmented industry The Directors estimate that there are approximately 25,000 hotels currently operating in the leisure hotel sector. However, there are very few leisure hotel chains, with over 90 per cent. of operators owning five or fewer hotels, which has contributed to there being a wide range of quality within the sector. Consequently, the Directors believe there is significant scope for a consolidation strategy leading to economies of scale and greater efficiencies. Assets available at below replacement cost As a result of over-expansion during the late 80s and early 90s, a number of corporate operators are now in serious financial distress. In addition, the Directors believe that many private owners face succession issues and a lack of capital, such that there is a supply of assets available at below replacement cost. The Existing Portfolio was originally assembled at below replacement cost. High occupancy rates The level of demand for these hotels allows multiple room turns per day, generating good returns. At the upper end of the market, where the Existing Portfolio competes and where the Company intends to position further acquisitions, room revenues are above those of a typical international business hotel, while operating costs are on a par or below. The result is favourable comparable returns for the leisure hotel sector. Opportunity to implement professional management standards The Directors believe that many practices normally found in the hospitality sector, including inter alia customer loyalty schemes, the use of management information systems and staff training, are not typically found in the sector. Such practices have been employed in the Existing Portfolio and the intention is to introduce them to any additional hotels acquired. Investment strategy and objective The Company’s objective is to provide Shareholders with an attractive absolute return, generating a stable and growing income stream whilst also benefiting from an asset backed investment in an improving real estate environment. 2

Japan Leisure Hotels Limited New Perspective will actively seek to acquire existing leisure hotel properties in Japan, which may then be refurbished and re-branded. The opportunities that New Perspective will pursue will typically be properties located in and around large population centres in Japan. Conditions within the leisure hotel sector in Japan have created the opportunity to buy distressed or underperforming leisure hotels. This strategy has been employed by New Perspective for most of the assets within the Existing Portfolio. Following Admission, the Directors will establish a strategy committee which will be responsible for deciding whether or not to invest in new opportunities. The Strategy Committee will also determine whether or not funds generated from the financing or disposal of assets are returned to the Company or reinvested. The Strategy Committee will comprise William Hunter (chairman of the committee), Sarah Evans and Mark Huntley. Uninvested placing proceeds will be retained in Pounds Sterling and placed on deposit in banks in Guernsey or invested in money market funds. The Directors confirm that, as required under the AIM Rules for Companies, they will seek Shareholder approval of the Company’s investment strategy at each annual general meeting of the Company. Save in the case of exceptional or unforeseen circumstances, the Directors do not intend to propose any change to the Company’s investment strategy and objective. Directors The Board is chaired by Alan Clifton (chairman of JPMorgan Fleming Japanese Smaller Companies Investment Trust plc, Principle Capital Investment Trust plc and Schroder UK Growth Fund plc, and a Director of Macau Property Opportunities Fund Ltd), and also includes William Hunter (President of USA Financial Group), Sarah Evans (non-executive director of Celadon PCC) and Mark Huntley (Managing Director of Heritage International Fund Managers Limited). Asset Manager New Perspective, a company incorporated in Japan, will enter into an agreement to provide asset management services on Admission. Fees New Perspective will receive an annual management fee of 2 per cent. (reduced to 1.5 per cent. until such time as 50 per cent. of the net proceeds of the Placing have been invested) of the Net Asset Value of the Group, paid quarterly in advance. There will also be a performance fee for New Perspective in the success of the Company of 20 per cent. of total shareholder returns, subject to an annual 10 per cent. (non-compounded) hurdle rate of return. Dividends The Directors intend to make distributions of substantially all of the Company’s profits to Ordinary Shareholders through the payment of semi-annual dividends, subject to retaining sufficient cash to meet the reasonably foreseeable needs of the Company. Investors’ attention is specifically drawn to Part II of this Document headed “Risk Factors”.

Japan Leisure Hotels Limited

CONTENTS Page

PLACING STATISTICS

EXPECTED TIMETABLE

EXCHANGE RATE

DIRECTORS, ADMINISTRATOR AND ADVISERS

PART I

INFORMATION ON THE COMPANY

PART II

RISK FACTORS

PART III

INFORMATION ON JAPAN

PART IV

PROPERTY VALUATION REPORT

PART V

GROUP STRUCTURE

PART VI

TAXATION

PART VII

FINANCIAL INFORMATION

PART VIII

ADDITIONAL INFORMATION

DEFINITIONS

109

Japan Leisure Hotels Limited

PLACING STATISTICS Placing Price

50p

Number of Ordinary Shares to be placed on behalf of the Company Market capitalisation at the Placing Price on Admission

6,100,000 £22.05 million

Number of Ordinary Shares in issue on Admission

44,100,002

Number of Warrants in issue on Admission

12,420,500

Percentage of issued share capital subject to the Placing

13.83 per cent.

Gross proceeds of the Placing available to the Company

£3.05 million

Net proceeds of the Placing available to the Company

£1.915 million

EXPECTED TIMETABLE Admission and dealings in Ordinary Shares to commence on AIM

8.00 a.m. on 16 January 2008

CREST accounts credited by

8.00 a.m. on 16 January 2008

Despatch of definitive share certificates (where applicable) by

8.00 a.m. on 25 January 2008

EXCHANGE RATE The rate of exchange used for the purpose of this Document is, unless otherwise stated, £1 = Yen 230.

Japan Leisure Hotels Limited

DIRECTORS, ADMINISTRATOR AND ADVISERS Directors

Alan Clifton (Non-Executive Chairman) Sarah Evans (Non-Executive Director) William Hunter (Non-Executive Director) Mark Huntley (Non-Executive Director) all of: Polygon Hall, P.O. Box 225 Le Marchant Street, St Peter Port Guernsey GY1 4HY

Administrator, Secretary and Registered Office

Heritage International Fund Managers Limited Polygon Hall P.O. Box 225 Le Marchant Street St Peter Port Guernsey GY1 4HY

Asset Manager

Y.K. New Perspective Fukuyoshicho Bldg 7F 2-2-6 Roppongi, Minato-Ku Tokyo 106-0032, Japan

Nominated Adviser

Shore Capital and Corporate Limited Bond Street House 14 Clifford Street London W1S 4JU

Broker

Shore Capital Stockbrokers Limited Bond Street House 14 Clifford Street London W1S 4JU

Financial Adviser

West Hill Corporate Finance Limited 60 Lombard Street London EC3V 9EA

Reporting Accountant, and Tax Advisers; Auditors and Guernsey Tax Advisers

BDO Stoy Hayward LLP Emerald House, East Street Epsom, Surrey KT17 1HS

Property Valuers

Colliers International (Hong Kong) Limited Suite 5701 Central Plaza 18 Harbour Road Wanchai, Hong Kong

Legal Advisers to the Company (as to English and Japanese Law)

Ashurst LLP Broadwalk House 5 Appold Street London EC2A 2HA

Legal Advisers to the Company (as to Guernsey Law)

Ogier Ogier House St Julianâ&#x20AC;&#x2122;s Avenue St Peter Port Guernsey GY1 1WA

Solicitors to the Placing

Beachcroft LLP 10-22 Victoria Street Bristol BS99 7UD

Registrars

Capita Registrars (Guernsey) Limited 2nd Floor No.1 Le Truchot St Peter Port Guernsey GY1 4AE

BDO Novus Limited Elizabeth House St Peter Port Guernsey GY1 3LL

Ashurst Ashurst Tokyo Law Office Shiroyama Trust Tower, 30th Floor 4-3-1 Toranomon Minato-Ku Tokyo 105-6030, Japan

Japan Leisure Hotels Limited

PART I INFORMATION ON THE COMPANY 1. Introduction Japan Leisure Hotels Limited is a newly incorporated, Guernsey registered, closed-ended company, which has been established to assemble a significant chain of Japanese leisure hotels. The Company’s hotels will be managed by New Perspective. On Admission, the Company will complete the acquisition of a portfolio of five hotels assembled by New Perspective for a consideration of £19 million, payable by way of the issue of 38 million new Ordinary Shares. All of these hotels are currently operating as leisure hotels under the ‘Bonita’ brand, are generating attractive returns, and have been valued by Colliers at approximately £21 million as at 30 November 2007. The Japan leisure hotel market caters for the significant demand for short stay hotel facilities, which arises from the lack of space and the resulting lack of privacy available to many Japanese couples. It is estimated that on any one day some 2 per cent. of the adult population of Japan visits a leisure hotel. These hotels achieve an average daily occupancy rate of over 200 per cent. creating favourable room economics. The leisure hotel sector in Japan is estimated to have annual gross revenue of more than £17 billion. 2. The investment opportunity Japan Leisure Hotels represents an opportunity to gain exposure to the world’s second largest economy and its ongoing property market recovery by making investments into a property class that generates strong and stable cash flows. Japan Japan has the second largest economy in the world with gross domestic product of more than US$4.4 trillion in 2006 and a population of approximately 127 million. Following a period of economic downturn during the 1990s, the Japanese economy has been enjoying a period of recovery since 2003, when the Bank of Japan decided to abandon its typically passive approach and aggressively boosted the money supply. This move helped to weaken the Yen and assisted in a corporate recovery. Companies have repaid significant amounts of debt incurred during the 1980s and 1990s. Demand for Japanese goods from overseas, notably China, gave the initial boost to companies’ profits, which have grown for the last four years to record levels. Companies have invested much of the cash they have earned into investment to replace neglected capital stock, including factory machines, computers and buildings. Unemployment has now fallen to 3.8 per cent. Amid improved economic fundamentals, the Bank of Japan has abandoned its zero interest policy, and rates now stand at 0.5 per cent., their highest point in over eight years. The current economic expansion is forecast to continue, with annual GDP growth expected to average 2.0 per cent. in 2007. Further information on Japan is provided in Part III. Japanese property market In addition to the improving economic conditions in Japan, the Directors believe there are a variety of additional factors which support the investment case for Japanese property assets and, in particular, the leisure hotel sector, including: Low property values The real estate market endured 14 consecutive years of deflationary prices from 1990 and only started to turn in 2004. Prices are now starting to increase, albeit from a low level, and in Tokyo, for example, remain significantly below those of other major international cities such as London and New York.

Japan Leisure Hotels Limited Low cost of financing Japanâ&#x20AC;&#x2122;s present low interest rate environment offers access to low cost financing. Despite the Bank of Japanâ&#x20AC;&#x2122;s decision recently to end its zero interest rate policy, the benchmark overnight call rate remains at only 0.5 per cent. Attractive yields Yields on leisure hotel properties are more attractive than those on commercial and residential properties in Japan. The investment case for leisure hotels The Directors believe that the existing market dynamics make the leisure hotel sector attractive for potential investors. The key drivers are outlined below: Highly fragmented industry The Directors estimate that there are approximately 25,000 hotels currently operating in the leisure hotel sector. However, there are very few leisure hotel chains, with over 90 per cent. of operators owning five or fewer hotels, which has contributed to there being a wide range of quality within the sector. Consequently, the Directors believe there is significant scope for a consolidation strategy leading to economies of scale and greater efficiencies. Assets available at below replacement cost As a result of over-expansion during the late 80s and early 90s, a number of corporate operators are now in serious financial distress. In addition, the Directors believe that many private owners face succession issues and a lack of capital, such that there is a supply of assets available at below replacement cost. The Existing Portfolio was originally assembled at below replacement cost. High occupancy rates The level of demand for these hotels allows multiple room turns per day, generating good returns. At the upper end of the market, where the Existing Portfolio competes and where the Company intends to position further acquisitions, room revenues are above those of a typical international business hotel, while operating costs are on a par or below. The result is favourable comparable returns for the leisure hotel sector. Opportunity to implement professional management standards The Directors believe that many practices normally found in the hospitality sector, including inter alia customer loyalty schemes, the use of management information systems and staff training, are not typically found in the sector. Such practices have been employed in the Existing Portfolio and the intention is to introduce them to any additional hotels acquired. 3. Investment strategy and objective The Companyâ&#x20AC;&#x2122;s objective is to provide Shareholders with an attractive absolute return, generating a stable and growing income stream whilst also benefiting from an asset backed investment in an improving real estate environment. New Perspective will actively seek to acquire existing leisure hotel properties in Japan, which may then be refurbished and re-branded. The opportunities that New Perspective will pursue will typically be properties located in and around large population centres in Japan. Conditions within the leisure hotel sector in Japan have created the opportunity to buy distressed or underperforming leisure hotels. This strategy has been employed by New Perspective for most of the assets within the Existing Portfolio. Following Admission, the Directors will establish a strategy committee which will be responsible for deciding whether or not to invest in new opportunities. The Strategy Committee will also determine whether or not funds generated from the financing or disposal of assets are returned to the Company or reinvested. The Strategy Committee will comprise William Hunter (chairman of the committee), Sarah Evans and Mark Huntley. Uninvested placing proceeds will be retained in Pounds Sterling and placed on deposit in banks in Guernsey or invested in money market funds.

Japan Leisure Hotels Limited The Company is a passive investor. The Company’s investments will be made solely in leisure hotel assets in Japan however the Company will seek to invest in a broad range of assets within this class. To the extent the Company has not made an investment in accordance with its investment strategy by 31 December 2009, the Company will return the net remaining Placing proceeds to Shareholders. The Directors confirm that, as required under the AIM Rules for Companies, they will seek Shareholder approval of the Company’s investment strategy at each annual general meeting of the Company. Save in the case of exceptional or unforeseen circumstances, the Directors do not intend to propose any change to the Company’s investment strategy and objective. 4. Group structure The Company is a newly incorporated Guernsey closed-ended company. Funds raised in the Placing will be invested through wholly owned subsidiary companies of the Company, which are also Guernsey companies and which will be responsible for investing in properties in the Japanese leisure hotel sector. The hotels will be owned and operated in Japan by Japanese-based corporate entities, either a Godo Kaisha (“GK”) or a Yugen Kaisha (“YK”), which are both forms of Japanese corporations. JLH, through its wholly owned subsidiaries, will invest through these companies by entering into Tokumei Kumiai agreements (“TK Agreements”). A TK Agreement is a contractual relationship whereby one party, the “TK Investor”, agrees to contribute to the business operated by the other party, the “TK Operator”. In a TK structure, an investor provides capital to a TK Operator to undertake an agreed business and receives a share of the economic benefits of investment in the business. A TK Agreement generally provides non-Japanese investors with more favourable tax treatment than direct ownership of the assets. Together, the Group’s TK Operators are the legal owners of all of the assets of the business, including the contribution made by each TK Investor pursuant to the applicable TK Agreement. The TK Investors, as investors through TK Agreements, have no rights or obligations against or to third parties as a result of any acts of the relevant TK Operator. This serves to limit the Company’s and the TK Investors’ liability to the amount contributed. Under the TK structure being put in place for the Company, asset management services will be provided through a separate Japanese company, New Perspective, of which the directors are Stephen Mansfield and Robert Marshall. New Perspective will receive an annual management fee of 2 per cent. of the Net Asset Value of the Group (reduced to 1.5 per cent. until 50 per cent. of the net proceeds from the Placing have been invested) plus a performance fee as described in paragraph 12 of this Part I. Each TK Operator will enter into an Asset Management Agreement in the form set out in paragraph 10.3 of Part VIII of this Document and, along with New Perspective, an operation agreement in the form described in paragraph 10.4 or 10.5 of Part VIII of this Document, depending on whether the operator is Bonita Services or a third party operator. The Company has established JLH1 Limited and JLH2 Limited (which are both Guernsey registered companies) as TK Investors and proposes to establish further subsidiaries which will enter into the TK Agreements and fund the purchase by the TK Operators of the hotels as required. Through these offshore subsidiaries, the Company will be entitled to 97 per cent. of the profits and losses from the business that is the subject of the TK Agreements and be responsible for 98 per cent. of the capital commitments. Through a Delaware (USA) incorporated company, Bonita Holdings, Stephen Mansfield, Robert Marshall and certain other members of New Perspective, will be responsible for 2 per cent. of the capital commitments and will be entitled to and responsible for any residual profits or losses not paid out under the TK Agreement to the Company’s subsidiaries, after satisfying any Japanese tax liability at the TK Operator level. The terms of the TK Agreements which govern the Company’s investment in the Existing Portfolio and any new TK Investment are described in paragraph 10.1 of Part VIII of this Document. Further information on the TK structure is detailed in Part V of this Document.

Japan Leisure Hotels Limited 5. Property portfolio valuation and acquisition The Company has entered into an arrangement, conditional on Admission, pursuant to which it will acquire the respective TK Investor interests of Japan Leisure Investments LLC and Cayman National Trust Co. Limited (in its capacity as trustee of Japan Leisure Trust No 1). This arrangement will involve the assignment of these TK Investor interests (which make up the Existing Portfolio) to JLH1 Limited, a wholly owned subsidiary of the Company, in return for the issue of loan notes in JLH1 Limited. The Company will acquire the loan notes for a consideration of approximately £19 million, to be satisfied by the issue by the Company of 38 million new Ordinary Shares. The Acquisition will provide the Company with a 97 per cent. economic interest in the Existing Portfolio. The TK Operators for these properties are First Dormitory Y.K. and Y.K. K.N. Planning. Financial information on First Dormitory Y.K. and Y.K. K.N. Planning is set out in Part VII of this Document. These properties have been valued in accordance with The Royal Institution of Chartered Surveyors’ (“RICS”) Appraisal and Valuation Standards, at approximately £21 million by Colliers as at 30 November 2007. A copy of the Property Valuation Report has been reproduced in Part IV of this Document. 6. The Existing Portfolio The Existing Portfolio consists of five leisure hotels currently under the management of New Perspective. The hotels all operate at the upper end of the Japanese leisure hotel market, and all have undergone significant refurbishment since they were acquired. The cost of acquiring and refurbishing the hotels was £10.6 million and £7.6 million respectively. The hotels are operated under the “Bonita” brand and participate in the Bonita loyalty reward scheme.

Bonita Yamagata Purchase date

Feb - 2005

Reopened

Sep - 2005

No of Rooms

Bonita Sendai

Purchase date

Feb - 2006

Reopened

Dec - 2006

No of Rooms Bonita Isawa Purchase date

Mar - 2005

Reopened

Aug - 2005

No of Rooms

Bonita Komaki

Purchase date

Jan - 2005

Reopened

Apr - 2005

No of Rooms

Bonita Matsusaka Purchase date

Jun - 2005

Reopened

Dec - 2005

No of Rooms

Information on the financial performance of the Existing Portfolio is shown in paragraph 10 of this Part I. 7. Dividends to Shareholders The Directors intend to make distributions of substantially all of the Company’s profits to Ordinary Shareholders through the payment of semi-annual dividends, subject to retaining sufficient cash to meet the reasonably foreseeable needs of the Company. 8. Borrowings Following Admission, the Company intends to take advantage of the low interest rate environment in Japan and seek debt financing to support its acquisition policy with a view to enhancing shareholder returns. This may be achieved by its TK Operators borrowing against individual hotels or by the Company borrowing against its own assets. The Company intends to finance no more than 75 per cent. of the value of the Company’s portfolio at any given time through borrowings. The Company’s borrowing powers are limited by the Articles to 80 per cent. of the gross asset value of the Group. 10

Japan Leisure Hotels Limited 9. The Board of Directors The Directors, all of whom hold non-executive positions, are responsible for the overall management and control of the Company. The Directors will hold regular board meetings as well as meetings with New Perspective to review the operations of the Company. Alan Henry Clifton (aged 61), Non-Executive Chairman Alan Clifton was previously the managing director of Morley Fund Management, the asset management arm of Aviva plc, the UK’s largest insurance group. He is currently chairman of JPMorgan Fleming Japanese Smaller Companies Investment Trust plc, Principle Capital Investment Trust plc and of Schroder UK Growth Fund plc and a director of several other investment companies, including Macau Property Opportunities Fund Ltd. He also serves as a Member of The Lord Chancellor’s Strategic Investment Board. William Craig Hunter (aged 51), Non-Executive Director William is president of USA Financial Group, where he manages a portfolio of high yield and distressed real estate investments. He has a long and successful track record working in the real estate industry in a variety of functions, having most recently served as General Manager of Shinsei Bank in Tokyo, where he was responsible for managing a team of over 50 people that originated and managed a portfolio of over Yen 700 billion of real estate transactions. Prior to that he worked at six different organisations across the United States in a variety of roles focused on the real estate sector. He holds a BA from Amherst College and an MBA from Stanford University. Sarah Evans (aged 52), Non-Executive Director Sarah qualified as a Chartered Accountant and has had a successful career in a variety of accounting and finance roles. Most recently she was a Treasury Director for Barclays Group Treasury, which she left in 2001 to take a career sabbatical and devote time to fundraising for charity. In addition to having developed her own financial services consultancy, she has held senior positions with a number of other organisations including Kleinwort Benson. Sarah is a non-executive director of Celadon PCC, a Guernsey based fund of hedge funds. She is a graduate of Oxford University and a Guernsey resident. Mark Naylor Huntley (aged 49), Non-Executive Director Mark is an associate member of the Chartered Institute of Bankers (with Trustee Diploma). Presently he is Managing Director of Heritage International Fund Managers Limited, a subsidiary of the independent Guernsey based financial services group, Heritage Group Limited. He has held a number of board appointments for private, fund management and fund investment companies incorporated in Guernsey and other jurisdictions. He is a founding director of the Channel Islands Stock Exchange (“CISX”) and Chairman of the CISX Business Development Committee. Prior to joining Heritage he acquired broad experience with Baring Asset Management where he worked for 18 years. Prior to that, he held a senior trust position at The First National Bank of Chicago, where his duties included overseeing real estate portfolios, and Coutts in fiduciary services, private banking and offshore funds. He is a Guernsey resident. 10. The Asset Manager Following Admission, New Perspective, a company incorporated in Japan, will act as the Asset Manager for the Group. New Perspective’s principal place of business is Fukuyoshicho Bldg 7F, 2-2-6 Roppongi, Minato-Ku, Tokyo 106-0032, Japan. New Perspective was founded in May 2002 and started managing leisure hotels in January 2005. The directors of New Perspective are Robert Marshall and Stephen Mansfield. The relevant experience of Stephen Mansfield and Robert Marshall is set out below: Stephen Decourcey Mansfield (aged 37), Chief Executive Officer Stephen is the co-founder of New Perspective, the Asset Manager. He has been based principally in Japan since 1994 and has also worked in Hong Kong and the US. Prior to founding New Perspective, Stephen opened Citadel Investment Group’s Tokyo office and headed its Asian private investments strategy. Prior to that, he spent six years working for Credit Suisse. During the course of his career, Stephen has been registered and licensed to work in the securities business in the US, UK, Hong Kong and Japan, and is a graduate of Oxford University. 11

Japan Leisure Hotels Limited Robert Marshall (aged 43), Chief Financial Officer Robert is a qualified chartered accountant who has lived in Japan for the last 17 years. He joined New Perspective as Chief Financial Officer in 2003. Prior to that he was a partner at KPMG where he specialised in providing tax advice to foreign financial institutions in Japan, in particular on the structuring of cross-border transactions. He previously worked for Arthur Andersen. The Asset Management Agreement Following Admission, pursuant to the terms of the Asset Management Agreement described in Part VIII of this Document, New Perspective will be responsible for managing the assets of the TK Operators and for sourcing further, additional investments in accordance with the investment strategy and process described in this Document. New Perspective does not carry out any regulated activities in the UK within the meaning of FSMA or in Japan within the meaning of the Financial Instruments and Exchange Law (Law No. 25 of 1948). The responsibilities of New Perspective (in conjunction with the TK Operator) include, inter alia, the: •

provision of general management services;

•

sourcing, evaluating and recommending acquisition opportunities;

•

negotiation of the terms of any acquisitions; and

•

disposal of any hotel properties as appropriate.

Once opportunities have been identified by New Perspective, it will engage, on behalf of the TK Operator that will purchase the hotel, the services of specialist independent professionals to conduct full due diligence on the hotel(s). If the Strategy Committee of the Company approves an investment in a TK Operator, New Perspective will be responsible for negotiating the purchase of the hotel(s) and for managing and supervising third parties. The investment structure, as discussed in more detail in Part V of this Document, requires that New Perspective be appointed by each TK Operator rather than directly by the Company and New Perspective can therefore be appointed or removed only by a TK Operator. Robert Marshall is excluded by his Director’s service contract with each TK Operator from participating in any decision to enforce the TK Operator’s rights under any the Asset Management Agreement with New Perspective, or any hotel operation agreement with Bonita Services. Track Record of Asset Manager New Perspective has been managing the Existing Portfolio which will be incorporated into the Company’s portfolio of hotels on Admission. This role has entailed the sourcing and acquisition, the upgrading and refurbishment of the hotels, and the management of their day-to-day operations. In so doing, New Perspective has developed a process for sourcing, evaluating and acquiring new hotels. A summary of the performance of the portfolio is shown below: Year ended 31 December 2005

Average number of available rooms Revenue per available room per day (Yen) Total revenue (Yen million) EBITDA margin

57 10,961 228 (44%)

Year ended 31 December 2006

Six months ending 30 June 2007

180 15,658 1,029 26%

195 16,530 583 29%

Source: unaudited management accounts

Since completing refurbishment of the hotels comprising the Existing Portfolio, revenues per hotel have increased by more than 25 per cent. on average and customers per hotel have risen by over 50 per cent. on average.

Japan Leisure Hotels Limited 11. The Hotel Operator On Admission, Bonita Services LLP (Bonita Services Yugen Sekinin Jigyo Kumiai)(“Bonita Services”)(the “Hotel Operator”) will enter into Master Hotel Operation Agreements with New Perspective and each TK Operator for which it provides operator services. Bonita Services is a Japanese registered limited liability partnership of which Robert Marshall and Stephen Mansfield are partners with each having a 50 per cent. interest in the partnership. In addition to its obligations under the Master Hotel Operation Agreements, Bonita Services develops, purchases and imports a wide variety of Bonita branded goods for use in the hotels including towels, bath robes, sheets, toothbrush and toothpaste sets. Bonita Services was registered in Japan on 28 February 2006 and currently operates three of the properties in the Existing Portfolio. The other two hotels are operated by Total Produce K.K., a third party operator, pursuant to agreements described in paragraph 10.6 of Part VIII of the Document. The operation agreement for any further hotel investments not operated by Bonita Services will be in the form of the Single Hotel Operation Agreement described in paragraph 10.5 of Part VIII of this Document. Those operated by Bonita Services will be in the form of the Master Hotel Operation Agreement. Bonita Services owns the “Bonita” brand which it will license to each TK Operator pursuant to a licence agreement, further details of which are provided in paragraph 10.7 of Part VIII. The Company will have an option to purchase the brand for a consideration of £100,000. This option will be valid until the earlier of 6 years from Admission and the termination of any TK Agreement. It cannot be exercised until either one of the Master Hotel Operation Agreements has been terminated or Bonita Services has breached its obligations to maintain registration of the “Bonita” brand. 12. Fees Management Fee New Perspective will receive an annual management fee of 2 per cent. (reduced to 1.5 per cent. until 50 per cent. of the net proceeds of the Placing have been invested) of the NAV. The fee will be paid quarterly in advance by reference to the NAV and will be paid by the TK Operator in Japan, allocated according to the value of each hotel owned by each TK Operator. Performance Fee New Perspective will be entitled to a performance fee, calculated by reference to Absolute Shareholder Returns of the Company following Admission. The performance fee will be paid in cash with each TK Operator having a right to terminate if New Perspective does not apply half of the sum received to subscribe for new Ordinary Shares in the capital of the Company which the Board has agreed to issue. The payment of the performance fee is subject to two conditions: first, that the average middle market closing price of an Ordinary Share on the 30 dealing days before the last day of the relevant accounting period (also the price at which the new Ordinary Shares will be issued to New Perspective) plus any dividends and other distributions of the Company since Admission (the “Benchmark Price”) exceeds the Benchmark Price for all prior periods; and, second, that Absolute Shareholder Returns exceeds 10 per cent. per annum (cumulative non-compounded) of the subscribed ordinary share capital of the Company (the “Hurdle”). Once the Hurdle has been achieved in respect of any financial year, New Perspective will be entitled to receive a payment (the “Performance Fee”) equal to the aggregate of: i)

25 per cent. of the Hurdle or, if less, the amount by which Absolute Shareholder Returns exceed the Hurdle (the “Surplus”); and

ii)

if the Surplus exceeds 25 per cent. of the Hurdle, 20 per cent. of that excess.

Japan Leisure Hotels Limited The Performance Fee payments are cumulative and, to the extent that the Company is not able to make payment of the Performance Fee, any shortfall will be payable as part of the Performance Fee payment payable in the next financial year(s). There are provisions for a compensation payment of one year’s Asset Management fee and the Performance Fee entitlement where the Asset Management Agreement is terminated on a change of control of the Company or because the Company ceases to be listed on AIM. Further details of the operation of the Asset Management Agreement are set out in paragraph 10.3 of Part VIII of this Document. 13. Valuation policy and Net Asset Value It is the Board’s intention that the Group’s portfolio of property interests will be valued on an annual basis by external valuers. In addition, the valuation of the portfolio will be reviewed semi-annually by the Board. The annual valuation of the portfolio will be set out in the Company’s annual report and accounts. The Directors estimate that the Net Asset Value per Ordinary Share immediately following Admission (assuming that the portfolio of property interests is valued at £19 million) will be 47.4 pence. The Net Asset Value per Ordinary Share will be published on a semi-annual basis, through a Regulatory Information Service as soon as practicable after the end of the relevant period. 14. Significant Shareholders On Admission, there will be 44,100,002 Ordinary Shares in the Company in issue. Details of significant Shareholders are given below with further details in paragraph 6.2 of Part VIII of this Document.

Shareholder

Japan Leisure Investments LLC1 DKR Soundshore Oasis Holding Fund Ltd OMX Securities LLP 1

Number of Ordinary Shares held after Admission

Percentage holding following Admission

36,723,656 2,202,000 1,500,000

83.27% 4.99% 3.40%

Funds invested by DKR Oasis Management Company LP hold approximately 99.2 per cent. of the shares in Japan Leisure Investment LLC.

Following Admission, the Directors will be interested in an aggregate of 200,000 Ordinary Shares representing approximately 0.45 per cent. of the issued share capital of the Company. 15. Reason for Admission and use of proceeds The Placing is being undertaken in order to raise funds necessary to allow the Company to pursue its investment strategy. The Placing is expected to raise approximately £1.915 million after expenses at the Placing Price. 16. Details of the Placing SCS has conditionally placed, as agent for the Company, 6,100,000 Placing Shares at the Placing Price representing 13.83 per cent. of the Enlarged Share Capital. On Admission, at the Placing Price, the Company will have a market capitalisation of approximately £22.1 million. Under the Placing Agreement, SCS has agreed to use its reasonable endeavours to procure subscribers for the Placing Shares at the Placing Price and has conditionally placed all of these shares at the Placing Price with institutional and other investors. The obligations of SCS under the Placing Agreement are conditional upon, inter alia, Admission taking place by 8.00 a.m. on 16 January 2008 (or such later time and date, being not later than 8.00 a.m. on 29 February 2008, as may be agreed in accordance with the Placing Agreement). Each of SCS and the Company has the right to terminate the Placing Agreement prior to Admission in certain circumstances. If this right is exercised, the Placing will lapse. Further details of the Placing Agreement are set out in paragraph 10.11 of Part VIII of this Document. 14

Japan Leisure Hotels Limited The Company has certain responsibilities under the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, as varied and supplemented from time to time, to verify the identity of investors. A description of the current applicable identification requirements is appended to the placing letter. Failure to provide the necessary documentation may result in applications being rejected or in delays in the despatch of documents and the issue of Placing Shares. 17. Buy-back of Ordinary Shares Conditional on Admission, in the period from Admission until the Companyâ&#x20AC;&#x2122;s annual general meeting in 2008, the Directors will have Shareholder authority to make market purchases, in accordance with the Guernsey Companies (Purchase of Own Shares) Ordinance 1998, of up to 14.99 per cent. of the Ordinary Shares in issue immediately following Admission. The minimum price payable by the Company for each Ordinary Share is 1 pence and the maximum price payable is an amount equal to 105 per cent. of the average of the middle market quotations for an Ordinary Share as derived from the London Stock Exchange for the five business days immediately preceding the day on which that Ordinary Share is purchased. The Directors intend to seek renewal of this authority from Shareholders at the next annual general meeting and, thereafter, at subsequent annual general meetings. The making and timing of any buy-backs will be at the absolute discretion of the Board, except that no buy-back will be permitted during any close period or within the last 30 dealing days of any accounting period being the period in which the middle market closing price of the Ordinary Shares is used for the purpose of determining the Performance Fee for that period. Ordinary Shares may be repurchased through a subsidiary of the Company incorporated for that purpose, which, subject to solvency, is permissible under Guernsey law. The Directors intend that purchases will only be made pursuant to this authority through the market, for cash, to assist in narrowing any discount to NAV per Ordinary Share at which the Ordinary Shares may trade. Any Ordinary Shares bought back by the Company will either be held by the Company in treasury (and which may be reissued) or forthwith be cancelled. Prior to Admission, the initial shareholders of the Company passed a shareholder resolution (conditional on Admission) that the amount standing to the credit of the Companyâ&#x20AC;&#x2122;s share premium account following Admission be reduced to nil. The Directors intend to apply to the Court in Guernsey for an order confirming such cancellation of the share premium account following Admission in accordance with Guernsey law. Subject to any undertaking to be given to Court, the reserve created on such cancellation will be available as distributable profits to be used for all purposes permitted by Guernsey law, including the buy-back of Ordinary Shares. 18. Issue of new Ordinary Shares There are no provisions under Guernsey law equivalent to sections 89-95 of the UK Companies Act 1985 which confer pre-emption rights on existing shareholders in connection with the allotment of equity securities for cash. However, similar pre-emption rights have been included in the Articles. Pursuant to a shareholder resolution passed conditional on Admission, these rights have been dis-applied in respect of the Placing Shares and the Ordinary Shares to be issued pursuant to the Warrant Instrument described in paragraph 10.13 of Part VIII of this Document and Ordinary Shares issued to New Perspective in connection with the re-investment of any performance fees payable to it under the Asset Management Agreement described in paragraph 10.3 of Part VIII of this Document. Pursuant to the same resolution, the pre-emption rights have been dis-applied in respect of the allotment of up to 10 per cent. of the issued share capital of the Company immediately following Admission. The terms of this general dis-application provide, inter alia, that no Ordinary Shares will be issued for cash on a non- pre-emptive basis at a discount of more than 5 per cent. of the average middle market closing price of the Ordinary Shares on the five business days preceding issue, unless Shareholder approval by ordinary resolution is obtained. 19. Warrants For every Ordinary Share subscribed in the Placing, the Company will issue to the subscriber two Warrants. Accordingly, 12,200,000 Warrants are being issued to Placees. A further 220,500 Warrants have been issued to Shore Capital in part payment of its fees in connection with the Placing. Each Warrant will entitle the holder thereof to subscribe for one new Ordinary Share at 45 pence. The Ordinary Shares issued 15

Japan Leisure Hotels Limited on exercise of the Warrants will rank pari passu in all respects with the Ordinary Shares in issue at the date of issue of such Ordinary Shares, including the right to receive any dividend or other distribution thereafter made, declared or paid. The Company will apply for the Ordinary Shares issued on exercise of the Warrants to be admitted to AIM and will use reasonable endeavours to obtain admission thereof not later than 28 days after the relevant date of issue. The Warrants will be exercisable from 31 January 2009 until 31 January 2013. Fractions of Warrants will not be allotted. If all the Warrants were to be exercised, the Placing would raise a further £5,589,225 for the Company. The Warrants will be transferable subject to certain conditions, including that the aggregate exercise price of the Warrants being transferred must exceed £25,000. The terms of the Warrants are set out in paragraph 10.13 of Part VIII of this Document. 20. Administration, secretarial and other arrangements The Company has engaged Heritage International Fund Managers Limited as its administrator to provide administration and secretarial services to the Company, including the determination and calculation of the Net Asset Value per Ordinary Share, as set out in the Administration Agreement. Further details on the Administration Agreement are set out in paragraph 10.15 of Part VIII of this Document. With effect from Admission, Capita Registrars (Guernsey) Limited, will act as the Company’s registrar. The Registrar has been appointed by the Company pursuant to a registrar’s agreement described in paragraph 10.16 of Part VIII of this Document. 21. Lock-in Arrangements Pursuant to the Lock-In Agreement, Japan Leisure Investments, and Cayman National Trust Co. Ltd (solely in its capacity as trustee of Japan Leisure Trust No. 1) have each undertaken to the Company and SCC that, subject to certain exceptions, they will not dispose of any of their Ordinary Shares for a period of 12 months following the date of the agreement. In addition, certain Directors, New Perspective and DKR SoundShore Oasis Holding Fund Ltd have agreed not to dispose of any Ordinary Shares issued to them for a period of 12 months from their issue. 22. Admission, settlement and CREST Application has been made to the London Stock Exchange for all the Ordinary Shares to be admitted to trading on AIM. Admission of the Ordinary Shares is expected to take place on 16 January 2008. It is expected that Ordinary Shares in relation to the Placing Shares will be delivered into CREST on 16 January 2008 and that share certificates if applicable for the Placing Shares will be despatched by the Registrar no later than 25 January 2008. CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a certificate and transferred otherwise than by written instrument. The Articles contain certain provisions concerning the transfer of shares, which are consistent with the transfer of shares in dematerialised form in CREST under the CREST Regulations. Application has been made to Euroclear for the Company’s Ordinary Shares to be enabled for settlement through CREST. Accordingly, settlement of transactions in the Ordinary Shares following Admission may take place within the CREST system if relevant Shareholders so wish. CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain share certificates will be able to do so. 23. Life of the Company The Company has been incorporated with an unlimited life, but in accordance with the Articles, the Directors are obliged to propose an ordinary resolution at the annual general meeting of the Company in respect of the financial year ending 31 December 2012 and every two years thereafter that the Company should continue as presently constituted. If the resolution is not passed, the Directors will formulate proposals to be put to Shareholders to reorganise or reconstruct the Company to be wound-up.

Japan Leisure Hotels Limited 24. Running costs and expenses The Company or the applicable TK Operators that the Company invests in will bear all fees and out-ofpocket expenses properly incurred by New Perspective, the Administrator and the Registrar. In addition, the Company will meet all of its own costs and expenses, including aborted transaction fees, the remuneration of those Directors for whom fees are payable and their expenses and the costs of all employees, advisers and consultants acting in the performance of the Company’s business, commissions, banking fees, legal expenses, insurance costs, regulatory fees, acquisition and disposal fees, auditors’ fees, listing costs and the costs of distribution of reports and accounts and other documentation to Shareholders. 25. Corporate governance As a company to be admitted to AIM, the Company is not required to comply with the Combined Code. However, the Directors will take appropriate measures to ensure that the Company complies with the Combined Code to the extent they consider to be appropriate and taking into account the size of the Company and the nature of its business. The Company will comply with all provisions of the Companies Law to the extent that the same are applicable and relevant to the Company’s activities. In particular, each Director will seek to act in accordance with the “Code of Practice - Company Directors” issued by the Guernsey Financial Services Commission, whether or not the same is directly applicable to the Director in question. The Company has established an audit committee and a strategy committee, each of which has formally delegated responsibilities. The audit committee comprises Sarah Evans (Chair of the committee), Alan Clifton and Mark Huntley. The audit committee is responsible both for ensuring that the financial performance of the Company is properly reported on and monitored and for reviewing the auditor’s reports relating to accounts and internal control systems. The Strategy Committee, comprising William Hunter (Chairman of the committee), Sarah Evans and Mark Huntley, will decide whether or not to invest in new opportunities and also whether or not funds generated from the financing or disposal of assets are returned to the Company or reinvested. The Company has adopted a code similar to the Model Code, for Directors’ dealings in securities of the Company, which is appropriate for a company quoted on AIM. The Directors will also comply with Rule 21 of the AIM Rules relating to Directors’ dealings. 26. Meetings, reports and accounts The Company will hold an annual general meeting each year. The annual reports and accounts of the Company will be made up to 31 December in each year with copies sent to Shareholders within the following six months. Unaudited interims for the six months to 30 June will be announced through a Regulatory Information Service. The first financial period of the Company will cover the period from incorporation to 31 December 2007. The audited accounts of the Company will be prepared under International Financial Reporting Standards. The annual accounts of the Company will be published in Yen. 27. Taxation Information regarding United Kingdom and Guernsey taxation for potential Shareholders is set out in Part VI of this Document. The Company will apply for tax-exempt status in Guernsey. 28. Risk factors The Company’s business is dependent on many factors and potential investors are advised to read the whole of this Document, and in particular Part II entitled “Risk Factors”. 29. Additional information Your attention is drawn to the additional information in Parts II to VIII of this Document. 17

Japan Leisure Hotels Limited

PART II RISK FACTORS An investment in the Company’s Ordinary Shares involves a high degree of risk. Accordingly, prospective investors should carefully consider the specific risk factors set out below in addition to the other information contained in this Document before investing in the Ordinary Shares. The Directors consider the following risks and other factors to be most significant for potential investors in the Company, but the risks listed below do not necessarily comprise all those associated with an investment in the Company and are not set out in any particular order of priority. Additional risks and uncertainties not currently known to the Directors may also have an adverse effect on the Company’s business. If any of the risk scenarios envisaged below occur, the Company’s business, financial condition, capital resources, results or future operations could be materially adversely affected. In such a case, the price of the Ordinary Shares could decline and investors may lose all or part of their investment. RISKS RELATING TO THE COMPANY’S BUSINESS AND STRUCTURE The Company is a new company with no operating history The Company is newly incorporated and has no operating history. There can be no assurance that the Company’s investment objective or the dividend and other projections set out in the Document will be achieved. TK structure The TK structure is integral to the Company’s strategy. Following the Acquisition, the Company (through subsidiaries established for the purpose) will be party to four TK agreements in relation to the Existing Portfolio and it intends to enter into further TK Agreements in pursuit of its investment objective. Under these TK Agreements, it will, directly or indirectly, contribute capital to TK Operators and be entitled to a specified return but at no time will it hold any interest in or voting or other rights over the equity capital of the TK Operators or be able to influence or otherwise control their business or operations. The Company’s return from the operation of the hotels held by the TK Operators will be governed by the terms of the TK Agreement; the operation of the hotels will be governed by the terms of the Asset Management Agreements, the Master Hotel Operation Agreements or other operator agreements to which the Company will not be party. Consequently, the only rights and remedies available to the Company in respect of the operation of the underlying assets will be pursuant to the terms of the TK Agreement. Statements in this Document concerning the taxation of the Company and its investments and the taxation of Shareholders are based upon current tax law and practice which is subject to change. This TK structure has been adopted with a view to maximising investors’ returns. The structure has been adopted by other companies, but there can be no guarantee that it will not be challenged by the Japanese or any other tax authorities and there can be no guarantee that the tax rates will remain unchanged. Any successful challenge to the structure and any resulting structural amendments could adversely affect the Company’s ability to achieve its investment objectives and, therefore, the Company’s ability to pay dividends to its Shareholders. Risks associated with the Asset Manager The investment results of the Company will be reliant upon, amongst other things, the success of New Perspective. New Perspective has been managing a relatively small portfolio of hotels (the Existing Portfolio) to date and has only a limited operating history upon which its performance and prospects may be evaluated. There can be no guarantee that New Perspective will be able to replicate this success on a larger scale and the past performance of New Perspective is not necessarily indicative of the future performance of the Company. 18

Japan Leisure Hotels Limited New Perspective is reliant on the services of a small number of key personnel and, in particular, Stephen Mansfield and Robert Marshall. If New Perspective lost the services of these or other key employees without being able to recruit suitable replacements, this could adversely affect the Company’s ability to achieve its investment objectives and, therefore, the Company’s ability to pay dividends to its Shareholders. New Perspective will be entitled to receive payment of certain performance fees, the amount of which will depend upon the relative success of the Company’s investments. Such performance fees may create an incentive for New Perspective to propose investments that are riskier or more speculative than would be the case if such performance fees were not payable to New Perspective. This may have an adverse effect on the Company’s ability to achieve its investment objectives. The Asset Management Agreement can be terminated by either party at the end of its initial 6 year term. If the Company wishes to terminate the Asset Management Agreement other than as it is entitled to do under its terms, New Perspective will become entitled to the fees it would have received had it remained adviser until the next date on which the Asset Management Agreement could be validly terminated. The success of the TK Operators is subject to the risk that New Perspective will terminate the Asset Management Agreement and no suitable replacement will be found or will exist. Reliance on the operators The underlying hotel assets will be operated by operators pursuant to the hotel operating agreements. These agreements, to which the Company is not party, contain limited termination rights. The Company’s investment return will therefore be dependant to a significant extent on the quality of the service provided by the operators and on the operators fulfilling their obligations under the operating agreements. Any default by an operator in carrying out its obligations under an operating agreement or any failure by the TK Operators or New Perspective to enforce the terms of such operation agreement may result in reduced revenue for the underlying assets and may damage the Company’s goodwill. The Company intends to increase the size of its underlying asset portfolio and, as the number of hotels under management grows, the Company’s dependence on its operator(s) will also grow. In addition, as the portfolio grows, the New Perspective may find it harder to exert the degree of financial and quality control that has historically been exerted. This and other factors may result in the operators failing to perform to the standard which the Company and New Perspective require, resulting in lost customers and revenue. Any such events could adversely affect the Company’s ability to achieve its investment objectives and, therefore, the Company’s ability to pay dividends to its Shareholders. Substantial fees payable regardless of profit The Company will be obliged to pay a range of fees and costs, including the fees of the TK Operator which include fees charged by New Perspective (together with its out-of-pocket expenses properly incurred), the Administrator and the Registrar. These expenses will be payable regardless of the Company’s performance. In addition, it is likely that the Company will incur substantial transaction costs (including abort fees) in the process of expanding its investment portfolio by acquiring interests in further leisure hotels. These transaction fees will be borne by the Company or the TK Operator(s) in which the Company has invested. There can be no assurance that the payment of these transaction costs will provide any positive return for the Company and there is the risk that it will result in reduced profits for the Company which could adversely affect the Company’s ability to pay dividends to its Shareholders. Borrowing risks It is intended that the Company and/or the TK Operators may have recourse to bank finance as part of the Company’s investment strategy. There is a risk that, for reasons including difficult market conditions and negative sentiment towards the leisure hotel sector, it will not be possible to obtain debt financing or that the financing terms offered to the Company will be unfavourable. In such circumstances the

Japan Leisure Hotels Limited Company would not be able to leverage the portfolio to the extent intended. Such borrowings may also expose the Company to fluctuations in interest rates as interest rate increases may increase the liabilities of the borrower in question. The Company intends that each TK Operator will purchase one or more hotel properties. Where the TK Operators use bank borrowings to purchase properties, the repayment of such borrowings will be secured against the properties. It is likely that a loan secured on one property will also be secured by a mortgage on one or more of the other properties. There is therefore a risk that the poor performance of one property could lead to cross default and jeopardise the solvency of the TK Operator as a whole. The Company may use a TK Agreement as collateral when arranging financing facilities. If, for whatever reason, the Company was unable to meet its obligations under such an arrangement, there is a risk that the Company could lose the rights to any distributions under that TK Agreement. Any of these factors could have a negative impact both on the Company’s ability to acquire hotels, and hence on the Company’s ability to achieve its investment objective, and its ability to pay dividends. Japanese economic conditions Changes in economic conditions in Japan (for example, rates of deflation, inflation, rates of tax, industry conditions, regulatory protection, competition, political and diplomatic events and other factors) or adverse economic conditions in Japan could substantially and adversely affect the Company’s prospects and returns. One factor which has affected Japan in recent years is the phenomenon of deflation. Deflation limits domestic spending as it reinforces a reluctance to consume. Currency risk The Company does not intend to convert the net proceeds of the Placing into Yen immediately, but will do so as becomes necessary to finance the acquisition of new hotels or to cover expenses incurred. The Company anticipates that predominantly all revenues earned and most expenses incurred will be denominated in Yen. The price of Ordinary Shares will be quoted in Sterling and any dividends declared will be paid in Sterling. The Directors do not intend to implement a currency hedging policy. The Group’s Net Asset Value and the amount of income available for distribution will therefore be affected by movements in Yen against Sterling which may result in the Group’s Net Asset Value or funds available for distribution to Shareholders as dividends being reduced. This may have an adverse effect of the Company’s ability to pay dividends to Shareholders. Forward-looking statements This Document includes statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “intends”, “may”, “will”, or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts and include statements regarding the Company or Asset Manager’s intentions, beliefs or current expectations. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, the factors described in this risk factors section. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this Document reflect the Company’s and/or New Perspective’s view with respect to future events as at the date of this Document and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company’s operations and strategy. Save as required by law, the Company has no obligation to release publicly the results of any revisions to any forward-looking statements in this Document that may occur due to any change in its expectations or to reflect events or circumstances after the date of this Document.

Japan Leisure Hotels Limited RISKS RELATING TO LEISURE HOTEL PROPERTY INVESTMENT General property investment risks Investments, including any refurbishments and renovations, by the Company will be subject to the risks inherent in the ownership and operation of property and property related business and assets. Risks include those associated with the general economic climate, losses or damages arising from the hotels’ dealings with the public, local property conditions, changes in supply of, or demand for, properties, various uninsured or uninsurable risks, natural disasters, government regulations, changes in property taxes and interest rates. As a result, a downturn in the property sector or the materialisation of any one or a combination of the aforementioned risks could materially and adversely affect the Company and, accordingly, returns to Shareholders. Many of the Company’s investments will be illiquid and there can be no assurance that the Company will be able to realise financial returns on such investments in a timely manner. Partial or completed sales, transfers, or other dispositions of investments which may result in a return of capital or the realisation of gains, if any, are generally not expected to occur for a number of years after an investment is made. Competition In seeking to expand its portfolio of underlying assets, the Company may face competition from other hotel operators or investment groups. Such competing investors may benefit from greater resources, relationships within the leisure hotel sector or expertise. The actions of such competing investors may result in the supply of available assets being reduced or the price of acquisition of any given asset being increased. These and other factors may result in the rate of expansion being limited and the cost to the Company of its investment strategy being increased. In addition, the Company’s hotels face competition from other operators or hotels (both established players and any future entrants to the market), which may result in price competition which adversely affects the Company’s profitability. These risks may result in the Company being unable to achieve its investment objectives and have an adverse effect of the Company’s ability to pay dividends to Shareholders. Cost base The TK Operators have a relatively high fixed cost base. If the hotels which they hold experienced a reduction in customers for any reason, there can be no assurance that the TK Operators would be able substantially to reduce their cost bases. In addition, the TK Operators are exposed to increases in operating costs due to inflation, labour costs, utility costs, insurance and unanticipated costs and other factors which the TK Operators may not be able to offset via increased room rates. The TK Operators must also finance modernisation, refurbishment and maintenance costs which may be significant. The TK Operators are reliant on cash flow from the business to enable them to fund the various costs described in this paragraph. The unavailability of the necessary cash flow or the obligation to pay costs in excess of those provided for in the Company’s projections may adversely affect the TK Operators’ profitability which could result in the Company being unable to pay dividends to Shareholders. Demand for leisure hotel rooms The demand for hotel rooms is affected by a wide range of factors including: •

prevailing economic conditions which may affect a customer’s ability to afford a hotel room;

•

the availability of rooms of a similar specification in other hotels;

•

the construction of new leisure hotels;

•

changing trends for particular travel destinations and patterns of travel; and

•

seasonal variation.

Factors such as seasonality may also lead to fluctuations in the Company’s results. The results for any one standalone period should not be relied upon as an indicator of future performance. 21

Japan Leisure Hotels Limited Any of these factors could negatively impact upon the profits of the underlying hotel assets. If demand is reduced for any reason, the revenue of the TK Operators may be reduced which would have an adverse effect on the Company’s ability to pay dividends. Change of regulatory environment The hotel sector in Japan has come under increasing scrutiny from the regulatory authorities in recent years as a result of several incidents involving falsification of documentation. Further changes to the regulatory environment and, in particular, a tightening of the regulatory regime which applies to the Company’s underlying hotel assets could have an adverse effect on the Company’s business and restrict its ability to operate going forward. This could adversely affect the Company’s ability to achieve its investment objective and, therefore, the Company’s ability to pay dividends to its Shareholders. Environmental liabilities As an investor in property assets, the Company is exposed to risks associated with contaminated land and other environmental liabilities. There can be no guarantee that the Company will not have to pay unexpected costs of remedying damages or fines for environmental pollution on properties in which the Company has an interest and this could have an adverse effect on the Company’s revenue and, hence, its ability to pay dividends to Shareholders. Earthquakes and other uninsured risks In some areas of Japan, earthquake risks are either uninsurable or prohibitively expensive to insure. Japan has a relatively high frequency of earthquakes but New Perspective does not currently intend to obtain specific earthquake insurance in respect of the underlying assets as it considers that the insurance cover available for the type of properties in which it invests does not provide a fair reflection of the replacement costs involved, relative to the risk of earthquake occurrence and damage. Insurance in respect of war, acts of terrorism and other natural phenomena such as tsunamis and volcanic eruptions is also either unavailable or prohibitively expensive. If an earthquake or other event occurred which caused uninsured damage to one of the Company’s underlying assets, the associated losses could have a material adverse effect of the Company’s revenue and its assets. Disposal Risks If New Perspective decides to dispose of one of the underlying hotel assets, there can be no assurance that there will be a ready market for such an asset or that it would be possible to sell such asset at a profitable price or at all. Such an outcome would adversely affect the Company’s ability to achieve its investment objective and its ability to pay dividends. RISKS RELATING TO THE ORDINARY SHARES AND AIM Investment in AIM securities It may be more difficult for an investor to realise his or her investment on AIM than to realise an investment in a company whose shares or other securities are quoted on the Official List. The AIM Rules for Companies are less demanding than those of the Official List. An investment in a share that is traded on AIM is likely to carry a higher risk than an investment in a share quoted on the Official List. The market for the Company’s Ordinary Shares may be highly volatile and subject to wide fluctuations in response to a variety of factors, which could lead to losses for Shareholders. These factors include, amongst others, the following: changes in the Japanese tax regime; additions or departures of key personnel at New Perspective; and adverse press, newspaper and other media reports. Market value of Ordinary Shares Shareholders should be aware that the value of the Ordinary Shares may be volatile and may go down as well as up and Shareholders may therefore not recover any or all of their original investment, especially as the market in Ordinary Shares on AIM may have limited liquidity.

Japan Leisure Hotels Limited There can be no assurance that the market value of the Ordinary Shares in the capital of the Company will reflect their underlying Net Asset Value. Stock markets have from time to time experienced extreme price and volume volatility which, in addition to general economic and political conditions, could adversely affect the market price for Ordinary Shares. Since the Ordinary Shares have not previously traded, their market value is uncertain. There can be no assurance that the market will value the Ordinary Shares at or above the Placing Price or the Net Asset Value per Ordinary Share. Following Admission, the market price of the Ordinary Shares may be volatile and may go down as well as up and investors may therefore be unable to recover their original investment. The Companyâ&#x20AC;&#x2122;s operating results and prospects from time to time may be below the expectations of market analysts and investors. At the same time, share market conditions may affect the Ordinary Shares regardless of the operating performance of the Company. Share market conditions are affected by many factors, such as general economic outlook, movements in or outlook on interest rates and inflation rates, currency fluctuations, commodity prices, changes in investor sentiment towards particular market sectors and the demand for and supply of capital. Accordingly, the market price of Ordinary Shares may not reflect the underlying value of the Companyâ&#x20AC;&#x2122;s investments, and the price at which investors may dispose of their Ordinary Shares at any point in time may be influenced by a number of factors, only some of which may pertain to the Company while others may be outside the Companyâ&#x20AC;&#x2122;s control. Future issues of Ordinary Shares could be dilutive It may be necessary, at some future time, for the Company to issue additional Ordinary Shares to fund the growth plans of the Company. Any such issue would dilute the interests of Shareholders and could impact upon the price of the Ordinary Shares. In addition, the exercise of Warrants will further increase the Ordinary Shares in issue which may dilute the interests of Shareholders. Limited regulatory control The holders of Ordinary Shares will not enjoy any protections or rights other than those reflected in the Articles and those rights conferred by law. Neither the Listing Rules of the UK Listing Authority nor the Combined Code will apply to the Company except as voluntarily adopted. Guernsey law The Company is a limited liability company incorporated under the Companies Law. Guernsey law does not make a distinction between private and public companies and some of the protections and safeguards that investors may expect to find in relation to a public company under English law are not provided for under Guernsey law. Investors should therefore consider carefully whether investment in the Company is suitable for them, in view of the risk factors outlined above and the information contained in this Document, their personal circumstances and the financial resources available to them.

Japan Leisure Hotels Limited

PART III INFORMATION ON JAPAN

Background Japan lies off the east coast of Asia. It consists of a string of islands that stretches for approximately 1,500 miles (2,400 km) through the western Pacific Ocean. Most of the land area is taken up by the country’s four main islands; from north to south these are Hokkaido, Honshu, Shikoku, and Kyushu. Honshu is the largest of the four, followed in size by Hokkaido, Kyushu, and Shikoku. In addition, there are numerous smaller islands, the major groups of which are the Ryukyu (Nansei) Islands (including the island of Okinawa) to the south and west of Kyushu and the Izu, Bonin (Ogasawara), and Volcano (Kazan) islands to the south and east of central Honshu. The national capital, Tokyo in east-central Honshu, is one of the world’s most populous cities. Japan has the tenth largest population in the world at 127 million. Its population density of 339 inhabitants 2 per km is the highest within the OECD. In addition, the mountainous nature of the country has resulted in Japan being highly urbanised, with 77 per cent. of the population living in urban areas. This combination of high population density and urbanisation means Japan has an exceptionally high urban population 2 2 density of 4,800 inhabitants per km , significantly greater than that of Europe (3,050 per km ) or the USA 2 (1,150 per km ). Political situation Japan’s Diet (parliament) consists of the House of Representatives, and the less powerful House of Councillors. The House of Representatives has 480 members (300 from single seat constituencies and 180 from regional proportional representation blocks); the House of Councillors has 242 members (146 from prefecture-based multimember constituencies, and 96 from a national PR list.). Members of the House of Representatives are elected for a four year term, but the Prime Minister can call an election at his discretion. Members of the House of Councillors serve a fixed six year term, with half of the seats contested every three years. The last general election (House of Representatives) was held on 11 September 2005; the next must be held by September 2009. The last House of Councillors election took place on 29 July 2007. The conservative Liberal Democratic Party (LDP) has ruled Japan for most of its post-war history. The current coalition was formed in April 2000 between the LDP and New Komeito. The main opposition party is the “centrist” Democratic Party of Japan (DPJ). The current Prime Minister is Yasuo Fukuda who took up the position on 25 September 2007 following the resignation of the Shinzo Abe.

Japan Leisure Hotels Limited Macroeconomics The post-war Japanese economy experienced tremendous growth, expanding ten-fold from 1955 to 1990, and allowed living standards to catch up and surpass those of established Western economies. A number of factors, including low interest rates, banking deregulation and sudden appreciation of the yen, resulted in a stock market and real-estate bubble in the late 1980s. At the end of 1989 the bubble burst; since then stock prices have fallen as much as 75 per cent. and the value of commercial land in Tokyo is down 85 per cent. The economy then stagnated for more than a decade due to sluggish consumption and weak investment as excesses from the 1980s unwound and Japan adjusted to Asian industrialisation and globalisation. A particular hindrance was under-performing loans that prolonged the life of the weakest companies and hampered economic recovery. Through the 1990s, the Government utilised huge fiscal and monetary stimuli to try to initiate an economic recovery. In more recent times, there has been a greater focus on structural reforms in the corporate and public sectors to lift Japan out of its economic malaise. That the economy is recovering strongly is no longer in doubt. The current expansion has now lasted as long as the longest previous expansion, which ended in 1970. Booming exports and business investment and solid growth in private consumption have been driving this, but increasingly, the domestic private sector has taken over from exports as the main driver for growth. The economy is now as close to achieving self-sustaining growth as it has been at any time since 1990. Unemployment has now fallen to 3.8 per cent. Amid improved economic fundamentals, the Bank of Japan has abandoned its zero interest policy, and rates now stand at 0.5 per cent., their highest point in over eight years. The current economic expansion is forecast to continue, with annual GDP growth expected to average 2.0 per cent. in 2007. Sources The above information is taken from websites of the Foreign and Commonwealth Office, Encyclopaedia Britannica, CIA World Factbook, the Economist Intelligence Unit Limited, the Bank of Japan, the (Japanese) Ministry for Internal Affairs and Communications, Demographia and the United Nations.

Japan Leisure Hotels Limited

PART IV PROPERTY VALUATION REPORT

Colliers International (Hong Kong) Suit 5701 Central Plaza 18 Harbour Road Wanchai Hong Kong Tel 852 2828 9888 Direct 852 2822 0686 Fax 852 2107 6017 David.faulkner@colliers.com The Directors Shore Capital and Corporate Limited Bond Street House 14 Clifford Street London W1S 4JU The Directors Japan Leisure Hotels Limited Polygon Hall P.O.Box 225 Le Marchant Street St Peter Port Guernsey GY1 4HY 10 January 2008 To whom it may concern, VALUATION OF FIVE PROPERTIES IN JAPAN 1 1.1

Instructions In accordance with your instructions for us to assess the market value of five properties to be acquired by Japan Leisure Hotels Limited located in Japan. We confirmed that we have made relevant enquiries and obtained such further information, as we consider necessary to provide you with our opinion of the market value of these properties as at 30 November 2007 (the “Valuation Date”).

1.2

This “Valuation Report” has been prepared for the purpose of inclusion in the Admission Document to be issued in respect of the admission of shares in Japan Leisure Hotels Limited to trade on AIM.

2 2.1

The Properties The Properties we have valued are briefly described in Schedules 1 to 5 (together, the “Schedules”) attached to this Valuation Report. Each property identified in the Schedules has been valued individually, and not as part of a portfolio.

3 3.1

Basis of Valuation Our valuation is on the basis of the market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.” 26

Japan Leisure Hotels Limited 3.2

Furthermore, the valuation has been carried out in accordance with the Guidance Notes on the Valuation of Property Assets published by the Hong Kong Institute of Surveyors and the Appraisal and Valuation Manual published by the Royal Institution of Chartered Surveyors.

4 4.1

Valuations We have valued the Properties on the basis that each of them is considered individually. We have not allowed any discount for the Properties being sold to one party nor taken into account any effect on the values if the Properties were offered for sale at the same time as a portfolio.

4.2

We have assessed the Market Value of the Properties by the Income Capitalisation Approach assuming such property interests are capable of being sold in their existing state and by reference to comparable sales evidence as available in the relevant market. The Income Capitalisation Approach is defined in the International Valuation Standards Committee (7th Edition), as a financial modeling technique based on explicit assumptions regarding the prospective cash flow to operating real properties. This analysis involves the projection of a series of periodic cash flows to an operating property. To this projected cash flow series, an appropriate discount rate is applied to establish an indication of the present value of the rental income stream associated with the properties. In the case of operating real properties, periodic cash flow is typically estimated as gross income less vacancy and operating expenses and other outgoings. The series of periodic net operating incomes, along with an estimate of the reversionary or terminal value, anticipated at the end of the projection period, is then discounted at the discount rate, being a cost of capital or a rate of return used to convert a monetary sum, payable or receivable in the future, into present value. We have undertaken a discounted cash flow analysis on a yearly basis over a 10 year investment horizon. The net income in the year 11 is capitalised at an appropriate yield for the residual land use rights term. This analysis allows an investor or owner to make an assessment of the long term return that is likely to be derived from a property with a combination of both rental and capital growth over the residual land use rights term. This analysis is generally used in valuing investment income producing properties.

4.3

Our Valuations are exclusive of any VAT.

4.4

We have assumed a ¥/£ exchange rate of 230.

4.5

The aggregate value of the Properties as at 30 November 2007 is £20.88 million, made up as follows:

The Properties

Market value as at 30 November 2007 ¥ million £ million

1. 2. 3. 4. 5.

516.57 534.43 971.38 418.49 2,360.39

2.25 2.32 4.22 1.82 10.26

4,801.26

20.88

Bonita Isawa, located in Yamanashi Prefecture, Fuefuki City, Japan Bonita Komaki, located in Aichi Prefecture, Komaki City, Japan Bonita Matsusaka located in Mie Prefecture, Matsusaka City, Japan Bonita Yamagata located in Yamagata Prefecture, Higashine City, Japan Bonita Sendai located in Miyagi Prefecture, Sendai City, Japan

Total

5 5.1

Assumptions and Sources of Information Our valuation has been made on the assumption that the Properties would be sold in the open market in their existing state, without the benefit of deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which could affect the values of the Properties.

5.2

We have relied upon the floor areas provided by Y.K. New Perspective (“New Perspective”), the asset manager of the Properties. We assume that all areas provided for the Properties are complete and correct.

5.3

In preparation of our valuation, we have assumed that:27

Japan Leisure Hotels Limited

5.4

(a)

good and alienable title to the land use rights of the Properties can be proved to be free from any unduly onerous or unusual covenants, restrictions or outgoings; and that the permitted plot ratios and uses conform to that adopted by us in this valuation;

(b)

there are no easements or rights of way affecting the Properties;

(c)

the Properties are free from and clear of any and all charges, liens and encumbrances of any onerous or unusual nature likely to affect the value thereof;

(d)

all the Properties are able to be disposed of freely to local and overseas purchasers and

(e)

the Properties are to be delivered with immediate vacant possession; and

No allowance has been made in our valuation for any charges, mortgages or amounts owing on the Properties valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the Properties are free from encumbrances, restrictions and outgoings of any onerous nature which could affect their values. We have relied to a considerable extent on the information provided by New Perspective and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, occupation, lettings, rentals, site and floor areas and all other relevant matters.

Plant and Machinery 5.5 In our valuation, all the plant and machinery such as lifts, air conditioning and other normal service installations have been treated as an integral part of each property and are included in our valuation. No specialist tests have been carried our on any of the services systems and, for the purpose of our valuations, we have assumed that all are either in good working order and in compliance with any relevant statute, by-law or regulation. 5.6

We have had no reason to doubt the truth and accuracy of the information provided to us by New Perspective. We have also sought and received confirmation from New Perspective that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

Environmental Investigation and Ground Conditions 5.7 We have not ourselves undertaken any environmental investigations, for contamination or otherwise, and we have no had sight of any environmental reports. 5.8

We have therefore assumed in our valuations that there are no abnormal ground conditions, nor archaeological remains present, which might adversely affect the present or future occupation, development or value or any of the Properties.

Town Planning and Statutory Requirements We have not made any planning enquires but have relied upon the information provided by New Perspective. For the purposes of our valuation we assume that there are no adverse town planning, highways or other schemes or proposals that will have a detrimental effect on our valuation. 5.9

For the Properties we have assumed that all relevant planning consents and building permits exist for the Properties and their respective present or proposed uses.

5.10 We have assumed that all buildings currently comply with all statutory and local authority requirements including building, fire and health and safety regulations. Inspections 5.11 We have accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, completion date of the buildings, particulars of occupancy and site and floor areas. Dimensions, measurements and areas included in the valuation certificates attached are based on information provided to us and are therefore only an approximation.

Japan Leisure Hotels Limited 5.12 We have inspected the Properties externally and we have not carried out investigations on site to determine the suitability of ground conditions and services for future development and we assumed no liability on these aspects. 5.13 Unless otherwise stated, we have not been able to carry out on-site measurements to verify the site and floor areas of the Properties and we have assumed that the areas shown on the documents handed to us are correct. Building Structure 5.14 We were not instructed to carry out structural surveys for the purpose of this Valuation and have assumed that there are not and will not be any structural or latent defects within the Properties. We have assumed that no known deleterious or hazardous materials have been or are being utilised in the construction of any of the Properties. 6 6.1

Land Matters We have conducted relevant land searches from the Land Registry. However, we have neither examined the original documents to verify the ownership nor to ascertain the existence of any amendments, which do not appear on the copies, handed to us and we have assumed no responsibility for such matters.

7 7.1

Responsibilities For the purposes of Paragraph(a) of Schedule Two of the AIM Rules for Companies we are responsible for this report as part of the Admission Document and declare that we have taken all reasonable care to ensure that the information contained in this report is to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Admission Document in compliance with Schedule Two of the AIM Rules for Companies.

Yours faithfully,

For and on behalf of Colliers International (Hong Kong) Limited

David Faulkner BSc (Hons) FRICS FHKIS RPS(GP) MAE Regional Director Valuation and Advisory

R. Keith Humphreys FRICS Director Valuation and Advisory

Japan Leisure Hotels Limited

Schedule 1 Market value as at 30 November 2007 ¥ million £ million

Property

Description and tenure

1. Bonita Isawa, Yamanashi Prefecture, Fuefuki City, Japan (“the Property”)

The Property is a 5 storey hotel with 29 car parking spaces available on ground floor, which was completed in 1992.

516.57

2.25

The Property has a site area of about 1,547.99 sq.m. and a total gross floor area of approximately 1,233.37 sq.m. The breakdown of the Gross Floor Area is as follows: 1/F: 2/F: 3/F: 4/F: 5/F:

291.98 sq.m. 235.43 sq.m. 235.43 sq.m. 235.43 sq.m. 235.43 sq.m.

The hotel is operated by Bonita Services LLP The Property is owned by First Dormitory Y.K. Notes: 1.

All the data about the income from the operation of the hotels (including rooms, food & beverage and other income and expenses) is based on the information provided by New Perspective.

Japan Leisure Hotels Limited

Schedule 2 Market value as at 30 November 2007 ÂĽ million ÂŁ million

Property

Description age and tenure

1. Bonita Komaki, located in Aichi Prefecture, Komaki City, Japan

The Property is a 5 storey hotel with 32 car parking spaces available on ground floor, which was completed in 1995.

534.43

2.32

The Property has a site area of about 522 sq.m. and a total gross floor area of approximately 1,487.74 sq.m. The Breakdown of the GFA is as follows: 1/F: 2/F: 3/F: 4/F: 5/F: B1/F:

293.71 sq.m. 343.31 sq.m. 340.09 sq.m. 340.09 sq.m. 114.96 sq.m. 55.58 sq.m.

The hotel is operated by Total Produce KK The Property is owned by First Dormitory Y.K. Notes: 1.

All the data about the income from the operation of the hotels (including rooms, food & beverage and other income and expenses) is based on the information provided by New Perspective.

Japan Leisure Hotels Limited

Schedule 3 Market value as at 30 November 2007 ÂĽ million ÂŁ million

Property

Description age and tenure

1. Bonita Matsusaka located in Mie Prefecture, Matsusaka City, Japan

The Property is a 4 storey hotel with 42 car parking spaces available on ground floor, which was completed in 1984.

971.38

4.22

The Property has a site area of about 2,836.6 sq.m. and a total gross floor area of approximately 4,875.25 sq.m.. The breakdown of the Gross Floor Area is as follows: 1/F: 2/F: 3/F: 4/F:

1,747.63 sq.m. 1,042.54 sq.m. 1,042.54 sq.m. 1,042.54 sq.m.

The hotel is operated by Total Produce KK The Property is owned by First Dormitory Y.K. Notes: 1.

All the data about the income from the operation of the hotels (including rooms, food & beverage and other income and expenses) is based on the information provided by New Perspective.

Japan Leisure Hotels Limited

Schedule 4 Market value as at 30 November 2007 ÂĽ million ÂŁ million

Property

Description age and tenure

1. Bonita Yamagata located in Yamagata Prefecture, Higashine City, Japan

The Property is a 4 storey hotel with 27 car parking spaces available on ground floor, which was completed in 1987.

418.49

1.82

The Property is comprised 5 parcels of land with a total site area of about 1,616.26 sq.m. and a total gross floor area of approximately 1,343.69 sq.m. The Breakdown of the site area is as follows: Street No. 56: Street No. 92: Street No. 86: Street No. 158: Street No. 214:

1,064.44 sq.m. 156.19 sq.m. 65.90 sq.m. 69.20 sq.m. 260.57 sq.m.

The breakdown of the Gross Floor Area is as follows: 1/F: 2/F: 3/F: 4/F:

280.08 sq.m. 341.00 sq.m. 341.00 sq.m. 289.54 sq.m.

The hotel is operated by Bonita Services LLP The Property is owned by Y.K. KN Planning Notes: 1.

All the data about the income from the operation of the hotels (including rooms, food & beverage and other income and expenses) is based on the information provided by New Perspective.

Japan Leisure Hotels Limited

Schedule 5 Market value as at 30 November 2007 ÂĽ million ÂŁ million

Property

Description age and tenure

1. Bonita Sendai located in Miyagi Prefecture, Sendai City, Japan

The Property comprises a 3 storey hotel and a 9 storey hotel with 30 car parking spaces available in an automatic car parking building, which was completed in 1987 and 1976 respectively.

2,360.39

10.26

The Property has a site area of about 822.04 sq.m. and a total gross floor area of approximately 3,502.18 sq.m. The breakdown of the Gross Floor Area is as follows: 3 storey Building: 1/F: 182.87 sq.m. 2/F: 182.87 sq.m. 3/F: 175.07 sq.m. 9 storey Building: 1/F: 410.66 sq.m. 2/F: 318.95 sq.m. 3/F: 318.95 sq.m. 4/F: 318.95 sq.m. 5/F: 318.95 sq.m. 6/F: 318.95 sq.m. 7/F: 318.95 sq.m. 8/F: 318.95 sq.m. 9/F: 318.06 sq.m. The hotel is operated by Bonita Services LLP The Property is owned by First Dormitory Y.K.

Notes: 1.

All the data about the income from the operation of the hotels (including rooms, food & beverage and other income and expenses) is based on the information provided by New Perspective.

Japan Leisure Hotels Limited

PART V GROUP STRUCTURE The Company is a new Guernsey registered closed-ended company. Funds will be held through a series of intermediary companies (which will be Guernsey registered wholly owned subsidiaries of the Company) and will be responsible for investing in hotel properties in the Japanese leisure hotel sector through the structure outlined below. The hotels will be owned and operated in Japan by Japanese corporate entities (described as “TK Operators” in the diagram below). Conditional upon Admission, the Company, through the intermediary companies referred to above (described as “TK Investors” in the diagram below), will invest by entering into a Tokumei Kumiai agreement (“TK Agreement”) with each TK Operator. A TK Agreement is a contractual agreement provided for under Article 535 to 542 of Japan’s Commercial Code. Under a TK Agreement, the TK Investor contributes capital to the business of another party, the TK Operator. In the case of the Company’s investment, the TK Operators will take the form of Yugen Kaisha (“YK”) or Godo Kaisha (“GK”), which are both forms of Japanese corporations. The profits and losses are divided between the parties in accordance with the terms of the relevant TK Agreement. In this case, capital contributions by the Company (through the TK Investors) and Bonita Holdings LLC (“Bonita Holdings”) the owner of the TK Operators, will be 98 per cent. and 2 per cent. respectively and distributions will be split as to 97 per cent. to the TK Investors and the residual to the TK Operators. Together, the TK Operators are the legal owners of all of the assets of the business, including the contribution made by each TK Investor pursuant to the applicable TK Agreement. In addition, the TK Investors, as investors in TK Agreements, have no rights or obligations with respect to third parties as a result of any acts of the relevant TK Operator. This serves to limit the Company’s liability to the amount contributed.

Ownership Contractual

TK Structure In a Tokumei Kumaiai (“TK”) structure the TK Investor provides capital to a business which is defined by the applicable TK Agreement (the “TK Business”) and is conducted by a TK Operator, which carries on such TK Business entirely in its own name and under its sole control in accordance with the terms of the TK Agreement entered into between them. The TK Operator is responsible for the management of the TK Business. 35

Japan Leisure Hotels Limited An investor under a TK Agreement does not own any equity capital in the TK Operator and has no voting rights in relation to the TK Operator or the TK Business. Instead, there is only a contractual relationship between the TK Operator and the TK Investor. The TK Investor is generally entitled to a proportional share of the profits and losses of the business of the TK Operator. Depending on the express terms of the TK Agreement, the liability of the TK Investor can be limited to the amount of its initial investment. The net effect of these contractual arrangements under Japanese tax law is that the TK Investor is subject to tax in Japan on a distribution of its share of the profits of the TK Business even though the business is conducted and relevant assets are held in the name of the TK Operator. The TK Operator reports the amount of profits to which the TK Investor is entitled as a deduction in computing its taxable income. TK Investors The TK Investors are companies registered in Guernsey and will be responsible for contributing capital contributions provided by the Company to the TK Operator. According to the terms of the TK Agreement, the TK Investor will not have the right to make any business decisions with respect to the business of the TK Operator. In addition, the TK Investor will neither own any equity capital nor will it have any voting rights in relation to the TK Operator. In return, the TK Investor will be liable only up to the amount of its capital contributions and will, therefore, not incur any right or obligation toward third parties with respect to the TK Business. However, the TK Investor will be entitled to 97 per cent. of the profits (and losses) from the TK Business that is the subject of the TK Agreement. Based on the current Japanese tax law, distributions of profits will be subject to Japanese withholding tax at the rate of 20 per cent. for non-Japanese investors. TK Operators The TK Operators will be Japanese companies that will receive capital contributions from the relevant TK Investor and in turn will be responsible for the operation of the TK Business. Under the terms of the applicable TK Agreement, operation of the TK Business is defined as the purchase, operation and disposal of leisure hotels in Japan. The TK Operator will be entitled to only residual profits (and losses) of the TK Business after allocation to the TK Investor. In addition, all rights and obligations towards third parties arising from the activities of the TK Operator will belong to the TK Operator. Financial information on the TK Operators of the Existing Portfolio is set out in Part VII of this Document. TK Agreements The terms of the TK Agreements which, following Admission, will govern the Companyâ&#x20AC;&#x2122;s investment in the Existing Portfolio, together with any future hotel acquisitions, is set out in paragraph 10.1 of Part VIII of this Document. Asset Manager Each TK Operator will execute an agreement with New Perspective. Conditional upon Admission, New Perspective will be responsible for managing the assets of the TK Operators in accordance with the Asset Management Agreement described in paragraph 10.3 of Part VIII of this Document, and in accordance with investment strategy and process described in this Document. New Perspective will receive an annual management fee of 2 per cent. (reduced to 1.5 per cent. until 50 per cent. of the net proceeds of the Placing have been invested) of the NAV of the Company. There will also be a performance fee for New Perspective subject to an annual 10 per cent. (cumulative non-compounded) hurdle rate of return. The basis of this fee is set out in paragraph 10.3 of Part VIII. The Hotel Operator The Hotel Operator will enter into a Master Hotel Operation Agreements with New Perspective and each TK Operator (other than the TK Operators which will continue to contract with Total Produce for the provision of operation services). Under the terms of the Master Hotel Operation Agreements, the

Japan Leisure Hotels Limited Hotel Operator will be responsible for the operation of three out of five of the hotels in the Existing Portfolio. The Hotel Operator will be entitled to a fee equivalent to 4 per cent. of the revenue of the hotels that it operates. Bonita Holdings LLC Bonita Holdings is a Delaware incorporated company which owns 100 per cent. of the equity and voting rights in the TK Operators. Bonita Holdings will contribute sufficient capital to the TK Operators to enable the TK Operators to meet their capital commitments under the TK Agreements. Bonita Holdings will be entitled to the after tax profits (and losses) of the TK Operators. Such distributions will be subject to Japanese withholding taxes. The shareholders of Bonita Holdings are Reflexion (Labuan) Ltd (47.5 per cent.), a company controlled by Stephen Mansfield, PGE Research K.K. (42.5 per cent.), Kumiko Sudo (5 per cent.) and Robert Marshall (5 per cent.). Further Investments Further investments may take place either through the existing TK Agreements, or through new TK Agreements, which may involve the formation of new TK Investors. The TK Operator for any new TK Agreement would also enter into an asset management agreement with New Perspective in the form set out in paragraph 10.3 of Part VIII of this Document and a new operating agreement either with Bonita Services (in the form of the Master Hotel Operation Agreement described in paragraph 10.4 of Part VIII of the Document) or with a third party operator (in the form of the Single Hotel Operation Agreement described in paragraph 10.5 of Part VIII of this Document).

Japan Leisure Hotels Limited

PART VI TAXATION The following information is based on the law and practice currently in force in Guernsey and the UK. The information is general only; it is not exhaustive and does not constitute legal or tax advice. If potential investors are in any doubt as to their taxation position, they should consult their professional adviser. Investors should note that tax law and interpretation can change and that, in particular, the levels and bases of, and reliefs from, taxation may change and that changes may alter the benefits of investment in the Company. Guernsey taxation The Company The Company will apply for exempt status for Guernsey income tax purposes under the Income Tax (Exempt Bodies) (Bailiwick of Guernsey) Ordinance 1989. Under the provisions of the Ordinance exemption is granted by the Administrator of Income Tax on an annual basis provided the Company continues to comply with the requirements of the Ordinance and upon payment of an annual fee which is currently fixed at £600. The Company will not be liable to Guernsey income tax other than on Guernsey source income (excluding, by concession, Guernsey bank deposit interest). It is the intention of the Directors to conduct the affairs of the Company so as to ensure that it retains such status, which is granted on an annual basis. In response to the review carried out by the European Union Code of Conduct Group the States of Guernsey decided on 30 June 2006 that from 1 January 2008: (a)

certain regulated business (i.e. specified banking activities) will be subject to income tax at 10 per cent.;

(b)

the basic rate of income tax on all other companies will be zero per cent.;

(c)

resident individuals will continue to pay income tax at 20 per cent. on assessable income; and

(d)

“wealth taxes” such as inheritance and capital gains taxes will not be introduced.

In addition, the Treasury and Resources Department were directed to investigate a system of goods and services tax and to prepare enabling legislation. Accordingly, the Company should continue to be taxed at zero per cent. However, it is anticipated that open and closed-ended collective investment schemes, such as the Company, will continue to apply for exempt status. Dividends and interest paid to non-residents of Guernsey by schemes with exempt status are regarded as having their source outside of Guernsey and are not subject to Guernsey income tax. Guernsey does not levy taxes upon capital inheritances, capital gains (with the exception of a dwellings profit tax), gifts, sales or turnover, nor are there any estate duties save for an ad valorem fee for the grant of probate or letters of administration. Document duty is payable at the rate of one half of one per cent. (subject to a minimum of £50 and a maximum of £5,000) on the nominal value of the Company’s authorised share capital payable on incorporation and on any subsequent increase in the nominal value of the authorised share capital. No stamp duty is chargeable in Guernsey on the issue, transfer, switching or redemption of Ordinary Shares. Shareholders Shareholders resident for income tax purposes in Guernsey are liable to income tax on the amount of the dividends received. No deduction will be made from any dividend payable to any such taxpayer, however such taxpayer will be liable to income tax at the standard rate of 20 per cent. The Company is required to make a return to the Administrator of Income Tax on an annual basis, when renewing the Company’s exempt tax status, of the names, addresses and gross amounts of dividends paid to Guernsey resident Shareholders during the previous year. No deduction will be made from any dividend payable to any Shareholder not resident for income tax purposes in Guernsey and who does not carry on business in Guernsey through a permanent establishment situated therein. Such dividends may be paid and received free of Guernsey income tax. 38

Japan Leisure Hotels Limited European Union Directive on the Taxation of Savings Income Guernsey is not subject to the European Union Directive on the Taxation of Savings Income. However, it has introduced a retention tax system in respect of payments of interest, or other similar income, made to an individual beneficial owner registered in an EU member state by paying agents situated in Guernsey. Alternatively, the individual is entitled to request a paying agent not to retain tax, but instead apply a system by which the details of such payments are communicated to the tax authorities of the EU member state in which the beneficial owner is resident. Under the terms of bilateral agreements entered into by Guernsey with the 27 member states, interest payments may include distributions from the proceeds of shares or units in certain collective investment schemes which are equivalent to a UCITS. Guidance notes on the implementation of the agreements (issued by the States of Guernsey) indicate that the Company is not equivalent to a UCITS. Accordingly, any such payments will not be subject to the EU Savings Tax Directive. UK taxation The following summary, outlines certain aspects of current legislation and Revenue practice in the United Kingdom regarding the ownership and disposition of Ordinary Shares. On 9 October 2007, the Chancellor of the Exchequer outlined certain tax proposals which it is intended will come into effect from 6 April 2008. These proposals include the introduction of a flat rate of capital gains tax, the abolition of taper relief and introduction of an annual tax for certain non-domiciled individuals wishing to continue to use the remittance basis in relation to non-UK source income and gains. As at the time of drafting this summary in early January 2008, draft legislation and further detail relating to these proposals, including any modifications, had yet to be published. The summary below is based on tax law and practice currently in force. The Company It is the intention of the Directors to conduct the affairs of the Company so that the central management and control of the Company is not exercised in the United Kingdom and so that the Company does not carry out any trade in the United Kingdom (whether or not through a permanent establishment situated there) or elsewhere. On this basis, the Company will not be resident in the United Kingdom for taxation purposes and should not be liable for United Kingdom taxation on its income and gains. UK Shareholders Shareholders who are resident in the United Kingdom for tax purposes may, depending on their circumstances, be liable to United Kingdom income tax or corporation tax on dividends paid by the Company and capital gains tax or corporation tax on a disposal of Ordinary Shares. The following statements refer to a Shareholder who acquires and holds the Ordinary Shares as an investment. Dividends (a) Dividends received by a Shareholder who is an individual resident and domiciled in the United Kingdom for taxation purposes will be chargeable to income tax. Such a Shareholder is not entitled to a tax credit in the United Kingdom in respect of a dividend received from the Company. For such Shareholders who are liable to income tax at the starting or basic rates, dividends received from the Company will be liable to income tax at the dividend ordinary rate, currently 10 per cent. of the dividend paid. For such individual Shareholders who are liable to income tax at the higher rate, dividends received from the Company will be subject to income tax at the dividend upper rate, currently 32.5 per cent. of the dividend paid. (b)

Dividends received by a Shareholder who is an individual resident but not domiciled in the United Kingdom for taxation purposes will be chargeable to income tax in the same manner, but only to the extent that the dividend is directly or indirectly remitted to the UK by the Company or the Shareholder, subject to the above noted proposals for changes to the remittance basis of taxation for non-domiciled individuals. Shareholders who are not familiar with the concepts of domicile and remittance may wish to seek professional advice.

(c)

A UK resident corporate Shareholder will be liable to corporation tax at ordinary rates on the dividend paid. Again, such a Shareholder is not entitled to a tax credit in the United Kingdom in respect of a dividend received from the Company. 39

Japan Leisure Hotels Limited Capital gains (a) In the case of Shareholders who are individuals resident or ordinarily resident and domiciled in the United Kingdom capital gains tax may be payable on a disposal of Ordinary Shares. Capital gains tax is charged at ordinary income tax rates, and therefore the maximum rate is currently 40 per cent. As noted above it is proposed to introduce a flat rate of capital gains tax of 18 per cent. as from 1 April 2008. Individual Shareholders are entitled to an annual exemption from capital gains. For the 2007/2008 tax year this is £9,200. Such shareholders are not entitled to indexation relief against their taxable capital gains. Under current rules they can, however, be entitled to taper relief, which reduces the amount of taxable capital gain depending on the length of time for which the Shareholder has owned the Ordinary Shares disposed of. The taxable capital gain is reduced to a percentage of itself ranging from 95 per cent. if the Ordinary Shares have been held for three years to 60 per cent. if the Ordinary Shares have been held for ten or more years. The Company is not expected to be a trading company, and it is unlikely, therefore, that the (more generous) business taper relief will be available. As noted above, it is proposed to abolish taper relief with effect from 1 April 2008. (b) In the case of Shareholders who are individuals resident or ordinarily resident but not domiciled in the United Kingdom, capital gains tax may be payable on a disposal of Ordinary Shares in the same way, but only to the extent that the gain is directly or indirectly remitted to the United Kingdom, subject to the above noted proposals for changes to the remittance basis of taxation for non-domiciled individuals. (c)

A UK resident corporate Shareholder will be liable to corporation tax at ordinary rates on capital gains on a disposal of Ordinary Shares. Indexation relief is available to reduce the taxable capital gain.

Interest relief Shareholders who are individuals who borrow for the purpose of acquiring Ordinary Shares will not be entitled to relief for UK taxation for their interest paid. However, UK resident corporate shareholders which borrow will be entitled to relief subject to the various rules of the loan relationships legislation. Stamp duty and stamp duty reserve tax There will be no UK stamp duty reserve tax on the issue or transfer of Ordinary Shares. There will be no UK stamp duty on the issue of the Ordinary Shares. If a transfer of shares is signed in, or later brought to, the United Kingdom, in certain circumstances the transfer will be a stampable document (stamp duty is 0.5 per cent. of the price), but in practice it is likely only to be on rare occasions that the transfer will need to be stamped. Other tax provisions (a) The Directors intend to manage the Company’s affairs such that it should not be regarded as a collective investment scheme for the purposes of section 235 Financial Services and Markets Act 2000. On that basis a shareholding in the Company should not be a material interest in an offshore fund for the purposes of sections 757 et seq of the Income and Corporation Taxes Act 1988 (the “Taxes Act”). On that basis, gains realised on such holdings should not be subject to tax as income under that legislation. (b) A UK resident corporate Shareholder who, together with connected or associated persons, is entitled to at least 25 per cent. of the Ordinary Shares should note the provisions of the controlled foreign companies legislation contained in sections 747 et seq of the Taxes Act. (c) The attention of individuals ordinarily resident in the United Kingdom is drawn to the provisions contained in Chapter 2, Part 13 of the Income Tax Act 2007, which may render such individuals liable to tax on the income of the Company (taken before any deduction for interest) in certain circumstances. In addition, the attention of persons resident, and in the case of individuals domiciled, in the United Kingdom, is drawn to the provisions of section 13 of the Taxation of Chargeable Gains Act 1997 which can attribute capital gains realised by the Company to Shareholders with, broadly, more than a 10 per cent. holding in the Company. Non-UK Shareholders Shareholders who are not resident (and in the case of capital gains tax, not ordinarily resident) in the United Kingdom, and do not carry on a trade, profession or vocation through a branch or agency in the United Kingdom with which the Ordinary Shares are connected, will not normally be liable to United Kingdom taxation on dividends from, or capital gains arising on the sale or other disposal of, their shares. 40

Japan Leisure Hotels Limited Individual Savings Accounts and Personal Equity Plans Ordinary Shares in the Company will not be eligible to be held in the stocks and shares component of an ISA or an existing PEP. Registered Pension Schemes Ordinary Shares in the Company are eligible to be held in a registered pension scheme. Japanese taxation The Company The TK Investor, as a non-resident of Japan, is generally subject to a 20 per cent. withholding tax applicable to actual distributions of profit. The TK Operator, will be subject to Japanese corporate income taxes at the effective tax rate of approximately 42 per cent. for its net income derived from the TK Business, including operating income and capital gains from the disposition of real properties. However, in determining its taxable income, the TK Operator should be entitled to claim a deduction for income allocated to the TK Investor (or alternatively include as income any allocated losses). Accordingly, a portion of the income earned by the TK Operator from the TK Business attributed to the TK Operator will be subject to normal Japanese corporate income taxes at the effective rate of approximately 42 per cent., while the portion attributed to the TK Investor will be subject to Japanese withholding tax at the rate of 20 per cent. when actually distributed, which is the final tax on the TK Investor in Japan. Transaction taxes assessed on acquiring and holding real properties by the TK Operator consist primarily of the following: (a)

Acquisition of real properties: (i) The acquisition of real properties will be subject to real estate acquisition tax (fudosan shutoku zei) at the rate of 3.5 per cent.1 of the assessed value2 (determined for fixed asset tax purposes) of the real property. The rate of 3 per cent. will increase to 4 per cent. for acquisitions on or after April 1, 2009. (ii)

The registration for the transfer of ownership of the real properties will be subject to registration and license tax (touroku menkyo zei) at the rate of 1 per cent.3 and 2 per cent. of the assessed value of land and buildings, respectively.

(iii) The transfer of real properties (other than land) will be subject to consumption tax (shohi zei; a Japanese VAT) at the rate of 5 per cent. on the sale price of real properties. Provided the TK Operator does not elect a taxable status, the TK Operator will be considered an exempt entity for consumption tax purposes for the first two years after the incorporation. To the extent it is treated as such, the consumption tax paid will not be recoverable, but the consumption tax collected need not be paid to the government. (b)

Holding the real properties: (i) The TK Operator will be subject to the fixed assets tax (kotei shisan zei) and city planning tax (toshi keikaku zei) at the rate of 1.4 per cent. and 0.3 per cent., respectively, on the taxable bases of the real properties. The taxable base and the tax liabilities will be calculated by the municipality based on the adjusted value of the real properties. (Although holding of land is normally subject to the special tax on land holdings (tokubetsu tochi hoyuu zei) and the land value tax (chika zei), both of these taxes are currently suspended for an indefinite period.) (ii)

Rental fees of real properties (except for residential properties) are subject to consumption tax at the rate of 5 per cent. Rental fees of residential properties are exempt from consumption tax.

Notes: 1

The rate applicable to residential properties is 3 per cent. for acquisitions made by March 31, 2008 and will increase to 4 per cent. for subsequent acquisitions.

The taxable base of the land portion acquired by March 31, 2009 is reduced by 50 per cent.

The reduced rate of 1 per cent. is applicable for registrations made by March 31, 2008. There is a proposal, which is subject to approval by the national Diet to extend this rate to March 31, 2009 after which the rate would increase in annual increments to a full rate of 2 per cent. from 1 April, 2009.

Japan Leisure Hotels Limited

PART VIIA FINANCIAL INFORMATION ON THE COMPANY A – Accountant’s report on the Company BDO Stoy Hayward LLP Emerald House East Street Epsom KT17 1HS

BDO Stoy Hayward Chartered Accountants The Directors Japan Leisure Hotels Limited Polygon Hall P.O.Box 225 Le Marchant Street St Peter Port Guernsey GY1 4HY

10 January 2008

Shore Capital & Corporate Limited Bond Street House 14 Clifford Street London W1S 4JU Dear Sirs Japan Leisure Hotels Limited (the “Company”) Introduction We report on the financial information set out in Section B of Part VIIA. This financial information has been prepared for inclusion in the admission document of the Company (the “Admission Document”) dated 10 January 2008 on the basis of the accounting policies set out in the financial information in Section B of Part VIIA of the Admission Document. This report is required by paragraph (a) of Schedule Two of the AIM Rules for Companies and is given for the purpose of complying with that paragraph and for no other purpose. Responsibilities As described in Section B of Part VIIA of the Admission Document, the directors of the Company are responsible for preparing the financial information on the basis of preparation set out in note 1 to the financial information and in accordance with applicable law and International Financial Reporting Standards (“IFRS”) as adopted by the European Union and Article 4 of the IAS Regulation. It is our responsibility to form an opinion on the financial information as to whether the financial information gives a true and fair view, for the purposes of the Admission Document, and to report our opinion to you. Save for any responsibility arising under paragraph (a) of Schedule Two of the AIM Rules for Companies to any person as and to the extent there provided, to the fullest extent permitted by the law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Schedule Two of the AIM Rules for Companies consenting to its inclusion in the Admission Document.

Japan Leisure Hotels Limited Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entityâ&#x20AC;&#x2122;s circumstances, consistently applied and adequately disclosed. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error. Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. Opinion In our opinion, the financial information gives, for the purposes of the Admission Document, a true and fair view of the state of affairs of the Company as at the date stated in accordance with the basis of preparation set out in note 1 to the financial information and has been prepared in accordance with IFRS as adopted by the European Union and Article 4 of the IAS Regulation as described in note 1 to the financial information. Declaration For the purposes of Paragraph (a) of Schedule Two of the AIM Rules for Companies we are responsible for this report as part of the Admission Document and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Admission Document in compliance with Schedule Two of the AIM Rules for Companies. Yours faithfully BDO Stoy Hayward LLP Chartered Accountants

Japan Leisure Hotels Limited B – Financial information on the Company Responsibility The directors of the Company are responsible for preparing the financial information set out below on the basis of preparation set out in note 1 to the financial information and in accordance with applicable law and International Financial Reporting Standards (“IFRS”) as adopted by the European Union and Article 4 of the IAS regulation. Balance sheet as at 31 October 2007 £

Current assets Amounts receivable

Net assets

Share capital and reserves Called up share capital (note 2) Share premium account

— 2

Shareholders’ funds – equity (note 2)

Notes to the financial information 1

Accounting policies The financial information has been prepared in accordance with IFRS, as adopted by Article 4 of the IAS regulation and IFRIC interpretations issued by the International Accounting Standards Board. The financial information has been prepared under the historical cost convention. The accounting policies have been applied in the financial information presented below. The Company was incorporated as Japan Leisure Hotels Limited on 17 October 2007. Between the date of incorporation and 31 October 2007, the Company did not trade, nor did it receive any income, incur any expenses or pay any dividends. Consequently no income statement is presented.

Share capital As at 31 October 2007 Number

Authorised Ordinary Shares of 1 pence each Allotted, called up and fully paid Ordinary shares of 1 pence each

160,000,000

1,600,000

0.02

The Company was incorporated with an authorised share capital of 160 million ordinary shares of 1 pence each. On incorporation two ordinary shares of 1 pence each were issued for cash at a subscription price of £1 per ordinary share. 3

Related parties Bonita Holdings is a related party of the Company because a Director of the Company, Mr Mansfield, is the principal shareholder of Bonita Holdings, which owns the equity interest in First Dormitory and KN Planning. Mr Mansfield is a director of the latter two companies. New Perspective and Bonita Services are related parties of the Company because Mr Mansfield is a Director of the Company and a major shareholder in both New Perspective and Bonita Services and will be a shareholder in the Company.

Events after the balance sheet date New Perspective is to be appointed the asset manager to the Group under an agreement the details of which are set out in paragraph 10.3 of Part VIII.

Japan Leisure Hotels Limited Bonita Services is to be appointed the hotel operator for the new properties acquired by the Group. New Perspective will also be a party to this agreement, the details of which are set out in paragraph 10.4 of Part VIII. Bonita Services has agreed to enter into a trademark licence agreement with each TK Operator for the use of certain trademarks owned by Bonita Services. The details are set out in paragraph 10.7 of Part VIII. A call option deed will be entered into between the Company and Bonita Services, whereby Bonita Services grants the Company a call option to purchase the trademark for ÂŁ100,000, subject to certain conditions. The details are set out in paragraph 10.8 of Part VIII. On 7 January 2008 JLH1 Limited, a wholly owned subsidiary of the Company, entered into agreements, conditional on Admission, to acquire the interests in the TK agreements held between the TK Investors and First Dormitory YK and Y.K. KN Planning from the TK Investors for ÂŁ19 million, satisfied by the issue of loan notes to the TK Investors. The details are set out in paragraph 10.9 of Part VIII. The Company intends to acquire the loan notes from the TK Investors in exchange for the issue of 38 million shares in the Company. Completion of both transactions is conditional upon Admission.

Japan Leisure Hotels Limited

PART VIIB FINANCIAL INFORMATION ON FIRST DORMITORY A – Accountant’s report on First Dormitory BDO Stoy Hayward LLP Emerald House East Street Epsom KT17 1HS

BDO Stoy Hayward Chartered Accountants The Directors Japan Leisure Hotels Limited Polygon Hall P.O. Box 225 Le Marchant Street St Peter Port Guernsey GY1 4HY

10 January 2008

The Directors Shore Capital & Corporate Limited Bond Street House 14 Clifford Street London W1S 4JU Dear Sirs First Dormitory Yugenkaisha (“First Dormitory”) Introduction We report on the financial information set out in Section B of Part VIIB. This financial information has been prepared for inclusion in the admission document of Japan Leisure Hotels Limited (the “Company”) dated 10 January 2008 (the “Admission Document”) on the basis of the accounting policies set out in note 1 to the financial information. This report is required by paragraph (a) of Schedule Two of the AIM Rules for Companies and is given for the purpose of complying with that paragraph and for no other purpose. Responsibilities As described in Section B of Part VIIB, the directors of the Company are responsible for preparing the financial information on the basis of preparation set out in note 1 to the financial information and in accordance with applicable law and International Financial Reporting Standards (“IFRS”) as adopted by the European Union and Article 4 of the IAS Regulation. It is our responsibility to form an opinion on the financial information as to whether the financial information gives a true and fair view, for the purposes of the Admission Document, and to report our opinion to you. Save for any responsibility arising under paragraph (a) of Schedule Two of the AIM Rules for Companies to any person as and to the extent there provided, to the fullest extent permitted by the law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Schedule Two of the AIM Rules for Companies consenting to its inclusion in the Admission Document.

Japan Leisure Hotels Limited Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entityâ&#x20AC;&#x2122;s circumstances, consistently applied and adequately disclosed. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error. Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. Opinion In our opinion, the financial information gives, for the purposes of the Admission Document, a true and fair view of the state of affairs of First Dormitory as at the dates stated and of its results and cash flows for the periods then ended in accordance with the basis of preparation set out in note 1 to the financial information and has been prepared in accordance with IFRS, as adopted by the European Union and Article 4 of the IAS Regulation, as described in note 1 to the financial information. Declaration For the purposes of Paragraph (a) of Schedule Two of the AIM Rules for Companies we are responsible for this report as part of the Admission Document and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Admission Document in compliance with Schedule Two of the AIM Rules for Companies. Yours faithfully BDO Stoy Hayward LLP Chartered Accountants

Japan Leisure Hotels Limited B – Financial information on First Dormitory Responsibility The directors of the Company are responsible for preparing the financial information set out below on the basis of preparation set out in note 1 to the financial information and in accordance with applicable law and International Financial Reporting Standards (“IFRS”), as adopted by the European Union and Article 4 of the IAS Regulation. Income statements

Notes

Year ended 31 December 2005 2006 ¥’000 ¥’000

Six months ended 30 June 2007 ¥’000

Revenue

192,200

926,697

525,479

Total revenue

192,200

926,697

525,479

(46,213) (56,576) (22,669) (163,848) (289,306)

(126,785) (234,317) (110,000) (353,553) (824,655)

(67,096) (125,591) (68,776) (183,641) (445,104)

Raw materials and consumables Employee benefits cost Depreciation and amortisation Other expenses Total expenses Net gain on sale of tangible assets

—

(Loss)/profit on operations

(97,106)

Finance income – other interest

4,461

(Loss)/profit before taxation

(92,645)

Corporate tax expense

(Loss)/profit for the period Attributable to: Equity shareholders TK investors Earnings per share – basic and diluted

18 18 10

(70)

18,312

—

120,354

80,375

197

120,551

80,448

(70)

(35)

(92,715)

120,481

80,413

457,222 (549,937)

38,517 81,964

11,771 68,642

(92,715)

120,481

80,413

642

196

7,620

Japan Leisure Hotels Limited Balance sheets Notes

Non-current assets Intangible assets – software Property, plant and equipment Consumption tax receivable over one year Deposits with suppliers

11 12

Total non-current assets Current assets Inventory Trade and other receivables Cash and cash equivalents Total current assets

13 14 15

TOTAL ASSETS Current liabilities Trade and other payables Current tax liabilities Total current liabilities

Non-current liabilities Guarantee deposits received Total non-current liabilities

As at 31 December 2005 2006 ¥’000 ¥’000

— 2,158,603 — 20

1,320 3,435,277 13,642 3,220

1,094 3,517,061 — 3,220

2,158,623

3,453,459

3,521,375

12,666 141,413 544,125 698,204

10,016 35,136 131,270 176,422

15,446 52,756 224,680 292,882

2,856,827

3,629,881

3,814,257

(182,083) (122) (182,205) (10,000) (10,000)

TOTAL LIABILITIES

(192,205)

TOTAL NET ASSETS

As at 30 June 2007 ¥’000

(83,107) (70) (83,177) — — (83,177)

(187,105) (35) (187,140) — — (187,140)

2,664,622

3,546,704

3,627,117

Paid up capital Retained earnings

17 18

3,000 454,990

3,000 493,507

3,000 505,278

EQUITY ATTRIBUTABLE TO SHAREHOLDERS TK investors’ reserve

18 18

457,990 2,206,632

496,507 3,050,197

508,278 3,118,839

TOTAL EQUITY

2,664,622

3,546,704

3,627,117

Japan Leisure Hotels Limited Cash flow statements

Notes

Cash flows from operating activities (Loss)/profit before taxation Adjustments for: Depreciation Amortisation Interest income Interest expense Net gain on sale of tangible assets Changes in working capital Changes in trade and other receivables Changes in inventory Changes in trade and other payables

Year ended 31 December 2005 2006 ¥’000 ¥’000

Six months ended 30 June 2007 ¥’000

(92,645)

120,551

80,448

22,669 — (4,461) — —

109,962 38 (197) — (18,312)

68,550 226 (73) — —

(74,027) (12,666) 31,196 (55,497)

106,277 2,650 18,175 127,102

(17,620) (5,430) 40,840 17,790

Cash (absorbed by)/generated from operations Interest paid Interest received Tax paid

(129,934) — 4,461 —

339,144 — 197 (122)

166,941 — 73 (70)

Net cash (absorbed by)/generated from operating activities

(125,473)

339,219

166,944

Cash flow from investing activities Purchase of land Purchase and renovation of buildings Purchase of furniture and fittings Purchase of IT software Deposits with suppliers Net cash used in investing activities

(368,497) (1,389,765) (288,305) — 21,980 (2,024,587)

Cash flows from financing activities Proceeds from TK investors Proceeds from disposal of assets Guarantee deposits received/repaid Repayment short-term loans Distribution to TK investors Net cash generated from financing activities

2,429,498 — 10,000 — — 2,439,498

Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

(469,721) (1,256,573) (22,945) (1,358) (3,200) (1,753,797)

975,001 250,122 (10,000) — (213,400) 1,001,723

— (15,212) (58,322) — — (73,534)

— — — — — —

289,438

(412,855)

93,410

254,687

544,125

131,270

544,125

131,270

224,680

Japan Leisure Hotels Limited Notes to the financial information 1 Accounting Policies The financial information has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and Article 4 of the IAS Regulation and IFRIC interpretations issued by the International Accounting Standards Board (“IASB”), which differ in certain significant respects from the Japanese accounting principles applied by First Dormitory in its statutory financial statements prepared in accordance with Japanese corporate legislation for YK companies. The financial information has been prepared under the historical cost convention except for the revaluation of certain non current assets. The accounting policies have been applied consistently throughout the periods presented in the financial information. The principal accounting policies are set out below. Property, plant and equipment Property and equipment are stated at cost and are depreciated on the straight line method over their estimated useful lives. All property has been held for the purpose of running the business of the company. No land or building is held for the sole purpose of earning rentals or for capital appreciation. Apart from certain exceptions, the estimated useful lives of depreciable assets are as follows: Buildings Fixtures and fittings Land

30 years 3-12 years Not depreciated

Intangible assets Intangible assets are stated at cost and are depreciated on the straight line method over their estimated useful lives. All intangible assets have been held for the purpose of running the business of the company. The estimated useful live of intangible assets is three years and amortisation is charged to operating expense. Intangible assets consist of software. Impairment of assets Assets other than inventories, trade and other receivables and certain financial assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount (being the higher of its fair value less cost to sell and its value in use), an impairment loss is recognised in income. Operating leases Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an “operating lease”), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term. Inventories In accordance with IAS 2 inventories have been stated at the lower of purchase cost or net realisable value. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and deposits at call with banks and are subject to insignificant risk of changes in value. Financial assets and liabilities Trade receivables are reported at their face value except where there is a reasonable expectation that an amount less than the full amount will be received. Trade payables are reported at their invoiced value. Most of the company’s financing is provided in the form of contributions from investors pursuant to Tokumei Kumiai (“TK”) agreements conducted under Japanese law. The TK agreements provide that funds contributed by the investors will be used for the company’s business and in return the investors are entitled to a pre-determined percentage of the profits or losses from the company’s business, as 51

Japan Leisure Hotels Limited calculated under Japanese GAAP. Although available cash is distributed to the investors at least quarterly, there is no time limit on the repayment of the investors’ contributions. Therefore the TK agreements have been accounted for within equity. Provisions A provision is recognised in the balance sheet when the company has a constructive legal obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for onerous contracts is recognised when the expected benefits to be derived by the company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. Revenue recognition Revenue is recognised at the time that customers check out of their room. Revenue comprises room rental income, service charges and other revenues from customers of the hotels. Where revenue is obtained by the sale of assets, it is recognised when the significant risks and returns have been transferred to the buyer. In the case of sales of properties, this is generally on unconditional exchange except where payment or completion is expected to occur significantly after exchange. For conditional exchanges, sales are recognised when all the conditions are satisfied. Sales of investment and other fixed asset properties, which are not included in the revenue, are recognised on the same basis. The company operates a membership programme which allows members to accumulate points on hotel visits, get exclusive offers and other special benefits. The company has elected to early adopt IFRIC 13 ‘Customer Loyalty Programmes’. The value of points issued is deferred from revenue and subsequently recognised as revenue on redemption of the points by the customers. The incremental cost of providing free goods is recognised when the points are redeemed. Assumptions are made, based on general customer behaviour, regarding the likelihood of a customer redeeming the points. Employee benefits The company had no employees during the current fiscal period and no employee benefits have been recognised in the financial statements. All hotel staff are employed by hotel operators and all related costs (Social Security, employee taxes) are charged by the operators to the company. Risk management policy The company is exposed through its operations to one or more of the following financial risks: •

Interest rate risk

•

Liquidity risk

•

Credit risk

Interest rate risk There are currently no interest bearing loans. The nature of the TK structure means interest rate risk is low as loans do not attract interest but share of profits or loss. Liquidity risk The business is generating operating cash and will maintain reserves for future capital expenditure. In the view of the directors this risk is managed. Credit risk There is no significant credit risk in the business. 95% of customers pay in cash and balance is by credit card. Derivatives The Board does not anticipate dealing in any financial derivatives.

Japan Leisure Hotels Limited Taxation The taxation liabilities have been prepared in accordance with Japan Tax law. Consumption tax is accounted for in accordance with the tax exclusive basis. Taxation on the profit for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates applicable at the balance sheet date, together with any adjustment in respect of previous years. Deferred tax is provided in full using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. No provision is made for temporary differences (i) arising on the initial recognition of assets or liabilities that effect neither accounting nor taxable profit and (ii) relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner or realisation or settlement of the carrying amount of assets and liabilities, using tax rates applicable at the balance sheet date. In particular, deferred tax is provided on the full difference between the original cost of properties and their carrying amounts at the reporting date without taking into account deductions and allowances which would only apply if the properties concerned were to be sold, except where such properties are classified as held for disposal. The carrying value of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Critical judgments The only critical judgments in preparing this financial information are with respect to the useful life of fixed assets and intangible assets, classification of the TK agreements (note 18) and recognition of the deferred tax assets (note 8). 2 Turnover, profit and net assets The company operates in a single business and geographical segment. The companyâ&#x20AC;&#x2122;s single line of business is leisure hotels, whilst the geographical segment in which it operates is restricted to Japan.

Japan Leisure Hotels Limited 3

(Loss)/profit on operations

This is arrived at after charging/(crediting): Year ended 31 December 2005 2006 ¥’000 ¥’000

Depreciation Amortisation of intangible assets Operating lease payments Profit/loss on disposal of tangible assets Exchange differences Inventory recognised as an expense Utilities Property tax Hotel operator fees Asset manager fee Due diligence Professional services Auditors’ remuneration - audit services 4

22,669 — 5,032 — — 46,213 16,672 43,297 20,247 5,792 6,584 13,089 1,000

109,962 38 4,636 (18,312) 1 126,785 76,039 53,873 38,572 27,819 6,074 22,296 3,000

Six months ended 30 June 2007 ¥’000

68,550 226 2,576 — 2 67,096 39,501 9,779 21,344 15,802 500 22,567 3,000

(Loss)/profit reconciliation Year ended 31 December 2005 2006 ¥’000 ¥’000

(Loss)/profit before tax under Japanese GAAP Allocation to TK investors (Loss)/profit before tax and allocation to TK investors under Japanese GAAP Effects of conversion to IFRS Depreciation Deferred income Accrued expenses (Loss)/profit before tax under IFRS

Six months ended 30 June 2007 ¥’000

(18,318) (549,937)

(206) 81,964

(396) 68,642

(568,255)

81,758

68,246

477,336 (726) (1,000)

44,928 (3,135) (3,000)

16,567 (1,365) (3,000)

(92,645)

120,551

80,448

5 Employees The company has no employees. 6

Directors Basic salary ¥’000

Year ended 31 December 2005 A Kershaw

1,000

Year ended 31 December 2006 A Kershaw M. Aguni

1,926 100 2,026

Six months ended 30 June 2007 M. Aguni

600 600

There were no benefits in kind or performance related bonuses. 54

Japan Leisure Hotels Limited 7

Finance income Year ended 31 December

Finance income: Interest received from fellow subsidiary Bank interest

2005 ¥’000

2006 ¥’000

Six months ended 30 June 2007 ¥’000

4,459 2

150 47

— 73

4,461

197

8 Taxation on (loss)/profit The reasons for the difference between the actual tax charge for the year and the standard rate of tax in Japan applied to the results for the year are as follows: Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

(92,645)

120,551

80,448

(38,911) 230,974 (164,216) (36,265) 28

50,631 (34,383) — (18,870) 37

33,788 (28,846) — (6,958) —

(8,390)

(2,585)

(2,016)

(70)

(35)

2005 ¥’000

(Loss)/profit before tax Expected tax charge based on Japanese tax rate of 42% Other items assessable/(deductible) for tax purposes Retirement of assets permitted as a deduction for tax Accelerated depreciation for Japanese tax Expenses not deductible for tax purposes Tax loss Tax charge

As the company made tax losses during the periods, the only corporate tax charge for the periods is a minimum tax charge based on the assets of the company. Provision has been made for deferred taxation. No asset has been recognised for the excess of the deferred tax asset over the deferred tax liability. The value of the deferred tax asset is greater than the deferred tax liability that arises from the temporary differences between the IFRS financial information and the accounts submitted to the Japanese tax authorities. The temporary differences relate to depreciation, deferred income and accrued expenses and can be identified in note 4 (Profit reconciliation). The carrying value of deferred tax assets has been reduced to the level of the deferred tax liabilities as it is not probable that sufficient taxable profits will be available in the foreseeable future to allow part of the excess asset to be recovered. Year ended 31 December

Accelarated capital allowances Tax losses carried forward Net deferred tax assets Deferred tax asset recognised

2005 ¥’000

2006 ¥’000

(5,993) 8,631

(6,482) 8,718

(6,635) 8,884

2,638

2,236

2,249

—

9 Dividends There have been no dividends paid or proposed in any of the periods under review.

Six months ended 30 June 2007 ¥’000

Japan Leisure Hotels Limited 10 Earnings per share Earnings per ordinary share have been calculated using the weighted average number of shares in issue during the relevant financial periods. The weighted average number of equity shares in issue and the earnings, being profit after tax attributable to equity shareholders are as follows: Year ended 31 December

Weighted average number of equity shares

Earnings, being profit after tax attributable to equity shareholders

2005 Number

2006 Number

Six months ended 30 June 2007 Number

¥’000

457,222

38,517

11,771

There is no difference in the number of shares used for the diluted earnings per share. 11

Intangible assets Software ¥’000

Cost As at 1 January 2005 and 31 December 2005 Additions

— 1,358

As at 31 December 2006 Additions

1,358 —

As at 30 June 2007

1,358

Amortisation As at 1 January 2005 and 31 December 2005 Provided for the period

— (38)

As at 31 December 2006 Provided for the period

(38) (226)

As at 30 June 2007

(264)

Net book value As at 31 December 2005

—

As at 31 December 2006

1,320

As at 30 June 2007

1,094

Japan Leisure Hotels Limited 12

Tangible assets Land ¥’000

Buildings ¥’000

Fixtures and fittings ¥’000

Total ¥’000

Cost As at 1 January 2005 Additions

— 368,497

— 1,524,470

— 288,305

— 2,181,272

As at 31 December 2005 Additions Disposals

368,497 469,721 (73,070)

1,524,470 1,125,780 (162,830)

288,305 22,945 (371)

2,181,272 1,618,446 (236,271)

As at 31 December 2006 Additions

765,148 —

2,487,420 15,212

310,879 135,122

3,563,447 150,334

As at 30 June 2007

765,148

2,502,632

446,001

3,713,781

Depreciation As at 1 January 2005 Provided for the period

— —

— 16,623

— 6,046

— 22,669

As at 31 December 2005 Provided for the year Disposals

— — —

16,623 78,915 (4,399)

6,046 31,047 (62)

22,669 109,962 (4,461)

As at 31 December 2006 Provided for the period

— —

91,139 43,802

37,031 24,748

128,170 68,550

As at 30 June 2007

—

134,941

61,779

196,720

Net book value As at 31 December 2005

368,497

1,507,847

282,259

2,158,603

As at 31 December 2006

765,148

2,396,281

273,848

3,435,277

As at 30 June 2007

765,148

2,367,691

384,222

3,517,061

Year ended 31 December 2005 2006 ¥’000 ¥’000

Six months ended 30 June 2007 ¥’000

The net book value of land and buildings may be further analysed as:

Freehold

1,876,344

3,161,429

3,132,839

There are no significant commitments to expenditure in future accounting periods. 13

Inventories Year ended 31 December

Goods held for resale

2005 ¥’000

2006 ¥’000

Six months ended 30 June 2007 ¥’000

12,666

10,016

15,446

Japan Leisure Hotels Limited 14

Trade and other receivables Year ended 31 December

Accounts receivable – trade Accounts receivable – other Prepaid expenses Consumption tax refund Other

2005 ¥’000

2006 ¥’000

Six months ended 30 June 2007 ¥’000

13,019 30,000 4,082 93,996 316

7,688 63 10,714 15,865 806

7,728 589 8,988 35,312 139

141,413

35,136

52,756

Trade receivables are primarily credit card debts due from major credit card companies and are seen by the directors as a low risk of default. 15

Cash and cash equivalents Year ended 31 December

Cash at hotel Cash at bank

2005 ¥’000

2006 ¥’000

Six months ended 30 June 2007 ¥’000

17,302 526,823

30,270 101,000

33,664 191,016

544,125

131,270

224,680

Trade and other payables Year ended 31 December

Accounts payable – trade Accounts payable – tangible assets Short term borrowings Accrued expenses Accrued income Accrued consumption tax Deferred income Other current liabilities

There are no amounts falling due after more than one year.

2005 ¥’000

2006 ¥’000

Six months ended 30 June 2007 ¥’000

40,206 134,705 — 3,428 1,637 — 726 1,381

67,912 3,912 — 7,121 — — 3,861 301

53,933 80,712 — 19,960 94 26,312 5,226 868

182,083

83,107

187,105

Japan Leisure Hotels Limited 17

Share capital Year ended 31 December 2005 ¥’000

2006 ¥’000

Six months ended 30 June 2007 ¥’000

Authorised 60 ordinary shares of ¥50,000 each

3,000

Allotted, called up and fully paid 60 ordinary shares of ¥50,000 each

3,000

All the Ordinary Shares are owned by Bonita Holdings LLC, an entity which is controlled by Stephen Mansfield, Robert Marshall and Eric Clauson. 18

Reserves Share capital ¥’000

Retained earnings ¥’000

Share holders’ equity ¥’000

Total TK Investors’ reserve ¥’000

At 1 January 2005 Contributions from TK investors Distribution to TK investors (Loss)/profit allocation (Loss)/profit for the period

3,000 — — — —

(2,232) — — — 457,222

768 — — — 457,222

327,071 2,429,498 — (549,937) —

327,839 2,429,498 — (549,937) 457,222

As at 31 December 2005 Contributions from TK investors Distribution to TK investors Profit allocation Profit for the year

3,000 — — — —

454,990 — — — 38,517

457,990 — — — 38,517

2,206,632 975,001 (213,400) 81,964 —

2,664,622 975,001 (213,400) 81,964 38,517

As at 31 December 2006 Contributions from TK investors Distribution to TK investors (Loss)/profit allocation (Loss)/profit for the year

3,000 — — — —

493,507 — — — 11,771

496,507 — — — 11,771

3,050,197 — — 68,642 —

3,546,704 — — 68,642 11,771

As at 30 June 2007

3,000

505,278

508,278

3,118,839

3,627,117

Total equity ¥’000

The following describes the nature and purpose of each reserve within owner’s equity: Share capital Amounts subscribed for shares issued. Retained earnings Cumulative net gains and losses recognised in the income statement. TK investors’ reserve Most of the company’s financing is provided in the form of contributions from two investors pursuant to TK agreements conducted under Japanese law. The TK agreements provide that funds contributed by the investors will be used for the company’s business and in return the investors are entitled to a combined 97% of the profits or losses from the company’s business, as calculated under Japanese GAAP. Although available cash is distributed to the investors at least quarterly, there is no time limit on the repayment of the investors’ contributions. Therefore the TK agreements have been accounted for within equity.

Japan Leisure Hotels Limited 19 Contingent liabilities In respect of one specific service contract there may be a possibility of limited litigation against First Dormitory. As the directors have executed final contracts and settled final invoices with the party concerning the disputed item, the directors consider that the company can robustly defend any litigation, and therefore no provision has been made. There may, however, be unknown legal costs incurred in representing their case. 20 Commitments under operating leases Although the company holds freehold title to most of the properties owned, there are some parcels of land used for car parking that are rented. The total of future minimum lease payments are due as follows: Year ended 31 December

Not later than one year Later than one year and not later than five years Later than five years

2005 ¥’000

2006 ¥’000

Six months ended 30 June 2007 ¥’000

4,500 18,000 18,000

4,500 18,000 70,950

4,500 18,000 66,450

21 Related party transaction The management of New Perspective, the asset manager, and Bonita Services, the hotel operator, are Robert Marshall and Stephen Mansfield. New Perspective is controlled by Stephen Mansfield, Robert Marshall and Eric Clauson. Bonita Services, which is owned by Messrs Mansfield and Marshall, is the hotel operator of Sendai, Isawa & Yamagata and manages the hotel supplies for all hotels. Year ended 31 December

Bonita Services: Operator fees Supplies New Perspective: Asset management fees

2005 ¥’000

2006 ¥’000

Six months ended 30 June 2007 ¥’000

— —

9,319 15,355

14,819 25,316

5,792

27,819

15,802

Balance as at: Year ended 31 December

Bonita Services New Perspective

2005 ¥’000

2006 ¥’000

Six months ended 30 June 2007 ¥’000

— —

14,871 4,397

15,436 3,476

The director’s remuneration attributed to M Aguni was paid to Aoyama Sogo Accounting Office, a company in which he is a director/shareholder. 22 Events after the balance sheet date On 7 January 2008 the company entered into agreements with JLH1 Limited, a wholly owned subsidiary of the Company to acquire the interests in the TK agreements held between the TK Investors and the company from the TK Investors for £18.36 million, satisfied by the issue of loan notes to the TK Investors. The Company intends to acquire the loan notes from the TK Investors in exchange for the issue of 36.72 million shares in the Company. Completion of both transactions is conditional upon Admission.

Japan Leisure Hotels Limited 23 New standards and interpretations not applied The following new standards and interpretations, which have been issued by the IASB and the IFRIC, are effective for future periods and have not been adopted early in this financial information. A description of these standards and interpretations, which will be adopted in accordance with the required effective date, together with (where applicable) an indication of the effect of adopting them, is set out below. None are expected to have a material effect on the reported results or financial position. IFRS 7 ‘Financial Instruments: Disclosures and Amendment to IAS 1: Capital Disclosures’ were issued in August 2005 and are effective for annual periods beginning on or after 1 January 2007. They revise and enhance previous disclosures required by IAS 32 Financial Instruments: Disclosures and Presentation and IAS 30 Disclosures in the Financial Statements of Banks and similar Financial Institutions. IFRIC 7 ‘Applying the restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economies’ was issued in November 2005 and is effective for annual periods beginning on or after 1 March 2006. It clarifies how to account for non-monetary assets and deferred tax when hyperinflation is first identified. IFRS 8 ‘Operating Segments’ was issued in November 2006 and is effective for annual periods beginning on or after 1 January 2009. It requires portable operating segments to be based on the entity’s own internal reporting structure. It also extends the scope and disclosure requirements of IAS 14 Segmental Reporting. IFRIC 10 ‘Interim Financial Reporting and Impairment’ was issued in July 2006 and is effective for periods beginning on or after 1 November 2006. IFRIC 10 prohibits impairment losses recognised in Interim Reports from being reversed in the next annual financial statements. However, it is not possible to quantify the financial affects of adopting this IFRIC in advance. IFRIC 11 ‘IFRS 2 – Group and Treasury Share Transactions’ was issued in November 2006 and is effective for annual periods beginning on or after 1 March 2006. IFRIC 11 clarifies the accounting for share based transactions which fall within the scope of IFRS 2. IFRIC 12 ‘Service Concession Arrangements’ was issued in November 2006 and is effective for annual periods beginning on or after 1 January 2008. IFRIC 12 prohibits private sector operators from recognising as their own those infrastructure assets which are owned by the grantor. IFRIC 14 – ‘IAS 19: the limit on a deferred benefit asset, minimum funding requirements and their interaction’ was issued in June 2007 and is effective for annual periods beginning on or after 1 January 2008. IFRIC 14 clarifies how any asset to be recognised should be determined, in particular where a minimum funding requirement exists. Amendment to IAS 23 ‘Borrowing Costs’ was issued in May 2007 and is effective for accounting periods beginning on or after 1 January 2009. The amendment requires borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset to be added to the cost of that asset.

Japan Leisure Hotels Limited

PART VIIC FINANCIAL INFORMATION ON KN PLANNING

A – Accountant’s report on KN Planning BDO Stoy Hayward LLP Emerald House East Street Epsom KT17 1HS

BDO Stoy Hayward Chartered Accountants The Directors Japan Leisure Hotels Limited Polygon Hall P.O.Box 225 Le Marchant Street St Peter Port Guernsey GY1 4HY

10 January 2008

The Directors Shore Capital & Corporate Limited Bond Street House 14 Clifford Street London W1S 4JU Dear Sirs KN Planning Yugenkaisha (“KN Planning”) Introduction We report on the financial information set out in Section B of Part VIIC. This financial information has been prepared for inclusion in the admission document of Japan Leisure Hotels Limited (the “Company”) dated 10 January 2008 (the “Admission Document”) on the basis of the accounting policies set out in note 1 to the financial information. This report is required by paragraph (a) of Schedule Two of the AIM Rules for Companies and is given for the purpose of complying with that paragraph and for no other purpose. Responsibilities As described in Section B of Part VIIC, the directors of the Company are responsible for preparing the financial information on the basis of preparation set out in note 1 to the financial information and in accordance with applicable law and International Financial Reporting Standards (“IFRS”) as adopted by the European Union and Article 4 of the IAS Regulation. It is our responsibility to form an opinion on the financial information as to whether the financial information gives a true and fair view, for the purposes of the Admission Document and to report our opinion to you. Save for any responsibility arising under paragraph (a) of Schedule Two of the AIM Rules for Companies to any person as and to the extent there provided, to the fullest extent permitted by the law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Schedule Two of the AIM Rules for Companies consenting to its inclusion in the Admission Document. 62

Japan Leisure Hotels Limited Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entityâ&#x20AC;&#x2122;s circumstances, consistently applied and adequately disclosed. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error. Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. Opinion In our opinion, the financial information gives, for the purposes of the Admission Document, a true and fair view of the state of affairs of KN Planning as at the dates stated and of its results and cash flows for the periods then ended in accordance with the basis of preparation set out in note 1 to the financial information and has been prepared in accordance with IFRS, as adopted by the European Union and Article 4 of the IAS Regulation, as described in note 1 to the financial information. Declaration For the purposes of Paragraph (a) of Schedule Two of the AIM Rules for Companies we are responsible for this report as part of the Admission Document and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Admission Document in compliance with Schedule Two of the AIM Rules for Companies. Yours faithfully BDO Stoy Hayward LLP Chartered Accountants

Japan Leisure Hotels Limited B – Financial information on KN Planning Responsibility The directors of the Company are responsible for preparing the financial information set out below on the basis of preparation set out in note 1 to the financial information and in accordance with applicable law and International Financial Reporting Standards (“IFRS”) as adopted by the European Union and Article 4 of the IAS Regulation. Income statements Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

Revenue

47,734

105,160

57,184

Total revenue

47,734

105,160

57,184

(11,041) (16,818) (11,086) (59,432) (98,377) (7,058)

(12,517) (27,155) (21,784) (43,431) (104,887) —

(6,463) (15,996) (11,092) (23,649) (57,200) —

Notes

Raw materials and consumables Employee benefits cost Depreciation and amortisation Other expenses Total expenses Net loss on retirement of fixed assets (Loss) / profit on operations Finance cost – other interest Finance income – other interest

3 7 7

(57,701) (4,459) —

273 (150) 1

(16) — 11

(Loss) / profit before taxation Corporate tax expense

(62,160) (58)

124 (70)

(5) (35)

(62,218)

(40)

(Loss) / profit for the period Attributable to: Equity share holders TK investors Earnings per share – basic and diluted

18 18 10

78,285 (140,503)

11,297 (11,243)

2,113 (2,153)

(62,218)

(40)

1,305

188

Japan Leisure Hotels Limited Balance sheets

Notes

Non-current assets Intangible assets – software Property, plant and equipment

11 12

As at December 2005 2006 ¥’000 ¥’000

As at 30 June 2007 ¥’000

— 439,439

291 420,727

242 411,384

439,439

421,018

411,626

1,709 24,617 28,477 54,803

— 2,474 27,729 30,203

— 3,638 36,169 39,807

494,242

451,221

451,433

(57,503) (58) (57,561)

(14,416) (70) (14,486)

(14,703) (35) (14,738)

TOTAL LIABILITIES

(57,561)

(14,486)

(14,738)

TOTAL NET ASSETS

436,681

436,735

436,695

Total non-current assets Current assets Inventory Trade and other receivables Cash and cash equivalents Total current assets

13 14 15

TOTAL ASSETS Current liabilities Trade and other payables Current tax liabilities Total current liabilities

Paid up capital Retained earnings

17 18

3,000 76,611

3,000 87,908

3,000 90,021

EQUITY ATTRIBUITABLE TO SHAREHOLDERS TK investors’ reserve

18 18

79,611 357,070

90,908 345,827

93,021 343,674

TOTAL EQUITY

436,681

436,735

436,695

Japan Leisure Hotels Limited Cash flow statements

Notes

Cash flows from operating activities (Loss)/profit before taxation from continuing operations Adjustments for: Depreciation Amortisation Interest income Interest expense Loss on retirement of fixed assets Change in working capital Changes in trade and other receivables Changes in inventory Changes in trade and other payables

Ten months ended 31 December 2005 ¥’000

(62,160)

Year ended 31 December 2006 ¥’000

124

Six months ended 30 June 2007 ¥’000

(5)

10,777 309 — 4,459 7,058

21,775 9 (1) 150 —

11,043 49 (11) — —

(816) (1,709) 12,665 10,140

(358) 1,709 (894) 457

(1,162) — 2,932 1,770

Cash (absorbed by)/generated from operations Interest paid Interest received Tax paid

(29,417) (4,459) — (64)

22,514 (150) 1 (58)

12,846 — 11 (70)

Net cash (absorbed by)/generated from operating activities

(33,940)

22,307

12,787

Cash flow from investing activities Purchase of land Renovation of buildings Purchase of furniture and fittings Purchase of IT software Net cash used in investing activities

(22,001) (224,245) (60,560) — (306,806)

— — (15,256) (300) (15,556)

— — (4,347) — (4,347)

Cash flows from financing activities Proceeds from TK investors Repayment short-term loans Net cash generated from financing activities

475,072 (167,942) 307,130

22,501 (30,000) (7,499)

— — —

(33,616) 62,093

(748) 28,477

8,440 27,729

28,477

27,729

36,169

Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

Japan Leisure Hotels Limited Notes to the financial information 1 Accounting Policies The financial information has been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the European Union and Article 4 of the IAS Regulation and IFRIC interpretations issued by the International Accounting Standards Board (“IASB”), which differ in certain significant respects from the Japanese accounting principles applied by KN Planning in its statutory financial statements prepared in accordance with Japanese corporate legislation for YK companies. The financial information has been prepared under the historical cost convention except for the revaluation of certain non current assets. The accounting policies have been applied consistently throughout the period presented in the financial information. The principal accounting policies are set out below. Property, plant and equipment Property and equipment are stated at cost and are depreciated on the straight line method over their estimated useful lives. All property has been held for the purpose of running the business of the company. No land or building is held for the sole purpose of earning rentals or for capital appreciation. Apart from certain exceptions, the estimated useful lives of depreciable assets are as follows: Buildings and structures Fixtures and fittings Land

30 years 3-12 years Not depreciated

Japan Leisure Hotels Limited calculated under Japanese GAAP. Although available cash is distributed to the investors at least quarterly, there is no time limit on the repayment of the investors’ contributions. Therefore the TK agreements have been accounted for within equity. Provisions A provision is recognised in the balance sheet when the company has a constructive legal obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for onerous contracts is recognised when the expected benefits to be derived by the company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. Revenue recognition Revenue is recognised at the time that customers check out of their room. Revenue comprises room rental income, service charges and other revenues from customers of the hotels. Where revenue is obtained by the sale of assets, it is recognised when the significant risks and returns have been transferred to the buyer. In the case of sales of properties, this is generally on unconditional exchange except where payment or completion is expected to occur significantly after exchange. For conditional exchanges, sales are recognised when all the conditions are satisfied. Sales of investment and other fixed asset properties, which are not included in the revenue, are recognised on the same basis. The company operates a membership programme which allows members to accumulate points on hotel visits, get exclusive offers and other special benefits. The company has elected to early adopt IFRIC 13 ‘Customer Loyalty Programmes. The value of points issued is deferred and recognised as revenue on redemption of the points by the customers. The incremental cost of providing fee goods is recognised when the points are redeemed. Assumptions are made, based on general customer behaviour, regarding the likelihood of a customer redeeming the points. Employee benefits The company had no employees during the current fiscal period and no employee benefits have been recognised in the financial statements. All hotel staff are employed by hotel operators and all related costs (Social Security, employee taxes) are charged by the operator to the company. Risk management policy The company is exposed through its operations to one or more of the following financial risks: •

Interest rate risk

•

Liquidity risk

•

Credit risk

Interest rate risk There are currently no interest bearing loans. The nature of the TK structure means interest rate risk is low as loans do not attract interest but share of profits or loss. Liquidity risk The business is generating operating cash and will maintain reserves for future capital expenditure. In the view of the directors this risk is managed. Credit risk There is no significant credit risk in the business. 95% of customers pay in cash and balance is by credit card Derivatives The Board does not anticipate dealing in any financial derivatives. 68

Japan Leisure Hotels Limited Taxation The taxation liabilities have been prepared in accordance with Japan Tax law. Consumption tax is accounted for in accordance with the tax exclusive basis Taxation on the profit for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates applicable at the balance sheet date, together with any adjustment in respect of previous years. Deferred tax is provided in full using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. No provision is made for temporary differences (i) arising on the initial recognition of assets or liabilities that effect neither accounting nor taxable profit and (ii) relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner or realisation or settlement of the carrying amount of assets and liabilities, using tax rates applicable at the balance sheet date. In particular, deferred tax is provided on the full difference between the original cost of properties and their carrying amounts at the reporting date without taking into account deductions and allowances which would only apply if the properties concerned were to be sold, except where such properties are classified as held for disposal. The carrying value of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Critical judgments The only critical judgments in preparing this financial information are with respect to the useful life of fixed assets and intangible assets, classification of the TK agreements (note 18) and recognition of deferred tax assets (note 8). 2 Turnover, profit and net assets The company operates in a single business and geographical segment. The companyâ&#x20AC;&#x2122;s single line of business is leisure hotels, whilst the geographical segment in which it operates is restricted to Japan.

Japan Leisure Hotels Limited 3 (Loss)/profit on operations This is arrived at after charging/(crediting):

Depreciation Amortisation of intangibles Operating lease payments Impairment losses/asset write downs Profit/loss on disposal of fixed assets Exchange differences Inventory recognised as an expense Utilities Property tax Hotel operator fees Asset manager fee Due diligence Professional services Auditors’ remuneration – audit services 4

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

10,777 309 1,584 — 7,058 — 11,041 4,749 18,119 6,746 1,426 5,264

21,775 9 126 1 — 1 12,517 8,288 3,970 2,457 3,156 4,545

11,043 49 94 2 — 2 6,463 4,291 1,481 2,289 1,717 4,535

1,000

900

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

(Loss)/profit reconciliation

(5,529) (140,503)

(1,557) (11,243)

(636) (2,153)

(146,032)

(12,800)

(2,789)

85,044 (172) (1,000)

14,173 (349) (900)

3,742 (58) (900)

(62,160)

5 Employees The company has no employees.

124

(5)

Japan Leisure Hotels Limited 6

Directors Basic salary ¥’000

Ten months ended 31 December 2005 A Kershaw

417

Year ended 31 December 2006 A Kershaw M Aguni

500 26 526

Six months ended 30 June 2007 M Aguni

150 150

There were no benefits in kind or performance related bonuses 7

Finance income and expense

Finance income: Bank interest Finance expense: Interest paid to fellow subsidiary

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

—

(4,459)

(150)

—

Japan Leisure Hotels Limited 8 Taxation on (loss)/profit The reasons for the difference between the actual tax charge for the year and the standard rate of tax in Japan applied to the results for the year are as follows: Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

(62,160)

124

(5)

(26,107)

(2)

(59,011)

(4,722)

(904)

(29,428) (6,290) 28

— (5,953) 37

— (1,572) —

(120,808)

(10,586)

(2,478)

(58)

(70)

(35)

As the company made tax losses during the periods, the only corporate tax charge for the periods is a minimum tax charge based on the assets of the company. Provision has been made for deferred taxation. No asset has been recognised for the excess of the deferred tax asset over the deferred tax liability. The value of the deferred tax asset is greater than the deferred tax liability that arises from the temporary differences between the IFRS financed information and the accounts submitted to the Japanese tax authorities. The temporary differences relate to depreciation, deferred income and accrued expenses and can be identified in note 4 (Profit reconciliation). The carrying value of deferred tax assets has been reduced to the level of deferred tax liabilities as it is not probable that sufficient taxable profits will be available in the foreseeable future to allow part of the excess asset to be recovered. Ten months ended 31 December 2005 ¥’000

Accelerated capital allowances Tax losses carried forward Net deferred tax assets Deferred tax asset recognised

Year ended 31 December 2006 ¥’000

(1,057) 3,025

(1,220) 3,679

(1,255) 3,946

1,968

2,459

2,691

—

9 Dividends There have been no dividends paid or proposed in any of the periods under review.

Six months ended 30 June 2007 ¥’000

Weighted average number of equity shares

Earnings, being profit after tax attributable to equity shareholders

Ten months ended 31 December 2005 Number

Year ended 31 December 2006 Number

Six months ended 30 June 2007 Number

¥’000

78,285

11,297

2,113

There is no difference in the number of shares used for the diluted earnings per share. 11

Intangible assets Software ¥’000

Cost As at 28 February 2005 Disposals

309 (309)

As at 31 December 2005 Additions

— 300

As at 31 December 2006 Additions

300 —

As at 30 June 2007

300

Amortisation As at 28 February 2005 Provided for the period Disposals

— (309) 309

As at 31 December 2005 Provided for the period

— (9)

As at 31 December 2006 Provided for the period

(9) (49)

As at 30 June 2007

(58)

Net book value As at 28 February 2005

309

As at 31 December 2005

—

As at 31 December 2006

291

As at 30 June 2007

242

Japan Leisure Hotels Limited 12

Tangible assets Land ¥’000

Buildings ¥’000

Fixtures and fittings ¥’000

Total ¥’000

Cost As at 28 February 2005 Additions Disposals

28,476 22,001 —

102,846 224,245 (2,750)

9,598 75,398 (9,598)

140,920 321,644 (12,348)

As at 31 December 2005 Additions

50,477 —

324,341 —

75,398 3,063

450,216 3,063

As at 31 December 2006 Additions

50,477 —

324,341 —

78,461 1,702

453,279 1,702

As at 30 June 2007

50,477

324,341

80,163

454,981

Depreciation As at 28 February 2005 Provided for the period Disposals

— — —

2,875 7,364 (2,875)

2,415 3,413 (2,415)

5,290 10,777 (5,290)

As at 31 December 2005 Provided for the year Write down of assets

— — —

7,364 13,472 —

3,413 8,302 1

10,777 21,774 1

As at 31 December 2006 Provided for the period Write down of assets

— — —

20,836 6,707 —

11,716 4,336 2

32,552 11,043 2

As at 30 June 2007

—

27,543

16,054

43,597

Net book value As at 28 February 2005

28,476

99,971

7,183

135,630

As at 31 December 2005

50,477

316,977

71,985

439,439

As at 31 December 2006

50,477

303,505

66,745

420,727

As at 30 June 2007

50,477

296,798

64,109

411,384

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

367,454

353,982

347,275

The net book value of land and buildings may be further analysed as:

Freehold

There are no significant commitments to expenditure in future accounting periods.

Japan Leisure Hotels Limited 13

Inventories

Goods held for resale 14

Ten months ended 31 December 2005 £000

Year ended 31 December 2006 £000

Six months ended 30 June 2007 £000

1,709

—

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

183 — 784 1,150 22,500

438 147 166 — 1,723

364 147 — 1,574 1,553

24,617

2,474

3,638

Trade and other receivables

Accounts receivable – trade Accounts receivable – other Prepaid expenses Consumption tax refund Other

Trade receivables are primarily credit card debts due from major credit card companies and are seen by the directors as a low risk of default. 15

Cash and cash equivalents

Cash at hotel Cash at bank

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

3,675 24,802

3,686 24,043

3,739 32,430

28,477

27,729

36,169

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

10,248 14,838 30,000 2,145 — 172 100

6,060 2,645 — 2,648 2,470 521 72

6,864 — — 4,326 2,860 579 74

57,503

14,416

14,703

Trade and other payables

Accounts payable – trade Accounts payable – tangible assets Short term borrowings Accrued expenses Accrued consumption tax Deferred income Other current liabilities

There are no amounts falling due after more than one year.

Japan Leisure Hotels Limited 17

Share capital Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

Authorised 60 ordinary shares of ¥50,000 each

3,000

Allotted, called up and fully paid 60 ordinary shares of ¥50,000 each

3,000

All the Ordinary Shares are owned by Bonita Holdings LLC, an entity which is controlled by Stephen Mansfield, Robert Marshall and Eric Clauson.

Reserves Share capital ¥’000

Retained earnings ¥’000

Share holders’ equity ¥’000

Total TK Investors’ reserve ¥’000

Total equity ¥’000

At 28 February 2005 Contributions from TK investors Distribution to TK investors (Loss)/profit allocation (Loss)/profit for the period

3,000 — — — —

(1,674) — — — 78,285

1,326 — — — 78,285

— 497,573 — (140,503) —

1,326 497,573 — (140,503) 78,285

As at 31 December 2005 Contributions from TK investors Distribution to TK investors (Loss) allocation Profit for the year

3,000 — — — —

76,611 — — — 11,297

79,611 — — — 11,297

357,070 — — (11,243) —

436,681 — — (11,243) 11,297

As at 31 December 2006 Contributions from TK investors Distribution to TK investors (Loss)profit allocation (Loss)profit for the year

3,000 — — — —

87,908 — — — 2,113

90,908 — — — 2,113

345,827 — — (2,153) —

436,735 — — (2,153) 2,113

As at 30 June 2007

3,000

90,021

93,021

343,674

436,695

Japan Leisure Hotels Limited 20 Commitments under operating leases Although the company holds freehold title to most of the properties owned, there are some parcels of land used for car parking that are rented. The total of future minimum lease payments are due as follows:

Not later than one year Later than one year and not later than five years Later than five years

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

120 480 580

120 480 460

120 480 340

Bonita Services: Operator fees Supplies New Perspective: Asset management fees

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

— —

2,264 2,144

2,289 1,523

1,426

3,156

1,717

Ten months ended 31 December 2005 ¥’000

Year ended 31 December 2006 ¥’000

Six months ended 30 June 2007 ¥’000

— —

3,156 361

3,081 305

Balance as at:

Bonita Services New Perspective

22 Events after the balance sheet date On 7 January 2008 the company entered into agreements, conditional on Admission, with JLH1 Limited, a wholly owned subsidiary of the Company to acquire the interests in the TK agreements held between the TK Investors and the company from the TK Investors for £0.64 million, satisfied by the issue of loan notes to the TK Investors. The Company intends to acquire the loan notes from the TK Investors in exchange for the issue of 1.28 million shares in the Company. Completion of both transactions is conditional upon Admission. 23 New standards and interpretations not applied The following new standards and interpretations, which have been issued by the IASB and the IFRIC, are effective for future periods and have not been adopted early in this financial information. A description of these standards and interpretations, which will be adopted in accordance with the required effective date, together with (where applicable) an indication of the effect of adopting them, is set out below. None are expected to have a material effect on the reported results or financial position.

Japan Leisure Hotels Limited IFRS 7 ‘Financial Instruments: Disclosures and Amendment to IAS 1: Capital Disclosures’ were issued in August 2005 and are effective for annual periods beginning on or after 1 January 2007. They revise and enhance previous disclosures required by IAS 32 Financial Instruments: Disclosures and Presentation and IAS 30 Disclosures in the Financial Statements of Banks and similar Financial Institutions. IFRIC 7 ‘Applying the restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economies’ was issued in November 2005 and is effective for annual periods beginning on or after 1 March 2006. It clarifies how to account for non-monetary assets and deferred tax when hyperinflation is first identified. IFRS 8 ‘Operating Segments’ was issued in November 2006 and is effective for annual periods beginning on or after 1 January 2009. It requires portable operating segments to be based on the entity’s own internal reporting structure. It also extends the scope and disclosure requirements of IAS 14 Segmental Reporting. IFRIC 10 ‘Interim Financial Reporting and Impairment’ was issued in July 2006 and is effective for periods beginning on or after 1 November 2006. IFRIC 10 prohibits impairment losses recognised in Interim Reports from being reversed in the next annual financial statements. However, it is not possible to quantify the financial affects of adopting this IFRIC in advance. IFRIC 11 ‘IFRS 2 – Group and Treasury Share Transactions’ was issued in November 2006 and is effective for annual periods beginning on or after 1 March 2006. IFRIC 11 clarifies the accounting for share based transactions which fall within the scope of IFRS 2. IFRIC 12 ‘Service Concession Arrangements’ was issued in November 2006 and is effective for annual periods beginning on or after 1January 2008. IFRIC 12 prohibits private sector operators from recognising as their own those infrastructure assets which are owned by the grantor. IFRIC 14 – ‘IAS 19: the limit on a deferred benefit asset, minimum funding requirements and their interaction’ was issued in June 2007 and is effective for annual periods beginning on or after 1 January 2008. IFRIC 14 clarifies how any asset to be recognised should be determined, in particular where a minimum funding requirement exists. Amendment to IAS 23 ‘Borrowing Costs’ was issued in May 2007 and is effective for accounting periods beginning on or after 1 January 2009. The amendment requires borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset to be added to the cost of that asset.

Japan Leisure Hotels Limited

PART VIII ADDITIONAL INFORMATION 1. 1.1

Responsibility The Company and its Directors (whose names appear in paragraph 9 of Part 1 of this Document) accept responsibility for the information contained in this Document. To the best of the knowledge of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this Document is in accordance with the facts and contains no omission likely to affect its import.

1.2

BDO Stoy Hayward LLP whose registered address is at 8 Baker Street, London W1U 3LL accepts responsibility for its Accountants’ Reports set out in Part VII of this Document. To the best of the knowledge of BDO Stoy Hayward LLP (who have taken all reasonable care to ensure that such is the case) the information contained therein is in accordance with the facts and contains no omissions likely to affect its import.

1.3

Colliers International (Hong Kong) Limited whose registered office is at Suite 5701, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong, accepts responsibility for its Property Valuation Report set out in Part IV of this Document. To the best of the knowledge of Colliers International (Hong Kong) Limited (who have taken all reasonable care to ensure that such is the case) the information contained therein is in accordance with the facts and contains no omissions likely to affect its import.

2. 2.1

Incorporation The Company was incorporated with limited liability in Guernsey as a closed-ended investment company under the Companies Law on 17 October 2007 with registered number 47899. The Company operates under the Companies Law. The Company has been incorporated with an unlimited life, but in accordance with the Articles, the Directors are obliged to propose an ordinary resolution at the annual general meeting of the Company in respect of the financial year ending 31 December 2012 and every two years thereafter that the Company should continue as presently constituted. If the resolution is not passed, the Directors will formulate proposals for Shareholder approval to reorganise or reconstruct the company to be wound-up.

2.2

The registered office and the principal place of business of the Company is at Polygon Hall, PO Box 225, Le Marchant Street, St Peter Port, Guernsey GY1 4HY (telephone number (01481) 716000 or, if dialling from outside the United Kingdom, +44 1481 716000).

3. 3.1

Share Capital The Company was incorporated with a share capital of £1,600,000 divided into 160,000,000 Ordinary Shares of 1 pence each.

3.2

Under the Articles, the Board is empowered to allot, grant options over, offer or otherwise dispose of the unissued shares of the Company.

3.3

The Ordinary Shares to be issued pursuant to the Acquisition and the Placing will be issued pursuant to a resolution of the Board (or a duly authorised committee) on 7 January 2008, conditional upon Admission.

3.4

The following table shows the existing authorised and issued share capital of the Company as at the date of this Document and the authorised and issued share capital as it is expected to be immediately following Admission. Existing authorised and issued share capital Authorised Amount (£)

1,600,000

Issued and Fully Paid Number

Amount (£)

Number

160,000,000

£0.02

Japan Leisure Hotels Limited Immediately following Admission Authorised Amount (£)

1,600,000

Issued and fully paid Number

Amount (£)

Number

160,000,000

441,000

44,100,002

3.5

The Company intends to issue 36,723,656 Ordinary Shares to Japan Leisure Investments LLC and 1,276,344 Ordinary Shares to the Cayman National Trust Co. Ltd (in its capacity as trustee of the Japan Leisure Trust No.1) in exchange for the loan notes in JLH1 Limited issued to those entities pursuant to the Assignment Agreements described below. It is intended that such exchange will take place shortly after Admission.

3.6

Conditional on Admission, the Placing Shares will be issued pursuant to the Placing at a price of 50 pence per Placing Share representing a premium of 49 pence over their nominal value of 1 pence each.

3.7

On 7 January 2008, the initial shareholders of the Company passed a shareholder resolution (conditional on Admission) that the amount standing to the credit of the Company’s share premium account following Admission be reduced to nil. The Directors intend to apply to the Court in Guernsey for an order confirming such cancellation of the share premium account following Admission in accordance with Guernsey law. Subject to any undertaking to be given to Court, the reserve created on such cancellation will be available as distributable profits to be used for all purposes permitted by Guernsey law, including the buy-back of Ordinary Shares.

3.8

Save as described in this paragraph 3, since the date of incorporation no share or loan capital of the Company has been issued or agreed to be issued, or is now proposed to be issued, for cash or any other consideration and no commissions, discounts, brokerages or other special terms have been granted by the Company in connection with the issue of any such capital. Other than as described in this paragraph 3, there is no present intention to issue any of the authorised but unissued share capital of the Company.

3.9

Save pursuant to the Warrant Instrument described in paragraph 10.13 below, no share or loan capital of the Company is under option or has been agreed, conditionally or unconditionally, to be put under option. Although no formal option rights or agreements exist in relation thereto, it should be noted that the Board has agreed in principle to allot Ordinary Shares to New Perspective in connection with the anticipated re-investment of performance fees payable to it under the Asset Management Agreement described in paragraph 10.3 of Part VIII of this Document.

3.10 There are no provisions under Guernsey law equivalent to sections 89-95 of the UK Companies Act 1985 which confer pre-emption rights on existing shareholders in connection with the allotment of equity securities for cash. However, similar pre-emption rights have been included in the Articles. Pursuant to a resolution of shareholders passed on 7 January 2008 and conditional on Admission, these pre-emption rights will be disapplied in respect of the Placing Shares and the Ordinary Shares to be subscribed for under the Warrant Instrument or allotted to New Perspective upon reinvestment of performance fees payable under the Asset Management Agreement. Pursuant to the same resolution, the pre-emption rights have been disapplied in respect of the allotment of up to 10 per cent. of the issued share capital of the Company immediately following Admission. The terms of this general dis-application provide, inter alia, that no Ordinary Shares will be issued for cash on a non- pre-emptive basis at a discount of more than 5 per cent. of the average middle market closing price of the Ordinary Shares on the five business days preceding issue, unless shareholder approval by ordinary resolution is obtained. 3.11 Pursuant to a resolution of shareholders passed on 7 January 2008 and conditional on Admission, in the period from Admission until the Company’s annual general meeting in 2008, the Directors have authority to make market purchases, in accordance with the Guernsey Companies (Purchase of Own Shares) Ordinance 1998, of up to 14.99 per cent. of the Ordinary Shares in issue immediately following Admission. The Directors intend to seek renewal of this authority from shareholders at the next annual general meeting and, thereafter, at subsequent annual general meetings. The making and timing of any buy-backs will be at the absolute discretion of the Board, except that no buy-back will be permitted during any close period or within the last 30 dealing 80

Japan Leisure Hotels Limited days of any accounting period being the period in which the middle market closing price of the Ordinary Shares is used for the purpose of determining the Performance Fee for that period. Ordinary Shares may be repurchased through a subsidiary of the Company incorporated for that purpose, which, subject to solvency, is permissible under Guernsey law. 3.12 The Directors intend that purchases will only be made pursuant to this authority through the market, for cash, to assist in narrowing any discount to NAV per Ordinary Share at which the Ordinary Shares may trade. Any Ordinary Shares bought back by the Company will either be held by the Company in treasury (and which may be reissued) or may be cancelled. 3.13 The Ordinary Shares are in registered form and, subject to the provisions of the CREST Regulations, the Directors may permit the holding of Ordinary Shares of any class in uncertificated form and title to such shares may be transferred by means of a relevant system (as defined in the Regulations). Where Ordinary Shares are held in certificated form, share certificates will be sent to the registered members by first class post. Where Ordinary Shares are held in CREST, the relevant CREST stock account of the registered members will be credited. 4. Investment Policy By virtue of the TK structure, the Company is a passive investor. The Companyâ&#x20AC;&#x2122;s investments will be made solely in leisure hotel assets in Japan however the Company will seek to invest in a broad range of assets within this class. To the extent the Company has not made an investment in accordance with its investment strategy by 31 December 2009, the Company will return the net remaining Placing proceeds to Shareholders. 5. Summary of the Memorandum and Articles of Association The memorandum of association of the Company provides that the Companyâ&#x20AC;&#x2122;s objects are to carry on the business of, inter alia, an investment company. The objects of the Company are set out in full in clause 3 of the memorandum of association which is available for inspection at the address specified in paragraph 16 of this Part VIII. The Articles contain provisions, inter alia, to the following effect: 5.1

Share Capital 5.1.1 Power to attach rights Subject to the rights attached to existing shares or any class of shares, new shares in the Company may be issued with, or have attached to them, such preferred, deferred or other rights or restrictions whether as to dividend, voting, return of capital or otherwise as the Company may by ordinary resolution decide, or, if no such resolution is passed or so far as any pertinent resolution does not make specific provision, as the Directors may decide. 5.1.2 Power to redeem and purchase shares Subject to the provisions of the Companies Law: (a)

any preference shares may with the sanction of the Directors or an ordinary resolution be issued on terms that they are to be redeemed or, at the option of the Company or the holder, are liable to be redeemed, in each case on such terms and in such manner as the Company before the issue may by ordinary resolution decide and subject to and in default of such determination as the Directors may decide;

(b)

the Company may from time to time purchase, or agree to purchase in the future, its own shares (including any redeemable shares) in any manner authorised by the Companies Law and may make payments in respect of any such purchase otherwise than out of its distributable profits or the proceeds of a fresh issue of shares;

(c)

the Company and any of its subsidiaries may give financial assistance, directly or indirectly for the purpose of or in connection with the acquisition of shares in the Company, or in connection with reducing or discharging any liability incurred in connection with the purchase of shares in the Company; and 81

Japan Leisure Hotels Limited (d)

the Company may hold its own shares as treasury shares.

5.1.3 Variation of rights If at any time the share capital is divided into different classes of shares the rights attached to any class (unless otherwise provided by the terms of issue) may whether or not the Company is being wound up be varied or abrogated with the consent in writing of the holders of three-fourths of the issued shares of that class (excluding any share of such class held as a treasury share) or with the sanction of a special resolution of the holders of the shares of that class validly held in accordance with the Articles, but not otherwise. 5.1.4 Consolidation, sub-division and cancellation The Company may by ordinary resolution consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares or sub-divide all or any of its shares into shares of a smaller amount than is fixed by the memorandum of association (and so that the resolution whereby any share is subdivided may determine that as between the holders of the shares resulting from subdivision one or more of the shares may have such preferred deferred or other rights over the others as the Company has power to attach to unissued or new shares), or may cancel shares which at the date of the passing of the resolution have not been taken or convert all or any of its fully paid shares the nominal amount of which is expressed in a particular currency into fully paid shares of a nominal amount of a different currency or denominate or redenominated its share capital in a particular currency. By special resolution the Company may reduce its capital. 5.1.5 Payment of scrip dividends Subject to the Companies Law, the Directors may, if authorised by an ordinary resolution, offer those shareholders of a particular class of shares in respect of any dividend the right to elect to receive shares by way of scrip dividend instead of cash. 5.1.6 Increase of share capital The Company may by ordinary resolution increase the share capital of the Company by such sum and/or such number of shares to be divided into shares of such amount as the resolution shall prescribe. 5.1.7 Pre-emptive rights (a) The Company, when proposing to allot shares or fractions of shares of any class: (i) shall not allot any of them on any terms to a person unless it has made an offer to each person who is a holder and who holds shares of the relevant class on the same or more favourable terms a proportion of those shares which is as nearly as practicable equal to the proportion in nominal value held by the holder of the relevant class of shares then in issue; and (ii) shall not allot any of those shares to a person unless the period during which any such offer may be accepted by the relevant current holders has expired or the Company has received a notice of the acceptance or refusal of every offer so made from such holders. The aforementioned shall not apply to an allotment of shares if such shares are or are to be, wholly or partly paid as otherwise than in cash. (b)

Notwithstanding paragraph (a) above, the Directors may be given by virtue of a special resolution the power to allot shares either generally or in respect of a specific allotment such that: (i) paragraph (a) shall not apply to the allotment; or (ii) paragraph (a) shall apply to the allotment with such modifications as the Directors may determine; and (iii) the authority granted by the special resolution may be granted for such period of time as the special resolution permits and such authority may be revoked by a further special resolution. Notwithstanding that any such special resolution may have expired, the Directors may allot shares in pursuance of an offer or agreement previously made by the Company, if the special resolution enabled the Company to make an offer or agreement which would or might require shares to be allotted after it expired. 82

Japan Leisure Hotels Limited 5.2

Transfer of shares 5.2.1 The Articles provide that the Directors may implement such arrangements as they may think fit in order for any class of shares to be admitted to settlement by means of the CREST UK system. If the Directors implement any such arrangement no provision of the Articles shall apply or have effect to the extent that it is in any respect inconsistent with: (a)

the holding of shares of that class in uncertificated form;

(b)

the transfer of title to shares of that class by means of the CREST UK system; or

(c)

the CREST Guernsey Requirements.

5.2.2 Where any class of shares is for the time being admitted to settlement by means of the CREST UK system such securities may be issued in uncertificated form in accordance with and subject as provided in the CREST Guernsey Requirements. Unless the Directors otherwise determine, such securities held by the same holder or joint holder in certificated form and uncertificated form shall be treated as separate holdings. Such securities may be changed from uncertificated to certificated form and from certificated to uncertificated form in accordance with and subject as provided in the CREST Guernsey Requirements. 5.2.3 Title to such of the shares as are recorded on the register as being held in uncertificated form may be transferred only by means of the CREST UK system and as provided in the CREST Guernsey Requirements. Every transfer of shares from a CREST account of a CREST UK member to a CREST account of another CREST UK member will vest in the transferee a beneficial interest in the shares transferred, notwithstanding any agreements or arrangements to the contrary however and whenever arising and however expressed. 5.2.4 Transfers of certificated shares may be effected by instrument of transfer in writing in any usual form or in any other form approved by the Directors, and the instrument shall be executed by or on behalf of the transferor and (in the case of a transfer of a share which is not fully paid) by or on behalf of the transferee. Subject to the foregoing and the CREST Guernsey Requirements, the transferor of a share is deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect of it. 5.2.5 Every instrument of transfer must be left at the registered office of the Company or such other place as the Directors may prescribe with the certificate of every share to be transferred and such other evidence as the Directors may reasonably require to prove the title of the transferor or his right to transfer the shares; and the transfer and certificate (if any) will remain in the custody of the Directors but must at all reasonable times be produced at the request and expense of the transferor or transferee or their respective representatives. A new certificate will be delivered free of charge to the transferee after the transfer is completed and registered on his application and when necessary a balance certificate will be delivered if required by him in writing. 5.2.6 The Directors may refuse to register a transfer of a certificated share which is prohibited by the provisions described in paragraph 5.4 below and may also refuse to register the transfer of a certificated share or a renunciation of a renounceable letter of allotment unless: (a)

it is in respect of only one class of shares; and

(b)

it is in favour of a single transferee or renouncee or not more than four joint transferees or renouncees; and

(c)

it is delivered for registration to the Companyâ&#x20AC;&#x2122;s registered office or such other place as the Directors may decide, accompanied by the certificate for the shares to which it relates (except in the case of a transfer where a certificate has not been issued, or in the case of a renunciation) and such other evidence as the Directors may reasonably require to prove the title of the transferor or person renouncing and the due execution by him of the transfer or renunciation or, if the transfer or renunciation is executed by some other person on his behalf, the authority of that person to do so. 83

Japan Leisure Hotels Limited 5.2.7 If the Directors refuse to register the transfer of a certificated share, they must, within two months after the date on which the transfer was lodged with the Company, send notice of the refusal to the transferee. 5.2.8 The Company must register a transfer of title to any uncertificated share in accordance with the CREST Guernsey Requirements, but so that the Directors may refuse to register such a transfer in favour of more than four persons jointly or in any other circumstance permitted by the CREST Guernsey Requirements. If the Directors refuse to register the transfer of an uncertificated share they must, within two months after the date on which the transfer instruction relating to such transfer was received by the Company, send notice of the refusal to the transferee. 5.2.9 Subject to such restrictions (if any) as may be imposed by the CREST Guernsey Requirements, the registration of transfers may be suspended at such times and for such period (not exceeding 30 days in any one year) as the Directors may decide and either generally or in respect of a particular class of shares. 5.3

Disclosure of interests in shares 5.3.1 The Directors have power by notice in writing to require any member (defined in the Articles as the registered holder of a share) to disclose to the Company the identity of any person other than the member (an interested party) who has any interest in the shares held by the member and the nature of such interest and any documents to verify the identity of the member and/or the interested party as the Directors deem necessary. Any such notice must require any information in response to such notice to be given in writing within such reasonable time as the Directors may determine. 5.3.2 The Company will maintain a register of interested parties to which the provisions of sections 55 and 58 of the Companies Law will apply mutatis mutandis as if the register of interested parties was the register of members and whenever in pursuance of a requirement imposed on a shareholder the Company is informed of an interested party the identity of the interested party and the nature of the interest must be promptly inscribed therein together with the date of the request. 5.3.3 The Directors may be required to exercise their powers as described in paragraph 5.3.1 above on the requisition of members holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up capital of the Company as carries at that date the right of voting at general meetings of the Company. The requisition must state that the requisitionists are requiring the Company to exercise its powers under Article 73 of the Articles, specify the manner in which they require those powers to be exercised, and give reasonable grounds for requiring the Company to exercise those powers in the manner specified and must be signed by the requisitionists and deposited at the registered office of the Company. The requisition may consist of several documents in like form each signed by one or more requisitionists. On the deposit of a requisition complying with the Articles it is the Directors’ duty to exercise their powers as described in paragraph 5.3.1 above in the manner specified in the requisition.

5.4

Failure to disclose interests in shares 5.4.1 If any member has been duly served with a notice given by the Directors in accordance with the requirements described in paragraph 5.3.1 above and is in default for the prescribed period (being 28 days after service of the notice unless the shares concerned represent 0.25 per cent. or more in nominal value of the issued shares of the relevant class in which case it is 14 days) in supplying to the Company the information thereby required, then the Directors may in their absolute discretion at any time thereafter serve a notice (a “direction notice”) upon such member. 5.4.2 A direction notice may direct that, in respect of any shares in relation to which the default occurred (all or the relevant number as appropriate of such shares being the “default shares”) and any other shares held by the member, the member shall not be entitled to vote at a general meeting or meeting of the holders of any class of shares of the Company either personally or by proxy or to exercise any other right conferred by membership in 84

Japan Leisure Hotels Limited relation to meetings of the Company or of the holders of any class of shares of the Company, and where the default shares represent at least 0.25 per cent. of the class of shares concerned then the direction notice may additionally direct that in respect of the default shares (a) any dividend or part thereof or other amount which would otherwise be payable in respect of such shares will be withheld by the Company without any liability to pay interest thereon when such money is finally paid to the member, and the member shall not be entitled to elect to receive shares instead of a dividend, and (b) that no transfer other than an approved transfer (as described in paragraph 5.4.6(b) below) of the default shares held by such member may be registered unless the member is not himself in default as regards supplying the information requested and when presented for registration the transfer is accompanied by a certificate by the member in a form satisfactory to the Directors to the effect that after due and careful enquiry the member is satisfied that no person in default as regards supplying such information is interested in any of the shares the subject of the transfer. 5.4.3 The Company shall send to each other person appearing to be interested in the shares the subject of any direction notice a copy of the notice, but failure or omission by the Company to do so shall not invalidate such notice. 5.4.4 If shares are issued to a member as a result of that member holding other shares in the Company and if the shares in respect of which the new shares are issued are default shares in respect of which the member is for the time being subject to particular restrictions, the new shares shall on issue become subject to the same restrictions whilst held by that member as such default shares. For this purpose, shares which the Company procures to be offered to members pro rata (or pro rata ignoring fractional entitlements and shares not offered to certain members by reason of legal or practical problems associated with offering shares outside the United Kingdom or Guernsey) shall be treated as shares issued as a result of a member holding other shares in the Company. 5.4.5 Any direction notice shall have effect in accordance with its terms for as long as the default, in respect of which the direction notice was issued, continues but shall cease to have effect in relation to any shares which are transferred by such member by means of an approved transfer (as described in paragraph 5.4.6(b) below). As soon as practical after the direction notice has ceased to have effect (and in any event within seven days thereafter) the Directors shall procure that the restrictions imposed pursuant to the provisions described in paragraphs 5.4.2 and 5.4.4 above shall be removed and that dividends withheld pursuant to the provisions described in paragraph 5.4.2 above are paid to the relevant member. 5.4.6 For the purpose of this paragraph 5.4.6: (a)

(b)

a person shall be treated as appearing to be interested in any shares if the member holding such shares has given to the Company a notification which either: (i)

names such person as being so interested; or

(ii)

fails to establish the identities of those interested in the shares and (after taking into account the said notification and any other relevant notification) the Company knows or has reasonable cause to believe that the person in question is or may be interested in the shares;

a transfer of shares is an approved transfer if but only if: (i)

is a transfer of shares to an offeror by way or in pursuance of acceptance of a public offer made to acquire all the issued shares in the capital of the Company not already owned by the offeror or any connected person of the offeror in respect of the Company; or

(ii)

the Directors are satisfied that the transfer is made pursuant to a sale of the whole of the beneficial ownership of the shares to a party unconnected with the member and with other persons appearing to be interested in such shares; or 85

Japan Leisure Hotels Limited (iii) the transfer results from a sale made through a recognised investment exchange (as defined pursuant to FSMA) or any stock exchange outside the United Kingdom on which the Company’s shares are listed or normally traded. 5.4.7 Any shareholder who has given notice of an interested party in accordance with the requirements described in paragraph 5.3.1. above who subsequently ceases to have any party interested in his shares or has any other person interested in his shares must notify the Company in writing of the cessation or change in such interest and the Directors shall promptly amend the register of interested parties accordingly. 5.5

Compulsory transfer of shares 5.5.1 If it shall come to the notice of the Directors that any shares: (a)

are or may be owned or held directly or beneficially by any person in breach of any law or requirement of any country or by virtue of which such person is not qualified to own those shares and, in the sole and conclusive determination of the Directors, such ownership or holding or continued ownership or holding of those shares (whether on its own or in conjunction with any other circumstance appearing to the Directors to be relevant) would in the reasonable opinion of the Directors, cause a pecuniary or tax disadvantage to the Company or any other holder of shares or other securities of the Company which it or they might not otherwise have suffered or incurred; or

(b)

are or may be owned or held directly or beneficially by or on behalf of any Plan (as defined in the Articles); or

(c)

are or may be owned or held directly or beneficially by any other person to whom a transfer of shares of whose ownership or holding of any shares might, in the opinion of the Board, result in the assets of the Company being considered “plan assets” within the meaning of regulations adopted by the United States Department of Labor under ERISA;

(d)

are or may be owned or held directly or beneficially by or on behalf of any Private Offering Holders (as defined in the Articles) such that the aggregate number of Private Offering Holders who own or hold directly or beneficially (which for these purposes shall include beneficial ownership by attribution pursuant to section 3(c)(1)(A) of the Investment Company Act) any shares or other securities of the Company is or may be more than 75; or

(e)

are or may be owned or held directly or beneficially by any other person to whom a transfer of shares or whose ownership or holding of any shares might in the opinion of the Directors require registration of the Company as an investment company under the Investment Company Act,

the Directors may serve written notice (hereinafter called a “Transfer Notice”) upon the person (or any one of such persons where shares are registered in joint names) appearing in the register as the holder (the “Vendor”) of any of the shares concerned (the “Relevant Shares”) requiring the Vendor within 21 days (or such extended time as in all the circumstances the Directors consider reasonable) to transfer (and/or procure the disposal of interests in) the Relevant Shares to another person who, in the sole and conclusive determination of the Directors, would not and would not cause the Company to fall within paragraphs 5.5.1(a), 5.5.1(b), 5.5.1(c), 5.5.1(d) or 5.5.1(e) above (such a person being hereinafter called an “Eligible Transferee”). On and after the date of such Transfer Notice, and until registration of a transfer of the Relevant Share to which it relates pursuant to the provisions referred to in this paragraph or paragraph 5.5.2 below, the rights and privileges attaching to the Relevant Shares will be suspended and not capable of exercise. 5.5.2 If within 21 days after the giving of a Transfer Notice (or such extended time as in all the circumstances the Directors consider reasonable) the Transfer Notice has not been complied with to the satisfaction of the Directors, the Company may sell the Relevant Shares on behalf 86

Japan Leisure Hotels Limited of the holder thereof by instructing a London Stock Exchange member firm to sell them at the best price reasonably obtainable at the time of sale to any one or more Eligible Transferees. To give effect to a sale, the Directors may authorise in writing any officer or employee of the Company or any officer or employee of the secretary of the Company to transfer the Relevant Shares on behalf of the holder thereof (or any person who is automatically entitled to the shares by transmission or by law) or to cause the transfer of the Relevant Shares to the purchaser and in relation to an uncertificated share may require Euroclear to convert the share into certificated form and an instrument of transfer executed by that person will be as effective as if it had been executed by the holder of, or the person entitled by transmission to, the Relevant Shares. The purchaser is not bound to see to the application of the purchase money and the title of the transferee is not affected by any irregularity in or invalidity of the proceedings connected to the sale. The net proceeds of the sale of the Relevant Shares, after payment of the Companyâ&#x20AC;&#x2122;s costs of the sale, shall be received by the Company, whose receipt shall be a good discharge for the purchase moneys, and shall belong to the Company and, upon their receipt, the Company shall become indebted to the former holder of the Relevant Shares, or the person who is automatically entitled to the Relevant Shares by transmission or by law, for an amount equal to the net proceeds of transfer, in the case of certificated shares, upon surrender by him or them of the certificate for the Relevant Shares which the Vendor shall forthwith be obliged to deliver to the Company. The Company is deemed to be a debtor and not a trustee in respect of that amount for the member or other person. No interest is payable on that amount and the Company is not required to account for money earned on it. The amount may be employed in the business of the Company or as it thinks fit. The Company may register or cause the registration of the transferee as holder of the Relevant Shares and thereupon the transferee shall become absolutely entitled thereto. 5.5.3 A person who becomes aware that his ownership or holding, directly or beneficially of shares will or is likely to fall within any of paragraphs 5.5.1(a), 5.5.1(b), 5.5.1(c), 5.5.1(d) or 5.5.1(e) above shall forthwith, unless he has already received a Transfer Notice pursuant to the provisions referred to in paragraph 5.5.1 above either transfer the shares to one or more Eligible Transferees or give a request in writing to the Directors for the issue of a Transfer Notice in accordance with the provisions referred to in paragraph 5.5.1 above. Every such request shall, in the case of certificated shares, be accompanied by the certificate(s) for the shares to which it relates. 5.5.4 Subject to the provisions of the Articles, the Directors will, unless any Director has reason to believe otherwise, be entitled to assume without enquiry that none of the shares are held in such a way as to entitle the Directors to serve a Transfer Notice in respect thereof. The Directors may, however, at any time and from time to time call upon any holder (or any one of joint holders or a person who is automatically entitled to the shares by transmission or by law) of shares by notice in writing to provide such information and evidence as they require upon any matter connected with or in relation to such holder of shares. In the event of such information and evidence not being so provided within such reasonable period (not being less than 21 clear days after service of the notice requiring the same) as may be specified by the Directors in the said notice, the Directors may, in their absolute discretion, treat any share held by such a holder or joint holders or person who is automatically entitled to the shares by transmission or by law as being held in such a way as to entitle them to serve a Transfer Notice in respect thereof. 5.5.5 The Directors will not be required to give any reasons for any decision, determination or declaration taken or made in accordance with these provisions. The exercise of the powers conferred by the provisions referred to paragraphs 5.5.1 and/or 5.5.2 and/or 5.5.4 above may not be questioned or invalidated in any case on the grounds that there was insufficient evidence of direct or beneficial ownership or holding of shares by any person or that the true direct or beneficial owner or holder of any shares was otherwise than as appeared to the Directors at the relevant date provided that the said powers have been exercised in good faith.

Japan Leisure Hotels Limited 5.6

Meetings of Shareholders 5.6.1 The first general meeting of the Company should be held as required by law being within 18 months of October 2007 (being the date of incorporation of the Company) and thereafter annual general meetings shall be held at least once in each subsequent calendar year. 5.6.2 The Directors may convene an extraordinary general meeting whenever it thinks fit. Extraordinary general meetings shall be held in Guernsey or such other place as the Directors determine. Members holding at least one-tenth of the issued share capital of the Company, excluding any treasury shares, may by serving a membersâ&#x20AC;&#x2122; requisition on the Company require the convening of an extraordinary general meeting. Every member of the Company can attend a general meeting in person or by proxy. 5.6.3 A general meeting shall be called by not less than 14 clear daysâ&#x20AC;&#x2122; notice. 5.6.4 The quorum for a general meeting is two members present in person or by proxy and entitled to vote.

5.7

Voting rights 5.7.1 Subject as described in paragraph 5.4 above and to any special rights or restrictions as to voting attached to any class of shares, at a general meeting every member present in person has on a show of hands one vote and every member present in person or by proxy has on a poll one vote for every share of which he is the holder. Unless the Directors otherwise decide, no member is entitled in respect of a share held by him to be present or to vote, either in person or by proxy, at a general meeting or at a separate meeting of the holders of a class of shares or on a poll, or to exercise other rights conferred by membership in relation to the meeting or poll, if a call or other amount due and payable in respect of the share is unpaid. This restriction ceases on payment of the amount outstanding and all costs, charges and expenses incurred by the Company by reason of the non payment. No member will within the time set out in the relevant notice of the meeting be entitled to vote in respect of any shares unless he has been registered as their holder. 5.7.2 Any body corporate which is a member of the Company may by resolution of its own directors or other governing body appoint such one or more persons as it thinks fit to act as its representatives at any meeting of the Company or of any class of members of the Company and to approve any resolution submitted in writing. Each representative appointed will be entitled to exercise on behalf of the body corporate which he represents (in respect of that part of the body corporateâ&#x20AC;&#x2122;s holding of shares to which the authorisation relates) those powers that the body corporate could exercise if it were an individual member, including power to vote on a show of hands or on a poll and to demand or concur in demanding a poll. The body corporate will for the purposes of the Articles be deemed to be present in person at a meeting if a representative is present.

5.8

Directors 5.8.1 Appointment Directors may be appointed by an ordinary resolution of the Company or by the Directors. Any Director appointed by the Directors will hold office only until the next annual general meeting and will then be eligible for re-election. Unless the subscribers appoint a sole Director and until otherwise determined by the Directors the number of Directors shall not be less than two. At all times a majority of Directors shall be non-resident in the United Kingdom. A Director need not be a member of the Company. The Directors may appoint one or more of their number to hold employment or executive office with the Company for such term and on such other terms and conditions as the Directors think fit. The Directors may revoke or terminate an appointment, without prejudice to a claim for damages for breach of the contract of service between the Director and the Company or otherwise. The salary or other remuneration of a Director appointed to hold employment or executive office may be a fixed sum of money, or wholly or in part governed by business done or profits made, or as otherwise decided by the Directors, and may be in addition to or instead of a fee payable to him for his services as Director. 88

Japan Leisure Hotels Limited The Directors may enter into an agreement or arrangement with any Director for the provision of any services outside the scope of the ordinary duties of a Director. Any such agreement or arrangement may be made on such terms and conditions as the Directors think fit and the Directors may remunerate any such Director for his services as they think fit (whether by way of salary, percentage of profits or otherwise and either in addition to or in substitution for any other remuneration which he may be entitled to receive). 5.8.2 Retirement by Rotation At each annual general meeting when any one or more of the Directors who are subject to retirement by rotation: (a)

were last appointed or reappointed three years or more prior to the meeting;

(b)

were last appointed or reappointed at the third immediately preceding annual general meeting; or

(c)

at the time of the meeting will have served more than eight years as a non executive director of the Company,

he or they shall retire from office. If the number of Directors otherwise required to retire at any annual general meeting is less than one third of the number of Directors who are subject to retirement by rotation (rounded down if not a whole number), additional such Directors shall retire from office so that the total number of such Directors retiring by rotation at that annual general meeting is at least equal to one third of the number of Directors who are subject to retirement by rotation (rounded down if not a whole number), provided that if there are fewer than three Directors who are subject to retirement by rotation, at least one shall retire from office. Without prejudice to the foregoing sentence, and in addition to any Directors retiring pursuant to such sentence, any Director required to be subject to annual re-election by shareholders pursuant to the requirements of the AIM Rules for Companies will retire from office at each annual general meeting and will not be treated as subject to retirement by rotation for the purposes of determining the number or identity of the Directors required to retire by rotation at that annual general meeting. Subject to the above, the Directors to retire by rotation at an annual general meeting include any Director who wishes to retire and those who have been longest in office since their last appointment or reappointment. As between two or more who have been in office an equal length of time, the Director to retire will be determined by agreement between them or by lot. 5.8.3 Removal of Directors The Company may by ordinary resolution remove a Director before the expiry of his period of office. 5.8.4 Remuneration expenses and pensions Unless otherwise decided by the Company by ordinary resolution, the Company shall pay to the Directors (but not alternate Directors) for their services as Directors out of the funds of the Company by way of fees such sums as the Directors decide (not exceeding ÂŁ250,000 per annum in aggregate or such larger amount as the Company may by ordinary resolution decide). The aggregate fees will be divided among the Directors in such proportions as the Directors decide or, if no decision is made, equally. A Director who, at the request of the Directors, goes or resides in any country not his usual place of residence, makes a special journey or performs a special service on behalf of the Company may receive such sum as the Directors may think fit. A Director is entitled to be repaid all reasonable travelling, hotel and other expenses properly incurred by him in the performance of his duties as Director including, without limitation, expenses incurred in attending meetings of the Directors or of committees of the Directors or general meetings or separate meetings of the holders of a class of shares or debentures. 89

Japan Leisure Hotels Limited The fee payable to an alternate Director is payable out of the fee payable to his appointor and an alternate Director is not entitled to a fee from the Company. 5.8.5. Directorsâ&#x20AC;&#x2122; interests (a) Provided he has disclosed to the Directors the nature and extent of any material interest of his, a Director, notwithstanding his office: (i)

may enter into or otherwise be interested in a contract, arrangement, transaction or proposal with the Company or in which the Company is otherwise interested either in connection with his tenure of an office or place of profit or as seller, buyer or otherwise;

(ii)

may hold another office or place of profit with the Company (except that of auditor or auditor of a subsidiary of the Company) in conjunction with the office of Director and may act by himself or through his firm in a professional capacity to the Company, and in that case on such terms as to remuneration and otherwise as the Directors may decide either in addition to or instead of remuneration provided for in the Articles;

(iii) may be a director or other officer of, or employed by, or a party to a contract, transaction, arrangement or proposal with or otherwise interested in, a company promoted by the Company or in which the Company is otherwise interested or as regards which the Company has a power of appointment; and (iv)

(b)

is not liable to account to the Company for a profit, remuneration or other benefit realised by such contract, arrangement, transaction, proposal, office or employment and no such contract, arrangement, transaction or proposal is avoided on the grounds of any such interest or benefit.

A Director may not vote on a resolution of the Directors or of a committee of the Directors concerning a contract, arrangement, transaction or proposal to which the Company is or is to be a party and in which he has an interest which is, to his knowledge, a material interest (otherwise than by virtue of his interest in shares or debentures or other securities of or otherwise in or through the Company), but this prohibition does not apply to a resolution concerning any of the following matters: (i)

the giving of a guarantee, security or indemnity in respect of money lent or obligations incurred by him or any other person at the request of or for the benefit of the Company or any of its subsidiary undertakings;

(ii)

the giving of a guarantee, security or indemnity in respect of a debt or obligation of the Company or any of its subsidiary undertakings for which he himself has assumed responsibility in whole or in part, either alone or jointly with others, under a guarantee or indemnity or by the giving of security;

(iii) a contract, arrangement, transaction or proposal concerning an offer of shares, debentures or other securities of the Company or any of its subsidiary undertakings for subscription or purchase, in which offer he is or may be entitled to participate as a holder of securities or in the underwriting or subunderwriting of which he is to participate; (iv)

a contract, arrangement, transaction or proposal to which the Company is or is to be a party concerning another company (including a subsidiary undertaking of the Company) in which he is interested (directly or indirectly) whether as an officer, shareholder, creditor or otherwise (a â&#x20AC;&#x153;relevant companyâ&#x20AC;?), if he does not to his knowledge hold an interest in shares representing one per cent. or more of either any class of the equity share capital of or the voting rights in the relevant company;

Japan Leisure Hotels Limited

5.9

(v)

a contract, arrangement, transaction or proposal for the benefit of the employees of the Company or any of its subsidiary undertakings (including any pension fund or retirement, death or disability scheme) which does not award him a privilege or benefit not generally awarded to the employees to whom it relates; and

(vi)

a contract, arrangement, transaction or proposal concerning the purchase or maintenance of any insurance policy for the benefit of directors or for the benefit of persons including directors.

(c)

A Director may not vote on but may be counted in the quorum in relation to a resolution of the Directors or committee of the Directors concerning his own appointment (including, without limitation, fixing or varying the terms of his appointment or its termination) as the holder of an office or place of profit with the Company or any company in which the Company is interested. Where proposals are under consideration concerning the appointment (including, without limitation, fixing or varying the terms of appointment or its termination) of two or more Directors to offices or places of profit with the Company or a company in which the Company is interested, such proposals will be divided and a separate resolution considered in relation to each Director. In that case each of the Directors concerned (if not otherwise debarred from voting under Article 104) is entitled to vote (and be counted in the quorum) in respect of each resolution except that concerning his own appointment.

(d)

The Company may by ordinary resolution suspend or relax the provisions described in paragraphs 5.8.5(a)-(c) above.

Borrowing powers 5.9.1 Subject to the provisions of paragraph 5.9.2 below, the Directors may exercise all the powers of the Company to borrow or raise money and to give guarantees, mortgage, hypothecate, pledge or charge all or part of its undertaking property or assets (present or future) and uncalled capital and to issue debentures and other securities, whether outright or as collateral security for a debt, liability or obligation of the Company or of a third party. 5.9.2 The Directors shall restrict the borrowings of the Company so as to ensure that the aggregate principal amount from time to time outstanding in respect of moneys borrowed by the Company does not at any time without the previous sanction of an ordinary resolution of the Company exceed 80 per cent. of the gross asset value of the Group.

5.10 Dividends 5.10.1 The Company in general meeting may declare dividends but no dividend shall exceed the amount recommended by the Directors. 5.10.2 No dividend shall be paid otherwise than out of the profits of the Company. 5.10.3 The Directors may declare and pay such interim dividends as appear justified by the profits of the Company available for distribution. No interim dividend shall be declared or paid on shares which do not confer preferred rights with regard to dividend if, at the time of declaration, any dividend on shares which do confer a right to a preferred dividend is in arrears. 5.10.4 Except as otherwise provided by the rights attached to shares, a dividend will be declared and paid according to the amounts paid up on the shares in respect of which the dividend is declared and paid, but no amount paid up on a share in advance of a call may be treated for these purposes as paid up on the share. Except as otherwise so provided, dividends will be apportioned and paid proportionately to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid.

Japan Leisure Hotels Limited 5.10.5 Dividends unclaimed for a period of 12 years after having been declared or become due for payment are forfeited and cease to remain owing by the Company. 5.10.6 If, in respect of a dividend or other amount payable on a share, a cheque, warrant or money order is returned undelivered or left uncashed or a transfer made by a bank or other funds transfer system is not accepted, and reasonable enquiries have failed to establish another address or account (on any one occasion), the Company is not obliged to send or transfer the dividend or other amount payable until the shareholder has notified the Company of the address or account to be used for that purpose. 5.10.7 The Directors may, with the prior authority of an ordinary resolution, direct the payment of a dividend may be satisfied wholly or partly by the distribution of specific assets. 5.11 Capital reserve 5.11.1 The Directors may establish a non-distributable reserve to be called the â&#x20AC;&#x153;capital reserveâ&#x20AC;? and may either carry to the credit of such reserve from time to time, or apply in providing for depreciation or contingencies, all capital profits arising on the sale, transfer, conversion, payment off or realisation of any investments or other capital assets of the Company in excess of the book value thereof, all other capital profits and all unrealised appreciation of investments or other assets representing or in the nature of accretion to capital assets. Any losses realised on the sale, transfer, conversion, payment off or realisation of any investments or other capital assets and provisions in respect of the diminution in value or depreciation in the value of capital assets may be carried to the debit of the capital reserve except in so far as the Directors may in their discretion decide to make good the same out of other funds of the Company. 5.11.2 Subject to the Companies Law where any asset, business or property is bought by the Company as from a past date whether such date be before or after the incorporation of the Company profits and losses as from such date may at the discretion of the Directors in whole or in part be carried to revenue account and treated for all purposes as profits and losses of the Company. Subject as aforesaid if any shares or securities are purchased cum dividend or interest such dividend or interest may at the discretion of the Directors be treated as revenue and it will not be obligatory to capitalise all or part of the same. 5.11.3 The Directors may determine whether any amount received by the Company is to be dealt with as income or capital or partly one and partly the other (including, without limitation, whether an amount may be used in whole or in part for any purpose, including the payment of dividends), and whether any cost, liability or expense (including any costs incurred or sums expended in connection with the management of the assets of the Company and any finance costs (including, without limitation, any interest payable by the Company in respect of its borrowings)) is to be treated as a cost, liability or expense chargeable to capital or to revenue or partly one and partly the other, and to the extent the Directors determine that any such cost liability or expense should be apportioned to capital the Directors may debit or charge the same to the capital reserve. 5.11.4 Any reserves or other sums arising on the reduction or cancellation of any share premium account or capital redemption reserve of the Company will not be treated as capital for the purposes of the Articles and will not be carried to the credit of the capital reserve. For the avoidance of doubt all sums carried and standing to the capital reserve may be used for redemptions. 5.11.5 All sums carried and standing to the capital reserve may be applied for any of the purposes to which sums standing to any revenue reserve are applicable. 5.11.6 Notwithstanding any provision of the Articles, the Company is not prohibited from redeeming or purchasing its own shares out of its capital profits or other amounts standing to the capital reserve.

Japan Leisure Hotels Limited 5.12 Capitalisation of reserves The Directors may, with the authority of an ordinary resolution of the Company resolve to capitalise any undistributed profits of the Company or any part of the amount for the time being standing to the credit of any of the Companyâ&#x20AC;&#x2122;s reserve accounts whether or not available for distribution, appropriate the sum resolved to be capitalised to the members who, in the case of any amount capable of being distributed by way of dividend, would have been entitled thereto if so distributed or, in the case of any amount not so capable, to the members who would have been entitled thereto on a winding up of the Company and in either case in the same proportions and apply that sum on their behalf in paying up amounts unpaid on shares held by them or paying up in full unissued shares or debentures of a nominal amount equal to that sum and the Directors may make any arrangements they think fit to resolve a difficulty arising in the distributions of a capitalised reserve. 5.13 Duration of the Company 5.13.1 At the annual general meeting of the Company falling subsequent to the Companyâ&#x20AC;&#x2122;s fifth anniversary of incorporation and, if each previous such resolution shall have been passed at each second annual general meeting of the Company convened by the Directors thereafter, the Directors shall propose an ordinary resolution that the Company should continue as an investment company. 5.13.2 If any such ordinary resolution is not passed, the Directors shall draw up proposals for the future of the Company (which may include voluntary liquidation, unitisation or other reorganisation of the Company) for submission to the members of the Company at an extraordinary general meeting to be convened by the Directors for a date not more than three months after the date of the meeting at which such ordinary resolution was not passed. 5.13.3 The Directors shall ensure that such proposals for the liquidation, unitisation or reconstruction of the Company as are approved by special resolution are implemented as soon as is reasonably practicable after the passing of such resolution. 5.14 Distribution of assets on liquidation 5.14.1 On a voluntary winding up the liquidator may, on obtaining any sanction required by law, divide among the members in kind the whole or any part of the assets of the Company. For this purpose, the liquidator may set the value he deems fair on a class or classes of property, and may determine on the basis of that valuation and in accordance with the then existing rights of members how the division is to be carried out or vest the whole or any part of the assets in trustees. The liquidator may not distribute to a member without his consent an asset to which there is attached a liability or potential liability for the owner. 5.15 Untraced Shareholders The Company may, three months after advertising its intention in newspapers in the United Kingdom, Guernsey, Jersey and any jurisdiction where a holder of shares as shown in the register resides, sell any shares if the shares have been in issue for at least 12 years and during that period at least three cash dividends have become payable on them, no cheque or warrant or money order sent to the member has been cashed, no payment made by the Company has been claimed or accepted and, so far as any Director of the Company at the end of the relevant period is then aware, the Company has not received any communication during the relevant period from the member or the person entitled to them by transmission. Upon such sale, the Company will become indebted to the former holder of the shares or the person entitled to them by transmission for an amount equal to the net proceeds of sale. 5.16 Indemnity Without prejudice to any indemnity to which he may otherwise be entitled, every person who is or was a Director, alternate Director or secretary of the Company and their respective heirs and executors will be fully indemnified out of the assets and profits of the Company from and against all actions expenses and liabilities which they or their respective heirs or executors may incur by reason of any contract entered into or any act in or about the execution of their respective offices or trusts except such (if any) as they may incur by or through their own wilful act neglect or 93

Japan Leisure Hotels Limited default respectively and none of them will be answerable for the acts receipts neglects or defaults of the others of them or for joining in any receipt for the sake of conformity or for any bankers or other person with whom any moneys or assets of the Company may be lodged or deposited for safe custody or for any bankers or other persons into whose hands any money or assets of the Company may come or for any defects of title of the Company to any property purchased or for insufficiency or deficiency of or defect in title of the Company to any security upon which any moneys of the Company may be placed out or invested or for any loss misfortune or damage resulting from any such cause as aforesaid or which may happen in or about the execution of their respective offices or trusts except should the same happen by or through their own wilful act neglect or default. 6. 6.1

Directorsâ&#x20AC;&#x2122; and other Interests As at 4 January 2008 (being the latest practicable date prior to the publication of this Document), none of the Directors had any interests in the share capital of the Company, save that Sarah Evans was the beneficial owner of the single Ordinary Share held by HG Nominees 1 Limited and Mark Huntley was the beneficial owner of the single Ordinary Share held by HG Nominees 2 Limited. Following Admission, the interests of the Directors in the share capital of the Company, will be as follows: Number of Number of Warrants Ordinary Shares following following Admission Admission

Director

Percentage of issued share capital following Admission

Alan Clifton William Hunter Sarah Evans

100,000 200,000 100,000

50,000 100,000 50,000

0.11% 0.23% 0.11%

Total

400,000

200,000

0.45%

Save as disclosed in this paragraph 6, none of the Directors has any interest in the share capital of the Company. 6.2

Prior to Admission, the Company has two Ordinary Shares in issue, held by HG Nominees 1 Limited (for the benefit of Sarah Evans) and HG Nominees 2 Limited (for the benefit of Mark Huntley). Following Admission, the following persons (other than the Directors) are expected to have interests in three per cent. or more of the issued share capital of the Company:

Shareholder 1

Japan Leisure Investments LLC DKR SoundShore Oasis Holding Fund Ltd OMX Securities LLP 1

Number of Ordinary Shares following Admission

Percentage of issued share capital following Admission

36,723,656 2,202,000 1,500,000

83.27% 4.99% 3.40%

Funds invested by DKR Oasis Management Company LP hold approximately 99.2 per cent. of the shares in Japan Leisure Investment LLC.

Save as set out in this paragraph and in this paragraph 6, the Company is not aware of any person who has or will immediately following Admission have an interest in three per cent. or more of the issued share capital of the Company. 6.3

Following Admission, Japan Leisure Investments LLC will have an 83.27% stake in the Company and could, in theory therefore, by virtue of its shareholding, seek to obtain control over the Company. Such control could only be obtained if Japan Leisure Investments LLC were to requisition changes to the board which is currently wholly independent of Japan Leisure Investments LLC. The directors understand that following Admission it is intended that the shares held by Japan Leisure Investments LLC will be distributed to their ultimate beneficial owners and at that time the board will explore whether to recommend any restrictions on the exercise of control by any potential controlling shareholders. 94

Japan Leisure Hotels Limited 6.4

None of the major shareholders of the Company set out above has different voting rights from any other holder of Ordinary Shares in respect of any Ordinary Share held by them.

6.5

The Company has entered into a letter of appointment with each of the Directors for an initial period of 12 months, terminable on three months’ notice by either party: (a)

Alan Clifton’s (Non-Executive Chairman) letter of appointment with the Company is dated 7 January 2008 and will run for an initial period of 12 months from 16 January 2008 at an annual fee of £30,000.

(b)

Sarah Evans’ (Non-Executive Director and Chair of Audit Committee) letter of appointment with the Company is dated 7 January 2008 and will run for an initial period of 12 months from 16 January 2008 at an annual fee of £20,000.

(c)

William Hunter’s (Non-Executive Director and Chairman of Strategy Committee) letter of appointment with the Company is dated 7 January 2008 and will run for an initial period of 12 months from 16 January 2008 at an annual fee of £15,000.

(d)

Mark Huntley’s (Non-Executive Director) letter of appointment with the Company is dated 7 January 2008 and will run for an initial period of 12 months from 16 January 2008 at an annual fee of £15,000.

The Company will reimburse the Directors for any expenses that they may incur properly and reasonably in performing their duties and which are properly documented. 6.6

The Directors: (a) are or have been directors or partners of the following companies and partnerships at any time in the previous five years: Present directorships and partnerships

Former directorships and partnerships

Alan Clifton JP Morgan Fleming Japanese Smaller Companies Investment Trust plc Schroder UK Group Fund Plc Principle Capital Investment Trust Plc International Biotechnology Trust Plc Macau Property Opportunities Fund Limited

Lifetime Group Ltd. Henderson European Micro Trust Plc Gartmore Balanced Assets Trust Plc Britannic UK Income Trust Plc G-Mex Ltd Global Opportunities Trust Plc

William Hunter Hunter Financial, Inc. Hunter Management, Inc.

Structured Partnership #1 LLP

Sarah Evans Celadon PCC Ltd Evans Property Holdings Limited La Bigoterie Holdings Limited Crystal Amber Fund Limited Mark Huntley Heritage International Fund Managers Limited Heritage Management Holdings Limited Aile Limited Plein Limited P25 (GP) Limited P25 Investments Limited MPOF (Guia) Limited MPOF (Penha) Limited MPOF (Taipa) Limited MPOF (Jose) Limited MPOF (Monte) Limited MPOF (Paulo) Limited MPOF (Senado) Limited MPOF (Sun) Limited Heritage Partners Limited 95

Heritage Fiduciaries Limited

Japan Leisure Hotels Limited Present directorships and partnerships

Former directorships and partnerships

MPOF (Antonio) Limited Celadon Management Limited MPOF (10A) Limited MPOF (10B) Limited MPOF (6A) Limited MPOF (6B) Limited MPOF (7A) Limited MPOF (7B) Limited MPOF (8A) Limited MPOF (8B) Limited MPOF (9A) Limited MPOF (9B) Limited Lehman Brothers Merchant Banking Europe Capital Partners Management Limited MPOF Mainland Company 1 Limited Stirling Mortimer Global Property Fund PCC Limited Stirling Mortimer (Channel Islands) Limited Falcon Carry (GP) Limited AAC Capital NEBO Carry GP Limited AAC Capital NEBO Feeder GP Limited Fun Capital Limited Stirling Mortimer (Guernsey) Limited Stirling Mortimer Property Fund PCC Limited Genesis Administration Limited Genesis Taihei Investments, LLC Genesis Asset Managers LLP Crystal Amber Asset Management (Guernsey) Limited Crystal Amber Fund Limited Hologram Holdings Limited Bream Limited Cannonball Limited Civet Limited Channels Islands Stock Exchange LBG London Asia Chinese Private Equity Fund Limited Baring Coller Secondaries Fund II Limited Heritage Partners GP Limited Heritage Group Limited (b)

have no unspent convictions relating to indictable offences (including fraudulent offences);

(c)

have not had any bankruptcies or individual voluntary arrangements;

(d)

save as disclosed in paragraph 6.7 below, have not been directors of any company at the time of, or within 12 months preceding, any receivership or liquidation (including compulsory liquidation, creditorsâ&#x20AC;&#x2122; voluntary liquidation), administration, company voluntary arrangement or any composition or arrangement with creditors generally or any class of creditors of such company;

(e)

have not been partners of any partnership at the time of, or within 12 months preceding, any compulsory liquidation, administration or partnership voluntary arrangement of such partnership;

(f)

have not had any of their assets the subject to any receivership or have been a partner of a partnership at the time of or within 12 months preceding any assets thereof being the subject of a receivership;

(g)

have not received any public criticisms by statutory or regulatory authorities (including recognised professional bodies) or ever been disqualified by a court from acting as a director of a company or from acting in the management or conduct of the affairs of any company. 96

Japan Leisure Hotels Limited 6.7

Sarah Evans was a director of Brimbul Ltd until 30 March 1994. Brimbul Ltd went into voluntary liquidation on 22 March 1995. The statement of affairs prepared on 6 March 1995 showed an estimated total deficiency to shareholders and creditors of £64,238.

6.8

Save as disclosed and excluding professional advisers, no person has at any time within the 12 months preceding the date of this Document received, directly or indirectly, from the Company or entered into any contractual arrangement to receive, directly or indirectly, from the Company on or after Admission any fees totalling £10,000 or more or securities in the Company with a value of £10,000 or more or any other benefit with a value of £10,000.

7. 7.1

Compulsory purchase of minority shareholders The Company may be subject to the Takeover Code if its central management and control of the company is deemed by the Panel to occur in the UK, Channel Islands or the Isle of Man. The Takeover Code, inter alia, provides that if any person, or group of persons acting in concert (as defined in the Takeover Code) acquires shares carrying 30 per cent. or more of the voting rights exercisable in general meeting of a company, that person shall be required to make an offer for all the issued shares not already held by him (or persons acting in concert with him) in cash at the highest price paid by that person, or any person acting in concert with him during the 12 month period prior to the purchase of shares which triggered the obligation. There are certain circumstances in which no such offer may be required.

7.2

The Company is incorporated and registered in Guernsey under Guernsey company law pursuant to which, at the date of this Document, there are no statutory provisions in a takeover context for the compulsory acquisition of shares held by shareholders who have not assented to a general offer.

8. Working Capital The Directors are of the opinion that, having made due and careful enquiry, taking into account the net proceeds of the Placing receivable by the Company, the Group will have sufficient working capital available to it for its present requirements, that is, for at least the next 12 months from the date of Admission. 9. Material Contracts The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group (a) in the two years immediately preceding the date of this Document and are, or may be, material or (b) contain provisions under which any member of the Group has any obligation or entitlement which is material to the Group as at the date of this Document: Investment Structure (a) the TK Agreements described in paragraph 10.1 below; (b)

the TK Amendment Agreements described in paragraph 10.2 below;

(c)

the Asset Management Agreement described in paragraph 10.3 below;

(d)

the Master Hotel Operation Agreement described in paragraph 10.4 below;

(e)

the Single Hotel Operating Agreement described in paragraph 10.5 below;

(f)

the Total Produce Operating Agreements described in paragraph 10.6 below;

(g)

the Trade Mark Licence Agreement described in paragraph 10.7 below;

(h)

the Call Option Deed described in paragraph 10.8 below;

Acquisition of the Existing Portfolio (i) the Assignment Agreements described in paragraph 10.9 below; (j)

the Loan Note Instrument described in paragraph 10.10 below; 97

Japan Leisure Hotels Limited Placing and AIM Admission (k) the Placing Agreement described in paragraph 10.11 below; (l)

the Nominated Adviser and Broker Agreement described in paragraph 10.12 below;

(m)

the Warrant Instrument described in paragraph 10.13 below;

(n)

the Lock-in Agreement described in paragraph 10.14 below;

(o)

the Administration Agreement described in paragraph 10.15 below;

(p)

the Registrar’s Agreement described in paragraph 10.16 below;

(q)

the West Hill engagement letter described in paragraph 10.17 below.

10. Material Contract Descriptions 10.1 TK Agreements The following is a description of the form of TK Agreement which, following Admission, will govern the relationship between each TK Operator and the TK Investor in relation to the Existing Portfolio. This form of agreement will also govern the relationship between the TK Investor and the TK Operator for any future acquisitions. The TK Agreement is to be entered into between the TK Operator (a company duly incorporated and validly existing under the laws of Japan) (the “TK Operator”), and a wholly owned subsidiary of the Company which is a limited liability company duly organised and existing under the laws of Guernsey (the “TK Investor”), in accordance with the Commercial Code of Japan, under which the relationship between the TK Operator and the TK Investor is the relationship between eigyo-sha and tokumei kumiai-in (as provided for in Part 2, Chapter 4 of the Commercial Code of Japan). Under the agreement, the TK Investor may from time to time provide funds (“TK Investments”) to the TK Operator to enable the TK Operator to engage in business relating to acquiring and operating leisure hotels in Japan, and other related business activities of the TK Operator (the “TK Business”) in exchange for which the TK Operator will allocate the TK Investor a percentage of operating profits and losses. The TK Investments take the form of an initial investment made within 15 days of receiving notice from the TK Operator, and additional investments if requested by the TK Operator. A request for additional TK Investments must be approved or declined in writing by the TK Investor within 20 business days of notice. The TK Investor has no authority, control over or interest in the TK Business, other than receiving a percentage (97 per cent.) of the operating profits or operating losses (the “TK Investment Percentage”) which are calculated by the TK Operator for the preceding Calculation Period within 45 days of the last day of each calculation date, being March 31, June 30, September 30 and December 31 each year. The TK Investor is liable for operating losses to the extent of its TK Investments. The amount of any operating losses or profits will be less the TK Operator’s directors’ fees and less an amount equal to the “grossed up” national and local land surtax and other relevant taxes (if not deductible from the TK Operator’s taxable income.) A cash distribution can be made only if the TK Operator determines that cash is available for distribution, taking into account the working capital needs and reserves for identifiable future expenditure. The TK Operator determines whether any distribution is of profits or a return of investments. The TK Operator may additionally make cash distributions at the end of each month subject to the above. It is only in this manner that the TK Investments can be returned to the TK Investor before the agreement is terminated. The property, including the TK Investments, and any assets acquired by the TK Operator with respect to the TK Business is owned by the TK Operator. Except where the TK Investor assigns to one of its affiliates, the TK Operator and the TK Investor cannot assign their respective interests under the agreement without the prior consent of the other party. The TK Operator is liable for all obligations and liabilities vis-à-vis third parties related to the TK Business. The TK Investor and TK Operator provide customary representations and warranties to each other. The TK Operator has to produce quarterly and annual finance reports, the latter in accordance with Japanese GAAP.

Japan Leisure Hotels Limited The agreement contains an indemnity from the TK Investor in favour of the TK Operator against and from any losses, claims, damages and liabilities incurred by the TK Operator in connection with the inaccuracy or incorrectness of any representation or warranty of the TK Investor under the agreement. The TK Operator provides a corresponding indemnity in favour of the TK Investor. The TK Investor can terminate the agreement with 90 days’ prior written notice at any time. The agreement may also be terminated after the occurrence of certain events such as an on-going material breach or the sale, transfer, total loss, total destruction or other disposition of all or substantially all of the Property, such that the operation of the business cannot be continued, the dissolution or insolvency of the TK Operator, or if it is no longer reasonably practical to operate the business under the agreement. Where the agreement is terminated, the TK Operator shall liquidate the Property at the best price and within 180 days following termination shall compute an amount distributable to the TK Investor. 10.2 TK Amendment Agreements Y.K. First Dormitory (the TK Operator of part of the Existing Portfolio), has entered into an amendment agreement with JLH1 Limited on or about 7 January 2008 pursuant to which their respective existing TK Agreement was amended to be identical to the form of TK Agreement described in paragraph 10.1 above. In the same way, Y.K. KN Planning and JLH1 Limited entered into an identical amendment agreement on or about 7 January 2008. 10.3 Asset Management Agreement The asset management agreements to be entered into at Admission between each of the TK Operators (each, the “Owner”) and New Perspective (the “Asset Manager”) under which the Owner appoints the Asset Manager as asset manager of the real estate or other related assets of the Owner (the “Property”) (including identifying and evaluating potential new Property), with delegated authority in respect of areas such as management and operation of the Property, and services relating to ownership, lease and disposition of the Property. The Asset Manager also has the power and authority to delegate the provision of any services to third party service providers, including dealing with lenders in connection with financing the property. Additionally, obligations of the Asset Manager under the agreement include supervision of the hotel operators and third party service providers, management responsibility for the website of the property, development of the points-based loyalty program, producing the annual management and budget plan, and keeping and maintaining complete and accurate books of account and records and providing copies of such to the Owner and the lender. Under the Agreement, the Asset Manager receives an annual management fee paid quarterly in advance (the “Management Fee”) of 2 per cent. of the value of the Group (the “Net Asset Value”) (reduced to 1.5 per cent. until 50 per cent. of the net funds raised upon Admission to trading on AIM (the “Admission”) have been invested by JLH). New Perspective will be entitled to a performance fee, calculated by reference to Absolute Shareholder Returns of the Company following Admission. The performance fee will be paid in cash with each TK Operator having a right to terminate if New Perspective does not apply half of the sum received to subscribe for new Ordinary Shares in the capital of the Company which the Board has agreed to issue. The payment of the performance fee is subject to two conditions: first, that the average middle market closing price of an Ordinary Share on the 30 dealing days before the last day of the relevant accounting period (also the price at which the new Ordinary Shares will be issued to New Perspective) plus any dividends and other distributions of the Company since Admission (the “Benchmark Price”) exceeds the Benchmark Price for all prior periods; and, second, that Absolute Shareholder Returns exceeds 10 per cent. per annum (cumulative non-compounded) of the subscribed ordinary share capital of the Company (the “Hurdle”).

Japan Leisure Hotels Limited Once the Hurdle has been achieved in respect of any financial year, New Perspective will be entitled to receive a payment (the “Performance Fee”) equal to the aggregate of: i)

25 per cent. of the Hurdle or, if less, the amount by which Absolute Shareholder Returns exceed the Hurdle (the “Surplus”); and

ii)

if the Surplus exceeds 25 per cent. of the Hurdle, 20 per cent. of that excess.

With effect from any resolution being passed to wind up the Company the Performance Fee will be payable from the proceeds of the sale of hotels based on cash distributions to Shareholders taking into account all prior distributions to holders of Ordinary Shares. In these circumstances, once subscription proceeds have been returned to holders of Ordinary Shares and the Hurdle (calculated as at the date of the resolution to wind up the Company) has been paid, the Asset Manager will be entitled to a catchup payment of 25 per cent. of the Hurdle (to the extent not already paid) and any excess will be split 80:20 in favour of the holders of Ordinary Shares, by reference to cumulative distributions over the life of the Company. Similarly, the Performance Fee calculation on a takeover is by reference to the price per share offered as part of the acquisition. The Performance Fee payments are cumulative and, to the extent that the Company is not able to make payment of the Performance Fee, any shortfall will be payable as part of the Performance Fee payment payable in the next financial year(s). There are provisions for a compensation payment of one year’s Management Fee and the Performance Fee entitlement where the Asset Management Agreement is terminated on a change of control of the Company or because the Company ceases to be listed on AIM. The Performance Fee will be paid in cash and the Owner has the right to terminate if the Asset Manager does not apply half of the sum received to subscribe for new Ordinary Shares in the capital of the Company. The Owner will also pay or reimburse the Asset Manager for direct costs, fees and expenses incurred by or on behalf of the Owner in connection with the management and operation of the Property. The Asset Manager gives customary representations, warranties and covenants under the Agreement. The Agreement does not permit assignment of the duties or rights of either party without prior consent of the other party. The Asset Manager indemnifies the Owner for any material losses incurred as a result of (but not limited to) fraud, misappropriation of funds, wilful misfeasance, material breach, occurrence of a prohibited act or condition, or fines, claims and lawsuits arising from employee issues and employment practices. The Owner indemnifies the Asset Manager and its affiliates against any losses, judgments, liabilities and expenses and amounts paid in settlement of any losses sustained by them in connection with the Property and execution of the agreement, subject to certain provisos regarding the conduct of the Asset Manager and its affiliates, employees and agents. The Asset Manager and its affiliates will also have no liability to the owner for any claims, costs, expenses, damages or losses suffered by the Owner arising out of their action or inaction in certain circumstances. The Agreement remains in force until either it is terminated, or sale of the Property is completed. Either party may terminate (at any time) after the fifth anniversary of Admission by giving 12 months’ written notice (notice to expire on or after the sixth anniversary). The appointment of the Asset Manager can be terminated by the Owner with ten days’ notice in writing where, inter alia, the Asset Manager materially breaches any provision and does not remedy within 30 days of written notice of breach, a court of competent jurisdiction enters an order for dissolution or bankruptcy, a requisite authorisation or registration is not maintained by the Asset Manager, the Asset Manager is negligent or commits a crime involving fraud and/or financial dishonesty. The Asset Manager may terminate the Agreement at any time if required by any court of competent jurisdiction or if the Owner materially breaches its obligations and does not remedy within the time frames specified in the agreement or if the Company’s Ordinary Shares cease to be traded on AIM. The agreement can be terminated within 90 days of the termination of the related TK Agreement by providing 90 days’ notice, to the Asset Manager. Where, within 180 days of a change of control of the Company or a relevant subsidiary, the TK Investor terminates the TK Agreement and the Asset Manager is also 100

Japan Leisure Hotels Limited given notice to terminate the Asset Management Agreement, then the Asset Manager shall receive fees in respect of the three month notice period, and liquidated damages equal to one year’s further fees. It also receives this compensation if it terminates because the Company has delisted. 10.4 Master Hotel Operation Agreements A master hotel operation agreement will be entered into at Admission between each of Y.K. First Dormitory and Y.K. KN Planning (the “Owner”), Y.K. New Perspective (the “Asset Manager”) and Bonita Services LLP, (the “Hotel Operator”). It will also be the basis of the form of agreement to be entered into for new properties which Bonita Services is to operate. Under the Agreement, the Owner allows the Hotel Operator, under the Asset Manager’s supervision, to run the day to day operation and maintain the hotel properties excluding repair or restoration work resulting from major damage, and certain other periodic renovations. A business plan is created annually by the Hotel Operator, addressing issues such as management and operation, and income and expenditure. The Hotel Operator may delegate or outsource, subject to approval from the Owner and the Asset Manager, any of the activities necessary to perform its duties and obligations relating to the business. The fee paid to the Hotel Operator by the Owner is determined by the Hotel Operator’s involvement with the property. Where the Hotel Operator operates a property itself, within 30 days from the end of each calendar month the Owner pays an amount equal to four per cent. of the monthly revenues of the property for the month just ended plus applicable consumption tax. The Agreement provides that the Hotel Operator must promptly deposit all daily sales in an account designated by the Asset Manager in the name of the Owner. The Hotel Operator can retain certain amounts of money for various purposes calculated at a given rate for each guest room in the property (“Petty Cash”). The Hotel Operator will keep separate detailed transaction histories and records for each relevant property, and supply these to the Asset Manger within four Business Days after the end of each month. The Hotel Operator, the Asset Manager and the Owner each provide customary representations and warranties. The Hotel Operator also covenants regarding the manner of conduct of the business. Without the prior written consent of the concerned counterparty, the parties to the agreement may not assign the rights and duties under the agreement to third parties. The agreement contains an indemnity by the Hotel Operator in favour of the Asset Manager and the Owner for any material losses or expenses incurred as a result of, (but not limited to): fraud; certain acts or omissions by the Hotel Operator or its employees, breach of the Agreement by the Hotel Operator, the occurrence of a prohibited act or condition or any fines, claims, lawsuits or similar proceedings arising under labour and employment matters. The agreement remains in effect until 31 December 2008, whereupon it may be terminated. If there is no application to terminate, the agreement will automatically renew for one year. The contract renews annually until terminated thereafter. Any party can terminate with three months’ prior written notice to the other parties. One month’s written notice to the Hotel Operator is needed if the properties are sold. In certain circumstances, such as involving (but not limited to) a breach of a term or warranty under the Agreement, or an order for liquidation, either the Hotel Operator or the Asset Manager may terminate by giving the other party not less than ten days’ written notice. Upon termination, the Hotel Operator will vacate the properties on the date and at a time decided by the Asset Manager. 10.5 Single Hotel Operation Agreement The form of hotel operation agreement between the “Owner” and Y.K. New Perspective (the “Asset Manager”) and the “Hotel Operator” concerns the day to day operation of hotels by the Hotel Operator. The owner entrusts the Hotel Operator with certain management and maintenance responsibilities regarding the Property, under the Asset Manager’s supervision (as governed by an Asset Management Agreement). This form of agreement will, subject to negotiation, be sought to be used for new properties where Bonita Services is not the operator. 101

Japan Leisure Hotels Limited Under the agreement, the Owner pays to the Hotel Operator an operator fee, which has two components: (i) a revenue fee of an amount equal to a fixed percentage (to be negotiated) of the total sales after discounts (excluding consumption tax) of the property for the month just ended, which is payable within 30 days from when the Asset Manager receives an invoice from the Hotel Operator; and (ii) an incentive fee, calculated quarterly in arrears at the end of each quarter and payable within 45 days of the end of each quarter. The incentive fee is calculated as follows: 25 per cent. of (a) sum of the average monthly revenue per room less the actual costs incurred over the quarter divided by the gross revenue, and multiplied by three, minus (b) the sum of the minimum revenue per room less all costs in the operation of the property divided by the projected revenue in the relevant business year, and multiplied by three; and (c) the sum of (a) minus (b) is to be multiplied by the number of rooms in the property. The incentive fee can never be less than JPY zero. The Hotel Operator indemnifies the Asset Manager and the Owner. No party to this Agreement can assign rights and duties under the Agreement without prior written consent from the relevant party. The Agreement can be terminated by ten days notice by the Asset Manager to the Hotel Operator where, (inter alia), the Hotel Operator does not achieve the minimum revenue per room for any two months out of any consecutive 12 month period, or where the Hotel Operator commits a material breach. Ten days notice is required by either party to the other party where, (but not limited to) duties under the Agreement are not fulfilled by either the Asset Manager or the Hotel Operator and this is not remedied within ten days of receipt of notice of the breach, or a court order for bankruptcy is made. Either party may also terminate by giving three months written notice to the other party. If the property is sold, one month’s notice is required to the Hotel Operator to terminate. 10.6 Total Produce Operating Agreements K.K. Total Produce (“Total Produce”), Y.K. First Dormitory (“Owner”) and Y.K. New Perspective (the “Asset Manager”) have entered into two hotel operation agreements dated 1 January 2007 in respect to the day to day operation of two of the hotel properties in the Existing Portfolio. Under these agreements the Owner entrusts Total Produce with certain management and maintenance responsibilities regarding the relevant hotel properties, under the Asset Manager’s supervision. Under the agreements, the Owner pays Total Produce an operator fee, which has two components: (i) a revenue fee of an amount equal to four per cent. of the monthly revenue (excluding consumption tax) of the property for the month just ended, which is payable within 30 days from when the Asset Manager receives the monthly report from Total Produce; and (ii) an incentive fee, calculated quarterly in arrears at the end of each quarter and payable within 45 days from when it receives the quarterly report from Total Produce. The incentive fee is calculated as follows: 25 per cent. of (a) sum of the average monthly revenue per room less the actual costs incurred over the quarter divided by the gross revenue, and multiplied by three, minus (b) the sum of the minimum revenue per room less all costs in the operation of the property divided by the projected revenue in the relevant business year, and multiplied by three; and (c) the sum of (a) minus (b) is to be multiplied by the number of rooms in the property. The incentive fee can never be less than JPY zero. Total Produce indemnifies the Asset Manager and the Owner. No party to the agreements can assign rights and duties under the agreements without prior written consent from the other relevant parties. Both agreements can be terminated by ten days’ notice by the Asset Manager to Total Produce where, (inter alia), Total Produce does not achieve the minimum revenue per room for any two months out of any consecutive 12 month period, or where Total Produce commits a breach of the agreement and fails to cure such breach with ten days after receiving written notice from the Asset Manager requesting correction of the breach. If the property is sold, one month’s notice is required to Total Produce to terminate.

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Japan Leisure Hotels Limited 10.7 Trade Mark Licence Agreement The trademark licence agreement which will be entered into between Bonita Services LLP (the “Licensor”), and each TK Operator (the “Licensee”), under which the Licensor grants a nonexclusive, non-transferable licence (the “Licence”) for the use of certain trademarks to the Licensee for use in a specified territory on hotels and related promotional materials. Whilst not exclusive, the Licensor agrees not to licence entities that are not TK Operators in which subsidiaries of the Company have invested. There are no rights to grant sub-licences. Under the agreement, the Licensee agrees, inter alia, not to do or permit anything to be done that could adversely affect the registration of the registered trademark, or prejudice the Licensor’s right of title and to use the Licence only in accordance with the agreement. The Licensor does not give any representations, conditions or warranties and expressly excludes conditions and warranties regarding validity of the trademarks and third party rights under the Licence. The Licensee indemnifies the Licensor against all loss, claims and costs incurred by the Licensor arising directly or indirectly from its sale, use or disposal of material used to promote the overall revenue and business activities of the hotels developed by the Licensee or the use of the trade marks under the agreement. The agreement provides that the Licensee will pay an annual royalty payment of Yen1,000. The Licensee will also reimburse to the Licensor expenses within 30 days from the date of any invoice for the cost of stipulated products. Where the Licensee fails to make a due payment, an interest charge is incurred at the rate of 10 per cent. per annum until paid. The Licensee can terminate the agreement on the last business days of March, June, September and December in every year, giving not less than 180 days’ written notice to the Licensor. The Licensor may terminate the agreement or Licence by notice to the Licensee if, inter alia, due royalties remain unpaid for 30 days, there is an irremediable breach by the Licensee, the Licensee is involved in bankruptcy proceedings or, control of the Licensee is acquired by a party not having control of the Licensee at the date of the agreement. Absent cause. The Licensor can terminate by 180 days’ notice after any Master Hotel Operation Agreement between the parties has been terminated. Following termination, the Licensee shall cease to use or make use of the trademarks under the agreement, and within ten business days will provide a certificate warranting this. 10.8 Call Option Deed The call option deed will be between Bonita Services (the “Seller”) and the Company (the “Buyer”) whereby the Seller grants to the Buyer a call option to purchase the trade mark for a cash consideration of £100,000. To exercise the option, the Buyer’s shares must be listed on AIM, and either (i) any of the master hotel agreements entered into between the Seller and New Perspective and a Tokumei Kumiai must have been terminated or (ii) the Seller must have breached obligations regarding trademark maintenance. The period to exercise the option ends on whichever is the earlier of the sixth anniversary of the Buyer’s admission to AIM and the termination of any TK agreement in which the buyer has invested through subsidiaries. Until the earlier of completion of either the sale and purchase of the trademark, or the lapse of the option to purchase, the Seller will not, without prior written consent from the Buyer, sell, transfer or otherwise dispose of or mortgage, charge, pledge or otherwise encumber its legal or beneficial interest in or abandon, allow to lapse or fail to enforce the monopoly granted by the trademark. Neither party can assign, transfer or declare a trust of any benefit arising under or out of the deed, or subcontract or delegate to a third party any of its obligations without the prior written consent of the other party. Neither party shall disclose the existence of the deed nor its terms, except to professional advisors or as required by law or legal regulatory authorities. The Seller provides warranties to the Buyer inter alia that it has full power and authority to grant an option in respect of the trade mark.

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Japan Leisure Hotels Limited 10.9 Assignment Agreements Assignment agreements all dated 7 January 2008, (the “Completion Date”), between (1) JLH1 Limited, Japan Leisure Investments LLC (referred to therein as the “TK Investor”) and Y.K. First Dormitory (referred to therein as the “TK Operator”); (2) JLH1 Limited, Japan Leisure Investments LLC (referred to therein as the “TK Investor”) and Y.K. KN Planning (referred to therein as the “TK Operator”); (3) JLH1 Limited, Cayman National Trust Co. Ltd (solely in its capacity as trustee of the Japan Leisure Trust No. 1) (referred to therein as the “TK Investor”) and First Dormitory (referred to therein as the “TK Operator”) (4) JLH1 Limited, Cayman National Trust Co. Ltd (solely in its capacity as trustee of the Japan Leisure Trust No. 1) (referred to therein as the “TK Investor”) and YK KN Planning (referred to therein as the “TK Operator”) by which the respective TK Investors (as “Assignor”) have assigned their interests in and rights and obligations under the respective TK Agreements (as defined in the relevant Assignment Agreement) to JLH1 Limited (as “Assignee”) for the sum of £19 million to be satisfied by the issuance of loan notes (described in paragraph 10.10 below) by JLH1 Limited (the Assignment Agreements”). Under the Assignment Agreements, the respective Assignor transfers to the Assignee (“Jyoto”) its rights to receive the distribution and payments (including a portion of the operating profits receivable) under the respective TK Agreement arising after the Completion Date, the TK investor financial reports, notices, the final distribution amount following termination of the respective TK Agreement and its right to be indemnified by and, to be held harmless by the respective TK Operator. The Assignee is not, however, entitled to interfere with the management or administration of the business and must abide by the terms of the respective TK Agreement as if it were the Assignor. The Assignment Agreements will endure and be binding against successors and certain permitted assigns. 10.10 Loan Note Instrument JLH1 Limited is a Guernsey incorporated company. The loan note instrument that it will issue (the “Instrument”) constitutes £25 million of loan notes with a coupon of 6 month LIBOR plus 0.5 per cent., which are unsecured obligations. Interest is payable annually in arrears on each anniversary of the date of issue. Notes are redeemable on 7 January 2013 although JLH1 Limited can elect to prepay by way of purchase by tender or private treaty. The notes are certificated (with holders which are recorded on a register), not registered under US, Canadian or Australian securities laws and noteholders can elect to postpone repayment for up to 12 months. Events of default that entitle a noteholder to require early repayment include failure to pay principal or interest, or insolvency events. 10.11 Placing Agreement The Company, SCS, SCC, the Asset Manager, the Directors and Robert Marshall entered into the Placing Agreement on 7 January 2008 pursuant to which, inter alia: (a)

SCS agreed, subject to certain conditions, to use reasonable endeavours to procure subscribers for the Placing Shares at the Placing Price;

(b)

the Company agreed to pay to SCC a corporate finance fee of £205,000 and to SCS a commission of three per cent. of the amount equal to the Placing Price multiplied by the number of Placing Shares placed pursuant to the Placing;

(c)

the obligations of the Company to issue the Placing Shares and of SCS to procure purchasers for the Placing Shares is subject to certain conditions (including, amongst others, that Admission occurs by no later than 8.00 a.m. on 29 February 2008 or such later time and/or date as may be agreed in accordance with the Placing Agreement). SCS may waive or extend the time for fulfilment of any condition. Each of SCS and the Company has the right to terminate the Placing Agreement in certain circumstances that are typical for an agreement of this nature, exercisable prior to the expected date of Admission.

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Japan Leisure Hotels Limited (d)

the Company agreed to pay (together with any related value added tax) certain costs, charges, fees and expenses in connection with, or incidental to, amongst others, the Placing, Admission or the other arrangements contemplated by the Placing Agreement, including (but not limited to) the costs and expenses of the Registrar and any other advisers’ fees and expenses; and

(e)

the Company, the Asset Manager, the Directors, Stephen Mansfield and Robert Marshall have each agreed to give certain warranties and undertakings to SCS and SCC and the Company and the Asset Manager will give certain indemnities to SCS and SCC, in each case that are typical for an agreement of this nature.

10.12 Nominated Adviser and Broker Agreement The Company, SCS and SCC propose to enter into a nominated adviser and broker agreement on 7 January 2008 pursuant to which, SCC will agree to act as nominated adviser and SCS to act as broker to the Company following Admission as required under the AIM Rules for Companies. Under the agreement, SCC shall provide, inter alia, advice and guidance to the Directors as they may require from time to time as regards their obligations to ensure compliance by the Company on a ongoing basis with the AIM Rules for Companies. The agreement has an initial term of 12 months from Admission and is thereafter terminable on three months’ notice given by either SCC or the Company, such notice to expire at any time after the initial term. SCC is entitled to be paid an annual fee of £40,000. The agreement contains provisions for early termination in certain circumstances and certain undertakings and indemnities given by the Company to SCC in relation to, inter alia, compliance with applicable laws and regulations. The agreement contains an indemnity from the Company to SCS and SCC pursuant to which the Company agrees to indemnify SCS and/or SCC against liabilities which arise from their appointment, save where such liabilities result directly from the fraud, material negligence or wilful default of SCC or SCS. The aggregate liability of SCC and SCS and their connected parties under the agreement is limited to £160,000. 10.13 Warrant Instrument The warrant instrument, executed as a deed poll by the Company in favour of the Warrantholders (the “Warrantholders”) on 7 January 2008 provides that the holder of each Warrant shall have the right to subscribe (the “Subscription Rights”) in cash for Ordinary Shares at the subscription price of 45 pence per Ordinary Shares on any Business Day between 31 January 2009 and midnight on 31 January 2013 (the “Exercise Period”). Subscription Rights shall be subject to Warrantholders exercising Warrants of at least £10,000 (or the total amount of Warrants held if such amount is less than £10,000). The Company provides certain undertakings whilst any Subscription Right is outstanding, including, amongst other undertakings, that no securities issued without rights to subscribe or exchange for or convert into Ordinary Shares shall subsequently be granted such rights exercisable at a consideration per Ordinary Share of less than 95 per cent. of the Current Market Price (as defined in the warrant instrument); and to notify the Warrantholder in writing of any resolution relating to the subscription price. Where Subscription Rights have not been exercised within 21 days of the date of an offer relating to the Company being declared unconditional, or prior to the end of the Exercise Period, the Subscription Rights and the Warrants relating to them shall lapse. The Warrants will be transferable subject to certain conditions, including that the aggregate exercise price of the Warrants being transferred must exceed £25,000 (or the total amount of Warrants held if such amount is less than £25,000). Ordinary Shares that are allotted pursuant to the exercise of the Subscription Rights will be allotted and issued fully paid, qualify for any dividends or other distributions and rank pari passu with such fully paid Ordinary Shares as already in issue. The Company will apply to have the shares admitted to trading on the AIM Market of the London Stock Exchange (or other effective market) not later than 28 days after the exercise of the Subscription Rights. 10.14 Lock-in Agreement At Admission, the Company will enter into a lock-in agreement with Japan Leisure Investments LLC, the Cayman National Trust Co. Ltd (solely in its capacity as trustee of the Japan Leisure Trust No. 1) (“Japan Leisure Trust”), New Perspective, certain Directors and DKR SoundShore 105

Japan Leisure Hotels Limited Oasis Holding Fund Ltd. Each of Japan Leisure Investments LLC and Japan Leisure Trust will undertake to SCC and the Company, subject to certain exceptions, inter alia, not to, without the prior written consent of SCC and the Company, whether directly or indirectly, offer, dispose of, or agree to offer or otherwise dispose of, whether for consideration or not, any Ordinary Shares (or any legal or beneficial interest in any Ordinary Shares) or any securities of the Company that are substantially similar to Ordinary Shares (or any legal or beneficial interests in such securities or right in respect of such securities) including any securities that are convertible into or exchangeable for, or that represent the right (whether conditional or not) to receive Ordinary Shares or any such substantially similar securities, or do anything with the same or substantially the same economic effect as any of the foregoing (including, a derivatives transaction) (the “Restrictions”) until the first anniversary of the date of the agreement. In addition, New Perspective and each of Sarah Evans, Alan Clifton, William Hunter and DKR SoundShore Oasis Holding Fund Ltd will undertake to be subject to the Restrictions in respect of all Ordinary Shares issued to it for a period of 12 months from each such issue. 10.15 Administration Agreement The Company and the Administrator entered into an agreement on 7 January 2008 pursuant to which the Administrator has been appointed to provide administration and secretarial services to the Company, including the determination and calculation of the Net Asset Value per Ordinary Share. For these services the Administrator will be paid an annual fee of 0.1 per cent. of gross asset value of the Group (subject to a minimum of £75,000 per annum). There is a further annual fee of £3,500 per annum for providing the services of a Compliance Officer and a Money Laundering Reporting Officer. The Administration Agreement is terminable by either party giving not less than 90 days’ notice to expire on the last day of any month. 10.16 Registrar’s Agreement The Company and the Registrar have entered into an agreement on 7 January 2008 whereby the Registrar is appointed as registrar of the offshore registers in respect of the Ordinary Shares following Admission. The Registrar may assign with prior written consent of the Company any rights, benefits or obligations under the agreement. The agreement contains an indemnity by the Company to the Registrar from and against liabilities suffered, incurred or asserted against the Registrar in connection with its duties under the agreement, except where caused by the Registrar’s fraud, negligence or default. In addition, the agreement contains warranties from the Company to the Registrar in respect of the Company’s incorporation and authority to carry on its business. The fees to be charged in respect of the different activities to be undertaken by the Registrar are itemised in a schedule to the agreement: the Registrar is entitled to receive a minimum of £6,250 in fees per annum. The agreement may be terminated on or after its first anniversary following three months’ notice from either party, or with immediate effect by the Company where the Registrar is no longer able to lawfully act or amends its fees. Termination may also be effected through the insolvency of either party, a material breach not remedied within 30 days of service of notice of breach, or fraud or wilful misconduct of the Registrar. 10.17 West Hill engagement The Company has entered into an agreement with West Hill pursuant to which West Hill has agreed to provide financial advice in respect of the Placing and Admission. The Company has agreed to pay West Hill a commission, representing one per cent. of the proceeds from the Placing. 11. Related Party Transactions 11.1 The Administration Agreement described in paragraph 10.15 of Part VIII of this Document is related party in nature in consequence of Mark Huntley’s interest in the Administrator. 11.2 There are no other related party transactions although it should be noted that the management of New Perspective and Bonita Services are Robert Marshall and Stephen Mansfield. New Perspective is the Asset Manager and Bonita Services is a party to: a)

Each Master Hotel Operating Agreement between Bonita Services and a TK Operator;

Each Trademark Licence Agreement between Bonita Services and a TK Operator; and 106

Japan Leisure Hotels Limited c)

The Call Option Agreement between the Company and Bonita Services.

12. Litigation Neither the Company nor any member of the Group is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) which may have, or have had during the 12 months prior to the date of this Document, a significant effect on the Company and/or the financial position or profitability of the Group. 13. Subsidiaries The Company has the following subsidiaries, which are wholly owned and incorporated in Guernsey. Name

Principal activity

JLH 1 Limited JLH 2 Limited

Investment holding company Investment holding company

14. No Significant Change There has been no significant change in the financial or trading position of the Group since 30 June 2007, being the date of the historical financial information of the Group, contained in Part VII of this Document. 15. Miscellaneous 15.1 The total costs and expenses of, and incidental to, the Placing and Admission payable by the Company, is estimated to amount to approximately £1.135 million (excluding VAT), including approximately £327,000 payable to financial intermediaries. 15.2 Consent has been obtained from the GFSC under The Control of Borrowing (Bailiwick of Guernsey) Ordinances, 1959 to 1989 for the Company to raise up to £200 million by the issue of Ordinary Shares and for the circulation of this Document. Neither the Guernsey Financial Services Commission nor the States of Guernsey Policy Council takes any responsibility for the financial soundness of the entity or for the correctness of any of the statements made or the opinions expressed with regard to it. 15.3 SCC has given and has not withdrawn its written consent to the issue of this Document with the inclusion herein of references to its name in the form and context in which they appear. 15.4 SCS has given and has not withdrawn its written consent to the issue of this Document with the inclusion herein of references to its name in the form and context in which they appear. 15.5 BDO Stoy Hayward LLP of Emerald House, East Street, Epsom, Surrey, KT17 1HS has given and not withdrawn its written consent to the inclusion of its reports set out in Part VII, in the form and context in which they appear. BDO Stoy Hayward LLP has authorised the contents of those parts of this Document for the purposes of Schedule Two to the AIM Rules for Companies. 15.6 Colliers has given and not withdrawn its written consent to the inclusion in this Document of its Property Valuation Report set out in Part IV and references thereto and to its name, in the form and context in which they appear and has authorised the contents of those parts of this Document. 15.7 West Hill has given and has not withdrawn its written consent to the issue of this Document with the inclusion herein of references to its name in the form and context in which they appear. 15.8 The financial information contained in this Document does not constitute statutory accounts within the meaning of section 240 of the UK Companies Act 1985. 15.9 The information sourced from third parties in this Document has been accurately reproduced and so far as the Company is aware and has been able to ascertain from that published information, no facts have been omitted which would render the reproduced information inaccurate or misleading.

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Japan Leisure Hotels Limited 15.10 The Ordinary Shares are in registered form and will, on Admission, be capable of being held in uncertificated form. The Ordinary Shares will be admitted with the ISIN GG00B28QMS50. 15.11 Save in respect of the Placing, none of the Ordinary Shares have been marketed or are available in whole or in part to the public in conjunction with the application for the Ordinary Shares to be admitted to AIM. 15.12 For the purposes of section 29 of the Companies Law, the minimum aggregate subscription on which the Company may proceed to allotment is 1,000 Ordinary Shares. 16. Documents Available for Inspection Copies of the following documents will be available for inspection during normal business hours on any weekday (Saturday, Sundays and public holidays excepted) at the offices of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA and the registered office of the Company up to and including 16 January 2008: (a)

the memorandum of association of the Company and the Articles;

(b)

the reports by BDO Stoy Hayward LLP set out in Part VII of this Document;

(c)

the Property Valuation Report by Colliers International (Hong Kong) Limited set out in Part IV of this Document; and

(d)

this Document.

Dated 10 January 2008

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Japan Leisure Hotels Limited

DEFINITIONS “Absolute Shareholder Returns”

the amount by which the value of the Ordinary Shares in the capital of the Company, after adjusting for dividends and other distributions paid or made to holders of Ordinary Shares, and further subscriptions for Ordinary Shares, exceeds the aggregate subscription price for the Placing Shares

“Acquisition”

the acquisition by Japan Leisure Hotels of 97 per cent. of the economic interests in the Existing Portfolio

“Administration Agreement”

the administration agreement between the Company and the Administrator, a summary of which is set out in Part 10.15 of this Document

“Administrator”

Heritage International Fund Managers Limited in its capacity as administrator of the Company

“Admission”

the admission of the issued Ordinary Shares (including the Placing Shares) to trading on AIM becoming effective in accordance with the AIM Rules for Companies

“AIM”

the AIM Market of the London Stock Exchange

“AIM Rules for Companies”

the rules issued from time to time by the London Stock Exchange governing the admission to AIM

“AIM Rules for Nominated Advisers”

the rules issued from time to time by the London Stock Exchange setting out the eligibility, ongoing responsibilities and certain disciplinary matters in relation to nominated advisers

“Articles”

the articles of association of the Company

“Asset Manager” or “New Perspective”

Y.K. New Perspective, a YK which acts as the asset manager for the Group

“Asset Management Agreement”

the agreement between New Perspective and the TK Operators to provide asset management services

“Board” or “Directors”

the board of directors of the Company

“BDO”

BDO Stoy Hayward LLP or BDO Novus Limited

“Bonita Holdings”

Bonita Holdings LLC, a Delaware limited liability company which owns Y.K. First Dormitory and Y.K. KN Planning, the TK Operators that own the Existing Portfolio

“Colliers”

Colliers International (Hong Kong) Limited

“Commercial Code”

the Commercial Code of Japan (Law Number 48 of 1899 as from time to time amended or re-enacted)

“Companies Law”

the Companies (Guernsey) Law 1994, as amended and any ordinance, statutory information or regulation made thereunder

“CREST”

the relevant system (as defined in the CREST Regulations) operated by Euroclear in accordance with which securities may be held and transferred in uncertificated form

“CREST Guernsey Requirements”

Rule 8 and such other rules and requirements of Euroclear as may be applicable to issuers in Guernsey from time to time specified in the CREST Manual

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Japan Leisure Hotels Limited “CREST Manual”

the compendium of documents entitled CREST Manual issued by Euroclear from time to time and comprising the CREST Reference Manual, the CREST Central Counterparty Service Manual, the CREST International Manual, CREST Rules, CCSS Operations Manual and the CREST Glossary of Terms

“CREST Regulations”

the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755), as amended

“Document”

this AIM admission document

“Enlarged Share Capital”

the Ordinary Shares in issue immediately following Admission

“Euroclear”

Euroclear UK & Ireland

“Existing Portfolio”

the portfolio of five leisure hotels to be acquired by the Company at the time of Admission

“FSA”

the Financial Services Authority

“FSMA”

the Financial Services and Markets Act 2000 (as amended)

“GFSC”

Guernsey Financial Services Commission

“Godo Kaisha” or “GK”

a limited liability entity created pursuant to the Corporate Law of Japan (kaisha-hou, Law No. 86 of 2005)

“Group”

the Company, its subsidiaries and the companies in which it invests through TK Agreements

“Hotel Operator” or “Bonita Services”

Bonita Services LLP, a Japanese limited liability partnership which provides hotel operation services to certain properties in the Existing Portfolio

“Japan Leisure Hotels”, “JLH” or the “Company”

Japan Leisure Hotels Limited

“KK”

Kabushiki Kaisha, a type of corporation incorporated under Japanese law

“London Stock Exchange” or “LSE”

London Stock Exchange plc

“Master Hotel Operation Agreement”

the operating agreement between Bonita Services LLP, the Asset Manager and the TK Operator

“NAV” or “Net Asset Value”

(i) in relation to the calculation of the management fee of New Perspective, the value of the assets of the Group (having regard to formal valuations of the properties) less its liabilities determined in accordance with the accounting principles adopted by the Group from time to time and following review and approval of the Board (ii) in all other cases, the total assets of the Group less its total liabilities (including accrued but unpaid fees) valued in accordance with the Group’s accounting policies adopted by the Group from time to time and expressed in Pounds Sterling

“Official List”

the Official List of the UK Listing Authority

“Ordinary Shareholders”

holders of Ordinary Shares

“Ordinary Shares”

ordinary shares of 1 pence each in the Company

“Placing”

the conditional placing of the Placing Shares at the Placing Price by Shore Capital Stockbrokers on behalf of and as agent for the Company, pursuant to the Placing Agreement 110

Japan Leisure Hotels Limited “Placing Agreement”

the conditional agreement dated 7 January 2008 between the Company, the Directors and Shore Capital, relating to the Placing, details of which are set out in paragraph 10.11 of Part VIII of this Document

“Placing Price”

50 pence per Placing Share

“Placing Shares” Placing

6,100,000 new Ordinary Shares to be issued pursuant to the

“Property Valuation Report”

the valuation of the Existing Portfolio carried out by Colliers as of 30 November 2007 and included in this Document in Part IV

“Prospectus Rules”

the prospectus rules issued by the Financial Services Authority

“RICS”

Royal Institution of Chartered Surveyors

“Registrar”

Capita Registrars (Guernsey) Limited

“Regulatory Information Service”

a regulatory information service (as defined in the AIM Rules for Companies)

“Shareholders”

holders of Ordinary Shares

“SCC”

Shore Capital and Corporate Limited

“SCS” or “Shore Capital Stockbrokers”

Shore Capital Stockbrokers Limited

“Shore Capital”

SCC and/or SCS as the context permits

“Strategy Committee”

a subcommittee of the Board comprising William Hunter, Sarah Evans and Mark Huntley

“TK Agreement”

a contractual agreement provided for under Article 535 to 542 of Japanese Commercial Code

“TK Investor”

the entity which undertakes the role of TK investor under a TK Agreement structure; or

b) the wholly owned subsidiary of the Company through which capital is contributed to the TK Operators in which it invests as the context admits “TK Operator”

the entity which undertakes the role of TK operator under a TK Agreement structure; or

b) the legal owner of the assets of the business under the applicable TK Agreement as the context admits “Tokumei Kumiai” or “TK”

a contractual agreement provided for under Article 535 to 542 of the Japanese Commercial Code

“UK”

the United Kingdom of Great Britain and Northern Ireland

“UK Listing Authority” or “UKLA”

the FSA acting in its capacity as the competent authority for the purpose of Part VI of the Financial Services and Markets Act 2000

“Uncertificated”

in relation to a share, a share title to which is recorded in the relevant register of the share as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by electronic means

“Warrants”

warrants to subscribe for new Ordinary Shares to be issued to Shore Capital and Corporate Limited and to those persons who subscribe for Ordinary Shares pursuant to the Placing

“West Hill”

West Hill Corporate Finance Limited

111

Japan Leisure Hotels Limited “Yugen Kaisha” or “YK”

a limited liability entity created pursuant to the Corporate Law of Japan (kaisha-hou, Law No. 86 of 2005)

Currencies All references in this Document to “Y” are to Yen, all references to “£” are to British pounds sterling, and all references to “$” are to US dollars. Unless otherwise stated, this Document converts figures in Yen into pounds sterling, or vice versa, at the exchange rate £1.00 equals Y230.

112

Millnet Financial

(7808-01)

Japan Leisure Hotels Limited

Admission to AIM

Shore Capital and Corporate Limited

Shore Capital Stockbrokers Limited

Bond Street House, 14 Clifford Street, London W1S 4JU Tel: 020 7408 4090

Bond Street House, 14 Clifford Street, London W1S 4JU Tel: 020 7408 4080

Cover photos, left and right, by Androniki Christodoulou www.androniki.com

Placing by Shore Capital