Letter of OfferDated February 22, 2010

For Equity Shareholders of our Company only

THE ANDHRA PRADESH PAPER MILLS LIMITED(Our Company was incorporated on June 29, 1964 at Hyderabad under the Companies Act, 1956. The registration number assigned to our

Company on incorporation was 1008 of 1964-65)Registered Office: Rajahmundry 533105, East Godavari District, Andhra Pradesh, India.

Tel: +91 883 2471831 Fax: +91 883 2461764 website: www.andhrapaper.com, E-mail: appmrjy@andhrapaper.comCorporate Office: 501-509, Swapnalok Complex, 5th floor, 92/93 Sarojini Devi Road, Secunderabad 500 003,

Andhra Pradesh, India. Tel: +91 40 30482614, 27813715, Fax: +91 40 27813717Contact Person: Shri C Prabhakar, Sr. Vice President (Corporate Affairs) & Company Secretary and Compliance Officer,

Email:rightsissue@andhrapaper.com

ISSUE OF 70,18,242 EQUITY SHARES WITH A FACE VALUE OF RS. 10.00 EACH FOR CASH AT A PREMIUM OF RS. 40.00PER EQUITY SHARE FOR AN AMOUNT AGGREGATING TO RS. 3,509.12 LACS ON A RIGHTS BASIS TO THE EXISTINGEQUITY SHAREHOLDERS OF THE ANDHRA PRADESH PAPER MILLS LIMITED (“COMPANY”) IN THE RATIO OF 3EQUITY SHARES FOR EVERY 11 FULLY PAID-UP EQUITY SHARES HELD BY THE EXISTING EQUITY SHAREHOLDERS ONTHE RECORD DATE, THAT IS ON FEBRUARY 24, 2010. FOR EVERY 1 EQUITY SHARE ALLOTTED IN THE ISSUE, 1DETACHABLE WARRANT WILL BE ISSUED AND ALLOTTED. THE ISSUE PRICE IS FIVE TIMES THE FACE VALUE OFTHE EQUITY SHARES. FOR FURTHER DETAILS, PLEASE REFER THE SECTION TITLED “TERMS OF THE ISSUE” ONPAGE 135 OF THIS LETTER OF OFFER

GENERAL RISKInvestment in equity and equity related securities involve a degree of risk and investors should not invest any funds in thisIssue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factorscarefully before taking an investment decision in this Issue. For taking an investment decision, investors must rely on theirown examination of the Issuer and the Issue including the risks involved. The securities have not been recommended orapproved by the Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of thisdocument. Specific attention of investors is invited to the statement of ‘Risk factors’ under the section titled “RiskFactors” on page 11 of this Letter of Offer before making an investment in this Issue.

ISSUER’S ABSOLUTE RESPONSIBILITYThe issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Issue document containsall information with regard to the issuer and the issue which is material in the context of the issue, that the informationcontained in the Issue document is true and correct in all material aspects and is not misleading in any material respect, thatthe opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of whichmake this document as a whole or any of such information or the expression of any such opinions or intentions misleadingin any material respect.

LISTINGOur existing Equity Shares are listed on Bombay Stock Exchange Limited (“BSE”) and National Stock Exchange of IndiaLimited (“NSE”). We have received “in-principle” approvals from BSE and NSE for listing the Equity Shares arising from thisIssue vide their letters dated December 8, 2009 and December 16, 2009, respectively. For the purposes of the Issue, theDesignated Stock Exchange is Bombay Stock Exchange Limited.

LEAD MANAGER REGISTRAR TO THE ISSUE

Central Office, Maker Tower ‘F’11th Floor, Cuffe Parade, ColabaMumbai 400 005, IndiaTelephone: +91 22 6707 1725Fax: +91 22 6707 1264E-mail:appaper.rights@axisbank.comInvestor Grievance ID: axmbd@axisbank.comWebsite: www.axisbank.comContact Person: Mr. Rajneesh KumarSEBI registration number: INM000006104

Sathguru Management Consultants Pvt. Ltd.Plot No. 15, Hindi Nagar, Panjagutta,Hyderabad 500 034.Tel: +91 40 23350586Fax: +91 40 40040554Website:www.sathguru.comE-mail: sta@sathguru.comContact Person: Mr. R. Chandra SekharSEBI registration number : INR 000000536

ISSUE PROGRAMMEISSUE OPENS ON LAST DATE FOR RECEIPT OF REQUEST

OF SPLIT APPLICATION FORMS ISSUE CLOSES ON

Thursday, March 04, 2010 Thursday, March 11, 2010 Thursday, March 18, 2010

Sathguru

FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF OUR COMPANY ONLY

ANDHRATHE FUTURE OF PAPER

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Table of Contents

SECTION I – GENERAL ..................................................................................................... 4

DEFINITIONS AND ABBREVIATIONS ................................................................................ 4

NOTICE TO OVERSEAS SHAREHOLDERS.......................................................................... 8

PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA ........... 9

FORWARD LOOKING STATEMENTS ................................................................................ 10

SECTION II - RISK FACTORS ......................................................................................... 11

SECTION III – INTRODUCTION ..................................................................................... 24

BUSINESS OVERVIEW ...................................................................................................... 24

THE ISSUE ........................................................................................................................... 25

SUMMARY FINANCIAL AND OPERATIONAL INFORMATION ...................................... 26

GENERAL INFORMATION ................................................................................................. 28

CAPITAL STRUCTURE ....................................................................................................... 34

OBJECTS OF THE ISSUE..................................................................................................... 40

STATEMENT OF SPECIAL TAX BENEFITS ....................................................................... 46

SECTION IV - MANAGEMENT ........................................................................................ 55

SECTION V – FINANCIAL INFORMATION................................................................... 60

ACCOUNTING AND OTHER RATIOS .............................................................................. 105

CAPITALISATION STATEMENT ...................................................................................... 106

CERTAIN OTHER FINANCIAL INFORMATION .............................................................. 107

MARKET PRICE INFORMATION ..................................................................................... 108

SECTION VI - LEGAL AND OTHER INFORMATION ................................................ 110

OUTSTANDING LITIGATIONS AND DEFAULTS ........................................................... 110

GOVERNMENT AND OTHER APPROVALS .................................................................... 123

MATERIAL DEVELOPMENTS .......................................................................................... 124

OTHER REGULATORY AND STATUTORY DISCLOSURES ........................................... 125

SECTION VII – OFFERING INFORMATION ............................................................... 135

ANDHRATHE FUTURE OF PAPER

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SECTION VII – OFFERING INFORMATION.................................................................................. 135

TERMS OF THE ISSUE ................................................................................................................135

SECTION VIII – OTHER INFORMATION AND MATERIAL CONTRACTS ............................ 170

STATUTORY AND OTHER INFORMATION .................................................................................. 170

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ..................................................... 171

DECLARATION..................................................................................................................................... 173

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SECTION I – GENERAL

DEFINITIONS AND ABBREVIATIONS

In this Letter of Offer, all references to “Re.”, “Rupees”, “Rs.” or “INR” refer to Indian Rupees, the official currency of India, “USD” or “U.S.$” refer to the United States Dollar, the official currency of the United States of America. References to the singular also refers to the plural and one gender also refers to any other gender, wherever applicable, and the words “Lakh” or “Lac” means “100 thousand” and the word “crore” means “100 lacs”. Any discrepancies in any table between the total and the sums of the amounts listed are due to rounding off.

Definitions

Unless the context otherwise requires, the following terms shall have the following meaning in this Letter of Offer:-

Term Description “We”, “us”, “our”, “our Company” “the Issuer”, “APPM” or “the Company”

Refers to The Andhra Pradesh Paper Mills Limited, a public limited company incorporated under the provisions of the Companies Act, 1956 having its registered office at Rajahmundry 533105, East Godavari District, Andhra Pradesh, India.

Company/ Issue related terms

Term Description Application Supported by Blocked Amount/ ASBA

The application (whether physical or electronic) used by an Investor to make an application authorizing the SCSB to block the amount payable on application in their specified bank account.

Unit: APPM Unit APPM situated at Rajahmundry. ASBA Investor An applicant who intends to apply through ASBA process and:

a) holds the shares of our Company in dematerialized form as on the record date and has applied for entitlements and / or additional shares in dematerialized form;

b) has not renounced his/her entitlements in full or in part; c) is not a renouncee; d) is applying through a bank account maintained with SCSBs.

Auditor (s) The statutory auditors of our Company, namely M/s. Brahmayya & Co. Visakhapatnam.

Articles/ Articles of Association

The articles of association of our Company

Board/ Board of Directors Board of Directors of our Company including any committees thereof. Bankers to the Issue Axis Bank Ltd. Consolidated Certificate In case of physical certificate, our Company would issue one certificate for the

Equity Shares allotted in one folio. Composite Application Form/CAF

The Form used by an Investor to make the application for allotment of equity Shares in the Issue

Controlling Branches of the SCSBs

Such branches of the SCSBs which coordinate with the Lead Manager, the Registrar to the Issue and the Stock Exchanges, a list of which is provided on http://www.sebi.gov.in/pmd/scsb.pdf

Unit : CP Unit CP situated at M.R Palem. DEG Deutsche Investitions- Und Entwicklungsgesellschaft mbH Designated Stock Exchange Bombay Stock Exchange Limited

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Term Description Detachable Warrant The detachable Warrants issued and allotted with the Equity Share(s) allotted by

our Company in the Issue which shall be convertible into Equity Share(s), in accordance with the terms and conditions specified in the section titled “Terms of the Issue” on page 141 of this Letter of Offer.

Draft Letter of Offer Draft Letter of Offer dated 5th November, 2009 filed with SEBI for its comments.

Equity Share(s) or Share(s)

Equity shares of our Company having a face value of Rs. 10.00 each unless otherwise specified in the context thereof.

Equity Shareholder Means a holder of Equity Shares. Financial Year/ Fiscal/ Fiscal Year/ FY

Any period of twelve months ended March 31 of that particular year, unless otherwise stated.

Finnfund Finnish Fund for Industrial Cooperation Ltd. IFC International Finance Corporation Issue Issue of 70,18,242 Equity Shares with a face value of Rs. 10.00 each at a

premium of Rs. 40.00 per Equity Share for cash for an amount aggregating Rs. 3,509.12 lacs on a rights basis to the existing Equity Shareholders in the ratio of 3 Equity Shares for every 11 fully paid-up Equity Shares held by the existing Equity Shareholders on the Record Date, that is on February 24, 2010. For every 1 Equity Share allotted in the issue, 1 Detachable Warrant will be issued and allotted, the issue price is Five times the face value of the Equity Shares.

Issue Closing Date Thursday, March 18, 2010 Issue Opening Date Thursday, March 04, 2010 Issue Price (Rs.) 50.00 Per Equity Share. Investor(s) Equity Shareholders as on Record Date and/or Renouncees applying in the

Issue. Lead Manager Axis Bank Ltd. Letter of Offer

Means the letter of offer to be filed with the Stock Exchanges after incorporating SEBI comments on Draft Letter of Offer and to be sent to our Equity Shareholders as on the Record Date with respect to this Issue in accordance with SEBI ICDR.

Listing Agreement Our Company’s equity listing agreements entered into with the Stock Exchanges

Memorandum/ Memorandum of Association

Memorandum of Association of our Company.

Promoter and Promoter Group Individuals and Bodies corporate enumerated in the section titled “Capital Structure” beginning on page 34 of this Letter of Offer.

Record Date The record date means February 24, 2010 fixed for the determination of names of the Shareholders who are entitled for shares in the Issue.

Refund through electronic transfer of funds

Refunds through ECS, Direct Credit, RTGS or NEFT as applicable.

Registrar of Companies/ RoC The Registrar of Companies, Andhra Pradesh located at II Floor, CPWD Building, Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500 095.

Renouncees Any persons who have acquired Rights Entitlements from the Equity Shareholders.

Rights Entitlement 3 Equity Shares for every 11 fully paid-up Equity Shares held on the Record Date. In addition to the above, for every 1 Equity Share allotted in the Issue, 1 Detachable Warrant will be issued and allotted.

Registrar to the Issue Sathguru Management Consultants Private Limited. Share Certificate The certificate in respect of the Equity Shares allotted in the Right issue. Shareholders Agreement Shareholders Agreement dated April 21, 2005 between Promoters, Company

and IFC, DEG and Finnfund

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Term Description Stock Exchange(s) BSE and NSE where the Equity Shares are presently listed Warrant Exercise Period The warrant exercise period for detachable warrants commences at any time

before the expiry of 18 months from the date of allotment of the detachable warrants.

Warrant Exercise Price Rs. 50.00 per Equity Share Warrant Holder A holder of the Detachable Warrant. Warrant Record Date A record date fixed by our Company, subject to the approval of the Stock

Exchanges, during the Warrant Exercise Period for the Detachable Warrants for purposes of determining the Warrant Holders in connection with the exercise of the Detachable Warrants and their respective entitlements.

Conventional/General Terms

Term Description Act/ Companies Act The Companies Act, 1956 and amendments thereto. ASBA Application Supported by Blocked Amount BIFR Board for Industrial and Financial Reconstruction. Cenvat The Central Value Added Tax. CESTAT The Customs, Excise, Service Tax Appellate Tribunal. CIT Commissioner of Income Tax

Depositories Act The Depositories Act, 1996 and amendments thereto. HUF Hindu Undivided Family. P/E Ratio Price Earnings Ratio. IT Act The Income Tax Act, 1961 and amendments thereto. TAN Tax Deduction Account Number. Indian GAAP Generally Accepted Accounting Principles in India. ITAT Income Tax Appellate Tribunal Modvat Modified Value Added Tax NAV Net Asset Value. NRE Account Non-Resident External Account. NRO Account Non-Resident Ordinary Account. PAT Profit After Tax. SEBI Act, 1992 Securities and Exchange Board of India Act, 1992 and amendments thereto. SEBI ICDR The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

and any amendments thereto. Securities Act The United States Securities Act of 1933, as amended. Takeover Code The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997

and amendments thereto. U. S. GAAP Generally Accepted Accounting Principles in the United States of America. Wealth-Tax Act The Wealth-Tax Act, 1957 and amendments thereto.

Industry related terms

Term Description GSM Grams per square meter. MW Mega Watt. KWH Kilo Watt Hour TPA Tonnes Per Annum. W&P Paper Writing and Printing Paper.

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Abbreviations

Term Description AGM Annual General Meeting. EPS Earnings Per Share. ECS Electronic Clearing Services. AS Accounting Standards as issued by the Institute of Chartered Accountants of India. BSE Bombay Stock Exchange Limited. CAF Composite Application Form. CDSL Central Depository Services (India) Limited. CEPS Cash Earnings Per Share. CY Calendar Year. DP Depository Participant. DSE Designated Stock Exchange. ESI Employee State Insurance. FEMA Foreign Exchange Management Act, 1999 and rules and regulations thereunder and

amendments thereto. FDI Foreign Direct Investment. SCSB Self Certified Syndicate Bank(s) FII Foreign Institutional Investors registered with SEBI under applicable laws. GDP Gross Domestic Product. GOI Government of India ICAI Institute of Chartered Accountants of India. ITAT Income Tax Appellate Tribunal. MoU Memorandum of Understanding. NR Non Resident. NRI(s) Non Resident Indian(s). NSDL National Securities Depository Limited. NSE National Stock Exchange of India Limited. OCB Overseas Corporate Body. PAN Permanent Account Number. RBI Reserve Bank of India. SAF(s) Split Application Form. SCB Scheduled Commercial Banks. SEBI Securities and Exchange Board of India. PBDT Profit Before Depreciation and Tax. ROI Return on Investment. CIN Corporate Identification Number. IEC Importer Exporter Code. RTGS Real Time Gross Settlement. STT Securities Transaction Tax. VAT Value Added Tax. WTD Whole –Time Director. SLM Straight Line Method of Depreciation. FIPB Foreign Investment Promotion Board.

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NOTICE TO OVERSEAS SHAREHOLDERS

The distribution of this Letter of Offer and the Issue to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons into whose possession this Letter of Offer may come are required to inform themselves about and observe such restrictions. Our Company will dispatch the Letter of Offer and CAFs to such shareholders who have an Indian address.

This Letter of Offer does not constitute and may not be used for in connection with an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer or solicitation. In particular, no action has been or will be taken by our Company or the Lead Manager to permit an offering of Equity Shares or distribution of this Letter of Offer in any jurisdiction, other than India, where action for that purpose is required. Accordingly, the Equity Shares with Detachable Warrant may not be offered or sold, directly or indirectly, and neither this Letter of Offer nor any offering material in connection with the Equity Shares may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. Persons receiving a copy of this Letter of Offer should not distribute or send the same in any jurisdiction where to do so would or may contravene local laws or regulations. If this Letter of Offer is received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to the Equity Shares or the rights entitlements referred to in this Letter of Offer.

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PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA

Unless stated otherwise, the financial data in this Letter of Offer is derived from our financial information which has been prepared in accordance with Indian GAAP and in accordance with SEBI ICDR. Our current financial year commenced on April 1, 2009 and will end on March 31, 2010. In this Letter of Offer, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding-off, and unless otherwise specified, all financial numbers in parenthesis represent negative figures. Unless stated otherwise, industry data used throughout this Letter of Offer has been obtained from industry publications. Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Neither we nor the Lead Manager has independently verified this data and neither we nor the Lead Manager make any representation regarding the accuracy of such data. Accordingly, Investors should not place undue reliance on this information.

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FORWARD LOOKING STATEMENTS

We have included statements in this Letter of Offer which contain words or phrases such as “will”, “may”, “aim”, “is likely to result”, “believe”, “expect”, “continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “project”, “should”, “pursue” and similar expressions or variations of such expressions, that are “forward looking statements”. All forward looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to:

• General economic and business conditions in India and other countries;

• Company’s ability to successfully implement its strategy and its growth and expansion plans;

• Factors affecting the industry;

• Increasing competition in the industry;

• Increases in labour costs, raw materials prices, prices of plant & machineries and insurance premium;

• Cyclical or seasonal fluctuations in the operating results;

• Amount that our Company is able to realize from the clients;

• Changes in laws and regulations that apply to the industry;

• Changes in fiscal, economic or political conditions in India;

• Social or civil unrest or hostilities with neighboring countries or acts of international terrorism;

• Changes in the foreign exchange control regulations, interest rates and tax laws in India. For a further discussion of factors that could cause our actual results to differ, please refer to the sections titled “Risk Factors”, on page 11 of this Letter of Offer. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. Neither us including our Directors and officials nor the Lead Manager nor any of their respective affiliates or advisors have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI and Stock Exchanges’ requirements, we and Lead Manager shall ensure that investors in India are informed of material developments until the time of the grant of listing and trading permission by the Stock Exchanges.

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SECTION II - RISK FACTORS

RISK FACTORS

An investment in equity shares involves a high degree of risk. You should carefully consider all information in this Letter of Offer, including the risks and uncertainties described below, before making an investment in the Equity Shares. If any of the following risks and uncertainties actually occur, our business, financial condition, results of operations and prospects could suffer, the trading price of our Equity Shares could decline, and you may lose all or part of your investment. Additionally, our business operations could also be affected by additional factors that are not presently known to us or that we currently consider as immaterial to our operations.

The financial and other implications of material impact of risks concerned, wherever quantifiable, have been disclosed in the risk factors mentioned below. However, there are certain risks where the impact is not quantifiable and hence the same has not been disclosed in such risk factors. The following factors have been considered for determining the materiality:

1. Some events may not be material individually but may be found material collectively. 2. Some events may have material impact qualitatively instead of quantitatively. 3. Some events may not be material at present but may have material impact in future.

The numbering of the risk factors has been done to facilitate ease of reading and reference and does not in any manner indicate the importance of one risk factor over another. RISKS INTERNAL TO OUR COMPANY’S BUSINESS AND OPERATIONS:- 1. We are involved in legal proceedings which, if finally determined against us, could affect our business and

financial conditions.

We are party to various legal proceedings. No assurances can be given as to whether these matters will be settled in our favor or against us. If a claim is finally determined against us and we are required to pay all or a portion of the disputed amount, it could have an adverse effect on our results of operations and cash flows. A classification of the legal proceedings, which if they result in adverse outcome would in terms of Part E of Schedule VIII to SEBI ICDR materially and adversely effect the operations or the financial position of our Company and the monetary amount involved in these cases are mentioned in brief below:

(Rupees in lacs) Category No. of Cases Amount Involved Forest Related Cases 1 (One) 1,561.31 Excise Related Cases 8 (Eight) 8,715.35

Civil Cases 2 (Two) 117.73 (One case amount is not ascertainable)

Income Tax Cases 5 (Five) 5,162.66 (One case amount is not ascertainable)

Note: The amounts indicated above are approximate amounts, wherever quantifiable.

For further details, please refer to the section titled “Outstanding Litigations and Defaults” on page 110 of this Letter of Offer.

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2. Our statutory auditors have made certain qualifications in the audit reports.

Our statutory auditors have made certain qualifications in the audit reports of our Company. For details please refer to the section titled “Financial Information” on pages 60 of this Letter of Offer.

3. Our contingent liabilities could adversely affect our financial condition.

As of September 30, 2009, we had a net worth of Rs. 44,311.64 lacs and contingent liabilities of Rs. 5,104.97 lacs. If any of these contingent liabilities were to materialize our financial condition could be adversely affected. For further details about our contingent liabilities, refer to the section titled “Financial Information” – Notes to Accounts Point No. 2 on page 102 of this Letter of Offer and the notes to our financial statements.

4. Delay in Commissioning of Paper Machine Number – VI

Our Company is installing an additional imported used Paper Machine known as PM – VI at unit APPM, Rajahmundry. PM – VI is under erection and extent of risk, if any, of not achieving the designed capacity can be ascertained only after testing and commissioning.

5. Delay in receipt of environmental clearance from statutory authority

Our Company has applied for clearance under the environmental laws for operating additional paper machine with the capacity of 67,000 TPA. As advised by the State Environmental Appraisal Committee, the Company had submitted Environment Impact Assessment Report to the Government and the Environmental clearance is expected before commencement of start-up trials and commercial production of additional paper machine (PM VI). Any delay in receipt of environmental clearance might result in delay in commissioning of the PM VI.

6. There is no long term supply agreements for the raw material of our Company and non availability of the raw material may have an adverse impact on the operations of our Company.

At present, majority of the wood requirement is purchased from within Andhra Pradesh and the balance is procured from Karnataka, Maharashtra, Tamil Nadu, Orissa and West Bengal. Our Company enters into supply arrangements with the vendors every year based on price negotiations. Our Company has made efforts to enhance the generation of raw materials in its catchment area through farm/ social forestry year after year. These arrangements have been working satisfactorily in the past for our Company. However, we cannot assure you that in future, we can procure the required raw material in sufficient quantity and at competitive rates.

7. Dependence on few large institutional buyers and dealers could adversely affect our Company’s operations, in case these buyers reduce their requirement or discontinue purchase of paper from our Company.

Our Company sells its products through the retail trade and through industrial consumers. Save for market dynamics of prices, the demands from these sources is consistent. However, such consistency in demand cannot be guaranteed in the future.

8. Our operations are subject to high working capital requirements. Our inability to obtain and/or maintain sufficient cash flow, credit facilities and other sources of funding, in a timely manner, or at all, to meet our requirement of working capital or pay our debts, could adversely affect our operations, financial condition and profitability.

Our Company’s working capital requirement is high due to higher holding level of inventory. Our aggregate working capital requirement as on September 30, 2009 and March 31, 2009 was Rs. 11,533.07 lacs and Rs. 9,731.13 lacs respectively. Our inability to obtain and/or maintain sufficient cash flow, credit facilities and other

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sources of funding, in a timely manner, or at all, to meet our requirement of working capital or pay our debts, could adversely affect our operations, financial condition and profitability.

9. Increased Imports

The import of cheaper paper from China poses a serious danger to the profitability of our Company especially if the customs duty on paper is reduced. International manufacturers possess large-scale capacities and hence would be in a position to price aggressively. The cheaper imports may create a pressure on pricing and adversely affect our profitability.

10. Product Substitution Risk leading to Low Margins

Our Company has a wide variety of papers in its product basket that covers some of the value added paper in the paper, paperboard and duplex segments. Certain paper varieties may not be of high demand, which could create slow moving inventory. Further, the advancement in technology could result in a reduced use of paper in some segments. This could adversely affect demand and margins.

11. Realization Risk

The prices in paper industry are highly correlated with the demand-supply situation and availability of raw material at competitive prices. Therefore, an excess supply of finished paper or shortage of raw material may result in low realization and may adversely impact our profitability.

12. As a manufacturing business, our success depends on the supply of raw materials which are subject to certain risks such as availability and increase in pricing.

The raw materials for paper namely subabul, casurina and mixed hardwood are natural resources. The quality of our products and customers acceptance of our products depends on the quality of raw materials and our ability to deliver in a timely manner. The failure of our suppliers to deliver raw materials in a timely manner and in the required quantities, of the specified quality/ standard/ specification may adversely affect our production processes thereby giving rise to contractual penalties or liabilities, loss of customers and affect our reputation, any of which could adversely affect our business, financial condition and results of operations.

13. Cyclical demand of paper could have adverse impact on Sales

The paper industry is cyclical in nature and its performance depends on the global pulp and paper demand-supply situation. Our Company is deriving majority of its revenue, from the sale of paper & pulp. The reduction in sale prices will have adverse impact on the working of our Company. The cyclicity of the business could depress margins or growth, as the case may be, especially if our Company cannot rationalize costs in the downtrend or add scale or value-enhancing products during the uptrend.

14. A failure / inability to manage our growth could disrupt our business and reduce profitability.

Over the past few years, we have expanded our capacities and have grown in terms of our sales and profitability. Such continued growth will place significant demands on us and will require us to continuously evolve and improve our operational, financial and internal effectiveness across the organization. An inability to keep up with the challenges of such growth may disrupt our business thereby reducing profitability.

15. Our Company’s export obligations under the EPCG scheme may not be fulfilled, which could result in a retrospective levy of import duty with penalty which may adversely affect our Company’s financial results.

Our Company has undertaken an export obligation of Rs. 65,091 lacs against licenses issued under the EPCG Scheme for concessional duties paid towards import of equipments. This obligation is to be fulfilled over a period of eight years commencing from 2006-2007. The consequence of not meeting the above commitment

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would be a retrospective levy of import duty with penalty on items previously imported at concessional duty which may adversely affect our Company’s financial results.

16. Material changes in the regulations that govern us could affect our business, financial conditions and results of operation.

Our manufacturing activities are subject to environmental laws and regulations promulgated by the Ministry of Environment of Government of India, the State Forest Policy and State Pollution Control Board among other laws which regulate cutting of trees, discharge of effluents, polluted emissions, hazardous substances and so on. We expect that environmental laws will continue to become more stringent.

Many of these laws and regulations provide for substantial fines and potential criminal sanctions for violations and require the installation of costly pollution control equipment or operational changes to limit pollution emissions and / or reduce the likelihood or impact of hazardous substance releases. In some cases, compliance with environmental, health and safety laws and regulations might only be achievable by significant capital expenditures, such as the installation of pollution control equipment. We cannot accurately predict future developments, such as increasingly stringent environmental laws or regulations and inspection and enforcement policies resulting in higher compliance costs and/or claims or liabilities to any environmental agency.

17. An incordial relationship with labour may subject us to industrial unrest, slowdowns, and increased wage costs.

India has stringent labour legislation that protects the interests of workers, including legislation that sets forth detailed procedures for the establishment of unions, dispute resolution and workers removal and legislation that imposes certain financial obligations on workers upon retrenchment. Our workers have formed unions to safeguard their interests. Although, we currently have harmonious relations with all our workers, there can be no assurance that we will continue to have such relations. If our relations with the workers are strained, our business may be adversely affected.

18. If we are unable to implement our growth strategies in a timely manner, our business, financial condition and results of operations could be adversely affected.

As part of our growth strategy, we have made and may make substantial investment in new production capacities. Our success will depend, among other things, on our ability to source the required financing, assessment of potential markets, timing of our capital investments, the quantum of input costs, ability to attract new customers in India and abroad, the ability to maintain and enhance our position in India and overseas and the ability to maintain adequate operational and financial controls. Continuous expansion increases the challenges involved in financial management, recruitment, training and retaining high quality human resources, preserving our culture, values and entrepreneurial environment, and developing and improving our internal administrative infrastructure. Our growth strategy may expose us to risks and uncertainties which may be beyond our control and accordingly, there can be no assurance that we will be able to complete our plans on schedule or without incurring additional expenditure or at all. If the market conditions deteriorate and/or if operations do not generate sufficient funds or for any other reasons we are compelled to delay, modify or forego some or all aspects of our growth strategies our future results of operations may be affected.

19. We may be unable to negotiate favourable credit terms from our suppliers.

While we have maintained a long term relationship with many of our suppliers and we have been able to negotiate favourable credit terms from them, we cannot assure you that we would be able to maintain such favourable credit terms in future. We get longer credit periods based on our relationship with the suppliers established over a period of time primarily because of continuity of orders placed with them and timely payments made to suppliers.

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20. As a manufacturing business, our success depends on the smooth supply and transportation of our products from our plants to our distributors and customers. Supply and transportation are subject to various uncertainties and risks, and delays in delivery or delivery of non conforming shipments may result in rejected or discounted deliveries.

We depend on, rail and trucking to deliver our products from our manufacturing facilities to our customers. We rely on third parties to provide such services. Disruptions of transportation services because of weather-related problems, strikes, lock-outs, inadequacies in road infrastructure and or other events could impair our procurement of raw materials and our ability to supply our products to our customers. There is no assurance that such disruptions will not occur in the future.

21. Any disruption in our manufacturing facilities caused due to labour unrest or natural disasters may affect our results of operations.

Our manufacturing facilities are subject to operating risks, such as the breakdown or failure of equipment, processes, performance below expected levels of output or efficiency, obsolescence, labour disputes, strikes, lock-outs, continued availability of services of external contractors, industrial accidents, earthquakes, and other natural disasters. We also need to comply with the directives of relevant government authorities. The occurrence of any or all of these could adversely affect our operating results.

22. Our success depends largely on our senior management and skilled manpower and our ability to attract and retain our key personnel.

Our success depends on the continued services and performance of the members of the senior management team and other key employees. If one or more members of our senior management team were unable or unwilling to continue in their present positions, those persons could be difficult to replace and our business could be affected. Attracting and retaining scarce top quality managerial talent has become a serious challenge that companies are facing in India. A shortage in skilled manpower might affect our business by hampering the product process and narrowing down the profitability. As such, any loss of the senior management personnel or key employees could affect our business, results of operations and financial condition.

23. We require certain approvals and licenses in the ordinary course of business and the failure to obtain or retain them in a timely manner may adversely affect our operations.

We require certain approvals, licenses, registrations and permissions for operating our business, some of which may have expired and for which we may have either made or are in the process of making an application for obtaining the approval or its renewal. If we fail to obtain or retain any of these approvals or licenses, or renewals thereof, in a timely manner, our business may be adversely affected.

24. Our Promoters have significant control over our Company and have the ability to direct our business and affairs; their interests may conflict with your interests as a shareholder.

The Promoters and the members of the Promoter Group holding Equity Shares in our Company, have undertaken to fully subscribe for their Rights Entitlement. They reserve the right to subscribe for their Rights Entitlement either by themselves and/or through one or more entities controlled by them, including by subscribing for the Equity Shares with Detachable Warrants pursuant to any renunciation made by any member of the Promoter Group to another member of the Promoter Group. They have also undertaken to apply for the Equity Shares with Detachable Warrants in addition to their Rights Entitlement to the extent of any undersubscribed portion of the Issue, subject to obtaining approvals, if any, required under applicable law. Such subscription for Equity Shares with Detachable Warrants over and above their Rights Entitlement, if allotted, may result in an increase in their percentage shareholding above their current percentage shareholding. Further, the extent of the Promoters’ shareholding in our Company may result in the delay or prevention of a change of management or control of our Company, even if such a transaction may be beneficial to the other shareholders of our Company.

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25. Some of our Promoter Group Companies have incurred losses during the last three years.

The following are the Promoter Group companies having incurred losses during the last three years:-

(Rs. in lacs) Net Profit/ (Net Loss) S. No. Name of the Promoter Group Company FY 2006-07 FY 2007-08 FY 2008-09

1 Digvijay Investments Ltd. (190.74) (336.45) (404.73) 2 The Swadeshi Commercial Co. Ltd. 5.10 (5.13) (12.99) 3 Shree Krishna Agency Ltd. 3.27 (19.60) 0.02 4 The General Investment Co. Ltd. 8.01 88.05 (10.17) 5 Amalgamated Development Ltd. 22.71 3.30 (2.14) 6 Placid Ltd. (9.10) (10.33) (47.47) 7 Mugneeram Ramcoowar Bangur Charitable &

Religious Co. (1.22) (0.86) (1.54)

None of the Promoter Group companies have negative net worth as on 31st March, 2009. 26. Our ability to pay dividends in the future will depend upon future earnings, financial condition, cash flows,

working capital requirements and capital expenditures and the terms of its financing arrangements.

The amount of future dividend payments, if any, will depend upon our future earnings, financial condition, cash flows, working capital requirements and capital expenditures. There can be no assurance that we will continue to pay dividend in the foreseeable future. Additionally, we are restricted by the terms of our debt financing from making dividend payments in the event our Company makes a default in any of the repayment installments.

Please refer to the section “General Information” for restrictive covenants on Dividend on page 32 of this Letter of Offer.

27. Our insurance coverage may not adequately protect us against certain operating hazards and this may have an adverse effect on our business.

While we believe that we maintain insurance coverage in amounts consistent with industry norms, there can be no assurance that any claim under our insurance policies will be honoured fully or promptly. Accordingly, to the extent we suffer loss or damage that is not covered by insurance or which exceeds our insurance coverage, our business, financial condition and results of operations may be adversely affected.

28. Currency fluctuations may negatively affect our financial condition and results of operations.

Our functional currency is the Indian rupee although we transact a portion of our business in other currencies and accordingly face foreign currency exposure through our purchases from overseas suppliers and sales to overseas customers, in various foreign currencies. We further have exposure on our foreign currency loan. Accordingly, changes in exchange rates may have a material adverse effect on our gross margin and net income, and may have a negative impact on our business, financial condition and results of operations.

29. Limited protection of intellectual property could affect our Company’s business.

Despite our Company’s efforts to protect intellectual property (such as trademarks, logo and other intellectual property), third parties may still infringe on our Company’s intellectual property. We may not be able to detect any unauthorized use or take appropriate and timely steps to enforce or protect our intellectual property. The laws of India do not effectively protect proprietary rights to the same extent as laws of the United States and in certain other countries such as those of the European Union. The inability to register or enforce, or the infringement of any intellectual property rights belonging to our Company could disrupt our Company’s ongoing business, distract management and employees, reduce income and increase expenses.

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30. Our loan agreements have certain restrictive covenants, which can affect our business.

Please refer to page 32 of this Letter of Offer for details of the restrictive covenants for undertaking certain corporate actions including payment of dividend under the various agreements entered into by our Company.

31. We have entered into certain related party transactions.

Please refer point No. 5 of the Notes to Accounts on page 103 of this Letter of Offer for the related party transactions from 1st April, 2009 to 30th September, 2009.

32. If we are unable to obtain the necessary funds for our growth plans, our business and operations will be adversely affected.

There can be no assurance that our internal accruals will be sufficient to meet the funding of our growth plans.

Our ability to obtain any required capital on acceptable terms is subject to a variety of uncertainties, including:

• limitations on our ability to incur additional debt, including as a result of prospective lenders’ evaluations of our creditworthiness and pursuant to restrictions on incurrence of debt in our existing and anticipated credit facilities;

• investors' and lenders' perception of, and demand for, debt and equity securities of companies in the paper industry as well as the offerings of competing financing and investment opportunities in India by our competitors;

• whether it is necessary to provide credit support or other assurances from our Promoter on terms and conditions and in amounts that are commercially acceptable to them;

• limitations on our ability to raise capital in the capital markets and conditions of the capital markets in which we may seek to raise funds; and

• our future results of operations, financial condition and cash flows.

Any inability to raise sufficient capital to fund our growth plans could have a material adverse effect on our business and results of operations. For details, please refer to the section entitled “Objects of the Issue” beginning on page 40 of this Letter of Offer.

33. Our failure to compete in the highly competitive paper industry could result in the loss of customers, which could have an adverse impact on our operations.

There are a large number of producers in the paper industry. We are subject to competition from the existing producers as well as new entrants. We are facing competitive pressures in terms of cost, quality and delivery schedule.

Our failure to meet any of these parameters could result in adverse customer perception thereby resulting in reduction or cancellation of orders.

Some of our competitors are larger than our company having greater financial resources than us, and may be able to deliver the products on more attractive terms or may be able to invest larger amounts of capital into their business, including capital expenditure for more efficient production capabilities. These competitors may limit the opportunity of our company to expand our market share and may compete with the pricing of the products. The business, financial condition and prospects of our Company could be adversely affected if we are unable to compete with our competitors and sell our products at competitive prices.

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34. There has been decrease in sales for the 6 month period ended 30.09.2009 when compared to the previous years

The Company’s net sales for the 6 month period ended 30.09.2009 has marginally declined due to adverse effect on paper industry consequent to lag impact of global recessionary pressures and economic slowdown witnessed domestically.

However the Company’s profit has increased for the 6 month period ended 30.09.2009 compared to the six months period of previous year (FY 2009) on account of:

• Reduction in raw materials’ cost which was on account of lower bamboo usage and a higher rate of yield on production of pulp in-house

• Reduction in expenses on spare parts, stores and packing materials due to lower production and especially the chemical consumption, due to higher efficiencies in pulp and chemical recovery process.

• Reduction in interest & finance charges which can be attributed to lower foreign exchange loss and saving of interest on foreign currency term loans due to low LIBOR

RISKS IN RELATION TO THE ISSUE AND OBJECTS OF THE ISSUE

35. We have not appointed an independent appraiser or an independent monitoring agency for the use of the proceeds of this Issue.

The fund requirement and utilisation of the proceeds of the Issue as specified in the section entitled “Objects of the Issue” in this Letter of Offer are based on internal management estimates and has not been appraised by any bank, financial institution or other independent agency. The actual operations may be different from management estimates and our Company may not be able to deploy funds as planned. Further, the deployment of funds is at the discretion of our Board of Directors and not subject to monitoring by any independent agency.

36. There is no guarantee that the Rights Equity Shares issued pursuant to the Issue will be listed on the BSE and the NSE in a timely manner or at all.

In accordance with Indian law and practice, permission for listing and trading of the Rights Equity Shares issued pursuant to the Issue will not be granted until after such Rights Equity Shares have been issued and allotted. Such approval will require all other relevant documents authorising the issuing of Rights Equity Shares to be submitted. There could be a failure or delay in listing the Rights Equity Shares on the BSE and the NSE. Any failure or delay in obtaining the approval would restrict your ability to dispose of your Rights Equity Shares. Further, historical trading prices, therefore, may not be indicative of the prices at which the Rights Equity Shares will trade in the future.

37. Our Board of Directors shall have the discretion to allot Rights Equity Shares to persons who are not Eligible Equity Shareholders if the Issue is under-subscribed.

After taking into account allotment to be made to Eligible Equity Shareholders in accordance with the terms of this Letter of Offer if there is any unsubscribed portion in the Issue, any additional Rights Equity Shares shall be disposed of by the Board, in such manner as they think most beneficial to our Company and the decision of the Board in this regard shall be final and binding. For further details please refer to “Basis of Allotment - Terms of the Issue” section of this Letter of Offer.

RISKS IN RELATION TO THE ISSUE OF DETACHABLE WARRANTS

38. Non subscription to Equity Shares by the warrant holders under this Issue may lead to shortfall of funds required.

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The subscription to the Equity Shares by the warrant holders will depend upon the timely conversion and the market price of Equity Shares prevailing at the time of conversion of the warrant.

39. The Detachable Warrants will bear the risk of fluctuation in the price of the Equity Shares.

Stock markets have experienced extreme volatility in the recent past that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of the Equity Shares. There may be significant volatility in the market price of the Equity Shares. If our Company is unable to operate profitably or as profitably as it has in the past, investors could sell the Equity Shares when it becomes apparent that the expectations of the market may not be realized, resulting in a decrease in the market price of the Equity Shares. In addition to our Company’s operating results, governmental investigations and litigation, speculation in the press or investment community, the possible effects of a war, terrorist and other hostilities, changes in general conditions in the economy or the financial markets, or other developments affecting our industry, could cause the market price of the Equity Shares to fluctuate substantially. The market price of the Detachable Warrants is expected to be affected by fluctuations in the market price of the Equity Shares and it is impossible to predict whether the price of the Equity Shares will rise or fall. Any decline in the price of the Equity Shares may have an adverse effect on the market price of the Detachable Warrants.

40. An active market for the Detachable Warrants may not develop, which may cause the price of the Equity Shares to fall.

Our Company will apply to BSE and NSE for final listing and trading approvals of the Detachable Warrants after the allotment of the Equity Shares with Detachable Warrants in the Issue. There can be no assurance that our Company will receive such approvals on time or at all. No assurance can be given that an active trading market for the Detachable Warrants will develop or as to the liquidity or sustainability of any such market, the ability of the Warrant Holders to sell their Detachable Warrants or the price at which the Warrant Holders will be able to sell their Detachable Warrants.

RISKS EXTERNAL TO OUR COMPANY’S BUSINESS AND OPERATIONS

41. The extent and reliability of Indian infrastructure could adversely impact our results of operations and financial condition.

India’s physical infrastructure is less developed than that of many developed nations and problems with its port, rail and road networks, electricity grid, communication systems or any other public facility could disrupt our normal business activity. Any deterioration of India’s physical infrastructure would harm the national economy, disrupt the transportation of goods and supplies, and add costs to doing business in India. These problems could interrupt our business operations, which could have a material adverse effect on our results of operations and financial condition.

42. Natural disasters in India could have a negative impact on the Indian economy and cause our Company’s business to suffer.

India has experienced significant natural disasters in recent years such as earthquakes, tsunami, flooding and drought. India has also experienced pandemics including the outbreak of avian flu and swine flu. The extent, location and severity of these natural disasters determine their impact on the Indian economy and our Company’s business. Further, natural disasters could reduce economic activity in India generally, and adversely affect our Company’s business.

43. Changes in Indian Government policies could adversely affect economic conditions in India, and thereby adversely impact our results of operations and financial condition.

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All of our production facilities are located in India, and a significant portion of its revenue is derived from sales of its products in the Indian market. Consequently, our Company, and the market price and liquidity of the Equity Shares, may be affected by changes in the policy of the Government of India. For example, the imposition of foreign exchange controls, rising interest rates, inflation, increases in taxation or the creation of new regulations could have a detrimental effect on the Indian economy generally and us in particular. The Indian Government has in recent years sought to implement economic reforms, and the current Indian Government has implemented policies and undertaken initiatives that continue the economic liberalization policies pursued by previous Indian Governments. For example, the Indian Government has announced its general intention to continue India’s current economic and financial sector deregulation policies and encourage infrastructure Projects. However, the roles of the Indian Government and the state governments in the Indian economy as producers, consumers and regulators have remained significant and there can be no assurance that liberalization policies will continue in the future. Any significant change in such liberalization and deregulation policies could adversely affect business and economic conditions in India generally and our results of operations and financial condition in particular.

44. Political instability or changes in the government in India could delay the further liberalisation of the Indian economy and adversely affect economic conditions in India generally and our business in particular.

In the period ended March 31, 2007, March 31, 2008 and March 31, 2009, on an average 85% of our total sales was derived from the Indian market. Our business may be affected by foreign exchange rates and controls, interest rates, changes in government policy, taxation, social and civil unrest and other political, economic or other developments in or affecting India. Since 1991, successive Indian governments have pursued policies of economic liberalisation, including significantly relaxing restrictions on the private sector. Nevertheless, the roles of the Indian central and state governments in the Indian economy as producers, consumers and regulators have remained significant. A significant change in India's economic liberalisation and deregulation policies could adversely affect business and economic conditions in India generally, and our business in particular, if new restrictions on the private sector are introduced or if existing restrictions are increased.

45. If regional hostilities, terrorist attacks or social unrest in India increase, our business could be adversely affected and the trading price of the Equity Shares could decrease.

The Asian region has from time to time experienced instances of civil unrest, terrorist attacks and hostilities among neighbouring countries, including between India and Pakistan. Since May 1999, military confrontations between India and Pakistan have occurred in Kashmir. Also, since early 2003, there have been a number of terrorist attacks in India in the last several years, including recent terrorist attacks in Mumbai in November 2008. Military activity or terrorist attacks in India in the future could influence the Indian economy by creating a greater perception that investments in Indian companies involve higher degrees of risk. These hostilities and tensions could lead to political or economic instability in India and a possible adverse effect on the Indian economy and our business and its future financial performance and the trading price of the Equity Shares.

Furthermore, India has also experienced social unrest in some parts of the country. If such tensions occur in other parts of the country, leading to overall political and economic instability, it could have an adverse effect on our business, future financial performance and the trading price of the Equity Shares.

46. Financial instability in other countries, particularly countries with emerging markets, could disrupt Indian markets and our business and cause the trading price of our Equity Shares to decrease.

The Indian financial markets and the Indian economy are influenced by economic and market conditions in other countries, particularly emerging market countries in Asia. Further the current financial turmoil in the United States has had a significant impact on the Indian economy as well as the stability of the Indian Markets. Financial instability in other countries such as Latin America, Russia and elsewhere in the world in recent years have had limited impact on the Indian economy and India was relatively unaffected by financial and liquidity crises

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experienced elsewhere. Although economic conditions are different in each country, investors´ reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of other emerging markets may cause volatility in Indian financial markets and, indirectly, in the Indian economy in general. Any worldwide financial instability could also have a negative impact on the Indian economy. This in turn could negatively impact the movement of exchange rates and interest rates in India. In short, any significant financial disruption could have an adverse effect on our business, future financial performance and the trading price of the Equity Shares.

47. The Indian securities markets are more volatile than certain other securities markets.

The Indian securities markets are more volatile than the securities markets in certain countries which are members of the Organization for Economic Co-operation and Development. Indian stock exchanges have, in the recent past, experienced substantial fluctuations in the prices of listed securities. Indian stock exchanges have experienced problems which, if such or similar problems were to continue or recur, could affect the market price and liquidity of the securities of Indian companies, including the Equity Shares. These problems have included temporary exchange closures, broker defaults, settlement delays and strikes by brokers. A closure of, or trading stoppage on, either of the BSE and the NSE could adversely affect the trading price of the Equity Shares. Historical trading prices, therefore, may not be indicative of the prices at which the Equity Shares will trade in the future. In addition, the governing bodies of the Indian stock exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Furthermore, from time to time disputes have occurred between listed companies, stock exchanges and other regulatory bodies, which in some cases may have had a negative effect on market sentiment.

48. Any downgrading of India´s debt rating by an international rating agency could have a negative impact on our business and the trading price of the Equity Shares.

Any adverse revisions to India´s credit ratings for domestic and international debt by international rating agencies may adversely affect our ability to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. This could have an adverse effect on our ability to obtain financing to fund our growth on favourable terms or at all and, as a result, could have a material adverse effect on our results of operations and financial condition.

49. Shareholders will bear the risk of fluctuations in the price of our Equity Shares.

The price of our Equity Shares on the Indian stock exchanges may fluctuate after this offering as a result of several factors, including: volatility in the Indian and global securities market; operations and performance of our Company; performance of our competitors; adverse media reports on our Company; changes in the estimates of our Company’s performance or recommendations by financial analysts; significant developments in India’s economic liberalization and deregulation policies; and significant developments in India’s fiscal and environmental regulations. There can be no assurance that the prices at which our Equity Shares are initially traded will correspond to the prices at which our Equity Shares will trade in the market subsequently.

50. There are restrictions on daily movements in the price of our Equity Shares, which may adversely affect a shareholder’s ability to sell, or the price at which it can sell Equity Shares at a particular point in time.

Our Company is subject to a daily circuit breaker imposed by stock exchanges in India which does not allow transactions beyond certain volatility in the price of our Equity Shares. This circuit breaker operates independently of the index-based market-wide circuit breakers generally imposed by SEBI on Indian Stock Exchanges. The percentage limits on our Company’s circuit breakers are set by the BSE and the NSE. The BSE and the NSE does not inform our Company of the percentage limit of such circuit breakers and may change it without our Company’s knowledge. This circuit breaker effectively limits the upward and downward movements in the price of our Equity Shares. As a result of this circuit breaker, there can be no assurance regarding the

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ability of our Company’s Equity Shareholders to sell our Equity Shares or the price at which shareholders may be able to sell their Equity Shares at a particular point in time.

51. Fluctuation in the exchange rate between the Rupee and any other currency could have a material adverse effect on the value of our Equity Shares, independent of our Company’s operating results.

Our Equity Shares are quoted in Rupees on BSE and NSE. Any dividends in respect of our Equity Shares will be paid in Rupees and may subsequently be converted into other currencies for repatriation to any non-resident Shareholder. Any adverse movement in exchange rates during the time it takes to undertake such conversion may reduce the net dividend to investors. In addition, any adverse movement in exchange rates during a delay in repatriating outside India the proceeds from a sale of Equity Shares, for example, because of a delay in regulatory approvals that may be required for the sale of Equity Shares may reduce the net proceeds received by shareholders. Further any fluctuations in the exchange rates between the Rupee and any other currency may adversely affect the value of our Equity Shares.

52. Future issuances or sales of our Equity Shares could significantly affect the trading price of our Equity Shares, and may dilute your shareholding in our Company.

The future issuances of Equity Shares by our Company or the disposal of Equity Shares by any of the major shareholders of our Company or the perception that such issuance or sales may occur may significantly affect the trading price of our Equity Shares. Further, any issuance of any Equity Shares pursuant to the conversion or exchange of securities of our Company, or otherwise, may dilute your shareholding in our Company.

There can be no assurance that our Company will not issue further Equity Shares or that our Promoters will not dispose of, pledge or otherwise encumber their Equity Shares.

53. Foreign investors are subject to foreign investment restrictions under Indian law that limit our Company’s ability to attract foreign investors, which may adversely impact the market price of our Equity Shares.

Under the foreign exchange regulations currently in force in India, transfers of Equity Shares between non-residents and residents are freely permitted (subject to certain restrictions) if they comply with the pricing guidelines and reporting requirements specified by the RBI. If the transfer of Equity Shares, which are sought to be transferred, is not in compliance with such pricing guidelines or reporting requirements or falls under any of the exceptions referred to above, then the prior approval of the RBI will be required. Additionally, shareholders who seek to convert the Rupee proceeds from a sale of Equity Shares in India into foreign currency and repatriate that foreign currency from India will require a no objection/ tax clearance certificate from the income tax authority. Our Company cannot assure investors that any required approval from the RBI or any other statutory and/or regulatory authority or agency can be obtained on any particular terms or at all.

Prominent Notes 1. Issue of 70,18,242 Equity Shares with a face value of Rs. 10.00 each at a premium of Rs. 40.00 per Equity Share

for an amount aggregating to Rs. 3,509.12 Lacs on a rights basis to the existing equity shareholders of our Company in the ratio of 3 equity shares for every 11 fully paid-up equity shares held by the existing Equity Shareholders on the record date, that is on February 24, 2010. For every 1 Equity share allotted in the issue, 1 (one) detachable warrant will be issued and allotted. The issue price is five times the face value of the Equity Shares.

2. Based on our financial information, our net worth was Rs. 44,311.64 lacs as per the audited financial statements

of our Company as at 30th September, 2009 disclosed in the section titled “Financial Information” beginning on page 60 of this Letter of Offer.

3. Details of related party transactions from 1st April, 2009 to 30th September, 2009 are as follows:

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(Rs. In lacs) Nature of Transaction

Promoters Key Management

Personnel

Other Enterprises in which Promoters and

Directors hold substantial interest

Relative of Key Management

Personnel

Total

Remuneration 0.00 83.97 0.00 0.00 83.97 Sale of Goods 189.02 0.00 0.00 0.00 189.02 Purchase of Goods 0.00 0.00 145.47 0.00 145.47 Expenses 1.31 0.00 0.00 0.00 1.31 Receivables 18.05 - - - - Payables - - 42.27 - -

Related Party Transactions in respect of Debtors for the financial year ended 31st March 2009 and for the six months ended 30th September 2009 are as follows:

(Rs. in lacs) S No Particulars 1.4.2008 to 31.03.2009 1.4.2009 to 30.09.2009 1 2.

SALE OF GOODS a. The Kishore Trading Co.Ltd b. The Swadeshi Commercial Co. Ltd c. Samay Books Ltd., RECEIVABLES a. The Kishore Trading Co.Ltd b. The Swadeshi Commercial Co. Ltd

328.42 171.40 6.08

9.51 -----

117.38 71.64 -----

13.82 4.23

4. There has been no financing arrangement whereby the Promoter Group, the Directors of our Company and their

relatives have financed the purchase by any other person of securities of our Company other than in the normal course of business of the financing entity during the period of six months immediately preceding the date of filing of the Letter of Offer with SEBI.

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SECTION III – INTRODUCTION BUSINESS OVERVIEW

The Andhra Pradesh Paper Mills Ltd. (APPML) is one of the largest, integrated pulp and paper manufacturing plant in India. It produces a wide variety of products ranging from writing & printing papers, Kraft paper and newsprint thereby catering to different segments of the market. APPML was incorporated on June 29, 1964 to take over Andhra Paper Mills as a going concern run by the Government of Andhra Pradesh as a joint Venture between Government of Andhra Pradesh and Somani Group. In 1966 Somani group transferred his ownership rights to West Coast Paper Mills Limited. In the year 1981, West Coast Paper Mills Limited transferred its ownership rights to Digvijay Investments Limited, a Company controlled by Shri L.N Bangur and his associates. In the year 2000, Government of Andhra Pradesh transferred its entire shareholding to Digvijay Investments Limited. It is now the flagship company of the L. N. Bangur Group. The Company has two manufacturing units, one at Rajahmundry and another at Kadiam, in of East Godavari District, Andhra Pradesh. The two units combined have installed capacity of 1,74,000 TPA of paper production and 550 TPD bleached virgin pulp production. The Rajamundry unit manufactures MG Poster, MG Ribbed Kraft, MG Cover, SS Maplitho Copier Dlx Maplitho, Cream Wove etc. using bamboo and hardwood mix as core raw material, where as the Kadiam unit manufactures paper such as creamwove, azurlaid, Maplitho , kraft liner and newsprint primarily based on agri residue and recycled paper. The company embarked on a ‘Mill Development Programme’ (MDP) in 2004, which focused on modernization of its existing mills and expansion of capacity. The MDP was divided into three phases of which the first two phases (involved among other things, installation of a new pulp line of 550 TPD capacity, a 34 MW turbine and rebuild of paper machines for an additional capacity of 21,000 TPA resulting in capacity increase from 1,53,000 TPA in FY06 to 1,74,000 TPA in FY09) have been successfully completed and commissioned. The company has embarked upon phase-III of the MDP, involving the installation of a Coal fired Boiler of 105 TPH and a Paper Machine (PM-VI) with a capacity of 67,000 TPA out of which Coal fired Boiler of TPH was commissioned in December 2008. Paper Machine VI is expected to be commissioned by end of March 2010. After completion of MDP, It shall have total paper Manufacturing capacity of 2,41,000 tpa and pulp capacity of 550 tpd. APPML has helped in developing farm-forestry /plantation of Casuarina & Subabul in over 86,500 hectares. This ensures adequate supply of raw material , and support soil conservation, environment etc.

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THE ISSUE

The following is a summary of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, more detailed information in the section titled “Terms of the Issue” on page 135 of this Letter of Offer.

Rights Entitlement Equity Shareholders are entitled to 3 (three) Equity Shares for every 11 (eleven) fully paid-up Equity Shares held on the Record Date i.e., February 24, 2010, In addition to the Rights Entitlement, for every 1 (one ) Equity Share allotted in the Issue, 1 (one) Detachable Warrant will be issued and allotted.

Record Date February 24, 2010

Issue Price per Equity Share Rs. 50.00 Per Equity Share

Equity Shares outstanding after the Issue but before the exercise of the Detachable Warrants (assuming full subscription for and allotment of the Rights Entitlement)

3,27,51,797 Equity Shares

Equity Shares outstanding after the exercise of Detachable Warrants conversion (assuming full exercise of the conversion)

3,97,70,039 Equity Shares

Terms of the Issue For more information, please refer to the section titled “Terms of the Issue” beginning on page 135 of this Letter of Offer.

Due Date Amount Payable On the Issue application (i.e., along with the CAF)

Rs.50.00 which constitutes 100% of the Issue Price.

Terms of Payment

On exercise of the Detachable Warrants (i.e., along with the Warrant Exercise Application Form)

Rs.50.00 which constitutes 100% of the Warrant Exercise Price.

Use of Issue Proceeds For further information, please refer to the section titled “Objects of the Issue” on page 40 of this Letter of Offer.

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SUMMARY FINANCIAL AND OPERATIONAL INFORMATION

The following tables set forth summary financial information derived from our Audited financial statements as of 30th September, 2009 and for the fiscal years ended March 31, 2009 and March 31, 2008. Our Audited financial statements have been prepared in accordance with Indian GAAP and the SEBI ICDR and are presented in the section titled “Financial Information” on page 60 of this Letter of Offer. The summary financial information presented below should be read in conjunction with the Audited financial statements and the notes thereto appearing on page 60 of this Letter of Offer.

Summary Statement of Assets and Liabilities of our Company:-

As at 30.09.2009(Rs. In Lakhs)

As at 31.03.2009 (Rs. In Lakhs)

As at 31.03. 2008(Rs. In Lakhs)

SOURCES OF FUNDS Shareholders' Funds: a) Capital 2,573.36 2,573.36 2,573.36 b) Reserves & Surplus 41,809.63 39,224.40 39,069.58 c) Share Application Money 1,250.00 - - 45,632.99 41,797.76 41,642.94 Loan Funds: a) Secured Loans 46,950.52 47,477.79 43,584.48 b) Unsecured Loans 6,583.24 8,625.38 9,608.57 53,533.76 56,103.17 53,193.05 Deferred Tax Liability 2,597.16 2,165.55 2,117.50 Total 101,763.91 100,066.48 96,953.49 APPLICATION OF FUNDS Fixed Assets a) Gross Block 109,584.77 110,436.77 103,454.82 b) Depreciation 38,060.92 35,349.88 30,110.91 c) Net Block 71,523.85 75,086.89 73,343.91 d) Capital work-in-progress 18,012.08 15,246.21 13,046.28 89,535.93 90,333.10 86,390.19 Investments 1,664.34 1,664.34 1,664.34 Current Assets, Loans and Advances a) Inventories 14,227.68 13,524.85 10,481.36 b) Sundry Debtors 3,495.84 3,874.91 4,587.70 c) Cash and Bank Balances 1,129.44 807.00 1,329.50 d) Other Current Assets - Interest accrued on Deposits & Investments etc.

99.95 116.66 81.23

e) Loans and Advances 6,433.16 5,577.93 5,530.55 25,386.07 23,901.35 22,010.34 Less: Current Liabilities & Provisions 14,893.78 15,975.02 13,344.57 Net Current Assets 10,492.29 7,926.33 8,665.77 Misc. Expenditure to the extent not written-off or adjusted 71.35 142.71 233.19

Total 101,763.91 100,066.48 96,953.49

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Summary Statement of Profit and Loss of our Company: (Rs. In Lakhs) 30.09.2009 31.03.09 31.03.2008 INCOME Sales 29,355.92 65,733.39 62,824.41 Less : Excise Duty 907.71 2,938.54 4,935.77 Net Sales 28,448.21 62,794.85 57,888.64 Increase/Decrease in Stocks 2,129.29 3,086.52 1,282.93 Other Income 433.13 1,023.29 1,325.88 Total 31,010.63 66,904.66 60,497.45 EXPENDITURE Materials Cost 7,853.84 18,857.55 19,208.86 Staff Costs 2,727.41 5,507.65 5,258.87 Manufacturing Expenses 10,659.94 24,907.10 23,148.90 Other expenses 2,166.14 5,004.87 4,671.26 Deferred Revenue Expenses Written off 71.35 90.48 176.42 Total 23,478.68 54,367.65 52,464.31 Profit before Interest, Depreciation and Tax (PBIDT) 7,531.95 12,537.01 8,033.14

Interest and Finance Charges (incl. Exceptional Items) 1,731.02 4,937.09 830.55

Profit before Depreciation and Tax (PBDT) 5,800.93 7,599.92 7,202.59 Depreciation 2,783.87 5,411.19 5,236.22 Profit before Tax (PBT) 3,017.06 2,188.73 1,966.37 Provision for taxation :

- Current 513.00 248.00 246.00 - Earlier Years Tax 0.23 4.64 48.32 - Deferred Tax 431.60 251.20 223.20 - Fringe Benefit Tax 0.00 37.50 40.85

Less: MAT Credit (513.00) (248.00) (246.00) Profit after Tax (PAT) 2,585.23 1,895.39 1,654.00 Profit brought forward from previous year 11,961.01 10,406.28 9,219.35 Balance available for appropriation 14,546.24 12,301.67 10,873.35 APPROPRIATIONS Transfer to General Reserve 0.00 190.00 166.00 Proposed Equity Dividend 0.00 128.77 257.34 Corporate Tax on Dividend 0.00 21.89 43.73 Balance carried to Balance Sheet 14,546.24 11,961.01 10,406.28 Total 14,546.24 12,301.67 10,873.35 Earnings per Equity Share (Basic) /( Diluted) (Rs.) 10.05 7.37 6.44

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GENERAL INFORMATION Dear Shareholder(s),

Pursuant to the resolution passed by our Board of Directors at the meeting held on 31st July, 2009 and Members in the Annual General Meeting held on 25th September, 2009, it has been decided to make the following offer to our Equity Shareholders, with a right to renounce:

ISSUE OF 70,18,242 EQUITY SHARES WITH A FACE VALUE OF RS. 10.00 EACH FOR CASH AT A PREMIUM OF RS. 40.00 PER EQUITY SHARE FOR AN AMOUNT AGGREGATING TO RS. 3,509.12 LACS ON A RIGHTS BASIS TO THE EXISTING EQUITY SHAREHOLDERS OF THE ANDHRA PRADESH PAPER MILLS LIMITED (“COMPANY”) IN THE RATIO OF 3 EQUITY SHARES FOR EVERY 11 FULLY PAID-UP EQUITY SHARES HELD BY THE EXISTING EQUITY SHAREHOLDERS ON THE RECORD DATE, THAT IS ON FEBRUARY 24, 2010. FOR EVERY 1 EQUITY SHARE ALLOTED IN THE ISSUE, 1 DETACHABLE WARRANT WILL BE ISSUED AND ALLOTTED. THE ISSUE PRICE IS FIVE TIMES THE FACE VALUE OF THE EQUITY SHARES. FOR FURTHER DETAILS, PLEASE REFER THE SECTION TITLED “TERMS OF THE ISSUE” ON PAGE 135 OF THIS LETTER OF OFFER. Registered Office of our Company: Rajahmundry - 533105, East Godavari District, Andhra Pradesh, India Telephone: + 91 883 -2471831/32/33/34/35/36/37 Website: www. andhrapaper.com Email: appmrjy@andhrapaper.com Corporate Identification No: L21010AP1964PLC001008 Corporate Office of our Company: 501- 509, Swapnalok Complex, 5th Floor, 92/93, Sarojini Devi Road, Secunderabad – 500003 Tel: +91 40 30482614, 27813715, Fax: +91 40 27813717 Email: appmcorp@andhrapaper.com Address of the Registrar of Companies: Registrar of Companies, Andhra Pradesh II Floor, CPWD Building Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500095 Tel: + 91 40 23734931 Compliance Officer: Mr. C. Prabhakar Sr. Vice President (Corporate Affairs) and Company Secretary, 501- 509, Swapnalok Complex, 5th Floor, 92/93, Sarojini Devi Road, Secunderabad – 500003 Tel: +91 40 30482614, 27813715, Fax: +91 40 27813717 Email: rightsissue@andhrapaper.com Investors may contact the Compliance Officer for any pre-issue /post-issue related matter. All grievances relating to the ASBA process may be addressed to the Registrar to the Issue, with a copy to the SCSB, giving full details such as name, address of the applicant, number of Equity Shares applied for, Amount blocked, ASBA Account number and the Designated Branch of the SCSB where the CAF was submitted by the ASBA Investors.

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Legal Advisor to the Issue: M/s. LVV Iyer & Associates, Corporate Lawyers Flat No. 302A, 3rd Floor, Technopolis Complex (lane next to Pantaloons) Begumpet, Hyderabad – 500 016, India Phone: +91-40-2776 5828, Fax: +91-40-2776 6534 E-mail: iyerassociates@yahoo.com Contact Person: Mr. LVV Iyer. Bankers to our Company: State Bank of India Corporate Accounts Group Branch, “Ozone”, 2nd floor, #6-3-669, Panjagutta Main Road, Hyderabad – 500 082. Phone: +91-40-23421428 Fax: +91-40-23421408 Canara Bank Prime Corporate Branch, TSR Complex, S.P. Road, Secunderabad – 500 003. Phone: +91-40-23438638 Fax: +91-40-23438639 Lead Manager to the Issue: Axis Bank Limited Central Office, Maker Tower ‘F’ 11th Floor, Cuffe Parade, Colaba Mumbai 400 005, India Telephone: +91 22 6707 1725 Fax: +91 22 6707 1264 E-mail: appaper.rights@axisbank.com Investor Grievance ID: axbmbd@axisbank.com Website: www.axisbank.com Contact Person: Mr. Rajneesh Kumar SEBI registration number: INM000006104 Statement of responsibilities as the Lead Manager to the Issue Axis Bank Limited is the sole Lead Manager to the Issue and all the responsibilities relating to the co-ordination and other activities in relation to the Issue shall be performed by them. Bankers to the Issue: Axis Bank Limited Central Office, Maker Tower ‘E’ 3rd Floor, Cuffe Parade, Colaba Mumbai 400 005, India Tel: +91 22 6707 1657 Fax: +91 22 2215 5157 Email: prashant.fernandes@axisbank.com Contact Person: Mr. Prashant Fernandes

30

Self Certified Syndicate Banks:

The list of banks that have been notified by SEBI to act as SCSB for the ASBA Process are provided on www.sebi.gov.in/pmd/scsb.pdf. Registrar to the Issue:

Sathguru Management Consultants Pvt. Ltd. Plot No. 15, Hindi Nagar, Panjagutta, Hyderabad - 500 034. Tel: +91 40 23350586 Fax: +91 4040040554 Website: www.sathguru.com E-mail: sta@sathguru.com Contact Person: Mr. R. Chandra Sekhar SEBI Registration Number: INR 000000536 Note: Investors are advised to contact the Registrar to the Issue/Compliance Officer in case of any pre-issue/ post-issue related problems such as non-receipt of Letter of Offer/letter of allotment/demat credit/share certificate(s)/refund orders.

Credit Rating

This being a Rights issue, no Credit Rating is required.

Debenture Trustee

This being a Rights Issue of Equity Shares, appointment of Debenture trustee is not required.

Monitoring Agency

In terms of SEBI ICDR, Chapter II, Regulation 17, the appointment of a monitoring agency is mandatory only if the issue size exceeds Rs.500.00 Crores. Since the present issue size would not exceed Rs.500.00 Crores no Monitoring Agency has been appointed.

Appraising Entity

The present issue is not being appraised by any appraising agency since the object of the issue is to meet the Long term working capital requirement, normal capital expenditure and expenses of issue by our Company. Issue Schedule

Issue Opening Date: March 04, 2010

Last date for receiving requests for SAFs: March 11, 2010

Issue Closing Date: March 18, 2010

Declaration by Board on creation of separate account The Board of Directors declares that funds received against this Issue will be transferred to a separate bank account other than the bank account referred to sub-section (3) of Section 73 of the Companies Act.

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Minimum Subscription If our Company does not receive the minimum subscription of 90% of the Issue, our Company shall forthwith refund the entire subscription amount received within 15 days from Issue Closing Date. If there is a delay in the refund of subscription by more than eight days after the date from which our Company becomes liable to pay the subscription amount (i.e. 15 days after the Issue Closing Date or the date of refusal by the Stock Exchanges, whichever is earlier) our Company shall pay interest for the delayed period at the rates prescribed under Section 73 (2) and (2A) of the Companies Act.

Underwriting/ stand by Support

This issue of equity shares is not being underwritten and/or no standby support is being sought for the said issue. Subscription to the Issue by the Promoters and the Promoter Group The Promoters and the members of the Promoter Group holding Equity Shares in our Company have vide their letter date October 20, 2009 undertaken to fully subscribe for their Rights Entitlement. They reserve the right to subscribe for their Rights Entitlement either by themselves and/or through one or more entities controlled by them, including by subscribing for Equity Shares with Detachable Warrants pursuant to any renunciation made by any member of the Promoter Group to another member of the Promoter Group. They have also undertaken to apply for the Equity Shares with Detachable Warrants in addition to their rights entitlement to the extent of any undersubscribed portion of the Issue, subject to obtaining approvals required under applicable law, if any. Such subscription for Equity Shares with Detachable Warrants over and above their rights entitlement, if allotted, may result in an increase in their percentage shareholding above their current percentage shareholding. Further, such acquisition by them of additional Equity Shares with Detachable Warrants shall (i) not result in a change of control of the management of our Company; and (ii) be exempt from the applicability of Regulations 11 and 12 of the Takeover Code in terms of the proviso to Regulation 3(1)(b)(ii) of the Takeover Code. In connection with Detachable Warrants issued and allotted by our Company in the Issue, the Promoters and members of the Promoter Group may apply for the issue of such Equity Shares as may arise from the exercise of the Detachable Warrants issued and allotted to them in the Issue and such exercise shall (i) not result in a change of control of the management of our Company; and (ii) be exempt from the applicability of Regulations 11 and 12 of the Takeover Code in terms of the proviso to Regulation 3(1)(b)(ii) of the Takeover Code.

Details of Principal Terms of loans and assets charged are as follows:-

Sl. No.

Name of the Financial Institution / Bank

Amount Sanctioned

Amount Outstanding as on

31st December, 2009 (Rs. In lakhs)

Last Installment

1. International Finance Corporation (IFC) USD 35.00 mn 10,858.17 15.10.2014 2. Deutsche Investitions- Und

Entwicklungsgesellschaft mbH (DEG)

USD 15.00 mn 4,071.81 15.05.2013

3. State Bank of India INR 8,300 lakhs 5,395.00 01.01.2012 4. State Bank of India INR 4,000 lakhs 4,000.00 31.03.2015 5. Canara Bank INR.7,500 lakhs 3,752.89 01.01.2012 6. IDBI Bank Limited INR 3,000 lakhs 2,250.00 01.01.2012 7. IDBI Bank Limited INR.5,500 lakhs 5,500.00 01.10.2013 8. Axis Bank Limited (Term Loan) INR.8,800 lakhs 4,888.00 01.04.2017 9. Axis Bank Limited (Corporate Loan) INR.5,000 lakhs 5,000.00 01.10.2013

32

The rate of interest on the foreign currency loans from International Finance Corporation and DEG is Libor plus 250 basis points. The rate of interest on the rupee loans from State Bank of India, Canara Bank, IDBI Bank and Axis Bank range from 9.25% to 12.5%. The terms loans obtained from International Finance Corporation, DEG, State Bank of India, Canara Bank, IDBI Bank and Axis Bank are secured by first pari passu charge on the movable properties (except current assets on which State Bank of India and Canara Bank hold first pari passu charge) and immovable properties of our Company. Restrictive Covenants A. Certain corporate actions for which our Company is required to take the consent of the Indian Lenders are as

follows:

1. To undertake or permit any merger, demerger, pledge, lien, consolidation, reorganization, dissolution, scheme or arrangement or compromise or other security interest with the creditors or share holders or effect any scheme of amalgamation or reconstruction or merger;

2. To amend or modify the constitutional documents;

3. To pass a resolution for voluntary winding up;

4. To mortgage, sale, assign, lease, hypothecate, exchange or create any charge, lien or encumbrance of any kind on those properties or assets secured with the lenders including uncalled capital;

5. Approach capital market for mobilizing additional resources either in the form of debts or equity;

6. Change or in any way alter the capital structure of our Company;

7. To make any drastic change (s) in its management set up;

8. Declare Dividend or distribute profits except where the installments of principal and interest payable to the Lenders in respect of the facilities are being paid regularly and there are no irregularities whatsoever in respect of the Facilities;

9. Invest by way of share capital in or lend or advance funds to or place deposits with any other concerns except in normal course of business or as advances to employees;

10. Create any subsidiary or permit any company to become its subsidiary;

11. Undertake guarantee obligations on behalf of any other borrower or any third party,

B. Certain corporate actions for which our Company is required to take the consent of the Foreign Lenders such IFC and DEG as are as follows:

Our Company shall not:

1. Declare or pay any Dividend or make any distribution on its share capital (other than dividends or distributions payable on shares of our Company) or purchase, redeem or otherwise acquire any shares of our Company or any option over them unless the proposed payment or distribution is out of retained earnings and our Company, no earlier than sixty (60) days nor later than thirty (30) days prior to doing so, certifies in writing.

2. Prior to the Project Physical Completion Date, our Company shall not pay dividends (for any period of

twelve (12) consecutive months) on any class of shares in an aggregate amount which is higher than the lower of: (A) INR 29,572,000 or (B) fifteen per cent (15%) of profit after tax;

33

3. Out of the retained earnings make any of the payments or distributions should such retained earnings include any amount resulting from the revaluation of any of our Company’s assets; and

4. Our Company shall not make any payments or distributions if, after giving effect to it, our Company is not

in a position to certify certain matters required to be certified under the respective Loan Agreements.

The Company has entered into a Shareholders Agreement with specific shareholders on April 21, 2005 ,the salient terms of the agreement are disclosed below:

The said agreement is consistent with the Listing Agreement in general and Clause 49 thereof in particular.

Particulars Parties to the Contract Purpose of Agreement

Salient terms of the Agreement

Shareholders Agreement dated April 21, 2005

Digvijay Investments Ltd.,

Shri L N Bangur,

Smt. Alka Bangur,

Maharaja Shree Umaid Mills Limited,

Shri Shreeyash Bangur,

The Peria Karamalai Tea & Produce Co. Ltd.,

Shri Yogesh Bangur

Collectively referred to as “Promoters”

And

IFC

And

DEG

And

Finnfund

IFC, DEG and Finnfund collectively referred to as “Investors”

And

APPM

(the “Company”)

Terms and conditions governing the relationship of the parties to the agreement as shareholders inter-se and in respect of management and governance of the Company

1) The Investors shall have Tag Along Rights in respect of the shares if at any time the Company becomes a private company and/or is delisted from any Stock Exchanges for any reason whatsoever if the Promoter(s) propose to Transfer their Shares, which would directly or indirectly on a cumulative basis, reduce their shareholding in the Company by 5% or more of the total issued, subscribed and paid up share capital of the Company. Provided however, the aforesaid right shall not be exercisable by the Investors upon the Company’s delisting, if all the Investors have given their prior written unconditional consent for such delisting and have expressly waived their tag along rights granted hereunder with respect to such delisting.

2) No issue of shares shall be made to any other person for a price which is lower than the price at which the Investors have agreed to subscribe to the shares under the Renouncement Agreement, except with prior written consent of the Investors.

3) As long as any Investor holds more than 5% of the total, issued, subscribed and paid up equity share capital of the Company, such Investor shall have the right but not an obligation to appoint 1 (one) director on the Board (the “Institutional Director”). The Institutional Director(s) shall not be liable to retire by rotation.

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CAPITAL STRUCTURE

The capital structure of our Company and related information as on the date of this Letter of Offer is set forth below:

(Rs. in lacs) Particulars Aggregate Nominal Value Authorized Share Capital * 4,00,00,000 Equity Shares of Rs. 10.00 each 4,000.00 5,00,000 Redeemable Cumulative Preference shares of Rs. 100.00 each 500.00 Total 4,500.00 Issued, subscribed and paid up capital 2,57,33,555 Equity Shares of Rs. 10.00 each 2,573.36

* Authorized Share Capital of our Company was increased from Rs. 3,500 lacs to 4,500 lacs in the Annual General Meeting held on 25th September 2009.

Notes to Capital Structure: -

1. There are no outstanding warrants, options or rights to convert debentures, loans or other instrument into equity shares as on the date of this Letter of Offer.

2. Shareholding of Promoter and Promoter Group in our Company as on 31st December 2009:-

Total Shares held Shares pledged or otherwise encumbered

Sr. No. Name of the shareholder

Number As a % of total Paid up capital

Number As a percentage

As a % of total paid up capital

(I) (II) (III) (IV) (V) (VI) = (V)/ (III)*100 (VII)

INDIVIDUALS: 1 Lakshmi Niwas Bangur 20,360 0.08 0 0.00 0.00 2 Alka Bangur 79,150 0.31 0 0.00 0.00 3 Shreeyash Bangur 45,267 0.18 0 0.00 0.00 4 Yogesh Bangur 106,600 0.41 0 0.00 0.00 5 Surbhi Bangur 24,090 0.09 0 0.00 0.00 BODIES CORPORATE: 6 Amalgamated Development

Limited 8,750 0.03 0 0.00 0.00

7 Apurva Export Pvt. Ltd. 132,900 0.52 0 0.00 0.00 8 Digvijay Investments Limited 8,092,626 31.45 971,115 12.00 3.77 9 Maharaja Shree Umaid Mills

Limited 3,635,470 14.13 0 0.00 0.00

10 M B Commercial Company Limited 114,777 0.45 0 0.00 0.00

11 Mugneeram Ramcoowar Bangur Charitable & Religious Co. 8,800 0.03 0 0.00 0.00

12 Placid Limited 80,550 0.31 0 0.00 0.00 13 Shree Krishna Agency Limited 1,500 0.01 0 0.00 0.00 14 The General Investment

Company Ltd. 2,100 0.01 0 0.00 0.00

35

Total Shares held Shares pledged or otherwise encumbered

Sr. No. Name of the shareholder

Number As a % of total Paid up capital

Number As a percentage

As a % of total paid up capital

15 The Kishore Trading Company Limited 3,800 0.01 0 0.00 0.00

16 The Peria Karamalai Tea & Produce Co. Ltd. 711,963 2.76 0 0.00 0.00

17 The Swadeshi Commercial Company Ltd. 9,500 0.04 0 0.00 0.00

TOTAL 13,078,203 50.82 971,115 7.43 3.77

3. Details of Shares Acquired by the promoters and Promoter Group in the last one year, preceding the date of filing of the draft letter of offer with the SEBI: -

Details of shares acquired by Ms. Surbhi Bangur in the last one year are as follows:-

S. No. Date of Purchase Nature of Purchase

No. of Shares Consideration (Rs.)

1 04/08/2009 Open market 7865 593413 2 05/08/2009 Open market 356 26912 3 06/08/2009 Open market 2022 152350 4 10/08/2009 Open market 3706 278332 5 11/08/2009 Open market 1375 102975 6 25/08/2009 Open market 1464 103103 7 26/08/2009 Open market 1112 78254 8 28/08/2009 Open market 650 46165 9 29/09/2009 Open market 114 8453

10 29/09/2009 Open market 360 26715 11 30/09/2009 Open market 105 7817 12 30/09/2009 Open market 2361 176236 13 09/10/2009 Open market 1801 135374 14 09/10/2009 Open market 799 59892

TOTAL 24090* 1795989 *- constituting 0.09% of the issued and paid up capital of our Company

Details of shares acquired by The Peria Karamalai Tea & Produce Company Limited are as follows:-

S. No. Date of Purchase Nature of Purchase

No. of Shares Consideration (Rs.)

1 13/10/2008 Open market 5375 345491 2 14/10/2008 Open market 2422 162570 3 15/10/2008 Open market 1086 71432 4 15/10/2008 Open market 7070 463361

TOTAL 15953* 1042854 *- constituting 0.06% of the issued and paid up capital of our Company

4. The Promoters and the members of the Promoter Group holding Equity Shares in our Company have vide their letter dated October 20, 2009 undertaken to fully subscribe for their Rights Entitlement. The promoters reserve the right to subscribe for their Rights Entitlement either by themselves and/or through

36

one or more entities controlled by them, including by subscribing for Equity Shares with Detachable Warrant pursuant to any renunciation made by any member of the Promoter Group to another member of the Promoter Group. They have also undertaken to apply for Equity Shares with Detachable Warrants in addition to their Rights Entitlement to the extent of any undersubscribed portion of the Issue, subject to obtaining approvals required under applicable law, if any. Such subscription for Equity Shares with Detachable Warrant over and above their Rights Entitlement, if allotted, may result in an increase in their percentage shareholding above their current percentage shareholding. Further, such acquisition by them of additional Equity Shares with Detachable Warrant shall (i) not result in a change of control of the management of our Company; and (ii) be exempt from the applicability of Regulations 11 and 12 of the Takeover Code in terms of the proviso to Regulation 3(1)(b)(ii) of the Takeover Code. In connection with Detachable Warrants issued and allotted by our Company in the Issue, the Promoters and members of the Promoter Group may apply for the issue of such Equity Shares as may arise from the exercise of the Detachable Warrant issued and allotted to them in the Issue and such exercise shall (i) not result in a change of control of the management of our Company; and (ii) be exempt from the applicability of Regulations 11 and 12 of the Takeover Code in terms of the proviso to Regulation 3(1)(b)(ii) of the Takeover Code. The Promoters and Promoter Group shall subscribe to such unsubscribed portion as per the relevant provisions of the law. Allotment to the Promoter and Promoter Group of any unsubscribed portion, over and above their Rights Entitlement shall be done in compliance with the Listing Agreement and other applicable laws prevailing at that time relating to continuous listing requirements. The Promoters have provided the following undertaking vide their letter dated October 20, 2009. “The subscription by the Promoters and/or members of the Promoter Group for the Equity Shares in the Issue and the allotment of the Equity Shares will be in continuous compliance with the minimum public shareholding requirement specified under Clause 40A of the Listing Agreement with the Stock Exchanges (“Listing Agreement”) and our Company will take such steps as may be necessary to ensure such compliance with Clause 40A of the Listing Agreement.”

5. Shareholding Pattern of our Company as filed with the BSE & NSE as on December 31, 2009:

Total Shareholding as a percentage of total number of shares

Shares pledged or otherwise encumbered

Category code

Category of Shareholder

Number of

Share-holders

Total Number of

Shares

Number of shares held

in demateriali

sed form

As a percentage of (A+B)

As a percentage of (A+B+C)

Number of

shares

As a percentage

(I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX)=(VIII)/ (IV)*100

(A) Promoter and Promoter Group

1) Indian (a) Individuals/

Hindu Undivided Family

5 275,467 264,427 1.07 1.07 - -

(b) Central Government / State Government(s)

- - - - - - -

( c ) Bodies Corporate 12 12,802,736 12,779,736 49.75 49.75 971,115 7.59 (d) Financial

Institutions/ Banks

- - - - - - -

37

Total Shareholding as a percentage of total number of shares

Shares pledged or otherwise encumbered

Category code

Category of Shareholder

Number of

Share-holders

Total Number of

Shares

Number of shares held

in demateriali

sed form

As a percentage of (A+B)

As a percentage of (A+B+C)

Number of

shares

As a percentage

(e) Any Other (Specify)

- - - - - - -

Sub-Total (A)(1) 17 13,078,203 13,044,163 50.82 50.82 971,115 7.43 2) Foreign (a) Individuals (Non-

Resident Individuals/ Foreign Individuals)

- - - - - - -

(b) Bodies Corporate - - - - - - - ( c ) Institutions - - - - - - - (d) Any Other

(Specify) - - - - - - -

Sub-Total (A)(2) - - - - - - - Total

Shareholding of Promoter and Promoter Group (A) = (A)(1)+(A)(2) 17 13,078,203 13,044,163 50.82 50.82 971,115 7.43

(B) Public Shareholding

1) Institutions: (a) Mutual Funds /

UTI 2 200 - - - - -

(b) Financial Institutions/ Banks

6 1780 100 0.01 0.01 - -

(c ) Central Government / State Government (s)

- - - - - - -

(d) Venture Capital Funds

- - - - - - -

(e) Insurance Companies

5 1,770,515 1,770,315 6.88 6.88 - -

(f) Foreign Institutional Investors

1 354,982 354,982 1.38 1.38 - -

(g) Foreign Venture Capital Investors

- - - - - - -

(h) Any Other (Specify)

- Foreign Financial Institutions

3 5,044,474 5,044,474 19.60 19.60 - -

- Foreign Banks 1 200 - - - - - Sub-Total (B)(1) 18 7,172,151 7,169,871 27.87 27.87 - -

2) Non-Institutions:

38

Total Shareholding as a percentage of total number of shares

Shares pledged or otherwise encumbered

Category code

Category of Shareholder

Number of

Share-holders

Total Number of

Shares

Number of shares held

in demateriali

sed form

As a percentage of (A+B)

As a percentage of (A+B+C)

Number of

shares

As a percentage

(a) Bodies Corporate 344 1,587,515 1,582,052 6.17 6.17 - - (b) Individuals -

1) Individual Shareholders holding nominal share capital upto Rs.1 Lakh

8,545 2,253,494 1,775,754 8.76 8.76 - -

2) Individual Shareholders holding nominal share capital in excess of Rs.1 Lakh

30 1,616,632 1,603,182 6.28 6.28 - -

( c ) Any Other (Specify)

- Trusts 2 3,540 3,540 0.01 0.01 - - - NRI(s) 42 22,020 21,900 0.09 0.09 - -

Sub-Total (B)(2) 8,963 5,483,201 4,986,428 21.31 21.31 - -

Total Public Shareholding (B) = (B)(1) + (B)(2) 8,981 12,655,352 12,156,299 49.18 49.18 N.A N.A

TOTAL (A)+(B): 8,998 25,733,555 25,200,462 100.00 100.00 971,115 3.77 (C ) Shares held by

Custodians and against which Depository Receipts have been issued :

- - - N.A - N.A N.A

GRAND TOTAL (A)+(B)+(C)

8,998 25,733,555 25,200,462 N.A 100.00 971,115 3.77

6. Details of the shareholders holding more than one percent of the share capital of our Company as on 31st December, 2009:-

Sr. No.

Name of the shareholder Number of shares

Shares as a percentage of total number of shares {i.e. Grand Total (A)+(B)+(C) indicated in statement at para (I)(a) above}

1 International Finance Corporation 2,288,421 8.89 2 DEG-Deutsche Investitions - Und

Entwicklungsgesells chaft mbH 1,381,050

5.37 3 Finnish Fund for Industrial Cooperation 1,375,003 5.34 4 The Oriental Insurance Company Limited 917,348 3.56 5 The New India Assurance Company Limited 503,000 1.96 6 Woodside Fashions Limited 382,671 1.49 7 Harsha Hitesh Javeri 355,000 1.38 8 Atyant Capital Management Ltd A/c. -

Atyant Capital India Fund 354,982 1.38

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Sr. No.

Name of the shareholder Number of shares

Shares as a percentage of total number of shares {i.e. Grand Total (A)+(B)+(C) indicated in statement at para (I)(a) above}

9 R S M Builders & Securities Pvt Ltd 298,227 1.16 TOTAL 7,855,702 30.53

7. The present Issue being a rights issue, as per regulation 34(c) of the SEBI Regulations, the requirement of promoters contribution and lock-in are not applicable.

8. We have not issued any Equity Shares or granted any options under any employee stock option scheme or employees stock purchase scheme.

9. The Equity Shares of our Company are fully paid up and there are no partly paid up Equity Shares as on the date of this Letter of Offer

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OBJECTS OF THE ISSUE The Objects of this Issue are to raise funds for (i) Long Term incremental working capital margin requirement; (ii) normal capital expenditure (iii) To meet the issue expenses.

The main object clauses of our Memorandum of Association enable us to undertake our existing activities and the activities for which funds are being raised through this Issue.

Proceeds of the Issue

The gross proceeds of the Issue are Rs. 3,509.12 lacs. The net proceeds of the Issue, after deduction of any Issue expenses, are estimated to be approximately Rs. 3,433.12 lacs.

The details of the proceeds of the Issue are summarized in the following table:

(Rs. In lacs) Particulars Amount

Gross proceeds of the Issue 3,509.12* Less: Issue Expenses 76.00 Net proceeds of the Issue 3,433.12

*This figure does not include funds that may be available to our Company on exercise of Warrants issued in accordance with the terms mentioned in this Letter of Offer.

Fund Requirements and Deployment

The details of the utilization of Net Proceeds of this Issue will be as per the table set forth below:

(Rs. in lacs)

Particulars Total Estimated Amounts/Costs

Amount to be funded out of internal accruals

Amount estimated to be utilized

through the Net Proceeds of this

Issue

Estimated Net Proceeds utilized

Estimated Net Proceeds

utilization in FY 2009-10

Long-term Working capital margin requirement

9,824.06 6,690.94

3,133.12 1,750.00 1,383.12

Normal capital expenditure

300.00 --- 300.00 --- 300.00

Total: 10,124.06 6,690.94 3,433.12 1,750.00 1,683.12 * The Promoters Group company (Maharaja Shree Umaid Mills Ltd., Kolkata) has brought in an amount of Rs. 1,750 lacs as advance share application money towards part of Promoters’ Rights entitlement in the Issue, which will be adjusted against the total amount payable.The fund requirement and deployment are based on internal management estimates and have not been appraised by any bank, financial institution or other independent agency. These are based on the current status of our business and are subject to change in light of variations in external circumstances or costs, or in our financial condition, business or strategy, as discussed further below. Our management, in response to the competitive and dynamic nature of the industry, will have the discretion to revise its business plan from time to time and consequently our funding requirements and deployment of funds may also change. This may also include rescheduling the proposed utilization of Net Proceeds and increasing or decreasing expenditure for a particular object vis-à-vis the utilization of Net Proceeds.

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Means of Finance

The aforesaid requirement of funds is proposed to be entirely financed by the Net Proceeds of the Issue and our Company’s internal accruals as mentioned in the above table. Thus, provisions of the SEBI Regulations in connection with firm arrangements of finance through verifiable means towards 75% of the stated means of finance, excluding the amount to be raised through the proposed Issue and internal accruals, does not apply to our Company as our Company does not propose to avail any borrowed funds for part financing the Objects of the Issue.

The Promoters/ Promoter Group companies have brought in an amount of Rs. 1,750 lacs as advance share application money towards part of their Rights entitlement in the Issue, which will be adjusted against the total amount payable. The said amount has been completely deployed towards the objects of the Issue, as per the certificate of Brahmayya & Co., Statutory Auditors, Visakhapatnam, dated November 05, 2010 for Rs. 1250 lacs and dated February 18, 2010 for Rs. 500 lacs. In case of a shortfall in the Net Proceeds, our Company may explore a range of options including utilizing our internal accruals, and/or seeking additional debt from existing and future lenders. Similarly, a surplus in the Net Proceeds, if any, may be utilized to finance the fund requirements for any of the purposes for which the funds are being raised in this Issue. Details of the Objects of the Issue

The details of the requirement of funds are as provided below:

1. Incremental long term working capital margin requirement

The incremental long-term working capital margin requirement has been calculated on the basis of additional working capital requirement which will be required in FY 2010 compared to FY 2009 considering growth in activities of our Company and the resultant increase in volume consequent to increase in capacity from 174,000 MT in FY 2009 to 190,750 MT in FY 2010.

Raw Material (RM), Finished Goods (FG) and Auxiliary material have been taken at various levels, which is in consonance with the industry practices and past trends.

(Rs. In Lacs)

Particulars Holding Level (Months)

FY 2009 (Rs.in lacs)

Holding Level (Months)

FY 2010 (Rs.in lacs)

Current Assets Audited Estimated Raw Material 1.4 2,223.50 3.0 4,200.23 Work-in- Process 0.4 2,030.35 0.5 2,041.31 Chemicals & Additives 2.7 4,850.52 3.0 4,989.39 Finished Goods 0.9 4,420.48 0.6 2,553.12 Sundry Debtors 0.8 3,874.91 1.0 6,051.74 Other Current Assets 116.66 116.66 Loans and Advances 5,577.93 6,992.93 Cash & Bank Balances 807.00 1,632.97 Total Current Assets (A) 23,901.35 28,578.36 Current Liabilities (Other than bank borrowings for working capital)

Creditors – RM 2.6 4,017.02 1.0 1,400.08 Creditors - Chemicals & Others 4.3 7,668.19 1.0 1,663.13 Other current liabilities 2,485.01 2,306.59

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Particulars Holding Level (Months)

FY 2009 (Rs.in lacs)

Holding Level (Months)

FY 2010 (Rs.in lacs)

Total of Other Current Liabilities (B)

14,170.22 5,369.80

Net Working Capital (A-B) 9,731.13 23,208.56 Working Capital Borrowings 8,473.63 12,127.00 Margin for Working Capital (Long Term)

1,257.50 11,081.56

Incremental Margin 9,824.06 Funding Pattern

Particulars 31st March 2009 31st March 2010 (Audited) (Estimated) Secured Working Capital from banks 2,610.53 4,200.00 Unsecured Loans – Banks 4,000.00 0.00 Corporate Loans - Axis Bank 0.00 5,000.00 Corporate Loans – Bank 0.00 1,500.00 Others Unsecured Loans 1,863.10 1,427.00 Margin for Working Capital (Long Term) 1,257.50 11,081.56

Total 9,731.13 23,208.56 The actual utilization of the working capital limits from Banks against estimates would be subject to compliance with the covenants under the loan agreements with the existing lenders. Justification for holding period levels:

Inventory Our Company at present holds lower levels of raw materials, but going forward envisages a higher holding on account of the following:

• Procurement of raw materials is seasonal. A higher stock of raw materials is procured around year-end and the summer months so as to meet the demand during the rainy season.

• Increased paper production in the coming years would entail improved utilization of pulp and increased consumption of raw materials.

• An increased but optimum level of raw material inventory would ensure improved efficiency.

Receivables Receivables are expected to be in line with the March 2009 level keeping in view the nature of the industry in which our Company operates.

Creditors Level of creditors is expected to come down in future as our Company would have adequate working capital post this issue.

2. Normal Capital Expenditure: Normal Capital Expenditure would involve expenditure on modification and renovation of paper-making machines and pulping equipments for improving operational efficiency. The details of the normal capital expenditure proposed to be undertaken by our Company is as given below:

S. No. Particulars Estimated Amount* (Rs. in lacs)

Remarks

1 Paper Machine No. 2 modification 100.00 To manufacture Machine Finish (MF) in addition to Machine Glaze

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S. No. Particulars Estimated Amount* (Rs. in lacs)

Remarks

(MG) products 2 Paper Machine No. 5

Steam & Condensate and Hood & PV System modification

150.00 To improve steam consumption, increase speed of the machine and increase hood efficiency

3 Dregs Removal from green liquor 50.00 Operational improvement of lime kiln and recovery system

Total 300.00

*Management Estimate Capacity utilisation vis-a-vis business growth

The capacity utilization of our Company for the previous financial years 2007-08 and 2008-09 and estimated for financial year 2009-10 is as under:

Capacity Utilization

Divisions Measurement Unit FY 2008 FY 2009 FY 2010

Actual Actual Estimated

A) Installed Capacity

Paper and Board MT 174,000 174,000 190,750

B) Production

Paper and Board MT 145,814* 146,139* 172,797*

C) Capacity Utilisation

Paper and Board % 83.80% 83.99% 90.59% *Excludes pulp production meant for external sales. The pulp production meant for external sales for FY 2008 and FY 2009 was 34,867 MT and 31,609 MT respectively.

The growth trend of our Company’s turnover has been:

Financial Year Turnover Growth 2007-08 17.86% 2008-09 4.63%

All the above projections are based on management estimates and have not been appraised by any bank or financial institution. Our Company proposes to meet the incremental margin money requirement to the extent of Rs. 9,824.06 lacs from the Net Proceeds of the Issue and the internal accruals of our Company.

As on the date of this Letter of Offer, our Company has tied-up fund based limit of Rs. 10,200.00 lacs from various banks.

3. Issue Related Expenses The expenses of this Issue include, among others, lead management fees, printing and distribution expenses, legal fees, advertisement cost, registrar fees, depository charges and listing fees. The total Issue expenses are estimated to

44

be approximately Rs. 76.00 lacs as per the following break-up:

Issue Expenses Amount (Rs. in lacs)

Lead Managers fees 20.00 Registrar’s fees 1.00 Legal Advisors fees 6.00 Others (Listing fees, Printing & Stationery, postage etc.) 49.00 Total 76.00

Interim Use of Net Proceeds

Pending utilization of the funds, the management of our Company, in accordance with policies established by our Board from time to time, will have flexibility in deploying the Net Proceeds. Pending utilization for the purposes described above, our Company intends to temporarily invest the funds in high quality interest / dividend bearing liquid instruments including money market mutual funds, deposits with banks for the necessary duration and other investment grade interest bearing securities, as may be approved by the Board of Directors or a committee thereof. Such transactions would be at the prevailing commercial rates at the time of investment. Our Company confirms that pending utilization of the Issue proceeds; it shall not use the funds for any investments in the equity markets.

Monitoring of Utilisation of funds

The Audit Committee/Board of Directors of our Company will monitor the utilization of the Issue proceeds. Our Company will disclose the details of the utilization of the Issue proceeds, including interim use, under a separate head in the financial statements for the financial year 2009-10, specifying the purpose for which such proceeds have been utilized or otherwise disclosed as per the disclosure requirements of the listing agreements with the Stock Exchanges. As per Clause 49 of the Listing Agreements with the Stock Exchanges, our Company shall disclose to the Audit Committee, the uses/applications of funds on a quarterly basis as a part of our Company's quarterly declaration of financial results.

Further, our Company shall, on a quarterly basis, prepare a statement indicating material deviations, if any, in the `use of Issue proceeds. Such statement shall be furnished to the Stock Exchanges along with the interim and/or annual financial statements and shall be published in the newspapers simultaneously with the interim or annual financial results, after placing it before the Audit Committee.

Proceeds from Conversion of Warrants We will utilize the funds as approved by our Board of Directors for Long Term Working Capital Requirements and/or General Corporate Purposes which may be undertaken by the Company from time to time.

In the event that the Detachable Warrant proposed to be issued are not exercised by the warrant holders during the Warrant Exercise Period, then such detachable warrants shall lapse and the proceeds from the detachable warrants will reduce to the extent of lapsed detachable warrants. In such eventuality, the balance of the amount required for financing the purposes as specified above shall be part financed from internal accruals or debt or such other avenues as may be available and approved by the Board of Directors of our Company.

For further details, please refer to section titled “Principal terms and conditions of the issue of Detachable warrants on page 141 of this Letter of Offer.

Other confirmations

Our Company confirms that no part of the proceeds from the Issue will be paid by us as consideration to our Promoters, Directors, Promoter Group, except in the normal course of our business.

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Key Industrial Regulations

There are no industry regulations specific to the activities for which the funds are being raised by our Company in this Issue, other than those currently applicable to the business of our Company.

Interest of Promoters and Directors

Our Directors do not have any interest in any Objects of the Issue for which the Issue Proceeds are proposed to be utilised.

All our Directors may be interested in the Equity Shares already held by them or that may be allotted to them pursuant to the Issue and / or that may be allotted to companies, firms and trusts in which they are directors, members, partners or trustees, as the case may be. The Director(s) may have further interest to the extent of any dividend payable to them and other distributions in respect of the Equity Shares. Our Directors may be deemed to be interested to the extent of fees payable to them for attending meetings of the Board and reimbursement of expenses payable to them and to the extent of remuneration payable to our Managing Director and Executive Director(s) for their services as Managing Director and Executive Director(s) respectively of our Company.

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STATEMENT OF SPECIAL TAX BENEFITS To The Board of Directors The Andhra Pradesh Paper Mills Limited, Rajahmundry Dear Sirs, We hereby confirm that the enclosed annexure, prepared by The Andhra Pradesh Paper Mills Limited (‘the Company’), states the possible tax benefits available to the Company and the shareholders of the Company under the Income-tax Act, 1961 (‘IT Act’) and the Wealth Tax Act, 1957, presently in force in India. Several of these benefits are dependent on the Company or its shareholders fulfilling the conditions prescribed under the relevant provisions of the Act. Hence, the ability of the Company or its shareholders to derive the tax benefits is dependent upon fulfilling such conditions, which based on the business imperatives, the company may or may not choose to fulfill. The benefits discussed in the enclosed Annexure are not exhaustive and the preparation of the contents stated is the responsibility of the Company’s management. We are informed that this statement is only intended to provide general information to the investors and hence is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of the tax consequences, the changing tax laws, each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of their participation in the issue. Our confirmation is based on the information, explanations and representations obtained from the Company and on the basis of our understanding of the business activities and operations of the Company. We do not express any opinion or provide any assurance as to whether: i) the Company or its shareholders will continue to obtain these benefits in future; or ii) the conditions prescribed for availing the benefits, where applicable have been/ would be met. For BRAHMAYYA & Co. Chartered Accountants (C. V. RAMANA RAO) Partner Membership No: 018545 Place: Visakhapatnam Date: 02.12.2009

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ANNEXURE TO THE STATEMENT OF TAX BENEFITS

• Under the Income Tax Act, 1961 (“the Act”) I. SPECIAL TAX BENEFITS Special Tax Benefits Available A. To the Company

The company being a manufacturing concern, is eligible for additional depreciation under section 32(1) (iia) of the Act in respect of any new machinery or plant (other than ships and aircraft) which has been acquired and installed after 31st March, 2005, @ 20% of the actual cost of such machinery or plant. B. To the Shareholders of the Company There are no special tax benefits available to the shareholders of the Company. II. GENERAL TAX BENEFITS The following tax benefits shall inter alia, be available to all Companies or to the shareholders of any company, after fulfilling certain conditions as required in the respective Acts:- A. To the Company

1. Subject to compliance of certain conditions laid down in Section 32 of the Income Tax Act 1961, (hereinafter

referred to as Act) the Company will be entitled to a deduction for depreciation:-

a) In respect of tangible assets; and

b) In respect of intangible assets being in the nature of knowhow, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature acquired on or after the 1st day of April, 1998 at the rates prescribed under Income Tax Rules, 1962;

2. As per section 32 (2) of the Act, unabsorbed depreciation if any, for an Assessment year can be carried forward &

set off against any source of income in subsequent assessment years subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73 of the Act. Business losses, if any, can be carried forward and set off against business profits in following assessment years. However no business loss would be allowed to be carried forward for more than eight assessment years immediately succeeding the assessment year for which loss was first computed.

3. The Company is eligible for deduction under Section 35D in respect of specified preliminary expenditure

incurred by the Company in connection with extension of its undertaking or in connection with setting up a new undertaking for an amount equal to 1/5th of such expenditure over 5 successive previous Years, subject to the conditions and limits specified in the section.

4. As per provisions of section 35DD of the Act, where company incurs any expenditure, on or after the 1st day of

April, 1999, wholly and exclusively for the purposes of amalgamation/demerger of an undertaking, it shall be

48

allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation/demerger takes place.

5. As per provisions of section 35DDA of the Act, where the company makes payment to an employee in

connection with his voluntary retirement of services, it shall be allowed a deduction of an amount equal to one-fifth of such payment for each of the five successive previous years beginning with the previous year in which the payment has been made.

6. As per the provisions of Section 115JB of the Act, where the tax liability of a company is less than 15 % of its

book profits, such book profits will be deemed to be the total income of the company and Minimum Alternative Tax (‘MAT’) would be payable at 15 per cent of such book profits. The manner in which ‘book profits’ would be computed has been specified in Section 115JB of the Act. Under section 115JAA(2A) of the Act, tax credit shall be allowed in respect of any tax paid under provisions of section 115JB of the Act for any Assessment Year commencing on or after 1st April 2006. The tax credit allowable would be the difference between the tax paid under section 115JB and tax payable on total income computed in accordance with the normal provision of the Act. However, MAT credit cannot be carried forward and set off beyond 10 years immediately succeeding the assessment year in which the MAT credit initially arose.

Further, from Assessment Year 2007-2008, income by way of long-term capital gain as referred under section 10(38) shall be taken into account in computing the book profit and income-tax payable under section 115JB of the Act.

7. Credit for Dividend Distribution Tax (‘DDT’) paid by a subsidiary company—With effect from 01.04.2008,

Section 115-O (1A) of the Act has been amended to the effect that while computing the DDT payable by a domestic holding company on dividend, the amount of dividend paid by it would be reduced by the dividend received by it from its subsidiary company during the financial year, if:

• The subsidiary company has paid DDT on such dividend; and • The domestic company is itself not a subsidiary of any other company.

8. Dividends from units exempt under Section 10(35) of the Act: Income received in respect of units of a Mutual

Fund specified under Section 10(23D) of the Act shall be exempt from tax under Section 10(35) of the Act, subject to such income not arising from transfer of units in such Mutual Fund.

9. As per the amendments brought in by The Finance Act, 2009(2), benefit under section 80IA(iv) the company

being engaged in generation and distribution of power, the benefit of deduction under the said section has been extended from 31.03.2010 to 31.03.2011.

10. As per the provisions of Section 155JJAA, benefit of deduction of 30% of additional wages in respect of

employment of new regular workmen is available to the company subject to the satisfaction of conditions laid therein.

11. With effect from the Assessment year 2010-11, Fringe benefit tax has been abolished. 12. Under the Wealth Tax Act, 1957

All business assets other than

• Guest house/ Residential house / Commercial building • Motor cars • Jewellery/bullion/utensils of gold, silver, etc.

49

• Yachts, boats and aircrafts • Urban land Are not chargeable to wealth tax.

B. To Resident Members

13. Under section 10(34) of the Act, income by way of dividends referred to in section 115-O received on the shares of the Company is exempt from income tax in the hands of shareholders.

14. Under section 10(38) of the Act, long term capital gain arising to the shareholder on transfer of equity shares in the company would be exempt from tax where the sale transaction has been entered into on a recognized stock exchange in India and is liable to Securities Transaction Tax (STT).

15. As per clause (xv) of Section 36(i) of the Act, provides for deduction of STT paid, if incomes in respect of the taxable securities transactions are offered to tax as ‘Profits and gains of business and profession’. However, no rebate shall be allowed under section 88E of the Act from assessment year beginning 1st day of April 2009.

16. Under section 48 of the Act, if the investments in shares are sold after being held for not less than twelve months, the gains [in cases not covered under section 10(38) of the Act], if any, will be treated as long term capital gains and the gains shall be calculated by deducting from the gross consideration, the indexed cost of acquisition.

17. Under Section 112 of the Act and other relevant provisions of the Act, long term capital gains [not covered

under section 10(38) of the Act] arising on transfer of shares in the Company, if shares are held for a period exceeding 12 months, shall be taxed at a rate of 20% (plus applicable surcharge and educational cess on income-tax) after indexation as provided in the second proviso to Section 48 or at 10% (plus applicable surcharge and educational cess on income-tax) (without indexation), at the option of the Shareholders.

Relief is available to resident members(being an individual or HUF),under proviso to Section 112(1)(a) of the Act on transfer of long term capital asset ,where the Taxable Income minus long term capital gain is less than the minimum amount chargeable to tax.

18. Under section 54EC of the Act, subject to the conditions and to the extent specified therein, long term capital

gains [other than those exempt under section 10(38) of the Act] arising on transfer of shares of the Company would be exempt from tax, if such capital gain is invested within a period of 6 months after the date of such transfer in the bonds (long term specified assets) issued by –

o National Highways Authority of India constituted under Section 3 of The National Highways Authority of India Act, 1988;

o Rural Electrification Corporation Limited, the company formed and registered under the

Companies Act, 1956.

If only part of the capital gain is so reinvested, the exemption available shall be in the same proportion as the cost of long term specified assets bears to the whole of the capital gain. However, in case the long term specified asset is transferred or converted into money within three years from the date of its acquisition, the amount so exempted shall be chargeable to tax during the year such transfer or conversion takes place. The cost of the long term specified assets, which has been considered under this Section for calculating capital gain, shall not be allowed as a deduction from the income-tax under Section 80C of the Act for any assessment year beginning on or after April 1, 2006.

50

Further, proviso to Section 54EC(1) provides that the investments made in the long term specified Asset on or after April 1, 2007 by any assessee during the financial year should not exceed 50 Lakh rupees.

19. Under Section 54F of the Act, subject to the conditions and to the extent specified therein, long term capital

gains [other than those exempt from tax under section 10(38) of the Act] arising to an individual or Hindu Undivided Family (HUF) on transfer of shares of the Company will be exempt from capital gains tax subject to certain conditions, if the net consideration from transfer of such shares are used for purchase of residential house property within a period of one year before or two year after the date on which the transfer took place or for construction of residential house property within a period of three years after the date of transfer.

20. Under section 111 A of the Act and other relevant provisions of the Act, short -term capital gains (i.e. if shares are held for a period not exceeding 12 months) arising on transfer of equity share in the Company would be taxable at a rate of 15 percent (plus applicable surcharge and education cess) where such transaction of sale is entered on a recognized stock exchange in India and is liable to securities transaction tax. Short -term capital gains arising from transfer of shares in a Company, other than those covered by section 111A of the Act , would be subject to tax as calculated under the normal provisions of the Act.

21. Short-term capital loss on sale of shares can be set off against long term capital gain or short term capital gains

in the same assessment year. It should be noted that such loss can be set off only against capital gain income and not against any other head of income. Balance short-term capital loss, if any, can be carried forward up to eight assessments years. In the subsequent years also, it can be set off against any capital-gain income.

C. To Non Resident Indians/ Members other than FIIs, Mutual Funds and Foreign Venture Capital

Investors 22. By virtue of Section 10(34) of the Act, income earned by way of dividends referred to in section 115-O received

on the shares of the company, is exempt from income tax in the hands of the shareholders.

23. Under section 10(38) of the Act, long term capital gain arising to the shareholder on transfer of equity shares in the company would be exempt from tax where the sale transaction has been entered into on a recognized stock exchange in India and is liable to Securities Transaction Tax (STT).

24. Under the first proviso to section 48 of the Act, in case of a non resident, in computing the capital gains arising from transfer of shares of the company acquired in convertible foreign exchange (as per exchange control regulations), protection is provided from fluctuations in the value of rupee in terms of foreign currency in which the original investment was made. Benefit of indexation will not be available in such a case. The capital gains / loss in such a case is computed by converting the cost of acquisition, sales consideration and expenditure incurred wholly and exclusively in connection with such transfer into the same foreign currency which was utilized in the purchase of the shares. Such capital gains would be chargeable to tax @ 20% under section 112 of the Act.

25. Under section 54EC of the Act, subject to the conditions and to the extent specified therein, long term capital

gains [other than those exempt under section 10(38) of the Act] arising on transfer of shares of the Company would be exempt from tax, if such capital gain is invested within a period of 6 months after the date of such transfer in the bonds (long term specified assets) issued by –

• National Highways Authority of India constituted under Section 3 of The National Highways Authority of

India Act, 1988;

51

• Rural Electrification Corporation Limited, the company formed and registered under the Companies Act, 1956

If only part of the capital gain is so reinvested, the exemption available shall be in the same proportion as the cost of long term specified assets bears to the whole of the capital gain. However, in case the long term specified asset is transferred or converted into money within three years fro m the date of its acquisition , the amount so exempted shall be chargeable to tax during the year such transfer or conversion . The cost of the long term specified assets, which has been considered under this Section for calculating capital gain, shall not be allowed as a deduction from the income-tax under Section 80C of the Act for any assessment year beginning on or after April 1, 2006.

Further, proviso to Section 54EC(1) of the Act, provides that the investments made in the long term specified

Asset on or after April 1, 2007 by any assessee during the financial year should not exceed 50 Lakh rupees. 26. Under Section 54F of the Act, subject to the conditions and to the extent specified therein, long term capital

gains [other than those exempt from tax under section 10(38) of the Act] arising to an individual or Hindu Undivided Family (HUF) on transfer of shares of the Company will be exempt from capital gains tax subject to certain conditions, if the net consideration from transfer of such shares are used for purchase of residential house property within a period of one year before or two year after the date on which the transfer took place or for construction of residential house property within a period of three years after the date of transfer.

27. Under section 111 A of the Act and other relevant provisions of the Act, short -term capital gains (i.e. if shares

are held for a period not exceeding 12 months) arising on transfer of equity share in the Company would be taxable at a rate of 15 percent (plus applicable surcharge and education cess) where such transaction of sale is entered on a recognized stock exchange in India and is liable to securities transaction tax. Short -term capital gains arising from transfer of shares in a Company, other than those covered by section 111A of the Act , would be subject to tax as calculated under the normal provisions of the Act.

28. Short-term capital loss on sale of shares can be set off against long term capital gain or short term capital gains in the same assessment year. It should be noted that such loss can be set off only against capital gain income and not against any other head of income. Balance short-term capital loss, if any, can be carried forward up to eight assessments years. In the subsequent years also, it can be set off against any capital-gain income.

29. Under section 115E of the Act, where the total income of a non -resident Indian includes any income from investment or income from capital gains of an asset other than a specified asset, such income shall be taxed at a concessional rate of 20 per cent (plus applicable surcharge and education cess ). Also, where shares in the company are subscribed for in convertible foreign exchange by a Non -Resident Indian, long term capital gains arising to the non -resident Indian shall be taxed at a concessional rate of 10 percent (plus applicable surcharge and education cess). The benefit of indexation of cost and the protection against risk of foreign exchange fluctuation would not be available.

30. Long-Capital gains (in cases not covered under section 10(38) of the Act) arising to a non resident Indian on

transfer of Foreign Exchange assets, shall be exempt from tax under section 115F of the Act, if the net consideration is reinvested in specified assets or in any savings certificates referred to in section 10(4B) of the Act, within six months of the date of transfer. However if only part of the net consideration is so reinvested, the exemption shall be proportionately reduced. The amount so exempted shall be chargeable to tax subsequently, if the specified assets are transferred or converted within three years from the date of their acquisition.

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31. Return of income not to be filed in certain cases:

Under provisions of section 115-G of the Act, it shall not be necessary for a non-resident Indian to furnish his return of income under section 139(1), if his income chargeable under the Act consists of only investment income or long term capital gains or both; arising out of assets acquired, purchased or subscribed in convertible foreign exchange and tax deductible at source has been deducted there from.

32. As per Section 90 of the Act, the shareholder can claim relief in respect of double taxation if any as per the

provision of the applicable double tax avoidance agreements.

33. Other provisions:

Under section 115-I of the Act, a non resident Indian may elect not to be governed by the provisions of Chapter XII-A for any assessment year by furnishing his return of income under section 139 of the Act declaring therein that the provisions of the Chapter shall not apply to him for that assessment year and if he does so the provisions of this Chapter shall not apply to him, instead the other provisions of the Act shall apply.

D. To Foreign Institutional Investors (FIIs) 34. By virtue of Section 10(34) of the Act, income earned by way of dividends referred to in section 115-O received

on the shares of the company, is exempt from income tax in the hands of the shareholders.

35. Under section 10(38) of the Act, long term capital gain arising to the shareholder on transfer of equity shares in the company would be exempt from tax where the sale transaction has been entered into on a recognized stock exchange in India and is liable to Securities Transaction Tax (STT).

36. Under section 115AD(1)(ii) of the Act, short term capital gains on transfer of securities shall be chargeable @ 30% and 15% (where such transaction of sale is entered on a recognized stock exchange in India and is liable to STT). The above rates are to be increased by applicable surcharge and education cess.

37. Under section 115AD (1) (iii) of the Act income by way of long term capital gain arising from the transfer of shares (in cases not covered under section 10(38) of the Act) held in the company will be taxable @ 10% (plus applicable surcharge and education cess). It is to be noted that the benefits of indexation and foreign currency fluctuations are not available to FIIs.

38. Under section 54EC of the Act, subject to the conditions and to the extent specified therein, long term capital gains [other than those exempt under section 10(38) of the Act] arising on transfer of shares of the Company would be exempt from tax, if such capital gain is invested within a period of 6 months after the date of such transfer in the bonds (long term specified assets) issued by – • National Highways Authority of India constituted under Section 3 of The National Highways Authority of

India Act, 1988;

• Rural Electrification Corporation Limited, the company formed and registered under the Companies Act, 1956

If only part of the capital gain is so reinvested, the exemption available shall be in the same proportion as the cost of long term specified assets bears to the whole of the capital gain. However, in case the long term specified asset is transferred or converted into money within three years from the date of its acquisition, the amount so exempted shall be chargeable to tax during the year such transfer or conversion. The cost of the long term specified assets, which has been considered under this Section for calculating capital gain, shall not be

53

allowed as a deduction from the income-tax under Section 80C of the Act for any assessment year beginning on or after April 1, 2006.

Further, proviso to Section 54EC(1) provides that the investments made in the long term specified Asset on or after April 1, 2007 by any assessee during the financial year should not exceed 50 lakhs rupees.

39. As per the amendment made by Finance Act, 2008, the amount of STT paid by an assessee in respect of taxable

securities transactions offered to tax as “Profits and Gains of business or profession” shall be allowable as deduction against such Business Income. Consequently, the rebate under section 88E will no longer be available. The said amendments will come into effect from assessment year 2009 -2010.

E. To Mutual Funds 40. As per the provisions of Section 10(23D) of the Act, Mutual Funds registered under the Securities and

Exchange Board of India or Mutual Funds set up by Public Sector Banks or Public Financial Institutions or authorized by the Reserve Bank of India and subject to the conditions specified therein, would be eligible for exemption from income tax on their income.

F. To venture capital companies / funds 41. Under section 10(23FB) of the IT Act , any income of Venture Capital companies / Funds (set up to raise funds

for investment in venture capital undertaking notified in this behalf) registered with the Securities and Exchange Board of India would be exempt from income tax, subject to conditions specified therein . As per section 115U of the IT Act, any income derived by a person from his investment in venture capital companies / funds would be taxable in the hands of the person making an investment in the same manner as if it were the income received by such person had the investments been made directly in the venture capital undertaking.

• Under The Wealth Tax Act, 1957

42. Shares of the company held by the shareholder will not be treated as an asset within the meaning of section

2(ea) of Wealth-tax Act, 1957, hence, Wealth-tax Act will not be applicable.

• Under The Gift Tax Act, 1958

43. Gift tax is not leviable in respect of any gifts made on or after October 1, 1998. Therefore, any gift of shares will not attract gift tax.

Notes: 1) All the above benefits are as per the current tax laws and will be available only to the sole/ first named holder

in case the shares are held by joint holders. 2) The above Statement of Possible Direct Tax Benefits sets out the provisions of law in a summary manner only

and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of shares.

3) In respect of non-residents and foreign companies, the tax rates and consequent taxation mentioned above will be further subject to any benefits available under the Tax Treaty, if any, between India and the country in which the non-resident has fiscal domicile. As per the provisions of section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the Tax Treaty to the extent they are more beneficial to the non-

54

resident. In case the non resident has fiscal domicile in a country with which no Tax Treaty exists, then due relief under Section 91 of the Act may, in given circumstances, be available.

4) Our views expressed herein are based on the facts and assumptions indicated by the Company. No assurance is given that the revenue authorities/courts will concur with the views expressed herein. Our views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. We do not assume responsibility to update the views consequent to such changes.

5) The views are exclusively for the use of the Company. We shall not be liable to the Company for any claims, liabilities or expenses relating to this assignment except to the extent of fees relating to this assignment, as finally judicially determined to have resulted primarily from bad faith or intentional misconduct. We will not be liable to any other person in respect of this statement.

55

SECTION IV - MANAGEMENT

1. As per Articles of Association, our Company cannot have less than 3 and more than 15 Directors on the Board. We currently have 12 Directors of which 4 are executive Directors and 8 are non-executive Directors. The following table set forth details regarding the Board of Directors as on the date of this Letter of Offer:

S. No Name of Director, Designation, Term, Age, Education, Director Identification Number(DIN), Occupation and Address

Other Directorships held

1.

Mr. L.N. Bangur

Promoter – Non Executive Chairman

Term: Liable to retire by rotation.

Age: 60

Education: Bachelor of Commerce

DIN: 00012617

Occupation : Industrialist

Address: 7, Munshi Premchand Sarani Hastings, Kolkata – 700 022.

1. Amalgamated Developments Ltd. 2. Digvijay Investments Ltd. 3. Federation of Indian Chamber of

Commerce and Industry. (Committee Member)

4. M B Commercial Co. Ltd. 5. Maharaja Shree Umaid Mills Ltd. 6. Placid Ltd. 7. Samay Books Ltd. 8. Shree Krishna Agency Ltd. 9. The General Investment Co. Ltd. 10. The Kishore Trading Co. Ltd. 11. The Peria Karamalai Tea & Produce Co.

Ltd. 12. The Swadeshi Commercial Co. Ltd., 13. Apurva Export Pvt. Ltd. 14. Mugneeram Ramcoowar bangur

Charitable & Religious Co. (Managing Committee Member)

15. The Marwar Textiles (Agency) Pvt. Ltd. 2.

Mrs. Alka Bangur

Promoter – Non Executive Director

Term: Liable to retire by rotation.

Age: 55

Education: Post Graduate in English & Hindi, M.B.A

DIN: 00012894

Occupation : Industrialist

Address: 7, Munshi Premchand Sarani Hastings, Kolkata – 700 022.

1. Maharaja Shree Umaid Mills Ltd. 2. The Peria Karamalai Tea & Produce Co.

Ltd. 3. Apurva Export Pvt. Ltd. 4. The Marwar Textiles (Agency) Pvt. Ltd. 5. Mugneeram Ramcoowar Bangur

Charitable & Religious Co.

3

Mr. N. Srinivasan

Independent Director

Term: Liable to retire by rotation.

Age: 78

1. Ador Fontech Limited. 2. Amco Batteries Ltd. 3. Best & Crompton Engg. Ltd. 4. Essar Shipping Ports & Logistics Limited. 5. Gati Ltd. 6. India Cements Capital Ltd. 7. MC Dowel Holdings Ltd. 8. Redington (India) Ltd.

56

S. No Name of Director, Designation, Term, Age, Education, Director Identification Number(DIN), Occupation and Address

Other Directorships held

Education: Chartered Accountant

DIN: 00004195

Occupation: Company Director.

Address: T-18/1, 6th Avenue, Besant Nagar, Chennai – 600 090.

9. Tafe Motors & Tractors Ltd., 10. Tractors and Farm Equipments Ltd., 11. The India Cements Ltd. 12. The United Nilgiri Tea Estate Company

Ltd. 13. UB Engineering Ltd. 14. United Breweries (Holdings) Ltd. 15. Patterson Consulting Group Pvt. Ltd. 16. Indair Carriers Private Ltd. 17. SCM Microsystem (India) Pvt. Ltd. 18. Unique Receivable Management Pvt. Ltd. 19. UT Worldwide (India) Pvt. Ltd.

4

Mr. R.C Sarin

Independent Director

Term: Liable to retire by rotation.

Age: 73

Education: Business Management

DIN: 00003001

Occupation: Company Director.

Address: 15, Maison Belvedere, 107, Maharshi Karve Road, Mumbai – 400 020.

1. International Ventures & Travel (India) Pvt. Ltd

2. Resource Management (India) Pvt. Ltd

5

Mr. P J V Sarma

Independent Director

Term: Liable to retire by rotation.

Age: 51

Education: Graduate in Chemical Engineering, Member of Institute of Cost and Works Accountants of India, Management Graduate from IFMR, Chennai

DIN: 00119839

Occupation: Service

Address: B-403, Matrukrupa Apts, Anand Nagar Colony, Khairatabad, Hyderabad – 500 004.

Regency Ceramics Ltd

6

Mr. R V Raghavan

Independent Director

1. Bhoruka Aluminum Ltd. 2. T R F Ltd. 3. Transport Corporation of India Ltd. 4. Rane Engine Valve Limited

57

S. No Name of Director, Designation, Term, Age, Education, Director Identification Number(DIN), Occupation and Address

Other Directorships held

Term: Liable to retire by rotation.

Age: 67

Education: Chartered Accountant

DIN: 01754139

Occupation: Company Director

Address: Sampradaya Victorian Meadows Layout, Whitefield Road, Bangalore – 560 037.

7

Mr. P K Paul

Independent Director

Term: Liable to retire by rotation.

Age: 65

Education: B.E.(Chemical), Diploma in Pulp & Paper Tech. DIN: 00003394

Occupation: Company Director.

Address: 24/1A, Ballygunge, Circular Road, Uttarayan 9th Floor, Kolkata – 700 019.

1. International Ventures & Travel (India) Pvt. Ltd.

2. Ospak Cyfox Paper Co. Pvt. Ltd. 3. Ospak International Pvt. Ltd.

8

Mr. Rajiv Kapasi

Independent Director

Term: Liable to retire by rotation.

Age: 35

Education: Chartered accountant M.B.A(Chicago), Certified Internal Auditor (USA)

DIN: 02208714

Occupation: Service

Address: G-66, 2nd Floor, South City II, Gurgaon – 122 018.

NIL

58

S. No Name of Director, Designation, Term, Age, Education, Director Identification Number(DIN), Occupation and Address

Other Directorships held

9 Mr. M K Tara

Managing Director.

Term: 6th November, 2012.

Age : 63

Education: B.E.(Chemical)

DIN: 01084112

Occupation : Service

Address: 501-509, Swapnalok Complex, 92/93, S D Road , Secunderabad – 500 003

NIL

10 Ms. Sheetal Bangur

Director (Commercial)

Term : 31st March, 2010

Age: 36

Education: Post Graduate in Commerce & Business Administration DIN: 00003541

Occupation : Service

Address: 501-509, Swapnalok Complex, 92/93, S D Road, Secunderabad – 500 003.

1. Samay Books Ltd. 2. The Swadesh Commercial Co. Ltd. 3. Mugneeram Ramcoowar Bangur Charitable

& Religious Co. 4. Apurva Export Pvt. Ltd.

11 Mr. Shreeyash Bangur

Director (Corporate).

Term: 18th February, 2012.

Age: 29

Education: M.Sc., Engineering Business Management, B.S.C., Accounting & Management

DIN: 00012825

Occupation : Service

Address: 501-509, Swapnalok Complex, 92/93, S D Road, Secunderabad – 500 003.

Digvijay Investments Ltd.

12

Mr. P K Suri

Director (Operations).

NIL

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S. No Name of Director, Designation, Term, Age, Education, Director Identification Number(DIN), Occupation and Address

Other Directorships held

Term: 11th May, 2013.

Age: 51

Education: B.Tech (Chemical Engineering)

DIN: 02189913

Occupation: Service

Address: The Andhra Pradesh Paper Mills Ltd., Rajahmundry – 533 105.

2. Relationship between Directors inter-se :

Name of the Directors

Category of Directorships Relationship between Directors

Mr. L. N. Bangur Promoter – Non Executive Chairman Mrs. Alka Bangur (Wife)

Ms. Sheetal Bangur (Daughter)

Mr. Shreeyash Bangur (Son)

Mrs. Alka Bangur Promoter – Non Executive Director Mr. L N Bangur (Husband)

Ms. Sheetal Bangur (Daughter)

Mr. Shreeyash Bangur (Son)

Ms. Sheetal Bangur

Promoter – Executive Director Mr. L N Bangur (Father)

Mrs. Alka Bangur (Mother)

Mr. Shreeyash Bangur (Brother)

Mr. Shreeyash Bangur

Promoter – Executive Director. Mr. L N Bangur (Father)

Mrs. Alka Bangur (Mother)

Ms. Sheetal Bangur (Sister )

Except as stated above, none of the other Directors is related to each other.

3. Our Directors have not entered into any arrangement or understanding with major shareholders, customers, suppliers or other parties, pursuant to which they have been appointed as the Director of our Company.

4. Except the Managing Director and the Executive Directors who are entitled to statutory benefits upon termination of their employment in our Company, no other Director is entitled to any benefit upon cessation of their directorship with our Company.

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SECTION V – FINANCIAL INFORMATION

AUDITORS' REPORT

To The Members of The Andhra Pradesh Paper Mills Limited, Rajahmundry.

1. We have audited the attached Balance Sheet of The Andhra Pradesh Paper Mills Limited as at 31st March, 2009, the Profit and Loss Account and also the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We have conducted our audit in accordance with auditing standards generally accepted in India. These Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors’ Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of ‘The Companies Act, 1956’ (the `Act’) and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we set out in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report that:

a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) In our opinion, proper books of account, as required by law have been kept by the company so far

as appears from our examination of such books.

c) The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account.

d) In our opinion the Balance Sheet and Profit and Loss Account dealt with by this report comply

with the accounting standards referred to in Sub Section (3c) of Section 211 of the Companies Act, 1956 with the exception of Accounting Standard 22, on “Accounting for Taxes on Income”, referred to in Note no.9 of Schedule 19 (II).

e) In our opinion and to the best of our information and according to the explanations given to us,

subject to not fully providing for deferred tax liability in accordance with Accounting Standard 22 issued by the Institute of Chartered Accountants of India, referred to in Note no 9 of Schedule 19 (II), the said accounts give the information required by the Companies Act, 1956, in the manner so

61

required and give a true and fair view, in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet of the state of affairs of the company as at 31st March 2009.

(ii) in the case of the Profit and Loss account, of the Profit for the year ended on that date.

(iii) in case of the cash flow statement, of the cash flows for the year ended on that date

f) On the basis of written representations received from the Directors as on March, 31, 2009 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2009 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Act.

For BRAHMAYYA & CO. Chartered

Accountants

(C.V.RAMANA RAO) Place: Secunderabad Partner Date: 12th June, 2009 Membership No. 018545

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ANNEXURE TO THE AUDITORS’ REPORT REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE: (i)

a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

b) During the year under report, items of Plant and Machinery have been physically verified by the management, though items of Furniture, Fixtures and Equipment are required to be verified in accordance with a phased programme of verification, which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. According to the information furnished to us, no material discrepancies have been noticed on such verification.

c) The Fixed Assets disposed off by the company during the year do not form a substantial part thereof.

(ii)

a) Physical verification of inventory has been conducted during the year by the management at reasonable intervals.

b) The procedures of physical verification of inventory followed by the management are reasonable and

adequate in relation to the size of the company and the nature of its business. c) On the basis of our examination of the records of inventory, we are of the opinion that the company is

maintaining proper records of inventory. The discrepancies noticed on such verification between the physical stocks and the book records were not material.

(iii)

a) The Company has not granted any loans, secured or unsecured to Companies, firms or other parties to whom the provisions of section 301 of the Companies Act, 1956 apply. Accordingly sub clauses (b), (c)and (d) of clause (iii) of paragraph 4 of the order are not applicable.

b) The company has not taken any loans, secured or unsecured from companies, firms, or other parties to

whom the provisions of section 301 of the Companies Act apply. Accordingly, sub clauses (f), (g) and (h) of clause (iii) of paragraph 4 of the order are not applicable.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal

control procedures commensurate with the size of the company and the nature of its business with regard to purchase of inventory, fixed assets and sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal controls.

(v)

a) According to the information and explanations given to us, we are of the opinion that the transactions that

need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered.

b) In our opinion and according to the information and explanations given to us, the transactions made in

pursuance of contracts or arrangements entered in the Register maintained under section 301 of the

63

Companies Act, 1956 have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

(vi) In our opinion and according to the information and explanations given to us, the company has complied

with the provisions of sections 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from public. No order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any Tribunal.

(vii) In our opinion, the company has an internal audit system commensurate with the size and nature of its

business. (viii) We have broadly reviewed the books of account relating to materials, labour and other items of cost

maintained by the company pursuant to the Rules made by the Central Government for the maintenance of cost records under section 209(1) (d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained.

(ix)

a) According to the records of the company, the company is regular in depositing with appropriate authorities

undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income-tax, sales-tax, wealth-tax, custom duty, excise duty, service tax, cess, and other material statutory dues applicable to it.

b) According to the information and explanations given to us, no undisputed amounts payable in respect of

income tax, wealth tax, sales tax, customs duty, excise duty, service tax and cess were in arrears as at 31st March 2009 for a period of more than six months from the date they became payable.

c) As at 31st March 2009, there have been no disputed dues, which have not been deposited with the

respective authorities in respect of Income-tax, Wealth-tax, Excise Duty, service tax and Cess, except disputed excise duty and service tax under Central Excise Act of Rs.124.45 lakhs pending before the Appellate Commissioner, Customs and Central Excise, Rs.1124.82 Lakhs pending before the Customs, Central Excise and Service Tax Appellate Tribunal and Rs.37.02 Lakhs pending before Hon’ble High Court of Andhra Pradesh, disputed Sales tax under Andhra Pradesh General Sales Tax Act and Central Sales Tax Act of Rs 33.82 lakhs pending before Appellate Deputy Commissioner, Rs.62.77 lakhs pending before Sales Tax Appellate Tribunal and Rs. 132.67 lakhs pending before Hon’ble High Court of Andhra Pradesh .

(x) The Company has no accumulated losses and has not incurred cash losses during the financial year covered

by our audit and the immediately preceding financial year. (xi) In our opinion and according to the information and explanations given to us, the Company has not defaulted

in repayment of dues to financial institutions, banks or debenture holders. (xii) The Company has not granted any loans or advances on the basis of security by way of pledge of shares,

debentures and other securities. Accordingly the provisions of clause (xii) of paragraph 4 of the order are not applicable.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/society. Accordingly, the

provisions of clause (xiii) of paragraph 4 of the order are not applicable to the Company.

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(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other instruments. Accordingly, the provisions of clause (xiv) of paragraph 4 of the order are not applicable to the Company.

(xv) The company has not given any guarantees for loans taken by others from banks or financial institutions.

Accordingly, the provisions of clause (xv) of paragraph 4 of the order are not applicable to the Company. (xvi) In our opinion, the Term Loans have been applied for the purposes for which they were raised. (xvii) According to the information and explanations given to us and on overall examination of the Balance Sheet

of the company, we report that no funds raised on short term basis have been used for long term investment.

(xviii) During the year the company has not made any preferential allotment of shares. Accordingly, clause 4(xviii) of the order is not applicable

(xix) The Company has created securities in respect of secured debentures in earlier years. There are no debentures

outstanding at the year end. (xx) During the year, the Company has not raised any money by way of public issue. Accordingly, the provisions

of clause (xx) of paragraph 4 of the order are not applicable to the Company. (xxi) According to the information and explanations given to us, no fraud on or by the Company has been noticed

or reported during the course of our audit.

For BRAHMAYYA & CO., Chartered Accountants

(C.V.RAMANA RAO)

Partner Membership No. 018545

Place: Secunderabad Date: 12th June, 2009

65

BALANCE SHEET AS AT 31ST MARCH, 2009. (Rupees in lacs)

Schedule No.

31.03.2009 31.03.2008

SOURCES OF FUNDS Shareholders' Funds: a) Capital 1 2,573.36 2,573.36 b) Reserves & Surplus 2 39,224.40 39,069.58 41,797.76 41,642.94 Loan Funds a) Secured Loans 3 47,477.79 43,584.48 b) Unsecured Loans 4 8,625.38 9,608.57 56,103.17 53,193.05 Deferred Tax Liability 2,165.55 2,117.50 Total 100,066.48 96,953.49 APPLICATION OF FUNDS Fixed Assets: 5 a) Gross Block 110,436.77 103,454.82 b) Depreciation 35,349.88 30,110.91 c) Net Block 75,086.89 73,343.91 d) Capital work-in-progress 15,246.21 13,046.28 90,333.10 86,390.19 Investments 6 1,664.34 1,664.34 Current Assets, Loans and Advances a) Inventories 7 13,524.85 10,481.36 b) Sundry Debtors 8 3,874.91 4,587.70 c) Cash and Bank Balances 9 807.00 1,329.50 d) Other Current Assets - 116.66 81.23 Interest accrued on Deposits & Investments etc., e) Loans and Advances 10 5,577.93 5,530.55 23,901.35 22,010.34 Less: Current Liabilities & Provisions 11 15,975.02 13,344.57 Net Current Assets 7,926.33 8,665.77 Misc. Expenditure to the extent 142.71 233.19 not written-off or adjusted Total 100,066.48 96,953.49 Significant Accounting Policies and Notes on Accounts 19

66

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2009. (Rupees in lacs)

Schedule No.

Year ended

31.03.09

Yearended

31.03.08 INCOME Sales 65,733.39 62,824.41 Less : Excise Duty 2,938.54 4,935.77 Net Sales 62,794.85 57,888.64 Increase/(Decrease) in Stocks 12 3,086.52 1,282.93 Other Income 13 1,023.29 1,325.88 Total 66,904.66 60,497.45 EXPENDITURE Materials Cost 14 18,857.55 19,208.86 Staff Costs 15 5,507.65 5,258.87 Manufacturing Expenses 16 24,907.10 23,148.90 Other expenses 17 5,004.87 4,671.26 Deferred Revenue Expenses Written off 90.48 176.42 Total 54,367.65 52,464.31 Profit before Interest, Depreciation and Tax (PBIDT) 12,537.01 8,033.14 Interest and Finance Charges 18 5,048.96 1,536.07 Profit before Depreciation and Tax (PBDT) 7,488.05 6,497.07 Depreciation 5,411.19 5,236.22 Profit before Exceptional items 2,076.86 1,260.85 Exceptional Items {Refer Note No.22 of Schedule 19 ( ii) 111.87 705.52 Profit before Tax (PBT) 2,188.73 1,966.37 Provision for taxation :

- Current Tax 248.00 246.00 - Earlier Years Tax 4.64 48.32 - Deferred Tax 251.20 223.20 - Fringe Benefit Tax 37.50 40.85

Less: MAT Credit {Refer Note No.17 of Schedule 19 ( ii ) (248.00) (246.00) Profit after Tax (PAT) 1,895.39 1,654.00 Profit brought forward from previous year 10,406.28 9,219.35 Balance available for appropriation 12,301.67 10,873.35 APPROPRIATIONS : Transfer to General Reserve 190.00 166.00 Proposed Equity Dividend 128.77 257.34 Corporate Tax on Dividend 21.89 43.73 Balance carried to Balance Sheet 11,961.01 10,406.28 Total 12,301.67 10,873.35 Significant Accounting Policies and Notes on Accounts 19 Earnings per Equity Share (Basic) /( Diluted) (Rs.) 7.37 6.44

67

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2009 (Rupees in lacs)

Year

ended 31.03.09

Yearended

31.03.08 CASH FLOW FROM OPERATING ACTIVITIES: Net Profit after Exceptional Items and before Tax 2,188.73 1,966.37 Adjustments for: Depreciation 5,411.19 5,236.22 Claims, Bad Debts, Irrevocable Advances w/off and deposits forfeited

-

4.18

Miscellaneous Expenditure written off 90.48 176.42 Loss on Discarded Assets 6.57 0.51 Provision for Leave encashment & Gratuity 19.33 23.24 (Profit)/Loss on Sale of Investments - (0.02) (Profit)/ Loss on Sale of Assets (26.30) 29.11 Income from Investments (5.74) (32.01) Interest Paid 5,048.96 1,536.07 Interest Received (173.15) (76.48) Operating Profit before Working Capital Changes 12,560.07 8,863.61 Adjustments for: Trade and other Receivables 668.49 (1,694.42) Inventories (3,043.49) (1,535.06) Trade Payables 3,050.86 513.38 Payments made under VRS - (58.95) Cash Generated from Operations 13,235.93 6,088.56 Interest Paid (5,048.96) (1,536.07) Income Tax Paid (192.23) (351.96) Net cash from operating activities. 7,994.74 4,200.53 CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (4,756.98) (7,786.96) Capital Work-in-Progress (1,816.16) (350.08) Sale of Fixed Assets 50.82 403.26 Sale of Investments - 0.05 Income from Investments 5.74 32.01 Interest Received 173.15 76.48 Net cash used in investing activities (6,343.43) (7,625.24) CASH FLOW FROM FINANCING ACTIVITIES Issue of Share Capital - 191.39 Proceeds from Borrowings 5,314.71 14,154.77 Repayment of Borrowings (7,187.45) (12,071.43) Dividends paid including tax on dividend (301.07) (301.07) Share Premium Received - 1,808.61 Net Cash used in Financing Activities (2,173.81) 3,782.27 Net Increase/ Decrease in cash and cash equivalents (522.50) 357.56 Cash and Cash Equivalents as at 1st April, 2008 1,329.50 971.94 Cash and Cash Equivalents as at 31st March, 2009 807.00 1,329.50

68

SCHEDULE FORMING PART OF BALANCE SHEET & PROFIT & LOSS ACCOUNT (Rupees in lacs) Schedule-1 - SHARE CAPITAL 31.03.2009 31.03.2008 Authorized 3,00,00,000 Equity Shares of Rs.10/- each 5,00,000 Redeemable Cumulative Preference Shares of Rs.100/- each.

3,000.00

500.00

3,000.00

500.00

Total 3,500.00 3,500.00 Issued, Subscribed and Paid up 2,57,33,555 Equity Shares of Rs.10/- each fully paid up 2,573.36 2,573.36

Total 2,573.36 2,573.36 9,98,500 Equity Shares of Rs.10/- each were allotted as fully paid up pursuant to a contract without payment being received in cash. 11,25,000 Equity Shares of Rs.10/- each fully paid up were allotted for consideration other than cash as Bonus Shares by Capitalization of Reserves. 5,80,000 Equity Shares of Rs.10/- each were allotted to the shareholders of amalgamating Company, Coastal Papers Ltd. pursuant to the Scheme of Amalgamation without payment being received in cash.

(Rupees in lacs)

Schedule – 2- Reserves and Surplus 31.03.2009 31.03.2008

Share Premium As per last Balance Sheet 12,649.33 10,840.72 Add : Premium received on preferential - 12,649.33 1,808.61 12,649.33 allotment of equity shares Capital Redemption Reserve 598.00 598.00 General Reserve: As per last Balance Sheet 15,415.97 15,467.56 Less: (a)Adjusted towards long term foreign currency monetary items 1,589.91 (refer note.no.3 of schedule 19(ii) (b) Transfer towards Provision for Leave Encashment upto 31.03.2007 (net of deferred tax) - 217.59 Add: Transfer from Profit & Loss Account 190.00 14,016.06 166.00 15,415.97 Surplus in Profit & Loss account 11,961.01 10,406.28 Total 39,224.40 39,069.58

(Rupees in lacs)

Schedule 3 – Secured loans 31.03.2009 31.03.2008 Term Loans from Financial Institutions & Banks Foreign Currency Loans 19,909.56 19,007.53 Rupee Loans 18,938.68 16,872.22 Buyers credit 6,019.02 5,635.25 Working Capital From Banks 2,610.53 2,069.48

Total 47,477.79 43,584.48

69

1. Term loans from the financial institutions viz. International Finance Corporation, Deutsche Investitions-und Entwicklungsgesellschaft mbH, State Bank of India, Canara Bank, and IDBI Bank Limited are secured by a pari passu first charge on all movable and immovable properties of the Company situated at Rajahmundry, Serinarasannapalem and Kadiyam [except Paper Machine No. 6 of Unit: APPM on which an exclusive charge was created in favour of Centurion Bank of Punjab Limited (now merged with HDFC Bank Limited)] in accordance with respective loan agreements and subject to charge under Note No.2.

2. Working capital facilities from State Bank of India and Canara Bank are secured by hypothecation of

raw materials, finished stock, stock in process, stores and spare parts etc. along with second charge on the fixed assets of the Company situated at Rajahmundry, Serinarasannapalem and Kadiyam respectively.

3. 971,115 equity shares of Rs.10 each of the Company held by Digvijay Investments Ltd (Promoters’

group) have been pledged in favour of IDBI Trusteeship Services Limited for the benefit of International Finance Corporation and DEG - Deutsche Investitions-Und Entwicklungsgesellschaft mbH

(Rupees in lacs)

Schedule 4 – Unsecured loans 31.03. 2009 31.03. 2008 Long Term Interest free Sales Tax Deferment Loan from Govt. of AP 2,762.28 2,621.85 Security Deposits from dealers including interest due thereon 1,317.49 1,309.36 Short Term Public Deposits [Including unclaimed deposits of Rs. 15.90 lacs (Previous year - Rs. 4.10 lacs)] [Includes from Directors Rs. 3.00 lacs (Previous year - Rs. 3.00 lacs)] [Repayable within one year Rs. 438.05 lacs, (Previous year - Rs. 324.75 lacs)]

543.55 591.70

Interest due thereon 2.06 0.60 From Banks 4,000.00 5,085.06 Total 8,625.38 9,608.57

Schedule 5 – Fixed Assets.

(Rupees in lacs) Gross Block at Cost Depreciation Net Depreciated Block

Particulars

As at 1st

April , 2008

Additions

Sales/ Adjustments

As at 31st March, 2009

As at 1st April, 2008

For the Year

On Sales/ Adjustments

As at 31st March, 2009

As at 31st March, 2009

As at 31st March, 2008

Tangible:

Land 247.83 11.37 0.03 259.17 - - - - 259.17 247.83

Roads & Drainages 60.19 38.08 - 98.27 26.81 6.40 33.21 65.06 33.38

Buildings 4561.97 497.57 a 6.97 5,052.57 2,122.41 194.15 7.05b 2,309.51 2,743.06 2439.56

Plant & Machinery 93,238.41 6,430.73 a 107.58 99,561.56 24,693.31 4,724.04 128.03 b 29,289.32 70,272.24 68,545.10

70

Gross Block at Cost Depreciation Net Depreciated Block

Particulars

As at 1st

April , 2008

Additions

Sales/ Adjustments

As at 31st March, 2009

As at 1st April, 2008

For the Year

On Sales/ Adjustments

As at 31st March, 2009

As at 31st March, 2009

As at 31st March, 2008

Electrical Installations 1,813.30 80.35a 1.27 1,892.38 780.04 147.41 4.35 b 923.10 969.28 1,033.26

Furniture & Fixtures 1,116.63 54.27 8.47 1,162.43 842.03 94.79 8.05 928.77 233.66 274.60

Trucks & Vehicles 482.52 31.29 37.39 476.42 292.53 51.00 24.74 318.79 157.63 189.99

Total 101,520.85 7,143.66 161.71 108,502.80 28,757.13 5,217.79 172.22 33,802.70 74,700.10 72,763.72

Intangible:

Goodwill1 1,933.97 - - 1,933.97 1,353.78 193.40 1,547.18 386.79 580.19

Total 103,454.82 7,143.66 161.71 110,436.77 30,110.91 5,411.19 172.22 35,349.88 75,086.89 73,343.91 Capital work-in-progress (at cost) - - - - - - - - 15,246.21 13,046.28

(Note no 12 of Schedule 19)(II) - - - - - - - - - -

Total 103,454.82 7,143.66 161.71 110,436.77 30,110.91 5,411.19 172.22 35,349.88 90,333.10 86,390.19

Previous Year 96,797.85 7,786.96 1,129.99 103,454.82 25,571.78 5,236.22 697.09 30,110.91 86,390.19

1Represents cost of acquisition of Coastal Papers Ltd. and its amalgamation a Additions include capitalization of Foreign Exchange Fluctuation loss/(gain) on restatement of long term foreign currency monetary items amounting to Rs. 2,682.83 lacs. b Adjustment includes Rs.55.18 lakhs towards depreciation effect on Foreign Exchange Fluctuation gain relating to 2007-08

(Rupees in lacs) Schedule – 6 - Investments 31.03.2009 31.03.2008 Investments: (Long Term): (At cost) - Non Trade Quoted: Equity Shares of Rs.10/- each fully paid up: -- Tamilnadu News Print & Papers Ltd (1000 Shares) 1.10 1.10 -- JK Paper Mills Ltd (100 Shares) 0.04 0.04 -- Seshasayee Paper and Boards Ltd (100 Shares) 0.08 0.08 -- The Sirpur Paper Mills Ltd., (100 Shares) 0.09 0.09 -- Star Paper Mills Ltd (100 Shares) 0.03 0.03 -- Rama News print & Papers Ltd (25 Shares) -- Kedia Distillery Ltd (2,12,800 Shares) 61.71 61.71 Equity Shares of Rs.2/- each fully paid up: -- The West Coast Paper Mills Ltd (500 Shares) 0.18 0.18 -- Ballarpur Industries Ltd (300 Shares) 0.05 0.05 Equity Shares of Rs.1/- each fully paid up: -- ITC Ltd (1500 Shares) 1.09 1.09 -- Orient Paper and Industries Ltd (1000 Shares) 0.04 0.04 64.41 64.41 Unquoted : ( i ) 13,40,000 Shares of Rs.10/- each 1,538.37 1,538.37 fully paid up in Andhra Pradesh Gas Power Corporation limited ( ii ) Trust Securities:

71

Schedule – 6 - Investments 31.03.2009 31.03.2008 UTI Services Industries Fund-Dividend plan-payout 183.27 183.27 321759.706 Units of Rs.10.00 each (Previously UTI- GSF Software – 493231 units of Rs. 10 each) ( iii ) Equity Shares: 30,000 Shares of Rs.10/- each 3.00 3.00 fully paid up in Somar Granites Pvt Ltd. 1,724.64 1,724.64 Total of Quoted & Unquoted Investments 1,789.05 1,789.05 Less: Provision for diminution in the value of Investments 124.71 124.71 Total 1,664.34 1,664.34

Aggregate Value of Book value Market

Value Book value

Market Value

Quoted Investments 64.41 3.96 64.41 5.28 Unquoted Investments 1,724.64 1,724.64

(Rupees in lacs)

Schedule – 7 – Inventories 31.03.2009 31.03.2008 Stores, Chemicals, Components, Packing materials, Spare Parts, Building Materials, Loose Tools & Scrap

4,419.78 4,253.14

Raw Materials 2,223.50 2,677.97 Materials-in-transit/ awaiting inspection 430.74 193.02 Work-in-process 2,030.35 1,157.39 Finished Goods 4,420.48 2,199.84 Total 13,524.85 10,481.36

(Rupees in lacs)

Schedule – 8 – Sundry Debtors 31.03.2009 31.03.2008 Secured: Considered Good 633.08 914.78 Unsecured and outstanding for more than 6 months: Considered good 70.04 75.85 Considered Doubtful 40.71 45.04

Total 110.75 120.89 Other Debts-Considered good 3,171.79 3,597.07

Total 3,282.54 3,717.96 Less: Provision for Doubtful Debts 40.71 45.04 3,241.83 3,672.92 Total 3,874.91 4,587.70

(Rupees in lacs)

Schedule – 9 – Cash and Bank Balances 31.03.2009 31.03.2008 Cash on hand 6.15 15.15 Cheques on hand 47.15 0.36 With Scheduled Banks in Current Accounts [including Rs.14.67 lacs on account of unclaimed dividends (Previous Year Rs.16.46 lacs)]

431.81 763.09

Deposit Accounts 165.94 273.64 Remittances-in-Transit 155.95 277.26 Total 807.00 1,329.50

72

(Rupees in lacs)

Schedule – 10 – Loans, Advances and Deposits 31.03.2009 31.03.2008 (Unsecured considered good) Advances recoverable in cash or kind or for value to be received

2,990.21 2,508.82

Advance tax ( Net of Provisions) - 19.31 MAT Credit Entitlement 1,087.39 851.83 Deposits with Customs, Port Trust and Excise Authorities 418.80 851.06 Other Deposits 497.46 404.72 Claims receivable 584.07 894.81 Total 5,577.93 5,530.55

(Rupees in lacs)

Schedule – 11 – Current Liabilities and Provisions 31.03.2009 31.03.2008 Current Liabilities : Sundry Creditors - Capital 1,804.80 1,449.05 - Others @ 11,685.21 9,316.26 Advances from Customers 322.70 284.94 Unclaimed Dividends * 14.67 16.46 Other Liabilities 848.70 615.18 Interest accrued but not due on Loans 794.18 1,092.98 15,470.26 12,774.87 Provisions : Leave Encashment 253.50 268.63 Gratuity 34.46 - Income Tax (Net of prepaid Taxes) 64.49 - Fringe Benefit Tax (Net of prepaid Tax) 1.65 - Proposed Equity Dividend 128.77 257.34 Corporate Tax on Dividend 21.89 43.73 Total 15,975.02 13,344.57

@ Includes Rs 28.07 lacs (since paid) (Previous year Rs 78.09 lacs) due to Micro Small and Medium Enterprises to the extent such parties have been identified from the available information and there are no Micro Small and Medium Enterprises where the outstandings are due for more than 45 days. Due to SSI units Rs. Nil * Amounts due and outstanding to be credited to Investor Education and Protection Fund Rs.NIL (Previous Year Rs.NIL

(Rupees in lacs) Schedule 12 - Increase/ (Decrease) In Stocks Year ended 31.03.09 Year ended 31.03.08 Increase/ (Decrease) in stocks i) Closing Stocks: a) Finished Goods 4,420.48 2,199.84 b) Work-in-Process 2,030.35 1,157.39 6,450.83 3,357.23 ii) Opening Stocks: a) Finished Goods 2,199.84 1,163.43 b) Work-in-Process 1,157.39 863.33 3,357.23 2,026.76 Increase/ (Decrease) in Stocks 3,093.60 1,330.47

73

Schedule 12 - Increase/ (Decrease) In Stocks Year ended 31.03.09 Year ended 31.03.08 Adjustment for Excise Duty on Stocks (7.08) (47.54) Total 3,086.52 1,282.93

(Rupees in lacs)

Schedule-13 – Other Income Year ended 31.03.09 Year ended 31.03.08 Income from Investments 5.74 32.01 Profit on sale of Investments - 0.02 Profit on sale of Fixed Assets 26.30 - Miscellaneous Income 380.11 539.10 Net income from sale of Carbon Credits 211.72 - Claims 9.10 459.68 Interest [(Income Tax deducted at source Rs. 6.34 lacs) (Previous year Rs. 5.87 lacs)] 173.15 76.48 Provisions no longer required 198.10 41.36 Sundry Credit Balances written back 19.07 177.23 Total 1,023.29 1,325.88

(Rupees in lacs)

Schedule - 14 - Material Cost Year ended 31.03.09 Year ended 31.03.08 Raw Materials Opening Stock 2,677.97 3,342.78 Add : Purchases 18,403.08 18,527.43 21,081.05 21,870.21 Less : Closing Stock 2,223.50 2,677.97 Consumption – Raw Materials 18,857.55 19,192.24 Cost of Trading goods - 16.62 Total 18,857.55 19,208.86

(Rupees in lacs)

Schedule 15 – Staff Costs Year ended 31.03.09 Year ended 31.03.08 Salaries, Wages & Bonus 4,305.49 4,173.60 Contribution to Provident and other funds 745.31 543.11 Workmen & Staff Welfare Expenses 456.85 542.16 Total 5,507.65 5,258.87

(Rupees in lacs)

Schedule-16 – Manufacturing Expenses Year ended 31.03.09 Year ended 31.03.08 Spare parts, components, stores & packing material consumed

17,355.63 14,699.00

Power & Fuel 6,473.05 7,063.89 Repairs & Maintenance - Buildings 141.09 153.94 - Machinery 792.03 1,042.48 Others 145.30 189.59 Total 24,907.10 23,148.90

(Rupees in lacs) Schedule-17 – Other Expenses Year ended 31.03.09 Year ended 31.03.08

74

Schedule-17 – Other Expenses Year ended 31.03.09 Year ended 31.03.08 Rent 138.86 113.65 Rates & Taxes 164.84 143.88 Insurance 339.66 415.89 Directors' Fees 10.40 4.40 Auditors' Remuneration -Statutory Audit 7.00 7.00 -Tax Audit 1.00 1.00 -Certification/Management Services 5.09 3.45 -Reimbursement of Expenses 1.41 0.89 14.50 12.34 Cost Audit Fee 2.00 0.76 Donations 0.06 - Commission and Discount on Sales 2312.91 2055.79 Forwarding, transportation and other sales expenses 1034.60 960.43 Research & Development Expenses 118.57 67.60 Miscellaneous Expenses 861.90 862.72 Loss on sale of fixed assets 0.00 29.11 Irrecoverable Debts, Deposits and Advances written off/forfeited 4.33 4.18 Less: Transfer from Provision for Doubtful Debts (4.33) -- - 4.18 Loss on Assets Discarded 6.57 0.51 Total 5,004.87 4,671.26

(Rupees in lacs)

Schedule-18 – Interest and Finance Charges Year ended 31.03.09 Year ended 31.03.08 Interest on term loans [Excludes Rs.759.97 Lakhs capitalized (Previous year Rs.887.18 Lakhs)] 3,444.57 3,089.71 Interest on Deposits 176.06 150.13 Other Interest 0.83 27.04 Bank and Finance Charges 446.99 392.97 Exchange Rate Loss / (Gain) [Excludes Rs.181.68 Lakhs capitalised. (Previous year Rs 469.46 Lakhs)] 980.51 (2,123.78) Total 5,048.96 1,536.07

Schedule 19: Accounting Policies and Notes on Accounts

Annexure to and forming part of Balance Sheet as at and Profit & Loss Account for the year ended 31st March, 2009:

I. Accounting Policies 1. Accounting Concepts Financial Statements are prepared on accrual basis under the historical cost convention and in accordance with the accounting standards specified in Sub-section 3(C) of Section 211 of the Companies Act, 1956.

2. Fixed Assets

75

a) Fixed Assets are stated at cost less accumulated depreciation. Cost of acquisition of fixed assets is net of CENVAT/VAT and inclusive of freight, duties, taxes, incidental expenses including interest on specific borrowings and pre-operative expenses as allocated. b) Expenditure during construction/erection period is included under Capital Work-in-Progress and allocated to the respective fixed assets on completion of construction/erection. c) Goodwill is amortized over a period of 10 years. 3. Investments Investments are stated at cost, inclusive of all expenses relating to acquisition. Provision for diminution in the market value of long term investments is made, if in the opinion of the Management such diminution is permanent in nature.

4. Inventories

Inventories are valued at the lower of the cost (net of CENVAT / VAT Credit) or Net realizable value (except scrap/waste which are valued at net realizable value). Cost is computed on average basis. Finished Goods and Work-in-Process include cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

5. Borrowing Costs Borrowing cost is charged to Profit and Loss Account except cost of specific borrowing for acquisition of qualifying assets which is capitalized till the date of commercial use of the asset. 6. Impairment of Assets

The Company applies the test of impairment of its assets as provided in Accounting Standard (AS) – 28. 7. Intangible Assets Assets those are identifiable, non-monetary in nature and with no physical substance have been classified as

intangible Assets. Only those assets have been recognized as Intangible Assets, on which future economic benefit/s is / are probable and whose cost can be measured reliably. Assessment of probable future economic benefits has been made by the management on reasonable and supportive assumptions.

8. Revenue Recognition a) Sales are inclusive of excise duty, Export incentives and net of trade and quantity discounts and rebates. b) Interest and dividend income from investments are accounted on accrual basis. c) Insurance and other claims/refunds are accounted for as and when admitted by appropriate authorities. d) Income relating to Certified Emission Reduction points (CERs) granted by United Nations Framework Convention on Climate Change (UNFCCC) on energy efficient measures are accounted as and when sold to outside third parties. e) Inter division transfers are eliminated in financial statements.

76

9. Employee Benefits

(i) Defined Contribution Plans: Employee benefits in the form of Superannuation Fund, ESIC and Labour Welfare Fund are considered as defined contribution plans and the contributions are charged to the Profit and Loss Account of the year when the contributions to the respective funds are due. ii) Defined Benefit Plans Company’s liabilities towards Provident Fund, Gratuity, Leave encashment are determined based on actuarial valuation using the projected unit credit method as on the date of the Balance Sheet. iii) Actuarial gains/losses are immediately taken to profit and loss account and are not deferred. iv) Payments made under the Voluntary Retirement Scheme are amortized to the Profit and Loss Account over

its pay back period.

10. Depreciation on Fixed assets a) Depreciation on Plant & Machinery of Units: APPM & CP and Buildings of Unit: CP are charged under straight line method applying the rates worked out in accordance with the provisions of Section 205(2) (b) of the Companies Act, 1956 prevalent in respective years of acquisition in respect of items acquired prior to 1st July 1986 and in accordance with Schedule XIV of the Companies Act, 1956 in respect of items acquired after 1st July 1986. b) Depreciation on other fixed assets is charged under written down value method in accordance with Schedule XIV of the Companies Act, 1956. 11. Deferred Revenue Expenditure

Expenditure other than expenditure on VRS (including expenditure on Research & Development) incurred upto

31st March, 2003 in respect of which benefit is expected to flow into future periods, is amortized over the expected period of benefit.

12. Foreign Currency Transactions Foreign currency assets and liabilities covered by forward contracts are stated at the forward contract rates while

those not covered by forward contracts are restated at rates ruling at the year end.

Exports/Imports are accounted at forward contract rates/exchange rates prevailing on the date of transaction.

Exchange fluctuations relating to fixed assets is adjusted in the cost of the asset upto the time of commissioning or putting to use. Thereafter, all such exchange fluctuations are recognized in the Profit and Loss Account.

However, exchange fluctuations arising from long term currency monetory items relating to acquisition of

depreciable capital assets from 1st April 2007 are added to / deducted from the cost of the said assets as the case may be.

77

However, gain/loss on monetary items which are repayable / receivable within 12 months from the reporting period was charged to profit & loss account.

13. Financial Instruments

The Company uses derivative financial instruments such as forward contracts, currency swap to hedge certain currency exposures relating to the business operations of the Company present and anticipated. Generally, such contracts are taken for exposures materializing in the next 12 months.

II) NOTES ON ACCOUNTS Rs. Lakhs

2008-09 2007-081. Estimated amount of contracts remaining to be executed on Capital

Account and not provided for (net of advances & Letters of Credit opened)

a) Mill Development Plan 2,731.80 5464.60

b) Others 71.85 53.75

2. Contingent Liabilities:

a) Unexpired Bank Guarantees and Letters of Credit

791.03

1314.55

b) Corporate guarantee given to Forest Department of State Government of Andhra Pradesh (net of Rs.100 lacs deposited under protest)

1,472.09 1472.09

c) Claims against the Company not acknowledged as debts

184.44 239.15

d) Demands raised by EPDC of AP Ltd. for surplus Power supplied by APGPCL disputed by the Company. An amount of Rs. 72.47 lacs paid under protest, (Previous year Rs.61.64 lacs) is grouped under Loans & Advances. The appeal filed by APTRANSCO is pending before Hon'ble Supreme court in which other companies similarly placed are made respondents.

81.27 68.07

Demands of statutory authorities disputed by the Company in appeals with higher authorities in respect of: i) Income Tax 239.43 565.62 ii) Central Excise & Service tax. 1,536.34 667.51 iii) Sales Tax 234.94 216.25

e)

iv) Vacant Land Tax 210.88 210.88

As against above demands an amount of Rs. 706.10 Lakhs (previous year Rs.946.73 Lakhs) paid under protest is included in Loans & Advances.

In respect of items (b), (c), (d) & (e), the Company has been advised by the Counsel that the demands are not sustainable in law.

3

The Company has opted for capitalizing the exchange differences arising on reporting of long term foreign currency monetary items which are related to acquisition of depreciable capital assets, in line with the companies (Accounting Standards) Amendment rules on Accounting Standard 11 notified by Government of India on 31st March 2009, which have become effective to the company with effect from 1st April, 2007. Accordingly, the foreign exchange gain for the year 31st March 2008 which have been earlier recognized to the profit and loss account of that year

78

have been reversed by withdrawing Rs. 1,589.91 Lakhs (net of depreciation and deferred tax of Rs. 258.34 Lakhs) from the General Reserve and crediting the same to depreciable capital assets. The exchange losses on long term currency monetary items, related to acquisition of depreciable capital assets for the year of Rs. 4,531.07 Lakhs have been capitalised to depreciable capital assets. Consequently, the depreciation for the year is higher by Rs. 41.59 Lakhs and the profit general reserve are higher by Rs. 4,489.48 Lakhs respectively. As the entire exchange differences have been adjusted against the cost of Depreciable capital assets there is no amount to be amortised and absorbed before 31st March 2011.

4

Diminution in value of investment held in UTI service industries fund (formerly UTI-GSF software) is of Rs. 141.90 Lakhs against which provision made in earlier year of Rs. 60 Lakhs is available. In the opinion of the Management, the balance diminution is temporary in view of the subsequent market appreciation.

5 Employee benefits:

Defined benefit plans

(i) Gratuity

Reconciliation of opening and closing balances of the

present value of the defined benefit obligation being

gratuity:

Obligations at period beginning 1,789.15 1,709.17

Service Cost 88.83 275.59

Interest on Defined benefit obligation 139.49 136.73

Benefits settled (expected) (101.25) (328.28)

Actuarial (gain)/loss (45.44) (4.07)

Past Service Cost - -

Obligations at period end 1,870.78 1,789.15

Defined benefit obligation liability as at the balance sheet is wholly funded by the company

Change in plan assets

Plans assets at period beginning, at fair value 1,796.37 1,715.86

Expected return on plan assets 101.40 137.27

Actuarial gain/(loss) (282.65) 99.78

Assets distributed on settlements - -

Contributions 322.44 171.74

Benefits settled (101.24) (328.28)

Plans assets at period end, at fair value 1,836.32 1,796.37

Reconciliation of present value of the obligation and the fair value of the plan assets:

Closing PBO 1,870.78 1,789.15

Closing Fair value of plan assets 1,836.32 1,796.37

79

Closing Funded status - 7.22

Unrecognised actuarial (gains)/losses - -

Unfunded net Asset/(Liability) recognized in the balance sheet (34.46) 7.22

Expenses recognised in the P & L account

Service cost 88.83 275.59

Interest cost 139.49 136.73

Expected return on plan assets (101.40) (137.27)

Actuarial (gain)/loss 229.98 (103.85)

Net gratuity cost 356.90 171.21

Description of the basis used to determine the overall expected rate of return on assets including major categories of plan assets. The expected return is calculated on the average fund balance based on the mix of investments and the expected yield on them.

Actual return on plan assets:

Assumptions

Interest rate 8.00% 8.00%

Discount factor 8.00% 8.00%

Estimated rate of return on plan assets 8.00% 8.00%

Salary increase 6.00% 6.00%

Attrition rate 2% to 5% 2% to 5%

Retirement age for Executives 60 years 60 years

Retirement age for workers 58 years 58 years

(ii) Reconciliation of opening and closing balances of the present value of the defined benefit obligation being

Leave Encashment(Non funded):

Obligations at period beginning 268.63 -

Service Cost 27.07 -

Interest on Defined benefit obligation 16.24 -

Benefits settled (expected) (81.69) -

Actuarial (gain)/loss 23.25 -

Past Service Cost - -

Obligations at period end 253.50 -

Defined benefit obligation liability as at the balance sheet is wholly funded by the company

Change in plan assets

Plans assets at period beginning, at fair value

Expected return on plan assets

80

Actuarial gain/(loss)

Assets distributed on settlements

Contributions 81.69 -

Benefits settled (81.69) -

Plans assets at period end, at fair value - -

Reconciliation of present value of the obligation and the fair value of the plan assets:

Closing PBO 253.50 -

Closing Fair value of plan assets - -

Closing Funded status 253.50 -

Unrecognised transitional liability - -

Unrecognised past service cost - non vested benefits - -

Unfunded net Asset/(Liability) recognized in the Balance Sheet 253.50 -

Expenses recognised in the Profit and Loss Account

Service cost 27.07 -

Interest cost 16.24 -

Expected return on plan assets - -

Actuarial (gain)/loss 23.25 -

Net liability towards leave encashment 66.56 -

Description of the basis used to determine the overall expected rate of return on assets including major categories of plan assets. The expected return is calculated on the average fund balance based on the mix of investments and the expected yield on them.

Actual return on plan assets:

Assumptions

Interest rate

Discount factor 7.13% -

Estimated rate of return on plan assets - -

Salary increase 2.00% -

Attrition rate 5.00% -

Retirement age for Executives 60 years -

Retirement age for workers 58 years -

6 The Company operates in only one business segment of Paper and Paper

Boards of different varieties and there is no reportable geographical segment to be reported.

7 Related Party Transactions:

81

Related parties in terms of AS-18 issued by the Institute of Chartered Accountants of India

a. Promoters:

(i) Individuals:

Shri Laxmi Niwas Bangur

Smt. Alka Bangur

Ms. Sheetal Bangur

Shri Shreeyash Bangur

Shri Yogesh Bangur

(ii) Bodies Corporate:

Digvijay Investments Ltd.

Amalgamated Development Ltd. Apurva Export Pvt. Ltd.

MB Commercial Co. Ltd.

Maharaj Shree Umaid Mills Ltd.1

Mugeeram Ramcoowar Bangur Charitable & Religious Co.

Placid Limited.

Shree Krishna Agency Ltd.

The General Investment Company Limited.

The Kishore Trading Co Ltd.

The Peria Karamalai Tea & Produce Co. Ltd.

The Swadeshi Comml. Co Ltd.

1 No transactions during the year

b. Key Management Personnel:

Shri M.K Tara, Managing Director

Ms.Sheetal Bangur, Director (Comml.)

Shri Shreeyash Bangur, Director (Corporate)

Shri P.K.Suri, Director ( Operations) (from 12.05.2008)

c. Others - Enterprises in which Promoter Directors hold substantial interest:

Samay Books Ltd.

Transactions carried out with related parties: Rs. Lakhs

82

Nature of Transactions Promoters

Key Management

Personnel

Others-Enterprises

in which Promoter Directors

hold Substantial

Interest

Relative of Key Manage-

ment Personnel

Total

1. Remuneration - 164.85 - - 164.85

- (104.64) - - (104.64)

2. Sale of Goods 499.82 - 6.08 - 505.90

(452.47) - (17.82) - (470.29)

3. Purchase of Goods - - 301.91 - 301.91

- - (289.79) - (289.79)

4. Expenses 3.19 - - - 3.19

(3.02) - - - (3.02)

5. Dividend 129.93 0.45 - - 130.38

(129.93) (0.47) - - (130.40)

6. Receivables as at 31st March 9.51 - - - 9.51

(11.53) - - - (11.53)

7. Payables as at 31st March - - 127.10 - 127.10

- - (80.75) - (80.75)

Figures in brackets relate to previous year.

8 Earnings per Share(EPS) 2008-09 2007-08

a) Net profit as per Profit and Loss Account 1,895.39 1,654.00

b) Weighted Average number of equity shares used as denominator for calculating EPS

Nos 25,733,555 25,681,263

c) Earnings Per Share:

Basic Rs. 7.37 6.44

Diluted Rs. 7.37 6.44

83

9 The company has been recognising Deferred tax liability at the effective rate applicable for the respective years. The applicablity or otherwise of the effective rate instead of the standard rate is a matter of reference in a writ petition pending before the Hon'ble Calcutta High Court and the matter will be reviewed on disposal of the writ petition.

10 The deferred tax liability as at 31st March 2009 comprises of the following:

a. Deferred Tax Liability:

(i) Related to fixed assets 3,540.51 3,626.98

(ii) Payments considered under section 43B of I.T. Act. - 39.90

3,540.51 3,666.88

b. Deferred Tax Assets:

(i) Unpaid Interest, Taxes staff benefits etc., 54.73 55.14

(ii) Provision for Doubtful debts, Investments etc. 13.25 13.74

(iii) Deferred Revenue Expenses - 12.35

(iv) Payments considered under section 43B of I.T. Act 7.26 -

(v) Unabsorbed Depreciation 1,299.72 1,468.15

1,374.96 1,549.38

c. Deferred tax liability (net) 2,165.55 2,117.50

11 According to technical assessment, there is no impairment in the carrying

cost of cash generating units of the Company in terms of Accounting Standard (AS-28) issued by the Institute of Chartered Accountants of India.

12 Capital Work-in-Progress comprises of:

Civil works under Construction 1,921.58 521.28

Plant under erection 12,849.90 14,909.33

Advance to Suppliers / Contractors 205.27 323.90

14,976.75 15,754.51

Unallocated Expenditure:

Opening Balance 2,203.88 2,725.93

Incurred during the year:

-- Commitment and Loan/Equity syndication fee 343.27 735.75

-- Insurance/Consultancy/Travelling/Others 700.29 418.10

-- Interest during construction 982.16 887.18

-- Start-up/trial run Expenses 192.46 0.00

-- Pre-operating Expenses 24.58 0.00

4,446.64 4,766.96

84

Total Capital Work-in-Progress 19,423.39 20,521.48

Less: Capitalised During the Year 4,177.18 7,475.20

Closing Capital Work-in-Progress 15,246.21 13,046.28

13 Misc. expenditure to the extent not written off or adjusted comprises of

payments under Voluntary Retirement Scheme 142.71 233.19

Total 142.71 233.19

14 The amounts shown under the following heads in Profit and Loss Account

are exclusive of amounts charged to other heads of account:

a) Salaries and Wages 302.64 297.79

b) Rent 11.45 11.48

c) Rates and Taxes 3.69 2.34

d) Insurance 3.98 8.29

e) Miscellaneous Expenses 30.27 24.70

352.03 344.60

15 Managing/Whole time Directors' Remuneration :

Salary and Allowances 99.68 87.34

Contribution to Provident & other Funds 25.61 14.90

Other perquisites 39.56 2.40

Total 164.85 104.64

16 Adjustments in respect of income and expenditure not relating to the year, net

debit (Previous Year – net debit) 25.58 0.18

17 Provision for income tax has been made in accordance with Section 115JB of

the Income Tax Act, 1961. However, management expects that it would be in a position to pay normal tax within the period specified under the Income Tax Act, 1961 and hence MAT credit has been recognised.

18 Quantitative Information in respect of goods manufactured and sold :

Installed Capacity Production

2008-09 2007-08 2008-09 2007-08

(a) Licensed, Installed Capacities and Production

Class of Products MT MT MT MT

Pulp, Paper and Board $ 174,000 174,000 177,748 180,681

85

MW MW Kwh lakhs Kwh lakhs

Generation of Electricity * 62.94 62.94 2,078.38 1,838.79

TPH TPH MT MT

Generation of Steam * 573 468 1,938,427 1,876,269

Licensed capacity not applicable in terms of Government of India's Notification. Installed Capacities are as certified by the Managing Director.

$ Represents Finished Production of Paper and Paper Board. Production of Pulp is not separately ascertained as pulp plant is an integral part of paper and paper board plant. Includes pulp production of 31,609 MT (Previous Year 34,867 MT) meant for external sales.

* Total generation of Electricity and Steam are for internal consumption.

2008-09 2007-08

(b) Sales and Stocks

Opening Stock MT 6,429 3,580

Sales MT 170,239 176,758

Closing Stock MT 13,127 6,429

(c) Value of Sales and Stocks:

Opening Stock Rs.Lakhs 2,199.84 1,163.43

Sales Rs.Lakhs 65,733.39 62,824.41

Closing Stock Rs.Lakhs 4,420.48 2,199.84

(d) Particulars of Sales & Purchases of Paper Traded:

i) Purchases MT - 61

Rs.Lakhs - 16.62

ii) Sales MT 61

Rs.Lakhs - 23.76

(e) Consumption of Raw Materials:

i) Quantities:

a) Bamboo MT 25,962 43,222

b) Hardwood MT 508,828 425,092

c) Waste Paper Cuttings, Wood Pulp etc. MT 35,248 44,810

d) Rice Straw, Bagasse etc MT 12,944 16,041

ii) Values (including handling and feeding charges)

86

a) Bamboo Rs.Lakhs 953.81 1,422.44

b) Hardwood Rs.Lakhs 12,975.31 12,638.57

c) Waste Paper Cuttings, Wood Pulp etc. Rs.Lakhs 4,779.17 4,953.15

d) Rice Straw, Bagasse etc. Rs.Lakhs 149.26 178.08

iii) Indigenous Rs.Lakhs 14,903.86 15,784.22

iv) Imported Rs.Lakhs 3,953.69 3,408.02

v) Percentage to total Raw Materials consumption

a) Indigenous % 79.03 82.24

b) Imported % 20.97 17.76

(f) Consumption of Stores, Chemicals, Components

and Spare Parts:

i) Values (including Duty, Freight and handling

expenses)

a) Indigenous Rs.Lakhs 20,554.61 19,908.56

b) Imported Rs.Lakhs 2,126.82 1,470.52

ii) Percentage of each to total consumption

a) Indigenous % 90.62 93.12

b) Imported % 9.38 6.88

(g) Values of Imports on CIF basis in respect of:

a) Capital Goods Rs.Lakhs 15.99 6,152.22

b) Raw Materials Rs.Lakhs 3,068.01 3,277.83

c) Components, Chemicals and Spare Parts Rs.Lakhs 2,010.18 1,476.09

(h) Earnings in Foreign Exchange in respect of Export

of paper Rs.Lakhs 5,405.08 4,074.15

(i) Dividend paid in Foreign Currency Rs.Lakhs 13.75 13.75

19 The company has imported certain capital goods for

mill development under EPCG scheme, availing concessional rate of customs duty in respect of which, the company has an export obligation of Rs. 65,091 lacs to be fulfilled over a period of 8 years commencing from 2006-2007

87

20 Expenditure in Foreign Currencies in respect of Interest, Loan Syndication fee, commitment charges, Travelling, Sales Expenses etc. Rs. Lakhs 1,748.54 1,840.71

21 a) Derivative instruments outstandings:

Currency Swaps

-USD/CHF -Bought $ in lakhs 23.00 223.00

-USD/CHF -Sold $ in lakhs - 200.00

b) Foreign currency exposure not hedged by derivative

instrument

Amount (Foreign currency in lakhs) ( Rs in Lakhs)

Currency 2008-09 2007-08 2008-09 2007-08

I) Amount receivable in foreign currency on account of the following

Exports - Sale of Paper USD - 29.85 - 1,192.59

AED 1.52 - 20.63 -

II) Amounts payable in foreign currency on account of the following

1) Capital goods and services

USD - - - -

EURO - - 4.55

SEK 8.99 8.99 55.65 55.65

JPY - 213.00 - 75.51

2) Other goods and services

USD 11.55 12.79 581.80 513.04

EURO - 0.02 - 1.50

3) Loans USD 392.50 490.54 19,909.56 25,061.08

4) Buyer's credit EUR 19.25 89.25 1,298.22 5,635.25

22 Exceptional items comprise of: Accounting standard - 30 on Financial instruments measurement and recognition which has been

recommended for implementation earlier than the scheduled year 2011, stipulates that loss on hedging and derivative instruments whether directly relating to business operations or otherwise should be recognised in the financial statements by adequate provision and / or disclosure. The Institute of Chartered Accountants of India has clarified that any loss on unhedged derivative transactions should be recorded in the financial statement for the year ended 31st March 2008. Accordingly the company has provided for the Mark-to-Market (MTM) loss for the year ended 31st March 2008. The MTM on the outstanding derivatives, forward covers and reinstatement of foreign currency vendors, customers and EEFC accounts as on 31st March 2009 has resulted in reducing earlier provisions made and accordingly Profit & Loss account has been credited by Rs.111.87 lacs.

88

23 Clean Development Mechanism (CDM) Emission Reductions:

On account of Energy efficiency measures undertaken by the Company during the period from June 2000 to December 2006, UNFCCC (in accordance with the regulations of United Nations body on environment) has approved the project and accorded Certified Emission Reduction (CERs) points to the Company, which have been sold during the year and the income from the same has been credited to the Profit and Loss Account, by grouping under Other Income.

24 The Board of Directors have recommended a divided of Re. 0.50 per share of Rs.10 each.

25 Previous Year's figures have been regrouped wherever necessary.

89

AUDITORS' REPORT

To Board of Directors The Andhra Pradesh Paper Mills Limited, Rajahmundry.

1. We have audited the attached Balance Sheet of The Andhra Pradesh Paper Mills Limited as at 30th September, 2009, the Profit and Loss Account and the cash flow statement for the half-year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We have conducted our audit in accordance with auditing standards generally accepted in India. These Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. We report that:

a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) In our opinion, proper books of account, as required by law have been kept by the company so far as appears from our examination of such books.

c) The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account.

d) In our opinion the Balance Sheet and Profit and Loss Account dealt with by this report comply with the accounting standards referred to in Sub Section (3c) of Section 211 of the Companies Act, 1956 with the exception of Accounting Standard 22, on “Accounting for Taxes on Income”, referred to in Note no.7 of Schedule 19 (II).

e) The company has not fully provided for the deferred tax liability in accordance with Accounting Standard 22 issued by the Institute of Chartered Accountants of India, which requires deferred tax liability to be calculated at standard rate, as stated in note no 7 of schedule 19(II). As the matter relates to legal interpretation of tax statute, we are unable to express our opinion thereon

f) In our opinion and to the best of our information and according to the explanations given to us, subject to paragraph 3(e) above, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view, in conformity with the accounting principles generally accepted in India:

90

i) in the case of the Balance Sheet of the state of affairs of the company as at 30th September 2009, ii) in the case of the Profit and Loss account, of the Profit for the half year ended on that date, and iii) in case of the cash flow statement, of the cash flows for the year ended on that date

For BRAHMAYYA & CO., Chartered Accountants

Place: Secunderabad (C.V.RAMANA RAO) Date: 23rd October.2009 Partner

Membership No. 018545

91

BALANCE SHEET AS AT 30TH SEPTEMBER, 2009 (Rupees in lacs) Schedule No. As at 30.09.2009

SOURCES OF FUNDS : Shareholders' Funds: a) Capital 1 2,573.36 b) Reserves & Surplus 2 41,809.63 c) Share Application Money 1,250.00 45,632.99 Loan Funds: a) Secured Loans 3 46,950.52 b) Unsecured Loans 4 6,583.24 53,533.76 Deferred Tax Liability 2,597.16 Total 101,763.91 APPLICATION OF FUNDS: Fixed Assets: 5 a) Gross Block 109,584.77 b) Depreciation 38,060.92 c) Net Block 71,523.85 d) Capital work-in-progress 18,012.08 89,535.93 Investments 6 1,664.34 Current Assets, Loans and Advances a) Inventories 7 14,227.68 b) Sundry Debtors 8 3,495.84 c) Cash and Bank Balances 9 1,129.44 d) Other Current Assets – Interest accrued on Deposits & Investments, etc. 99.95 e) Loans and Advances 10 6,433.16 25,386.07 Less: Current Liabilities & Provisions 11 14,893.78 Net Current Assets 10,492.29 Misc. Expenditure not written-off or adjusted 71.35 Total 101,763.91

92

PROFIT AND LOSS ACCOUNT FOR THE HALF YEAR ENDED 30TH SEPTEMBER, 2009 (Rupees in lacs)

Schedule No. Half Year ended

30.09.2009 INCOME Sales 29,355.92 Less : Excise Duty 907.71 Net Sales 28,448.21 Increase/ (Decrease) in Stocks 12 2,129.29 Other Income 13 433.13 Total 31,010.63 EXPENDITURE Materials Cost 14 7,853.84 Staff Costs 15 2,727.41 Manufacturing Expenses 16 10,659.94 Other expenses 17 2,166.14 Deferred Revenue Expenses Written off 71.35 Total 23,478.68 Profit before Interest, Depreciation and Tax (PBIDT) 7,531.95 Interest and Finance Charges 18 1,731.02 Profit before Depreciation and Tax (PBDT) 5,800.93 Depreciation 2,783.87 Profit before Tax (PBT) 3,017.06 Provision for taxation :

- Current 513.00 - Earlier Years Tax 0.23 - Deferred Tax 431.60 - Fringe Benefit Tax 0.00

Less: MAT Credit (513.00) Profit after Tax (PAT) 2,585.23 Profit brought forward from previous year 11,961.01 Balance available for appropriation 14,546.24 APPROPRIATIONS Transfer to General Reserve 0.00 Proposed Equity Dividend 0.00 Corporate Tax on Dividend 0.00 Balance carried to Balance Sheet 14,546.24 Total 14,546.24 Earnings per Equity Share (Basic) /( Diluted) (Rs.) 10.05

93

CASH FLOW STATEMENT FOR THE HALF YEAR ENDED 30TH SEPTEMBER, 2009 (Rupees in lacs)

Half Year ended 30.09.2009 CASH FLOW FROM OPERATING ACTIVITIES Net Profit after Extraordinary Items and before Tax 3,017.07 Adjustments for : Depreciation 2,783.87 Provision for Bad & doubtful debts 7.25 Miscellaneous Expenditure written off 71.35 Loss on Discarded Assets 10.64 Provision for Leave encashment & Gratuity (12.98) Profit on Sale of Assets (267.78) Income from Investments (0.09) Interest Paid 1,731.02 Interest Received (28.67) Operating Profit before Working Capital Changes 7,311.68 Adjustments for: Trade and other Receivables 78.25 Inventories (702.84) Trade Payables (1,002.10) Cash Generated from Operations 5,684.99 Interest Paid (1,731.02) Income Tax Paid (611.32) Net Cash from operating activities 3,342.65 CASH FLOW INVESTING ACTIVITIES Purchase of Fixed Assets (197.81) Capital Work-in-Progress (3,171.23) Sale of Fixed Assets 270.43 Income from Investments 0.09 Interest Received 28.67 Net Cash used investing activities (3,069.85) CASH FLOW FROM FINANCING ACTIVITIES Issue of Share Capital 1,250.00 Proceeds from Borrowings 11,039.27 Repayment of Borrowings (12,239.63) Dividends paid including tax on dividend - Net Cash used in Financing Activities 49.64 Net increase in cash and cash equivalents 322.44 Cash & Cash equivalents as at 1st April, 2009 807.00 Cash & Cash equivalents as at 30th September, 2009 1,129.44

94

SCHEDULES FORMING PART OF BALANCE SHEET AND PROFIT & LOSS ACCOUNT (Rupees in lacs)

Schedule-1 - SHARE CAPITAL 30.09.2009 Authorized 4,00,00,000 Equity Shares of Rs.10/- each 5,00,000 Redeemable Cumulative Preference Shares of Rs.100/- each.

4,000.00

500.00

Total 4,500.00 Issued, Subscribed and Paid up 2,57,33,555 Equity Shares of Rs.10/- each fully paid up 2,573.36

Total 2,573.36 9,98,500 Equity Shares of Rs.10/- each were allotted as fully paid up pursuant to a contract without payment being received in cash. 11,25,000 Equity Shares of Rs.10/- each fully paid up were allotted for consideration other than cash as Bonus Shares by Capitalization of Reserves. 5,80,000 Equity Shares of Rs.10/- each were allotted to the shareholders of amalgamating Company, Coastal Papers Ltd. pursuant to the Scheme of Amalgamation without payment being received in cash.

(Rupees in lacs)

Schedule – 2- Reserves and Surplus 30.09.2009 Share Premium As per last Balance Sheet 12,649.33 Capital Redemption Reserve 598.00 General Reserve: As per last Balance Sheet 14,016.06 Surplus in Profit & Loss account 14,546.24 Total 41,809.63

(Rupees in lacs)

Schedule 3 – Secured loans 30.09. 2009 Term Loans from Financial Institutions & Banks Foreign Currency Loans 17,159.23 Rupee Loans 27,524.64 Buyers credit - Working Capital From Banks 2,266.65

Total 46,950.52 1 Term loans from the financial institutions viz. International Finance Corporation, Deutsche Investitions-und Entwicklungsgesellschaft mbH, State Bank of India, Canara Bank, Axis Bank and IDBI Bank are secured by a pari passu first charge on all movable and immovable properties of the Company situated at Rajahmundry, Serinarasannapalem and Kadiyam except Axis Bank for which charge creation is pending and subject to charge under note no.2. 2 Working capital facilities from State Bank of India and Canara Bank are secured by hypothecation of raw materials, finished stock, stock in process, stores and spare parts etc. along with second charge on the fixed assets of the Company situated at Rajahmundry, Serinarasannapalem and Kadiyam respectively.

95

3 971,115 equity shares of Rs.10 each of the Company held by Digvijay Investments Ltd (Promoters group) have been pledged in favour of IDBI Trusteeship Services Limited for the benefit of International Finance Corporation and Deutsche Investitions-Und Entwicklungsgesellschaft mbH

(Rupees in lacs)

Schedule 4 – Unsecured loans 30.09. 2009

Long Term Interest free Sales Tax Deferment Loan from Govt. of AP 2,766.86 Security Deposits from dealers including interest due thereon 1,290.07 Short Term Public Deposits 524.25 Interest due thereon 2.06 From Banks 2,000.00 Total 6,583.24

Schedule 5 – Fixed Assets. (Rupees in lacs)

Gross Block at Cost Depreciation Net Depreciated Block

Particulars

As at 1st

April , 2009 Additions

Sales/

Adjustments Upto

30/09/09 As at 1st

April, 2009 For the

Year On Sales/

Adjustments Upto

30/09/09 As at

30/09/09

Tangible:

Land 259.17 259.17 - - - - 259.17 Roads & Drainages 98.27 98.27 33.21 3.24 36.45 61.82

Buildings 5,052.57 16.48$ 5,036.09 2,309.51 105.32 0.86 2,413.97 2,622.12 Plant & Machinery 99,561.56 71.21 1,001.11$ 98,631.66 29,289.32 2,454.77 64.97 31,679.12 66,952.54 Electrical Installations 1,892.38 124.20 22.77$ 1,993.81 923.10 71.35 994.45 999.36 Furniture & Fixtures 1,162.43 2.15 0.24 1,164.34 928.77 31.91 0.15 960.53 203.81 Trucks & Vehicles 476.42 0.26 9.22 467.46 318.79 20.32 6.85 332.26 135.20

Total 108,502.80 197.82 1,049.82 107,650.80 33,802.70 2,686.91 72.83 36,416.78 71,234.02

Intangible:

Goodwill * 1,933.97 - 1,933.97 1547.18 96.96 1,644.14 289.83

Total 110,436.77 197.82 1,049.82 109,584.77 35,349.88 2,783.87 72.83 38,060.92 71,523.85 Capital work-in-progress (at cost)

- - 18,012.08

Total 110,436.77 197.82 1,049.82 109,584.77 35,349.88 2,783.87 72.83 38,060.92 89,535.93 * Represents cost of acquisition of Coastal Papers Ltd. and its amalgamation '$ Sales and adjustments includes Rs 963.69 Lakhs being foreign exchange fluctuation gain in respect of long term foreign currency monetary items reduced from the cost of assets in accordance with AS11 Revised.

(Rupees in lacs) Schedule – 6 - Investments 30.09.2009 Total Quoted: Equity Shares of Rs.10/- each fully paid up:

96

Schedule – 6 - Investments 30.09.2009 Total -- Tamilnadu Newsprint & Papers Ltd (1000 Shares) 1.10 -- JK Paper Mills Ltd (100 Shares) 0.04 -- Seshasayee Paper and Boards Ltd (100 Shares) 0.08 -- The Sirpur Paper Mills Ltd., (100 Shares) 0.09 -- Star Paper Mills Ltd (100 Shares) 0.03 -- Rama News print & Papers Ltd (25 Shares) -- Kedia Distillery Ltd (2,12,800 Shares) 61.71 Equity Shares of Rs.2/- each fully paid up: --The West Coast Paper Mills Ltd (500 Shares) 0.18 -- Ballarpur Industries Ltd (300 Shares) 0.05 Equity Shares of Rs.1/- each fully paid up: -- ITC Ltd (1500 Shares) 1.09 -- Orient Paper and Industries Ltd (1000 Shares) 0.04 64.41 Unquoted : ( i ) 13,40,000 Shares of Rs.10/- each 1,538.37 fully paid up in Andhra Pradesh Gas Power Corporation limited ( ii ) Trust Securities: UTI Services Industries Fund-Dividend plan-payout 183.27 (Previously UTI- GSF Software) 321759.706 Units of @Rs.10.00 each ( iii ) Equity Shares: 30,000 Shares of Rs.10/- each 3.00 fully paid up in Somar Granites Pvt Ltd. 186.27 Total of Quoted & Unquoted Investments 1,789.05 Less Provision for diminution in the value of Investments 124.71 Total 1,664.34 Aggregate Value of Book value Market Value Quoted Investments 64.41 5.49 Unquoted Investments 1,724.64 -

(Rupees in lacs)

Schedule – 7 – Inventories 30.09.2009 Stores, Chemicals, Components, Packing materials, Spare Parts, Building Materials, Loose Tools & Scrap

3,711.57

Raw Materials 1,811.61 Materials-in-transit/ awaiting inspection 94.57 Work-in-process 2,283.94 Finished Goods 6,325.99 Total 14,227.68

(Rupees in lacs) Schedule – 8 – Sundry Debtors 30.09.2009 Secured:

97

Schedule – 8 – Sundry Debtors 30.09.2009 Considered Good 687.04 Unsecured and outstanding for more than 6 months: Considered good 115.99 Considered Doubtful 40.71 156.70 Other Debts-Considered good 2,692.81 2,849.51 Less: Provision for Doubtful Debts 40.71 Total unsecured Debtors 2,808.80 Total 3,495.84

(Rupees in lacs)

Schedule – 9 – Cash and Bank Balances 30.09.2009 Cash on hand 5.69 Cheques on hand With Scheduled Banks in Current Accounts [including Rs.14.56 lacs on account of unclaimed dividends (In the Year 2008-09 Rs.14.67 lacs)]

634.03

Deposit Accounts 195.77 Remittances-in-Transit 293.95 Total 1,129.44

(Rupees in lacs)

Schedule – 10 – Loans, Advances and Deposits 30.09.2009 (Unsecured considered good) Advances recoverable in cash or kind or for value to be received 3,256.37 Advance tax ( Net of Provisions) 31.95 MAT Credit Entitlement 1,600.39 Deposits with Customs, Port Trust and Excise Authorities 434.54 Other Deposits 549.00 Claims receivable 560.82 Total 6,433.16

(Rupees in lacs)

Schedule – 11 – Current Liabilities and Provisions 30.09.2009 Current Liabilities : Sundry Creditors - Capital 1,040.78 - Others 11,737.07 Advances from Customers 344.02 Unclaimed Dividends 14.56 Other Liabilities 643.64 Interest accrued but not due on Loans 651.69 14,431.76 Provisions : Leave Encashment 240.52 Gratuity 70.84 Equity Dividend Payable 128.77 Corporate Tax on Dividend 21.89 Total 14,893.78

98

(Rupees in lacs) Schedule 12 - Accretion / Decretion In Stocks Half year ended 30.09.2009 Accretion/Decretion in stocks i) Closing Stocks: a) Finished Goods 6,325.99 b) Work-in-Process 2,283.94 8,609.93 ii) Opening Stocks: a) Finished Goods 4,420.48 b) Work-in-Process 2,030.35 6,450.83 Accretion/(decretion) in Stocks 2,159.10 Adjustment for Excise Duty on Stocks (29.81) Total 2,129.29

(Rupees in lacs)

Schedule-13 – Other Income Half year ended 30.09.2009 Income from Investments 0.09 Profit on sale of Fixed Assets 267.78 Miscellaneous Income 117.84 Net income from sale of Carbon Credits - Claims 5.27 Interest 28.67 Provisions no longer required - Sundry Credit Balances written back 13.48 Total 433.13

(Rupees in lacs)

Schedule - 14 - Material Cost Half year ended 30.09.2009 Raw Materials Opening Stock 2,223.50 Add: Purchases 7,443.98 9,667.48 Less: Closing Stock 1,813.64 Consumption – Raw Materials 7,853.84 Total 7,853.84

(Rupees in lacs)

Schedule 15 – Staff Costs Half year ended 30.09.2009 Salaries, Wages & Bonus 2,252.15 Contribution to Provident and other funds 234.77 Workmen & Staff Welfare Expenses 240.49 Total 2,727.41

(Rupees in lacs)

Schedule-16 – Manufacturing Expenses Half year ended 30.09.2009 Spare parts, components, stores & packing material consumed 7,095.32

99

Schedule-16 – Manufacturing Expenses Half year ended 30.09.2009 Power & Fuel 2,976.13 Repairs & Maintenance - Buildings 61.20 - Machinery 448.56 Others 78.73 Total 10,659.94

(Rupees in lacs)

Schedule-17 – Other Expenses Half year ended 30.09.2009 Rent 72.38 Rates & Taxes 134.84 Insurance 136.45 Directors' Fees 3.25 Auditors' Remuneration 4.95 Cost Audit Fee 1.00 Commission and Discount on Sales 917.88 Forwarding, transportation and other sales expenses 433.06 Research & Development Expenses 61.38 Miscellaneous Expenses 383.06 Provision For Doubtful Debts & Advances 7.25 Loss on Assets Discarded 10.64 Total 2,166.14

(Rupees in lacs)

Schedule-18 – Interest and Finance Charges Half year ended 30.09.2009 Interest on term loans 1,329.78 Interest on Deposits 88.31 Other Interest 1.94 Bank and Finance Charges 221.96 Exchange Rate Loss / (Gain) 89.03 Total 1,731.02

SCHEDULE FORMING PART OF ACCOUNTS Schedule 19: Accounting policies and notes on accounts Annexure to and forming part of Balance Sheet as at and Profit & Loss Account for the half year ended 30th September, 2009:

I. Accounting Policies 1. Accounting Concepts Financial Statements are prepared on accrual basis under the historical cost convention and in accordance with the accounting standards specified in Sub-section 3(c) of Section 211 of the Companies Act, 1956. 2. Fixed Assets

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a) Fixed Assets are stated at cost less accumulated depreciation. Cost of acquisition of fixed assets is net of CENVAT/VAT and inclusive of freight, duties, taxes, incidental expenses including interest on specific borrowings and pre-operative expenses as allocated. b) Expenditure during construction/erection period is included under Capital Work-in-Progress and allocated to the respective fixed assets on completion of construction/erection. c) Goodwill is amortized over a period of 10 years. 3. Investments Investments are stated at cost, inclusive of all expenses relating to acquisition, provision for diminution in the market value of long term investments is made, if in the opinion of the Management such diminution is permanent in nature. 4. Inventories

Inventories are valued at the lower of the cost (net of CENVAT / VAT Credit) or Net realizable value (except scrap/waste which are valued at net realizable value). Cost is computed on average basis. Finished Goods and Work-in-Process include cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

5. Borrowing Costs

Borrowing cost is charged to Profit and Loss Account except cost of specific borrowing for acquisition of qualifying assets which is capitalized till the date of commercial use of the asset. 6. Impairment of Assets

The Company applies the test of impairment of its assets as provided in Accounting Standard (AS) – 28.

7. Intangible Assets Assets those are identifiable, non-monetary in nature and with no physical substance have been classified as

intangible Assets. Only those assets have been recognized as Intangible Assets, on which future economic benefit/s is / are probable and whose cost can be measured reliably. Assessment of probable future economic benefits has been made by the management on reasonable and supportive assumptions.

8. Revenue Recognition

a) Sales are inclusive of excise duty, Export incentives and net of trade and quantity discounts and rebates. b) Interest and dividend income from investments are accounted on accrual basis. c) Insurance and other claims/refunds are accounted for as and when admitted by appropriate authorities. d) Income relating to Certified Emission Reduction points (CERs) granted by UNFCCC on energy efficient measures are accounted as and when sold to outside third parties. e) Inter division transfers are eliminated in financial statements.

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9. Employee Benefits

(i) Defined Contribution Plans: Employee benefits in the form of Superannuation Fund, ESIC and Labour Welfare Fund are considered as defined contribution plans and the contributions are charged to the Profit and Loss Account of the year when the contributions to the respective funds are due. (ii) Defined Benefit Plans Company’s liabilities towards Provident Fund, Gratuity, Leave encashment are determined based on actuarial valuation using the projected unit credit method as on the date of the Balance Sheet. (iii) Actuarial gains/losses are immediately taken to profit and loss account and are not deferred. (iv) Payments made under the Voluntary Retirement Scheme are amortized to the Profit and Loss Account

over its pay back period.

10. Depreciation on Fixed assets a) Depreciation on Plant & Machinery of Units: APPM & CP and Buildings of Unit: CP are charged under straight line method applying the rates worked out in accordance with the provisions of Section 205(2) (b) of the Companies Act, 1956 prevalent in respective years of acquisition in respect of items acquired prior to 1.7.1986 and in accordance with Schedule XIV of the Companies Act, 1956 in respect of items acquired after 01.07.1986. b) Depreciation on other fixed assets is charged under written down value method in accordance with Schedule XIV of the Companies Act, 1956. 11. Deferred Revenue Expenditure

Expenditure other than expenditure on VRS (including expenditure on Research & Development) incurred upto

31st March, 2003 in respect of which benefit is expected to flow into future periods, is amortised over the expected period of benefit.

12. Foreign Currency Transactions Foreign currency assets and liabilities covered by forward contracts are stated at the forward contract rates while

those not covered by forward contracts are restated at rates ruling at the year end.

Exports/Imports are accounted at forward contract rates/exchange rates prevailing on the date of transaction.

Exchange fluctuations’ relating to fixed assets is adjusted in the cost of the asset upto the time of commissioning or putting to use. Thereafter, all such exchange fluctuations are recognized in the Profit and Loss Account. However, exchange fluctuations arising from long term currency monetary items relating to acquisition of depreciable capital assets from 1st April 2007 are added to / deducted from the cost of the said assets as the case may be. However, gain/loss on monetary items which are repayable / receivable within 12 months from the reporting period was charged to profit & loss account.

102

13. Financial Instruments

The Company uses derivative financial instruments such as forward contracts, currency swap to hedge certain currency exposures relating to the business operations of the Company present and anticipated. Generally, such contracts are taken for exposures materializing in the next 12 months.

II – Notes on Accounts

(Rupees in lacs) 1. Estimated amount of contracts remaining to be executed on Capital Account and not

provided for (net of advances & Letters of Credits opened) Half year ended 30.09.2009

a) Mill Development Plan 2,870.71 b) Others 24.27

(Rupees in lacs) 2. Contingent Liabilities: Half year ended

30.09.2009 a) Unexpired Bank Guarantees and letter of credit 1,074.39 b) Corporate guarantee given to Forest Department of State Government of Andhra Pradesh

(net of Rs.100 lacs deposited under protest) 1,472.09

c) Claims against the Company not acknowledged as debts 218.85 d) Demands raised by EPDC of AP Ltd. For surplus Power supplied by APGPCL disputed

by the Company. An amount of Rs. 76.98 Lacs paid under protest, (Previous year Rs.72.47 lacs) is grouped under Loans & Advances. The appeal filed by APTRANSCO is pending before A.P.High court in which other companies similarly placed are made respondents

88.63

e) Demands of statutory authorities disputed by the Company in appeals with higher authorities in respect of:

i) Income Tax 264.27 ii) Central Excise & Service tax. 1,513.51 iii) Sales Tax 262.35 iv) Vacant Land Tax 210.88

As against above demands an amount of Rs.689.42 Lakhs paid under protest is included in Loans & Advances. In respect of items (b), (c), (d) & (e), the Company has been advised by the Counsel that the demands are not sustainable in law.

3. Pursuant to the notification dated 31st March 2009 of the Ministry of Corporate Affairs, Government of India,

the Company had opted for accounting the exchange differences arising on reporting of long term foreign currency monetary items in line with the Companies (Accounting Standards) Amendment Rules 2009, on Accounting Standard AS 11 with effect from 1st April 2007. Due to change in the Accounting Policy, the value of Fixed Assets has been reduced by Rs. 963.69 lacs and charge for depreciation is less by Rs. 27.27 lacs and consequently, profit for the period is less by Rs. 936.42 lacs

4. Diminution in value of investment held in UTI service industries fund (formerly UTI-GSF software) is of Rs.

106.37 Lakhs against which provision made in earlier year of Rs. 60 Lakhs is available. In the opinion of the Management, the balance diminution is temporary in view of the subsequent market appreciation.

5. Related parties in terms of AS-18 issued by the Institute of Chartered Accountants of India a. Promoters:

1. Individuals

1. Shri Laxmi Niwas Bangur 2. Smt. Alka Bangur

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3. Ms. Sheetal Bangur 4. Shri Shreeyash Bangur 5. Shri Yogesh Bangur

2. Bodies Corporate

1. Digvijay Investments Ltd. 2. Amalgamated Development Ltd. 3. Apurva Export Pvt. Ltd. 4. M B Commercial Co. Ltd. 5. Maharaj Shree Umaid Mills Ltd.* 6. Mugeeram Ramcoovar Bangur Charitable & Religious Co. 7. Placid Ltd. 8. Shree Krishna Agency Ltd. 9. The General Investment Company Ltd. 10. The Kishore Trading Co. Ltd. 11. The Peria Karamalai Tea & Produce Co. Ltd. 12. The Swadeshi Comml Co. Ltd.

*No transactions during the period.

b. Key Management Personnel:

1. Shri M.K. Tara, Managing Director 2. Ms Sheetal Bangur, Director (Comml.) 3. Shri Shreeyash Bangur, Director (Corporate) 4. Shri P.K. Suri, Director (Operations)

c. Others - Enterprises in which Promoter Directors hold substantial interest:

Samay Books Ltd Transactions carried out with related parties

(Rupees in lacs) Nature of Transaction

Promoters Key

Management Personnel

Others-Enterprises in which Promoter

Directors hold Substantial Interest

Relative of Key

Management Personnel

Total

1. Remuneration - 83.97 - - 83.97 2. Sale of Goods 189.02 - - - 189.02 3. Purchase of Goods - - 145.47 - 145.47 4. Expenses 1.31 - - - 1.31

(Rupees in lacs)

6. Earnings per Share(EPS) Half year ended 30.09.2009

a) Net profit as per Profit and Loss Account 2,585.23 b) Weighted Average number of equity shares used as denominator for calculating EPS Nos. 25,733,555

Earnings Per Share: Basic (Rs.) Diluted (Rs.)

10.05 10.05

7. As in earlier years, the company has been recognising Deferred tax liability at the effective rate applicable for

the respective years. The applicability or otherwise of the effective rate instead of the standard rate is a matter of reference in a writ petition pending before the Calcutta High Court. The matter will be reviewed on disposal of the writ petition.

104

8. According to technical assessment, there is no impairment in the carrying cost of cash generating units of the company in terms of Accounting standard 28 (AS-28) issued by the Institute of Chartered Accountants of India.

(Rupees in lacs)

9. Capital Work-in-Progress comprises of: Half year ended 30.09.2009 Civil works under Construction 1,846.71 Plant under erection 10,866.59 Advance to Suppliers / Contractors 743.53 Unallocated Expenditure pending allocation to fixed assets 4,555.25 18,012.08

(Rupees in lacs)

10. Misc. expenditure to the extent not written off or adjusted comprises of :-

Half year ended 30.09.2009

Payments under Voluntary 71.35 Retirement Scheme - Total 71.35

(Rupees in lacs)

11. Managing/Whole time Directors' Remuneration : Half year ended 30.09.2009 Salary and Allowances 66.82 Contribution to Provident & other Funds 13.06 Other perquisites 4.09 Total 83.97

12. Provision for income tax has been made in accordance with Section 115JB of the Income Tax Act, 1961.

However, management expects that it would be in a position to pay normal tax within the period specified under the Income Tax Act,1961 and hence MAT credit has been recognised

13. The company has imported certain capital goods for mill development under EPCG scheme, availing

concessional rate of customs duty in respect of which, the company has an export obligation of Rs. 65,091 lacs to be fulfilled over a period of 8 years commencing from 2006-2007.

14. At the Annual General Meeting held on 25th September, 2009, the shareholders approved rights issue of

7,018,242 Equity Shares of Rs.10/- each at a premium of Rs. 40/- per share in the ratio of 3:11 aggregating to Rs. 3,509.12 lacs along with equivalent number of warrants in the ratio of 1:1 to each equity share allotted in the rights issue to be converted into the equity share of Rs.10/- each at a premium of Rs. 40/- per share. The offer document is being filed with SEBI.

105

ACCOUNTING AND OTHER RATIOS

Sl. No. Particulars 30-09-2009 31-03-2009 31-03-2008

1 Earnings Per share (Rs.) 10.05 7.37 6.44

2 Return on Networth 5.83% 4.55% 3.99%

3 Net Asset Value Per Share (Rs.) 172.19 161.87 160.92

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CAPITALISATION STATEMENT

(Rupees in lakhs) Particulars Pre-issue as at 30-9-2009 As Adjusted for issue

Short-Term Debt 20,976.81 20,976.81

Long Term Debt 47,450.73 47,450.73

Shareholders’ Funds

Share Capital 2,573.36 3,275.18

Reserves 41,809.63 44,616.93

Total Shareholders’ Funds 44,382.99 47,892.11

Long Term Debt/Equity 1.07:1 0.99:1

Notes

1. Short term debts are considered as debt having original repayment term not exceeding 12 months.

2. Long term debt is considered as debt other than short term debt as defined above.

3. The figures disclosed above are based on the Summary Financial Statement of the Company as at 30th September, 2009.

4. The above statement should be read with the Significant Accounting Policies and Summary of Selected

Notes to Accounts, as appearing in Annexure to this report.

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CERTAIN OTHER FINANCIAL INFORMATION Information as required by Government of India, Ministry of Finance, Circular No. F2/5/SE/76 dated February 5, 1977 as amended vide their circular of even number dated March 8, 1977 is given below:

1. Working Results of the Company for the period from 1st April 2009 to 31st December 2009:-

Particulars Rs. in lacs Net sales/ Income from Operations 44,625.58Other Income 478.69Total Income 45,104.27 Profit before Depreciation, Interest and Taxes 10,799.36 Interest 2,483.27Provision for Depreciation 4,169.62Profit Before Tax 4,146.47Provision for Tax 623.83Net profit 3,522.64

As per the limited review of financial results by the Statutory Auditors and disclosure made to Stock Exchanges under Clause 41 of Listing Agreement

1. Save as stated elsewhere in the Letter of Offer, there are no material changes and commitments which are likely to affect the financial position of the Company since September 30, 2009.

2. The Issue price has been arrived at in consultation between the Issuer and the Lead Manager. 2. Material Changes and Commitments, if any affecting financial position of our Company. Except as disclosed in the section entitled “Material Developments” beginning on page 124 of this Letter of Offer there are no Material changes and commitments, if any affecting financial position of our Company. 3. Week-end prices for the last four weeks, current market price; and highest and lowest prices of equity

shares during the period with the relative dates. For details in connection with the week-end prices for the last four weeks, current market prices, and highest and lowest prices of our Equity Shares, please refer to the section entitled “Market Price Information” beginning on page 108 of this Letter of Offer.

108

MARKET PRICE INFORMATION The high and low closing prices recorded on the Stock Exchanges for the preceding three Fiscals and the number of Equity Shares traded on the days of high and low prices were recorded are stated below: The high and low prices and volume of Equity Shares traded on the respective dates during the last three years are as follows: BSE: Fiscal ended on:

High (Rs.) Date of High Volume on date of High

Low (Rs.) Date of Low Volume on date of Low

Closing Price for the Fiscal

31.03.2007 154.90 25.04.2006 54,792 79.85 21.02.2007 21,209 89.95 31.03.2008 123.70 10.01.2008 45,678 69.75 24.03.2008 4,919 72.65 31.03.2009 97.65 22.04.2008 6,131 35.00 25.02.2009 968 39.45

(Source: BSE website) NSE: Fiscal ended on:

High (Rs.) Date of High Volume on date of High

Low (Rs.) Date of Low Volume on date of Low

Closing Price for the Fiscal

31.03.2007 153.75 25.04.2006 49,818 75.00 14.03.2007 6,780 89.9531.03.2008 124.00 10.01.2008 31,731 70.00 24.03.2008 13,202 71.8531.03.2009 96.00 17.04.2008 3,979 33.30 05.02.2009 395 41.00

(Source: NSE website)

The high and low prices and volume of Equity Shares traded on the respective dates during the last six months are as follows: BSE:

Month High (Rs.) Date of High Volume on date of High

Low (Rs.) Date of Low Volume on date of Low

Closing Price for the month

Aug. 2009 76.90 07.08.2009 497 66.05 21.08.2009 11,626 73.75 Sep. 2009 75.85 01.09.2009 3,301 68.45 11.09.2009 771 74.95 Oct. 2009 93.00 26.10.2009 15,120 69.05 15.10.2009 1,151 78.10 Nov. 2009 86.95 11.11.2009 248 73.00 03.11.2009 2,261 80.60 Dec. 2009 129.70 24.12.2009 161,639 80.00 01.12.2009 5,618 108.05 Jan. 2010 124.00 11.01.2010 41,990 90.00 29.01.2010 8,919 94.00

(Source: BSE website) NSE:

Month High (Rs.) Date of High Volume on

date of HighLow (Rs.) Date of Low

Volume on date of Low

Closing Price for the month

Aug. 2009 77.00 06.08.2009 372 65.85 21.08.2009 9,168 71.95 Sep. 2009 75.75 03.09.2009 3,150 68.05 14.09.2009 1,617 74.45 Oct. 2009 92.90 26.10.2009 22,293 70.00 07.10.2009 905 78.15 Nov. 2009 93.50 09.11.2009 1,386 75.30 03.11.2009 1,863 81.05 Dec. 2009 132.00 24.12.2009 218,779 77.00 01.12.2009 2,730 108.15

109

Month High (Rs.) Date of High Volume on

date of HighLow (Rs.) Date of Low

Volume on date of Low

Closing Price for the month

Jan. 2010 124.90 11.01.2010 89,172 90.00 29.01.2010 7,565 94.65 (Source: NSE website)

The week ended prices of the Equity Shares on the BSE and the NSE in the last four weeks together with the high and low prices are set out below :-

BSE NSE Week end on Closing Price High Low Closing Price High Low

29.01.2010 94.00 108.90 90.00 94.65 109.50 90.00 05.02.2010 98.10 105.50 93.50 98.80 106.00 90.30 11.02.2010 95.70 102.75 95.00 96.00 103.00 95.00 19.02.2010 119.20 123.40 98.70 119.75 123.40 96.30

(Source: BSE website & NSE website)

The Closing market price of the Equity Shares of our Company on February 19, 2010 was Rs. 119.20 & Rs. 119.75 on the BSE & NSE respectively.

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SECTION VI - LEGAL AND OTHER INFORMATION

OUTSTANDING LITIGATIONS AND DEFAULTS

Except as described below, there are no outstanding litigations, suits or civil proceedings, or criminal proceedings, or prosecutions or tax liabilities, irrespective of whether specified in Schedule XIII of the Act, against our Company and there are no defaults, non-payment or over dues of statutory dues, over dues to banks/ financial institutions, defaults against banks/ financial institutions, defaults in dues payable to holders of any debentures, bonds, or fixed deposits defaults in creation of full security as per terms of issue/ other liabilities, proceedings initiated for economic/ civil/ and other offences (including past cases where penalty may or may not have been awarded) that would result in a material adverse effect on the business in terms of the disclosure required under Part- E of Schedule VIII of SEBI ICDR. None of the aforesaid persons/ companies is on RBI’s list of wilful defaulters. No disciplinary action has been taken by the SEBI/ Stock Exchanges against our Company, Directors of our Company and Promoters. Neither the Company nor the Promoters have defaulted on any loan payments as on the date of this Letter of Offer. I. Pending matters which, if they result in adverse outcome, would materially and adversely affect the

operations or the financial position of our company:

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) The Andhra Pradesh Paper Mills Ltd Vs State of Andhra Pradesh & others.

High Court of Andhra Pradesh, Hyderabad.

Our Company had entered into an agreement dated 20/7/1977 with the State of Andhra Pradesh for extracting bamboo from the forests for a period of twenty years commencing from 1/10/1975 and for hard wood. One of the clauses of the agreement related to levy of royalty for the quantity of bamboos extracted by Mills. The royalty payable was Rs.60/- per tonne of bamboos felled and collected from 1/10/1975 subject to revision from time to time at an interval not exceeding five years. The Govt. revised the rate of royalty from Rs. 60/- to Rs.210/- per tonne w.e.f. 1/10/1980 with a graduated increase every year. For hardwood the rate was revised from Rs 30 to Rs.100/- per tonne for the year 1980-81 to Rs.152/- per tonne in 1984-85. Our Company challenged the revision of rate of royalty in

High Court has stayed the demand on condition that company deposits Rs. 1.00 Crore and furnish guarantee for the balance. The case is still pending.

1,561.31

111

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) the High Court. The High Court dismissed the writ petition filed by our Company. Being aggrieved by the said judgment our Company preferred appeal before the Supreme Court. The Supreme Court dismissed the appeal vide order dated 25/10/2002. After dismissal of the appeal by the Supreme Court, our Company paid the differential royalty amounting to Rs. 5,30,10,329/- The DFO Logging Division Rajahmundry raised a demand on 1/10/2004 for payment of interest @ 15% on differential royalty for the period from 1/11/1980 to 31/3/1986. Our Company has challenged the demand of the DFO in the High Court.

The Andhra Pradesh Paper Mills Ltd, Vs. Commissioner of Central Excise, Visakhapatnam.

Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Bangalore

APPM is an integrated plant meant for manufacture of paper and paperboards, during the course of which pulp emerges at an intermediate stage. Pulp attracts Nil rate of duty in the Tariff itself. As the pulp is consumed in the manufacture of dutiable final product of paper and paperboard, APPM avails CENVAT credit on the quantity of inputs consumed in the manufacture of final goods without any restriction. We are maintaining separate books of account for exempted goods as specified under CENVAT credit rules. If separate books are not maintained, 10% of the CENVAT credit has to be reversed. The Department is insisting also to maintain separate inventory for all the exempted goods, failing

The case is still pending. Personal hearing has been posted on 20.05.2010.

761.78

112

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) which they are demanding 10% reversal of CENVAT credit. Hence the contention. The demand was raised for the period from August 2002 to September 2007.

The Andhra Pradesh Paper Mills Limited Vs. Commissioner of Central Excise , Vishakhapatnam

Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Bangalore

APPM is an integrated plant meant for manufacture of paper and paperboards, during the course of which pulp emerges at an intermediate stage. Pulp attracts Nil rate of duty in the Tariff itself. As the pulp is consumed in the manufacture of dutiable final product of paper and paperboard, APPM avails CENVAT credit on the quantity of inputs consumed in the manufacture of final goods without any restriction. We are maintaining separate books of account for exempted goods as specified under CENVAT credit rules. If separate books are not maintained, 10% of the CENVAT credit has to be reversed. The Department is insisting also to maintain separate inventory for all the exempted goods, failing which they are demanding 10% reversal of CENVAT credit. The Commissioner had issued a show cause notice to our Company raising a preliminary demand for 10% reversal of CENVAT credit. After personal hearing, the Commissioner vide his orders dated 19.10.2009 confirmed the demand for Rs. 1,825.13 lacs and further levied penalty of Rs. 185.04 lacs aggregating to Rs. 2,010.17 lacs. The Company has preferred appeal before the CESTAT, Bangalore.

The case is still pending before the CESTAT, Bangalore for personal hearing.

2,010.17

113

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) The demand was raised for the period October, 2007 to September, 2008

The Andhra Pradesh Paper Mills Limited Vs. Commissioner of Central Excise, Visakhapatnam

Commissioner Central Excise, Visakhapatnam

APPM is an integrated plant meant for manufacture of paper and paperboards, during the course of which pulp emerges at an intermediate stage. Pulp attracts Nil rate of duty in the Tariff itself. As the pulp is consumed in the manufacture of dutiable final product of paper and paperboard, APPM avails CENVAT credit on the quantity of inputs consumed in the manufacture of final goods without any restriction. We are maintaining separate books of account for exempted goods as specified under CENVAT credit rules. If separate books are not maintained, 10% of the CENVAT credit has to be reversed. The Department is insisting also to maintain separate inventory for all the exempted goods, failing which they are demanding 10% reversal of CENVAT credit. The Commissioner had issued a show cause notice dt. 03.11.2009 (received by us on 06.11.2009) to our Company raising a preliminary demand for 10% reversal of CENVAT credit. The demand was raised for the period from October 2008 to September 2009.

The case is still pending. No personal hearing has been fixed.

1,065.93

114

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) The Andhra Pradesh Paper Mills Limited Vs. Commissioner of Central Excise, Visakhapatnam

Commissioner Central Excise, Visakhapatnam

The issue relates to clearance of paper in reel form to paper cut to size unit at SN Palem for conversion into reams. The goods are cleared in reel form at the transaction value. The Department is insisting to pay duty as per CAS4 method (115% upto 04.08.2003 and 110% from 05.08.2003) of the cost of production and demanding duty on such value. We have submitted related cost sheets for this purpose to the department. Afterwards, no action is being initiated by the department. The demand was raised for the period July 2000 to March 2009.

No Personal hearing has been fixed for the matter which is being contested by our Company.

1,114.29

The Andhra Pradesh Paper Mills Limited Vs. Commissioner of Central Excise, Visakhapatnam

Commissioner Central Excise, Visakhapatnam.

The Department had issued show cause notices dated 03.04.2006, 04.12.2006 & 02.07.2007 contending that our Company had made irregular availment of CENVAT Credit off duty paid on inputs used in the manufacture of the newsprint. Our Company was required to show cause as to why the liability of an amount equal to 10 % of the value of the exempted product amounting to Rs. 491.04 lacs, Rs. 277.56 lacs & Rs. 534.05 lacs aggregating to Rs. 1,302.65 lacs should not be levied. The demand was raised for the period from March 2005 to February 2007.

No Personal hearing has been fixed for any of the matters covered under the show cause notices which are being contested by our Company.

1,302.65

Union of India Vs. The Andhra Pradesh Paper Mills Ltd.

Supreme Court of India, New Delhi

We are clearing newsprint in reel form under chapter 48010090 which attracts NIL rate of duty. The Department’s contention is that newsprint in rolls or sheets are only covered under 4801 and newsprint in

Supreme Court admitted the appeal on 28-08-2009. The case is pending.

684.51

115

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) CESTAT - Bangalore

reels are covered under 4823.90 The Department had contended that our Company had removed quantity of newsprint in reel form from August 2003 to July 2004 valued at Rs. 4,278.19 lacs which has resulted in non-payment of duty of Rs. 684.51 lacs. Commissioner of Central Excise dropped proceedings in respect of interest and penalty. Our Company filed an appeal before CESTAT which upheld our appeal and determined the classification under 4801.00 vide order dated 18-05-2006. Aggrieved with such order of CESTAT, the Commissioner filed an appeal with the Supreme Court in November, 2006. The same Commissioner has also filed an appeal before the CESTAT for setting aside his order dated 26.09.2005 and uphold the allegation made in the show cause notice. Our Company has contested the appeal of the department before CESTAT. The demand was raised for the period August 2003 to July 2004.

The appeal for setting aside the order dated 26-09-2005 of the Commissioner is pending before CESTAT

The Andhra Pradesh Paper Mills Limited Vs. Commissioner of Central Excise, Visakhapatnam

Commissioner of Central Excise, Visakhapatnam

The Department had issued a show cause notice dated 03.04.2007 contending that our Company had removed quantity of newsprint in reel form from 01.03.2006 to 20.06.2006 valued at Rs. 1,586.02 lacs which has resulted in nonpayment of duty of Rs. 258.84 lacs. The Department’s contention is that newsprint

No Personal hearing has been fixed for the matter covered under the show cause notice which is being contested by our Company.

258.84

116

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) in reels cleared by our Company should be classified under Tariff Item 4823.90. The demand was raised for the period from March 2006 to June 2006.

The Andhra Pradesh Paper Mills Limited Vs. Commissioner of Central Excise, Visakhapatnam

Supreme Court of India, New Delhi/ High Court of Andhra Pradesh

The Company had manufactured paper out of pulp made of gunny bags and claimed concessional rate of duty. Department contended that old gunny bags were nothing but rags and the pulp made out of the same was rag-pulp and not eligible for concession. The Commissioner had dropped all the Show Cause Notices issued based on subsequent clarifications given by CBEC Board and confirmed a demand of Rs. 0.49 lakhs towards duty, against which, Revenue preferred an Appeal to CESTAT. CESTAT had partially confirmed the order for which, the Company had paid under protest Rs. 90.89 lakhs and preferred an Appeal before the Hon’ble Supreme Court. The Appeal was admitted in the Hon’ble Supreme Court. Against the CESTAT order, the Revenue preferred an Appeal before the Hon’ble High Court praying to modify CESTAT order and recover differential duty of Rs. 1,517.18 lakhs. The demand was raised for the period from April 1994 to May 2001.

Matter pending before High Court and Supreme Court.

1,517.18

Andhra Pradesh Transmission Corporation (APTRANSCO)

Supreme Court of India, New Delhi

Due to power shortage in the State the Andhra Pradesh State Electricity Board (APSEB) imposed power

Supreme court directed that matter be tagged with civil appeal no. 4569/03

Amount not ascertainable

117

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) Vs The Andhra Pradesh Paper Mills Ltd.

cuts on industries and liberally permitted captive power generation in parallel to grid power and to avoid hardship to the industries. APTRANSCO addressed a letter to the Andhra Pradesh Electricity Regulatory Commission (APERC) to permit it levy of Grid Support Charge at Rs. 165 per KVA on High Tension Industrial consumers for captive generating units operating in parallel with APTRANSCO. The APTRANSCO filed an application before APERC on 23.9.99 for levy of Grid Support Charge on HT Industrial consumers for captive generating units operating in parallel with APTRANSCO’s Grid. The APERC after hearing all the parties concerned observed that the industries operating Captive Power Plant (CPP) in parallel with the Grid derive the following benefits of inter connection with the Grid, a) the grid provides the

required fault level in industrial plant for starting large motors in the industry and also provides the initial active and reactive components of starting current.

b) Whenever there is a large load throw off or incidence in the industry, Grid initially absorbs the shock and minimizes the chances of tripping of CPP.

c) The high fault level offered by the Grid acts as a supporting system for successful operation of CPPs in the industry in terms of electrical performance

The case is still pending.

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Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) d) The grid also helps in

stabilizing the fluctuating loads like those in steel mills and arc furnaces

The APERC after examining the alternatives on the Grid Support Charges, approved the proposal of the APTRANSCO to levy Grid Support charges where parallel operations of CPP is permitted, on the difference between the total capacity of CPP in KVA and the contract maximum demand with the licensee at the rate equal to 50% of the prevailing Demand Charge for HT consumers. Our Company preferred an appeal before the High Court of Andhra Pradesh,. The High Court vide judgment dated 2/5/2003 held that the Commission has no power to levy Grid Support charges, that the order is vitiated by malice in law and that the levy of Grid Support charges are unreasonable and arbitrary and allowed the appeal of our Company. The APTRANSCO has filed appeal before the Supreme Court challenging the judgment of the High Court which is pending.

Andhra Pradesh Transmission Corporation (APTRANSCO) Vs The Andhra Pradesh Paper Mills Ltd.

Supreme Court of India, New Delhi

The Andhra Pradesh Gas Power Generation Corporation Ltd. (APGPCL) was established for the purpose of generation of electricity for the use and/or consumption by the shareholders. Our Company is also shareholder in APGPCL. Memorandum of understanding was entered into by the APSEB, the APGPCL and the shareholders for the sharing

Supreme Court directed that the Bank Guarantee submitted be kept alive. The case is still Pending

117.73

119

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) of electricity generated by APGPCL and for wheeling of the electricity to the industrial units by APSEB at a specific charge. APTRANSCO filed an application before APERC for fixing the wheeling charges @ Re. 1/- per unit. The Andhra Pradesh Electricity Regulatory Commission (APERC) vide order dated 24.3.02 determined the wheeling charges for the year 2002-03 at Rs.0.50 per unit in cash plus compensation for system losses at 28.4% of energy input by the project developer into the licencee’s grid. Our Company preferred an appeal before the High Court of A. P challenging the order of APERC. The High Court vide judgment dated 18/4/2003 was pleased to set aside the order-dated 24/3/02 of the APERC. APTRANSCO has filed appeal before Supreme Court challenging the judgment of the High Court.

The Andhra Pradesh Paper Mills Ltd. Vs. Assistant Commissioner of Income Tax.

ITAT, Hyderabad Our Company had claimed deduction in respect of pre-closure premium paid on account of repayment of loans borrowed from Banks. Our Company had claimed deduction of Rs. 511.01 lacs for Assessment Year 2001-02 and Rs. 121.00 lacs for the Assessment Year 2003-04 and Rs. 401.98 lacs for Assessment Year 2004-05. The Commissioner of Income Tax (CIT) (Appeals) upheld the order of assessing officer for the Assessment Year 2001-2002 and Assessment Year 2003-04, but allowed Company’s appeal for Assessment Year

ITAT in its order dated 04-11-2009 has ruled in favor of our Company involving an amount of Rs. 121 lacs. The appeals in respect of Assessment Year 2001-2002 & Assessment Year 2004-2005 involving an aggregate amount of Rs. 555.68 are pending

555.68

120

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) 2004-05. The Assessing Officer for the Assessment year 2004-05 had allowed premium of Rs. 357.30 lacs out of the total claim of Rs. 401.98 lacs while computing the taxable income, thus disallowing net amount of Rs. 44.67 lacs. Our Company preferred an appeal before the Tribunal for Assessment Year 2001-02 and Assessment Year 2003-04. The Department went on appeal for the Assessment Year 2004-05. The aggregate amount involved in the appeals before ITAT is Rs. 676.68 lacs.

Assistant Commissioner of Income Tax Vs. The Andhra Pradesh Paper Mills Ltd.

ITAT, Hyderabad/ CIT (Appeals)

Our Company claimed deduction under section 80IA for the Assessment Years 2004-05, 2005-06, 2006-07 and 2007-08 and the total claim for all the three years is Rs. 3,530.50 lacs. The Assessing Officer rejected the claim stating that boiler and power units are not separate undertakings. Our Company preferred an appeal before CIT (Appeals). The CIT (Appeals) for Assessment year 2004-05, 2005-06 and 2006-07 based on the decision rendered in Sirpur Paper Mills Ltd. West Coast Paper Mills Ltd. allowed the claim in Company’s favour. Aggrieved by the order, the Department preferred an appeal before Income-tax Tribunal and for Assessment year 2007-08, our Company’s appeal is pending before the CIT (Appeals).

The case before ITAT for Assessment Years 2004-05, 2005-06 and 2006-07 involving an amount of Rs. 2,739.22 lacs is pending and the case before CIT (Appeals) for the Assessment Year 2007-08 involving an amount of Rs.791.28 Lacs is pending. The aggregate amount involved in all the appeals is Rs. 3,530.50 Lacs.

3,530.50

The Andhra Pradesh Paper Mills Ltd. Vs. Assistant Commissioner of Income Tax.

ITAT, Hyderabad /CIT (Appeals)

Our Company during the Assessment Years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 claimed depreciation on the good will paid to CPL

The ITAT has upheld our Company’s contention vide order dated 4-11-2009 and allowed

743.64

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Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) treating goodwill as an “intangible asset”. The Commissioner passed an order u/s 263 of Income Tax, Act on the ground that there is no provision in the Income Tax Act, which allows benefit of depreciation on goodwill and denied the same for Assessment Year 2002-03 which was allowed by the Assessing Officer. Aggrieved by the order, our Company preferred an appeal before ITAT. For the later years, the assessing officer disallowed the claim on the same ground as adopted by the Commissioner. Our Company filed appeal for Assessment Years 2003-04, 2004-05, 2005-06 and 2006-07 before the CIT- Appeals who upheld the order of the assessing officer. Being aggrieved by the CIT-Appeals our Company has preferred appeal before Income Tax Appellate Tribunal. For Asst. Year 2007-08 the Assessing Officer has vide his orders dated 21.12.2009 disallowed the Company’s claim for Rs, 114.73 lacs. The aggregate amount involved in the appeals before ITAT is Rs. 1,589.75 lacs.

deduction for Assessment Year (AY) 2002-03 and AY 2003-04 involving an amount of Rs. 483.49 and Rs. 362.62 lacs respectively and aggregating to Rs. 846.11 lacs. The appeals in respect of the Assessment years 2004-05, 2005-06 and 2006-07 is pending before ITAT, Hyderabad involving an aggregate amount of Rs. 628.91 lacs. For Asst. Year 2007-08, our Company preferred an appeal before Commissioner (Appeals) involving an amount of Rs. 114.73 lacs. The aggregate amount in the appeals before the ITAT and the Commissioner (Appeals) is Rs. 743.64 lacs.

Assistant Commissioner of Income Tax Vs. The Andhra Pradesh Paper Mills Ltd.

ITAT, Hyderabad The Govt. of Andhra Pradesh enhanced the royalty payable by APPM on purchase of forest produce for the period 1980-81 to 1984-85. Our Company disputed the liability but however, the Supreme Court vide its order dated 25.10.2002 confirmed the demand raised by the Government. During the pendency of litigation, our Company provided interest on the arrears payable in the books of accounts. Our

The ITAT has upheld our Company’s contention vide order dated 15-02-2008 for Assessment Year 2002-2003 and 4-11-2009 for Assessment Year 2003-2004 involving an amount of Rs. 173.34 lacs and Rs. 149.08 lacs respectively, aggregating to Rs. 322.42 lacs. The

332.84

122

Parties Adjudicating Authority

Brief particulars of case Status Amount involved

(Rs. in lakhs) Company filed petition before Hon’ble High Court to decide the date from which interest is payable as the matter is subjudice. The Assessing Officer disallowed the expenditure for Assessment Years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, and 2006-07. The CIT (Appeals) had allowed the expenditure for Assessment Years 2001-02, 2002-03, 2004-05, 2005-06 and 2006-07. Aggrieved by the orders of the CIT (Appeals), revenue has preferred appeal before the ITAT. The CIT (Appeals) has disallowed the expenditure for Assessment Year 2003-2004 for which our Company has preferred appeal before ITAT. The aggregate amount involved in the appeals before the ITAT is Rs. 655.26 lacs.

appeals in respect of the Assessment years 2001-2002, 2004-2005, 2005- 2006 and 2006- 2007 is pending, involving an aggregate amount of Rs. 332.84 lacs.

The Andhra Paper Mills Limited Vs. Union of India and Institute of Chartered Accountants of India

High Court of Calcutta

The Institute of Chartered Accountants of India prescribed Accounting Standard 22 with effect from 01.04.2001. The same has been challenged before the High Court. Our Company has contended that Accounting Standard from retrospective effect is bad and violative of Articles, 14, (19) (g) and 265 of the Constitution of India.

The Case is still pending.

Amount not ascertainable.

II. Matters which are pending or which have arisen in the immediately preceding ten years involving

i. Issues of moral turpitude or criminal liability on the part of our company – None ii. Material violation of statutory regulations by our company – None iii. Economic offences, where proceedings have been initiated against our company – None

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GOVERNMENT AND OTHER APPROVALS

We have received the necessary consents, licenses, permissions and approvals from the Government of India, relevant state governments and various governmental agencies required for our present business and except as mentioned below in the Letter of Offer, no further approvals are required for carrying on our present business. It must be distinctly understood that, in granting these approvals, the Government of India does not take any responsibility of our financial soundness or for the correctness of any of the statements made or opinions expressed in this behalf. In view of the approvals listed below, we can undertake this Issue and our current business activities and that no further major approvals from any governmental or regulatory authority or any other entities are required to undertake the Issue or continue our business activities. Unless otherwise stated, these approvals are all valid as of the date of this Letter of Offer.

I. Approvals related to the Issue

1. Pursuant to the resolution passed by the Board of Directors at the meeting held on 31st July, 2009, the Board of Directors have approved the Issue and allotment of Equity Shares with detachable Warrants to the eligible equity shareholders of our Company with a right to renounce.

2. Pursuant to the resolution passed under section 81(1A) of the Companies Act, 1956 at the Annual General Meeting of our Company held on 25th September, 2009, the shareholders have approved the Issue and allotment of Equity Shares with detachable Warrants to the eligible equity shareholders of our Company with a right to renounce.

3. In-principle approval from the Bombay Stock Exchange Limited dated December 8, 2009 4. In-principle approval from the National Stock Exchange of India Limited dated December 16, 2009 5. Pursuant to the Shareholders Agreement, our Company has obtained the approval of IFC, DEG and

Finnfund for the Issue. However, IFC while granting approval, inter alia, for the Rights Issue vide its letter dated 28th July, 2009 had stated that they would not participate in the Rights Issue.

6. FIPB vide its Letter dated 11th December 2009 approved the proposal of our Company to issue rights shares with detachable warrants to Non Residents.

7. SEBI vide its Letter dated 16th February 2010 granted relaxation from Rule 19(2)(b) of Securities Contract (Regulations) Rules 1957 for listing of detachable warrants.

II. Approvals pending and applied for by our Company: 1. Our Company has applied for clearance under the environmental laws vide its letter dated 23rd August,

2007 to the Ministry of Environment and Forest, New Delhi for operating additional paper machine with the capacity of 67,000 TPA. The Ministry of Environment and Forest, New Delhi has forwarded the application vide its letter dated 31st March, 2008 to State Environment Appraisal Committee. The State Environment Appraisal Committee vide its letter dated 4th July, 2009 has advised our Company to submit Environment Impact Assessment Report. As advised by the State Environmental Appraisal Committee, the Company had submitted Environment Impact Assessment Report to the Government in November, 2009 and the Environmental clearance is expected before commencement of start-up trials and commercial production of additional paper machine (PM VI) which is expected by end March, 2010.

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MATERIAL DEVELOPMENTS

In the opinion of our Board, there have not arisen since the date of the last financial statements disclosed in this Letter of Offer, any circumstances that materially or adversely affect or are likely to affect our profitability taken as a whole or the value of our assets or our ability to pay our material liabilities within the next 12 months otherwise than as disclosed in this Letter of Offer which will impact our performance & Prospects.

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OTHER REGULATORY AND STATUTORY DISCLOSURES

Authority for the Issue This Issue is being made pursuant to a resolution passed by the Board of Directors of our Company under section 81(1)(A) of the Companies Act at its meeting held on 31st July, 2009. The Issue has also been approved by the shareholders of our Company at the Annual General Meeting of our Company held on 25th September, 2009. Pursuant to letter dated 21st October 2009 filed with the FIPB, our Company has requested the FIPB to grant approval for the issue and allotment of the Equity Shares with Detachable Warrants to Non Resident equity applicants. FIPB vide its Letter dated 11th December, 2009 approved the proposal of the Company to issue rights shares with detachable warrants to Non Residents. Non Resident equity shareholders and other eligible Non Resident applicants should note that any allotment of the Detachable Warrants made in the Issue is subject to the terms and conditions of the approval of the FIPB. SEBI vide its Letter dated 16th February 2010 have granted relaxation from rule 19(2)(b) of Securities Contract (Regulations) Rules 1957 for listing of detachable warrants. Prohibition by SEBI Neither our Company, nor the Directors nor the Promoters nor the person(s) in control of the Promoters nor the Promoter Group companies, have been prohibited from accessing or operating in the capital markets under any order or direction passed by SEBI. Further, neither the Promoter nor our Company nor group companies have been declared as willful defaulters by RBI / Government authorities. The Company has not received any notice from SEBI or Stock exchanges and no proceedings initiated by SEBI or stock exchanges on the Company and its promoters/Directors/ group companies for the preceding five years. The directors of our Company are not associated with the securities markets in any manner. Compliance with Listing Agreement, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992: The Company has complied during the financial year immediately preceding the date of this Letter of Offer with respect to the following: a) provisions of the Listing Agreement with respect to reporting and compliance under Clauses 35, 40A, 41 and 49; b) provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, with respect to reporting in terms of Regulation 8 (3) pertaining to disclosure of changes in shareholding and Regulation 8A pertaining to disclosure of pledged shares; c) provisions of the SEBI (Prohibition of Insider Trading) Regulations, 1992, with respect to reporting in terms of Regulation 13. Eligibility for the Issue Our Company is an existing listed company registered under the Companies Act, whose Equity Shares were listed on BSE and NSE. It is eligible to offer this issue in terms of Chapter IV of the SEBI ICDR. Compliance with Part E of Schedule VIII of the SEBI Regulations

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Our Company is in compliance with the provisions specified in Part E of Schedule VIII of the SEBI ICDR. DISCLAIMER CLAUSE OF SEBI AS REQUIRED, A COPY OF THE DRAFT LETTER OF OFFER HAS BEEN SUBMITTED TO SEBI. IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THE DRAFT LETTER OF OFFER TO SEBI SHOULD NOT, IN ANY WAY BE DEEMED/ CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THIS DRAFT LETTER OF OFFER. THE LEAD MANAGER TO THE ISSUE, AXIS BANK LIMITED HAS CERTIFIED THAT THE DISCLOSURES MADE IN THE DRAFT LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS 2009 IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER COMPANY IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE OFFER DOCUMENT, THE LEAD MANAGERS ARE EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE COMPANY DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD MANAGER AXIS BANK LIMITED HAS FURNISHED TO THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) A DUE DILIGENCE CERTIFICATE DATED NOVEMBER 05, 2009 WHICH READS AS FOLLOWS: 1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO

LITIGATION LIKE COMMERCIAL DISPUTES, DISPUTES WITH COLLABORATORS ETC. AND OTHER MATERIALS MORE PARTICULARLY REFERRED TO IN THE ANNEXURE HERETO IN CONNECTION WITH THE FINALISATION OF THIS DRAFT LETTER OF OFFER PERTAINING TO THE SAID ISSUE;

2. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE COMPANY, ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE, PROJECTED PROFITABILITY, PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE COMPANY, WE CONFIRM THAT:

A. THIS DRAFT LETTER OF OFFER FORWARDED TO THE BOARD IS IN CONFORMITY

WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE; B. ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE

SEBI REGULATIONS, INSTRUCTIONS, ETC. ISSUED BY THE BOARD, THE GOVERNMENT AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY COMPLIED WITH; AND

C. THE DISCLOSURES MADE IN THIS DRAFT LETTER OF OFFER ARE TRUE, FAIR AND

ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL-INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE (AND SUCH DISCLOSURES ARE IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT, 1956, THE SEBI (ISSUANCE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 AND OTHER APPLICABLE LEGAL REQUIREMENTS).

3. WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THIS

DRAFT LETTER OF OFFER ARE REGISTERED WITH THE BOARD AND THAT TILL DATE SUCH REGISTRATION IS VALID EXCEPT IN CASE OF M/S SATHGURU MANAGEMENT

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CONSULTANTS PVT. LIMITED (SMCPL) (APPLIED FOR RENEWAL). IN CASE OF SMCPL WHO HAS BEEN APPOINTED AS REGISTRAR TO THE ISSUE, THE CERTIFICATE OF REGISTRATION WAS VALID TILL OCTOBER 31, 2009. SMCPL HAS MADE AN APPLICATION TO SEBI FOR THE RENEWAL OF CERTIFICATE OF REGISTRATION VIDE LETTER DATED JULY 31, 2009 IN TERMS OF THE REQUIREMENT OF SEBI (REGISTRARS TO AN ISSUE AND SHARE TRANSFER AGENT) REGULATIONS. THE CONFIRMATION REGARDING THE RENEWAL OF THE REGISTRATION IS STILL AWAITED FROM SEBI.

4. WE HAVE SATISFIED OURSELVES ABOUT THE WORTH OF THE UNDERWRITERS TO

FULFIL THEIR UNDERWRITING COMMITMENTS – NOT APPLICABLE 5. WE CERTIFY THAT WRITTEN CONSENT FROM PROMOTERS HAS BEEN OBTAINED FOR

INCLUSION OF THEIR SECURITIES AS PART OF THE PROMOTERS' CONTRIBUTION SUBJECT TO LOCK-IN AND THE SECURITIES PROPOSED TO FORM PART OF THE PROMOTERS� CONTRIBUTION SUBJECT TO LOCK-IN, WILL NOT BE DISPOSED/ SOLD/ TRANSFERRED BY THE PROMOTERS DURING THE PERIOD STARTING FROM THE DATE OF FILING THE LETTER OF OFFER WITH SEBI TILL THE DATE OF COMMENCEMENT OF LOCK-IN PERIOD AS STATED IN THE LETTER OF OFFER- NOT APPLICABLE;

6. WE CERTIFY THAT REGULATION 33 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, WHICH RELATES TO SECURITIES INELIGIBLE FOR COMPUTATION OF PROMOTERS CONTRIBUTION, HAS BEEN DULY COMPLIED WITH AND APPROPRIATE DISCLOSURES AS TO COMPLIANCE WITH THE CLAUSE HAVE BEEN MADE IN THE DRAFT LETTER OF OFFER - NOT APPLICABLE;

7. WE UNDERTAKE SUB-REGULATION (4) OF REGULATION 32 AND CLAUSE (C) AND (D) OF SUB-REGULATION (2) OF REGULATION 8 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 SHALL BE COMPLIED WITH. WE CONFIRM THAT ARRANGEMENTS HAVE BEEN MADE TO ENSURE THAT PROMOTERS� CONTRIBUTION AND SUBSCRIPTION FROM ALL FIRM ALLOTTEES WOULD BE RECEIVED AT LEAST ONE DAY BEFORE THE OPENING OF THE ISSUE. WE UNDERTAKE THAT AUDITORS� CERTIFICATE TO THIS EFFECT SHALL BE DULY SUBMITTED TO THE BOARD. WE FURTHER CONFIRM THAT ARRANGEMENTS HAVE BEEN MADE TO ENSURE THAT PROMOTERS� CONTRIBUTION SHALL BE KEPT IN AN ESCROW ACCOUNT WITH A SCHEDULED COMMERCIAL BANK AND SHALL BE RELEASED TO THE COMPANY ALONG WITH THE PROCEEDS OF THE PUBLIC ISSUE - NOT APPLICABLE.

8. WE CERTIFY THAT THE PROPOSED ACTIVITIES OF THE ISSUER FOR WHICH THE

FUNDS ARE BEING RAISED IN THE PRESENT ISSUE FALL WITHIN THE ‘MAIN OBJECTS’ LISTED IN THE OBJECT CLAUSE OF THE MEMORANDUM OF ASSOCIATION OR OTHER CHARTER OF THE ISSUER AND THAT THE ACTIVITIES WHICH HAVE BEEN CARRIED OUT UNTIL NOW ARE VALID IN TERMS OF THE OBJECT CLAUSE OF ITS MEMORANDUM OF ASSOCIATION.

9. WE CONFIRM THAT NECESSARY ARRANGEMENTS HAVE BEEN MADE TO ENSURE

THAT THE MONIES RECEIVED PURSUANT TO THE ISSUE ARE KEPT IN A SEPARATE BANK ACCOUNT AS PER THE PROVISIONS OF SECTION 73(3) OF THE COMPANIES ACT, 1956 AND THAT SUCH MONIES SHALL BE RELEASED BY THE SAID BANK ONLY AFTER THE BASIS OF ALLOTMENT HAS BEEN FINALISED IN CONSULTATION WITH THE STOCK EXCHANGES AND IN ACCORDANCE WITH THE CONTENTS OF THIS DRAFT LETTER OF OFFER AND THE LETTER OF OFFER. WE FURTHER CONFIRM THAT THE AGREEMENT ENTERED INTO BETWEEN THE BANKERS TO THE ISSUE AND THE ISSUER SPECIFICALLY CONTAINS THIS CONDITION - NOTED FOR COMPLIANCE.

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10. WE CERTIFY THAT A DISCLOSURE HAS BEEN MADE IN THE DRAFT LETTER OF OFFER THAT THE INVESTORS SHALL BE GIVEN AN OPTION TO GET THE SHARES AND WARRANTS IN DEMAT OR PHYSICAL MODE.

11. WE CERTIFY THAT ALL THE APPLICABLE DISCLOSURES MANDATED IN THE

SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 HAVE BEEN MADE IN ADDITION TO DISCLOSURES WHICH, IN OUR VIEW, ARE FAIR AND ADEQUATE TO ENABLE THE INVESTOR TO MAKE A WELL INFORMED DECISION.

12. WE CERTIFY THAT THE FOLLOWING DISCLOSURES HAVE BEEN MADE IN THIS DRAFT

LETTER OF OFFER. A. AN UNDERTAKING FROM THE ISSUER THAT AT ANY GIVEN TIME THERE SHALL BE

ONLY ONE DENOMINATION FOR THE SHARES OF THE COMPANY; AND B. AN UNDERTAKING FROM THE ISSUER THAT IT SHALL COMPLY WITH SUCH

DISCLOSURE AND ACCOUNTING NORMS SPECIFIED BY THE BOARD FROM TIME TO TIME

13. WE UNDERTAKE TO COMPLY WITH THE REGULATIONS PERTAINING TO

ADVERTISEMENT IN TERMS OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 WHILE MAKING THE ISSUE.

14. WE ENCLOSE A NOTE EXPLAINING HOW THE PROCESS OF DUE DILIGENCE HAS BEEN

EXERCISED BY US IN VIEW OF THE NATURE OF CURRENT BUSINESS BACKGROUND OR THE ISSUER, SITUATION AT WHICH THE PROPOSED BUSINESS STANDS, THE RISK FACTORS, PROMOTERS EXPERIENCE, ETC.

15. WE ENCLOSE A CHECKLIST CONFIRMING REGULATION-WISE COMPLIANCE WITH

THE APPLICABLE PROVISIONS OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, CONTAINING DETAILS SUCH AS THE REGULATION NUMBER, ITS TEXT, THE STATUS OF COMPLIANCE, PAGE NUMBER OF THE DRAFT LETTER OF OFFER WHERE THE REGULATION HAS BEEN COMPLIED WITH AND OUR COMMENTS, IF ANY.

The filing of this Letter of Offer does not, however, absolve our Company from any liabilities under Section 63 or Section 68 of the Companies Act or from the requirement of obtaining such statutory or other clearance as may be required for the purpose of the proposed Issue. SEBI further reserves the right to take up, at any point of time, with the Lead Manager(s) any irregularities or lapses in this Letter of Offer. Caution Our Company and the Lead Manager accept no responsibility for statements made otherwise than in this Letter of Offer or in any advertisement or other material issued by our Company or by any other persons at the instance of our Company and anyone placing reliance on any other source of information would be doing so at his own risk. The Lead Manager and our Company shall make all information available to the equity shareholders and no selective or additional information would be available for a section of the equity shareholders in any manner whatsoever including at presentations, in research or sales reports etc. after filing of this Letter of Offer with SEBI. Investors who invest in the Issue will be deemed to have represented to our Company and Lead Manager and their respective directors, officers, agents, affiliates and representatives that they are eligible under all applicable laws,

129

rules, regulations, guidelines and approvals to acquire Equity Shares with Detachable Warrants of our Company, and are relying on independent advice / evaluation as to their ability and quantum of investment in this Issue. Disclaimer Clause of BSE Bombay Stock Exchange Limited (“the Exchange”) has given vide its letter dated December 8, 2009, permission to this company to use the Exchange's name in this Letter of Offer as one of the stock exchanges on which this company's securities are proposed to be listed. The Exchange has scrutinized this letter of offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Company. The Exchange does not in any manner; i. warrant, certify or endorse the correctness or completeness of any of the contents of this letter of offer; or ii. warrant that this company's securities will be listed or will continue to be listed on the Exchange; or iii. take any responsibility for the financial or other soundness of this company, its promoters, its management or

any scheme or project of this company; and it should not for any reason be deemed or construed that this letter of offer has been cleared or approved by the Exchange. Every person who desires to apply for or otherwise acquires any securities of this company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription /acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever. Disclaimer Clause of NSE As required, a copy of this letter of offer has been submitted to National Stock Exchange of India Limited (hereinafter referred to as NSE). NSE has given vide its letter Ref. No. NSE/LIST/125850-5 dated December 16, 2009 permission to the Issuer to use the Exchange's name in this letter of offer as one of the stock exchanges on which this Issuer's securities are proposed to be listed. The Exchange has scrutinised this letter of offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Issuer. It is to be distinctly understood that the aforesaid permission given by NSE should not in any way be deemed or construed that the letter of offer has been cleared or approved by NSE: nor does it in any manner warrant, certify or endorse the correctness or completeness of any of the contents of this letter of offer; nor does it warrant that this Issuer's securities will be listed or will continue to be listed on the Exchange; nor does it take any responsibility for the financial or other soundness of this Issuer, its promoters, its management or any scheme or project of this Issuer. Every person who desires to apply for or otherwise acquire any securities of this Isser may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or any other reason whatsoever. Filing The Letter of Offer has been filed with SEBI, D' Monte Building, 3rd Floor, 32 D' Monte Colony, TTK Road, Alwarpet, Chennai: 600018. A copy of this Letter of Offer will also be filed with the Stock Exchanges viz. BSE and NSE. All the legal requirements applicable till the date of filing the Letter of Offer with the Stock Exchanges and SEBI have been complied with.

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Disclaimer with respect to jurisdiction This Letter of Offer has been prepared under the provisions of Indian laws and the applicable rules and regulations there under. Any disputes arising out of this Issue will be subject to the jurisdiction of the appropriate court(s) in Rajahmundry, India only. Selling Restrictions The distribution of this Letter of Offer and the issue of Equity Shares with Detachable Warrants on a rights basis to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions Persons into whose possession this Letter of Offer may come are required to inform themselves about and observe such restrictions. Our Company is making this Issue of Shares on a rights basis to the shareholders of our Company and will dispatch the Letter of Offer and CAFs to shareholders who have provided an Indian address. No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that purpose, except that the Letter of Offer has been filed with SEBI. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and this Letter of Offer may not be distributed in any jurisdiction, except in accordance with legal requirements applicable in such jurisdiction. Receipt of this Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make such an offer and, those circumstances, this Letter of Offer must be treated as sent for information only and should not be copied or redistributed. Accordingly, persons receiving a copy of this Letter of Offer should not, in connection with the issue of the Equity Shares with Detachable Warrants, distribute or send the same in or into the United States or any other jurisdiction where to do so would or might contravene local securities laws or regulations. If this Letter of Offer is received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to the Equity Shares with Detachable Warrants. Neither the delivery of this Letter of Offer nor any sale hereunder, shall under any circumstances create any implication that there has been no change in our Company’s affairs from the date hereof or that the information contained herein is correct as of any time subsequent to this date. Designated Stock Exchange The Designated Stock Exchange for the purpose of the Issue will be Bombay Stock Exchange Limited. Consents Consents in writing of the Auditors to our Company, the Directors, the Lead Manager, the Legal Advisor and the Registrar to the Issue, Banker to our Company to act in their respective capacities have been obtained and filed with Stock Exchanges, along with a copy of the Draft Letter of Offer and such consents have not been withdrawn up to the time of delivery of this Letter of Offer for registration with the stock exchanges. The Auditors of our Company have given their written consent for the inclusion of their Report in the form and content as appearing in this Letter of Offer and such consents and reports have not been withdrawn up to the time of delivery of this Letter of Offer for registration with the stock exchanges. To the best of our knowledge there are no other consents required for making this Issue. However, should the need arise, necessary consents shall be obtained by us. Impersonation

As a matter of abundant caution, attention of the Investors is specifically drawn to the provisions of sub-section (1) of section 68A of the Companies Act which is reproduced below:

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“Any person who makes in a fictitious name an application to a Company for acquiring, or subscribing for, any shares therein, or otherwise induces a Company to allot, or register any transfer of shares therein to him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years.

Expert Opinion, if any

Except in the sections titled “Financial Information” and “Statement of Special Tax Benefits” beginning on page 60 and 46 of this Letter of Offer, respectively, no expert opinion has been obtained by our Company in relation to this Letter of Offer.

Fees payable to the Lead Manager to the Issue The fee payable to the Lead Manager to the Issue are set out in the engagement letter issued by our Company to the Lead Manager, copies of which are available for inspection at the corporate office of our company. Fee payable to the Registrar to the Issue The fees payable to the Registrar to the Issue are set out in the engagement letter issued by our company to the Registrar Expenses of the Issue

The expenses of the Issue including underwriting commission payable by our Company including fees and reimbursement to the Lead Manager, Auditors, Legal Advisor to the Issue, Registrar to the Issue, printing and distribution expenses, publicity, listing fees, stamp duty and other expenses are estimated at Rs 76.00 lacs (around 2.17% of the total Issue size) and will be met out of the proceeds of the Issue.

Issue Expenses Amount

(Rs. in lacs) Lead Manager’s fees 20.00 Registrar’s fees 1.00 Legal Advisors fees 6.00 Others (Listing fees, Printing & Stationery, postage etc.) 49.00 Total 76.00

Underwriting Commission, Brokerage and Selling Commission: Since the Issue is not being underwritten, no underwriting commission, brokerage and selling commission are paid or payable. Previous Issue by our company

Our Company has come up with the Rights Issue in the month of August, 2005.

Option to Subscribe

Other than the present rights Issue, our Company has not given any person any option to subscribe to the Equity Shares of our Company.

Issue Schedule

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Issue Opening Date: March 4, 2010 Last date for receiving requests for SAFs: March 11, 2010 Issue Closing Date: March 18, 2010

The Board may however decide to extend the Issue period as it may determine from time to time but not exceeding 30 days from the Issue Opening Date.

Allotment Advices / Refund Orders

Our Company will issue and dispatch allotment advice / share certificates/ demat credit and/or letters of regret along with refund order or credit the allotted securities to the respective beneficiary accounts, if any, within a period of 15 days from the date of closure of the Issue. If such money is not repaid within eight days from the day our Company becomes liable to pay it, our Company shall pay that money with interest as stipulated under section 73 of the Companies Act.

Investors residing in the 68 cities specified by SEBI pursuant to its circular dated February 1, 2008, will get refunds through ECS only except where Investors are otherwise disclosed as applicable /eligible to get refunds through direct credit and RTGS provided the MICR details are recorded with the Depositories or our Company.

In case of those Investors who have opted to receive their Rights Entitlement in dematerialized form using electronic credit under the depository system, and advice regarding their credit of the Rights Equity Shares shall be given separately. Investors to whom refunds are made through electronic transfer of funds will be sent a letter through certificate of posting intimating them about the mode of credit of refund within 15 working days of closure of the Issue.

In case of those Investors who have opted to receive their Rights Entitlement in physical form, our Company will issue the corresponding share certificates under Section 113 of the Companies Act or other applicable provisions. For more information please refer to section titled “Allotment and Refund” on page 156 of this Letter of Offer.

Refund orders exceeding Rs.1,500 would be sent by registered post/ speed post to the sole / first Investors' registered address. Refund orders up to the value of Rs.1,500 would be sent under certificate of posting. Such refund orders would be payable at par at all places where the applications were originally accepted. The same would be marked ‘Account Payee only’ and would be drawn in favour of the sole / first Investor. Adequate funds would be made available to the Registrar to the Issue for this purpose.

Investor Grievances and Redressal System: Our Company has adequate arrangements for the redressal of investor complaints, in compliance with the corporate governance requirements under the Listing Agreements entered into with the Stock Exchanges. The Investors’ Grievance Committee currently comprises of the following Directors and its terms of reference include monitoring the redressal of shareholders’ and investors’ complaints.

• Mr. L.N. Bangur - Chairman • Mr. M.K. Tara - Member • Ms. Sheetal Bangur - Member

Status of Complaints:

Complaints pending in the beginning of Fiscal 2008 ( 01.04.2007) Nil

Tota1 number of complaints received during Fiscal 2008 (01.04.2007 to 31.03.2008) 18

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Complaints redressed during the Fiscal 2008 18

Complaints pending as the close of Fiscal 2008 (31.03.2008) Nil

Complaints pending in the beginning of Fiscal 2009 ( 01.04.2008) Nil

Tota1 number of complaints received during Fiscal 2009 (01.04.2008 to 31.03.2009) 5

Complaints redressed during the Fiscal 2009 5

Complaints pending as the close of Fiscal 2009 (31.03.2009) Nil

Summary of complaints received from shareholders/stock Exchanges/ SEBI/ Depository(ies) during the period from01.04.2009 to 31.01.2010

No. of complaints at the beginning of the period Nil

No. of complaints received during the period 5

No. of complaints resolved 5

No. of complaints unresolved Nil

Investor Grievances arising out of this Issue: The investor grievances arising out of the Issue will be handled by M/s. Sathguru Management Consultants Pvt. Ltd, who is the Registrars to the Issue. The Registrars will have a separate team of personnel handling only our post issue correspondence. All grievances relating to the Issue may be addressed to the Registrars to the Issue giving full details such as folio no, DP ID/ Client ID, name and address, contact telephone / cell numbers, email id of the first Investors, number and type of shares applied for, application form serial number, amount paid on application and the name of the bank and the branch where the application was deposited, along with a photocopy of the acknowledgement slip. In case of renunciation, the details of the renouncees should be furnished.

The average time taken by the Registrar for attending to routine grievances will be 7 days from the date of receipt. In case of non-routine grievances where verification at other agencies is involved, it would be the endeavour of the Registrar to attend to them as expeditiously as possible. Our Company undertakes to resolve the Investor grievances in a time bound manner.

Investors may contact the Registrar to the Issue in case of any pre-issue/ post - issue related problems such as non-receipt of letters of allotment/share certificates/demat credit/refund orders etc. at:

Sathguru Management Consultants Pvt. Ltd. Plot No. 15, Hindi Nagar, Panjagutta, Hyderabad - 500 034. Tel: +91 40 23350586 Fax: +91 4040040554 Website: www.sathguru.com E-mail: sta@sathguru.com Contact Person: Mr. R. Chandra Sekhar SEBI Registration Number: INR 000000536 Changes in Auditors during the last three years

There has been no change in the Auditor’s of our Company during the last three years.

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Capitalisation of Reserves or Profits

Our Company has not capitalized any of its reserves or profits for the last five years.

Revaluation of Fixed Assets

There has been no revaluation of our Company‘s fixed assets for the last five years.

Minimum Subscription

If our Company does not receive the minimum subscription of 90% of the Issue, our Company shall forthwith refund the entire subscription amount received within 15 days from Issue Closing Date. If there is a delay in the refund of subscription by more than eight days after the date from which our Company becomes liable to pay the subscription amount (i.e. 15 days after the Issue Closing Date or the date of refusal by the Stock Exchanges, whichever is earlier) our Company shall pay interest for the delayed period as prescribed under subsection (2) and (2A) of Section 73 of the Companies Act.

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SECTION VII – OFFERING INFORMATION

TERMS OF THE ISSUE

The Equity Shares with Detachable Warrants being issued in the Issue and the Equity Shares to be allotted pursuant to the exercise of the Detachable Warrants are subject to the terms and conditions contained in the Letter of Offer, the CAF (enclosed with the Letter of Offer), the Memorandum of Association, the Articles of Association, approvals from the Government of India and the RBI, if applicable, the provisions of the Companies Act, regulations issued by SEBI, FEMA, notifications and regulations for issue of capital and for listing of securities issued by the Government of India and/or other statutory authorities and bodies from time to time, the Listing Agreements entered into by our Company with the Stock Exchanges, the terms and conditions as stipulated in the allotment advice or letters of allotment or Consolidated Certificates and any other law, rules or regulations as applicable and introduced from time to time. Authority for the Issue

The Issue is being made pursuant to a resolution passed at a meeting of the Board of Directors held on 31st July, 2009 and by the Shareholders in the Annual General Meeting held on 25th September, 2009. Basis for the Issue

The Rights Equity Shares with Detachable Warrants are being offered for subscription for cash to those existing Eligible Equity Shareholders whose names appear as beneficial owners as per the list to be furnished by the Depositories in respect of the Equity Shares held in the electronic form and on the Register of Members of our Company in respect of the Equity Shares held in physical form at the close of business hours on February 24, 2010 (the “Record Date”), fixed in consultation with the Designated Stock Exchange.

Rights Entitlement

As your name appears as beneficial owner in respect of the Equity Shares held in the Electronic Form or appears in the Register of Members as an Eligible Equity Shareholder, you are entitled to the number of Rights Equity Shares shown in Block I of Part A of the enclosed CAF.

The Eligible Equity Shareholders are entitled to 3 Rights Equity Shares and equal number of Detachable Warrant(s) for every 11 Equity Shares held on the Record Date.

I. General Terms of the Issue

1. Market Lot The market lot for the Equity Shares and the Detachable Warrants in dematerialized mode is one. In case of holding of Equity Shares in physical form, our Company will issue to the allottees (a) one certificate for the Equity Shares allotted to each folio (a “Share Certificate”) and (b) one certificate for the Detachable Warrants (“Warrant Certificate”). Upon receipt of a request from an Equity Shareholder or Warrant Holder, the company will split such Certificate into smaller denominations within 10 working days from the receipt of the request from such Equity Shareholder or Warrant Holder. Our Company shall not charge a fee for splitting such Certificates. Investors may please note that the Equity Shares and the Detachable Warrants can be traded on the Stock Exchanges in dematerialized form only.

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2. Nomination Facility In terms of Section 109A of the Companies Act, a nomination facility is available in case of Equity Shares. A sole Equity Shareholder or the first Equity Shareholder, along with other joint Equity Shareholders, being individuals, may nominate any person(s) who, in the event of the death of the sole holder or all the joint-holders, as the case may be, shall become entitled to the Equity Shares and the Detachable Warrants. A person, being a nominee, who becomes entitled to the Equity Shares and the Detachable Warrants by reason of the death of the original Equity Shareholder(s), shall be entitled to the same advantages to which he would be entitled if he were the registered holder of the Equity Shares and the Detachable Warrants. A nomination shall stand rescinded upon the sale of the Equity Shares and the Detachable Warrant by the person nominating. A transferee will be entitled to make a fresh nomination in the manner prescribed. When the Equity Shares and the Detachable Warrants are held jointly by two or more persons, the nominee shall become entitled to receive the amount only on the demise of all the joint-holders. Fresh nominations can be made only in the prescribed form available on request at the Registered Office or with such other person at such addresses as may be notified by our Company. Only one nomination will be applicable for one folio. Hence, if an Equity Shareholder has already registered a nomination with our Company, no further nomination needs to be made for the Equity Shares and the Detachable Warrants to be allotted in the Issue under the same folio. However, new nominations, if any, by an Equity Shareholder shall operate in supersession of any previous nomination. In case the allotment of Equity Shares and the Detachable Warrants in dematerialized form, there is no need to make a separate nomination for such Equity Shares and the Detachable Warrants to be allotted in the Issue. Nominations registered with the respective Depository Participant of the applicant will prevail. If the applicants wish to change the nomination, they are requested to inform their respective Depository Participants. 3. Joint-Holders Where two or more persons are registered as the holders of any Equity Shares and/or the Detachable Warrants, they shall be deemed to hold such Equity Shares and/or the Detachable Warrants as joint holders with benefits of survivorship, subject to the provisions contained in the Articles of Association. 4. Impersonation As a matter of abundant caution, attention of the applicants is specifically drawn to the provisions of sub-section (1) of section 68A of the Companies Act which is reproduced below: “Any person who makes in a fictitious name an application to a Company for acquiring, or subscribing for, any shares therein, or otherwise induces a Company to allot, or register any transfer of shares therein to him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years” 5. Minimum Subscription

If our Company does not receive the minimum subscription of 90% of the Issue, our Company shall forthwith refund the entire subscription amount received within 15 days from Issue Closing Date. If there is a delay in the refund of subscription by more than eight days after the date from which our Company becomes liable to pay the subscription amount (i.e. 15 days after the Issue Closing Date or the date of refusal by the Stock Exchanges, whichever is earlier) our Company shall pay interest for the delayed period at the rates prescribed under Section 73 (2) and (2A) of the Companies Act.

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The Promoters and the members of the Promoter Group holding Equity Shares in our Company have vide their letter dated October 20, 2009 undertaken to fully subscribe for their Rights Entitlement. They reserve the right to subscribe for their Rights Entitlement either by themselves and/or through one or more entities controlled by them, including by subscribing for Equity Shares with Detachable Warrants pursuant to any renunciation made by any member of the Promoter Group to another member of the Promoter Group. They have also undertaken to apply for the Equity Shares with Detachable Warrants in addition to their rights entitlement to the extent of any undersubscribed portion of the Issue, subject to obtaining approvals required under applicable law if any. Such subscription for Equity Shares with Detachable Warrants over and above their rights entitlement, if allotted, may result in an increase in their percentage shareholding above their current percentage shareholding. Further, such acquisition by them of additional Equity Shares with Detachable Warrants shall (i) not result in a change of control of the management of our Company; and (ii) be exempt from the applicability of Regulations 11 and 12 of the Takeover Code in terms of the proviso to Regulation 3(1)(b)(ii) of the Takeover Code. In connection with Detachable Warrants issued and allotted by our Company in the Issue, the Promoters and members of the Promoter Group may apply for the issue of such Equity Shares as may arise from the exercise of the Detachable Warrants issued and allotted to them in the Issue and such exercise shall (i) not result in a change of control of the management of our Company; and (ii) be exempt from the applicability of Regulations 11 and 12 of the Takeover Code in terms of the proviso to Regulation 3(1)(b)(ii) of the Takeover Code. As such, other than meeting the requirements indicated in the section titled “Objects of the Issue” on page 40 of this Letter of Offer, there is no other intention or purpose for the Issue, including any intention to delist our Company, even if, as a result of any allotment in the Issue to the Promoters and/or members of the Promoter Group, the shareholding of the Promoters and/or Promoter Group in our Company exceeds the current shareholding. The Promoters and/or members of the Promoter Group intend to subscribe for any undersubscribed portion of the Issue as per the provisions of applicable law. Allotment to the Promoters and/or members of the Promoter Group of any undersubscribed portion, over and above their Rights Entitlement, shall be completed in compliance with the Listing Agreements and other applicable laws prevailing at that time relating to continuous listing requirements. For further details of undersubscription and allotment to the Promoters and Promoter Group, please refer to “Basis of Allotment” below under this section titled “Terms of the Issue” on 155 of this Letter of Offer. 6. Notices All notices to the Equity Shareholders and Warrant Holders required to be given by our Company shall be published in one English national daily newspaper with wide circulation, one Hindi national daily newspaper with wide circulation and one Telugu language newspaper with wide circulation at the place where the Registered Office is situated and/or will be sent by registered post or speed post to the registered holders of the Equity Shares and the Detachable Warrants at their address in India registered with the Registrar to the Issue from time to time. 7. Listing and trading of the Equity Shares and the Detachable Warrants Our Company’s existing Equity Shares are currently traded on BSE and NSE under the ISIN INE 435A01028. The fully paid-up Equity Shares proposed to be issued pursuant to the Issue shall be listed and admitted for trading on BSE and NSE under the existing ISIN. The Detachable Warrants proposed to be issued pursuant to the Issue shall be listed and admitted for trading on BSE and NSE under a separate ISIN. All steps for the completion of the necessary formalities for listing and commencement of trading of the Equity Shares and the Detachable Warrants allotted pursuant to the Issue shall be taken within seven working days of the finalization of the basis of allotment. Our Company has made applications to BSE and NSE seeking “in-principle” approval for the listing of the Equity Shares and the Detachable Warrants issued pursuant to the Issue in accordance with Clause 24(a) of the Listing Agreements and has received such approval from BSE pursuant to letter no. DCS/PREF/JA/IP-RT/1384/9-10 dated December 8, 2009 and from NSE pursuant to letter no. NSE/LIST/125850-5 dated December 16, 2009. Our Company will apply to the Stock Exchanges for final approval for the listing and trading of the Equity Shares and the Detachable Warrants. The Equity Shares which will arise upon the exercise of the Detachable Warrants shall be listed for

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trading on BSE and NSE under the existing ISIN for the fully paid-up Equity Shares of our Company. No assurance can be given regarding the active or sustained trading in the Equity Shares or the price at which the Equity Shares offered under the Issue will trade either after the listing or at the time of exercise of the Detachable Warrants. Similarly, no assurance can be given regarding the active or sustained trading in the Detachable Warrants or the price at which the Detachable Warrants being allotted under the Issue will trade after their listing. 8. Offer to Non Resident Applicants General permission has been granted to any person resident outside India to purchase equity shares offered on a rights basis, including additional equity shares, by an Indian company in terms of FEMA and Regulation 6 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended. However, the general permission referred to above is subject to the restrictions described in “No Offer in the United States” and restrictions on investments by OCBs described below. FIPB vide its Letter dated 11th December, 2009 approved the proposal of the Company to issue rights shares with detachable warrants to Non Resident Equity Applicants. Applications received from Non Resident Applicants for the allotment of Equity Shares with Detachable Warrants shall, inter alia, be also subject to the conditions imposed from time to time by the RBI under FEMA in relation to the receipt and refund of Application Money (defined below), allotment of Equity Shares with Detachable Warrants, issue of allotment advice/letters of allotment/Consolidated Certificates and payment of dividends. The Board of Directors may, in its absolute discretion, agree to such terms and conditions as may be stipulated by the RBI or any other regulatory authority while approving the allotment of Equity Shares with Detachable Warrants, payment of dividend, etc. to Non Resident applicants. The Equity Shares with Detachable Warrants purchased on a rights basis by Non Residents shall be subject to the same conditions, including restrictions in relation to repatriation, as are applicable to the original Equity Shares against which the Equity Shares with Detachable Warrants are issued on a rights basis. No single FII can hold more that 10% of our Company’s post-Issue paid-up share capital. In respect of an FII investing in the Equity Shares with Detachable Warrants on behalf of its sub-accounts, the investment on behalf of each sub-account shall not exceed 10% of the total paid-up share capital of our Company or 5% of the total paid-up share capital of our Company, in case such sub-account is a foreign corporate or an individual. Currently, the aggregate FII investment in our Company cannot exceed 24% of our Company’s total paid-up share capital. With the approval of the Board and the Equity Shareholders by way of a special resolution, the aggregate FII holding can go up to 100%. However, as on the date of this Letter of Offer, our Company has not obtained any approval from the Board or the Equity Shareholders to increase the FII limit to more than 24%. Pursuant to Circular No. 14 dated September 16, 2003 issued by the RBI, OCBs have been derecognized as an eligible class of investors and the RBI has subsequently issued the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies) Regulations, 2003, as amended. Accordingly, OCBs shall not be eligible to subscribe for the Equity Shares with Detachable Warrants. The RBI has however clarified in A.P. (DIR Series) Circular No. 44, dated December 8, 2003, that OCBs which are incorporated and are not under any adverse notice of the RBI will be considered for undertaking fresh investments as incorporated Non Resident entities. Thus, OCBs desiring to participate in the Issue must obtain prior approval from the RBI. On providing such approval to our Company at its Registered Office, the OCB shall receive the Letter of Offer and the CAF. In case of a change of the status of Equity Shareholders from resident to Non Resident, a new demat account shall be opened by such Equity Shareholders. Details Of Separate Collection Centers For The Applications Of Non Resident Applicants In The Issue Shall Be Printed On The CAF.

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The distribution of the Letter of Offer and the CAF and the issue of Equity Shares with Detachable Warrants on a rights basis to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Our Company is making the issue of Equity Shares with Detachable Warrants on a rights basis to the Equity Shareholders and the Letter of Offer and the CAFs will be dispatched to the Equity Shareholders at their registered address in India only.

II. Principal Terms and Conditions of the Issue of Equity Shares 1. Face Value The face value of each Equity Share shall be Rs. 10.00. 2. Entitlement An eligible Equity Shareholder is entitled to 3 (three) Equity Shares for every 11 (eleven) fully paid-up Equity Shares held on the Record Date, i.e., February 24, 2010. 3. Fractional Entitlements For Equity Shares with Detachable Warrants being offered on a rights basis under the Issue, if the shareholding of any of the Equity Shareholders on the Record Date is less than 11 (eleven) Equity Shares or is not in multiples of 11, the fractional entitlement of such Equity Shareholders shall be ignored. Equity Shareholders whose fractional entitlements are being ignored will be given preference in the allotment of one additional Equity Share each with Detachable Warrant, if such Equity Shareholders have applied for additional Equity Shares. Those Equity Shareholders holding less than 11 (eleven) Equity Shares on the Record Date and therefore entitled to zero Equity Shares with Detachable Warrants under the Issue shall be dispatched a CAF with zero entitlement and they are eligible to subscribe for 1 Equity Share with Detachable Warrant. Such Equity Shareholders cannot renounce their entitlement to apply for additional Equity Shares with Detachable Warrants in favour of any other person. A CAF with zero entitlement will be non-negotiable/non-renunciable. Similarly Equity Shareholders whose fractional entitlement is ignored can renounce their rights entitlement. However they cannot renounce their right to apply for one additional share. If they renounce their right to apply for additional shares, such renouncement shall be ignored. 4. Additional Equity Shares with Detachable Warrants The Equity Shareholders are eligible to apply for additional Equity Shares with Detachable Warrants over and above their Rights Entitlement provided such Equity Shareholders have applied for all the Equity Shares with Detachable Warrants offered to them, without renouncing some or all of them. The application for the additional Equity Shares with Detachable Warrants shall be considered and allotment shall be made at the sole discretion of the Board of Directors, in consultation, if necessary, with the Designated Stock Exchange. Where the number of additional Equity Shares with Detachable Warrants applied for exceeds the number of Equity Shares with Detachable Warrants available for allotment, the allotment of additional Equity Shares with Detachable Warrants shall be made on a fair and equitable basis, in consultation with the Designated Stock Exchange. Please refer to “Basis of Allotment” under this section titled “Terms of the Issue” on page 154 of this Letter of Offer. Renouncees who have subscribed for all the Equity Shares with Detachable Warrants renounced in their favour may also apply for additional Equity Shares with Detachable Warrants. 5. Issue Price Each Equity Share with Detachable Warrant is being offered at a price of Rs. 50.00 (Rupees Fifty only) (including a premium of Rs. 40.00 per Equity Share).

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6. Terms of Payment On application, the aggregate amount in respect of the Equity Shares with Detachable Warrants applied for in the Issue at the rate of Rs. 50.00 per Equity Share with Detachable Warrant, shall be payable (“Application Money”). The Application Money will be applied as under:

Particulars Towards the Equity Share Capital (Rs.)

Towards the Share Premium Account (Rs.)

On application – full amount 10.00 40.00 A separate cheque/demand draft/pay order in respect of the Application Money must accompany each CAF. Payment should be made in cash (not more than Rs.20,000) or by cheque/demand draft/pay order drawn on any of the banks, including a co-operative bank, which is situated at and is a member or a submember of the Bankers Clearing House located at the center where the CAF is accepted. Outstation cheques/demand drafts/pay orders will not be accepted and CAFs accompanied by such outstation cheques/demand drafts/pay orders are liable to be rejected. Payments in cash in excess of the amount specified above will not be accepted. Pursuant to the RBI Circular DBOD No. FSC BC 42/24.47.00/2003-04 dated November 5, 2003, the Stock Invest Scheme has been withdrawn and accordingly, payment through Stock Invest will not be accepted in the Issue. Where an applicant has applied for additional Equity Shares with Detachable Warrants and is allotted a lesser number of Equity Shares with Detachable Warrants than applied for, the excess Application Money paid shall be refunded. The excess Application Money will be refunded within 15 days from the Issue Closing Date, and if there is a delay beyond eight days from the stipulated period, our Company and every Director of our Company who is an officer in default shall be jointly and severally liable to repay the money with interest for the delayed period, at the rates stipulated under sub-sections (2) and (2A) of Section 73 of the Companies Act. 7. Ranking of the Equity Shares The Equity Shares allotted pursuant to the Issue and the Equity Shares allotted upon exercise of the Detachable Warrants shall be subject to the Memorandum of Association and the Articles of Association and the Companies Act and shall rank pari passu in all respects with the existing Equity Shares, including in relation to dividend payment. 8. Rights of the Equity Shareholders Subject to applicable laws, the Equity Shareholders shall have the following rights: • Right to receive dividend, if declared; • Right to attend general meetings and exercise voting powers; • Right to vote on a poll, either in person or by proxy; • Right to receive offers for shares on a rights basis and be allotted bonus shares, if announced; • Right to receive surplus on liquidation; • Right of free transferability of shares; and • Such other rights, as may be available to an equity shareholder of a listed public company under the Companies

Act and its Memorandum and Articles of Association and the terms of the Listing Agreements with the Stock Exchanges.

9. Issue of Duplicate Share Certificates If any Share Certificate is mutilated or defaced or the cages for recording transfers of the Equity Shares are fully utilized, our Company against the surrender of such Share Certificate may replace the Share Certificate, provided that it shall be replaced as aforesaid only if the Share Certificate number and the distinctive numbers are legible. If

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any Share Certificate is destroyed, stolen, lost or misplaced, then upon production of proof thereof to the satisfaction of our Company and upon furnishing such indemnity/surety and/or such other documents as our Company may deem adequate, a duplicate Share Certificate shall be issued.

III. Principal Terms and Conditions of the Issue of the Detachable Warrants 1. Entitlement An eligible Equity Shareholder is entitled to receive 1 (one) Detachable Warrant for every 1 (one) Equity Share allotted in the Issue. The Detachable Warrants issued can be freely and separately traded until they are tendered for exercise. Prior to the expiry of the Notice Period, the holders of Detachable Warrant will be entitled to exercise their right to apply for one Equity Share at the Warrant exercise price for each Detachable Warrant held. The Equity Share entitlement in respect of each Detachable Warrant shall be proportionately adjusted for any bonus issue made by our Company prior to the Warrant exercise period so as to ensure that the benefit to the Warrant Holder is not prejudiced and remains the same as if the bonus issue had not been declared. For example, if our Company declares a bonus issue prior to the Warrant exercise period in the ratio of 1:1, then the number of Equity Shares to be issued pursuant to the exercise of every Detachable Warrant would be double. The face value of each Equity Share is Rs. 10.00. In the event of any sub-division or consolidation of the face value of the Equity Shares, the Equity Share entitlement on each Detachable Warrant shall be proportionately increased or decreased such that the aggregate nominal value of the entitlement remains the same as the nominal value of the Equity Shares immediately prior to such sub-division or consolidation, e.g., in case our Company decides to reduce the face value of the Equity Shares to Rs.1 each, then upon exercise of each Detachable Warrant by paying the Warrant exercise price, the holders of such Detachable Warrant will get ten Equity Shares of Rs.1 each instead of one Equity Share of Rs.10.00 each. However, in case our Company announces a rights issue prior to the exercise of the Detachable Warrants, neither would any adjustment be made to the Equity Share entitlement in respect of Detachable Warrant nor would there be any reservations for the holders of such Detachable Warrant. 2. Additional Equity Shares The Warrant Holders cannot renounce their entitlement to apply for the Equity Shares. However, the Warrant Holders may apply for any additional Equity Shares over and above their entitlement to apply for Equity Shares arising upon the exercise of the Detachable Warrants held by them on the Warrant Record Date, provided that such Warrant Holders have applied for the issue and allotment of Equity Shares pursuant to the exercise of all the Detachable Warrants held by them. . However, the Promoters and the members of the Promoter Group holding Equity Shares in our Company have undertaken that they shall apply for the issue of such Equity Shares as may arise from the exercise of the Detachable Warrants issued and allotted to them in the Issue and such exercise shall (i) not result in a change of control of the management of our Company; and (ii) be exempt from the applicability of Regulations 11 and 12 of the Takeover Code in terms of the proviso to Regulation 3(1)(b)(ii) of the Takeover Code. The Promoters and the members of the Promoter Group holding Equity Shares in our Company as Warrant Holders may apply for any additional Equity Shares over and above their entitlement to apply for Equity Shares arising upon the exercise of the Detachable Warrants, subject to compliance with the Listing Agreement and obtaining approvals, if any, required under applicable law.

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3. Warrant Exercise Price The Warrant Exercise Price for each Detachable Warrant shall be Rs. 50.00. 4. Warrant Exercise Period The warrant exercise period for the Detachable Warrants commences at any time before the expiry of 18 months from the date of allotment of the Detachable Warrants. The Detachable Warrants may be exercised at any time during and prior to the expiry of notice period as may be fixed by our Company in its sole discretion (the “Notice Period”) within the Warrant Exercise Period. For purposes of determining the Warrant Holders and their respective entitlements, our Company shall fix the record date(s) during the Warrant Exercise Period for the Detachable Warrants (the “Warrant Record Date”), with the approval of the Stock Exchanges of such Warrant Record Date. Any Detachable Warrant that is not exercised prior to the expiry of the Notice Period shall lapse. The exercise of the Detachable Warrants during the Notice Period(s) will be carried out without the need for our Company to take any further approvals. However, the Warrant Holders should independently check if they require any approvals. The Notice Period(s) will be notified in one English national daily newspaper with wide circulation one Hindi national daily newspaper with wide circulation and one Telugu language newspaper with wide circulation at the place where the Registered Office is situated. The Notice Period will also be specified, along with the Warrant Exercise Price and other details, on the Warrant Exercise Application Forms to be dispatched by registered post/speed post to each of the Warrant Holders at their address in India registered with the Registrar to the Issue from time to time.

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5. Procedure for the Exercise of the Detachable Warrant

Activity Indicative time period* Board to decide the warrant Record date. X-1 Company to apply to the Stock Exchanges to approve the Warrant Record Date

X-1

Company to give public notice of the Warrant Exercise Price, the Notice Period and Warrant Record Date as approved by the Stock Exchanges.

X

Suspension of trading in the Detachable Warrants (subject to approval of the Warrant Record Date by the Stock Exchanges)

X+10

Warrant Record Date X +15 Company/Registrar to the Issue to dispatch the Warrant Exercise Application Forms to the Warrant Holders

X+17

Company to give public notice confirming dispatch of the Warrant Exercise Application Forms

X+17

Commencement of the Notice Period X+17 End of the Notice Period X+46 The Detachable Warrants not exercised will lapse X+47 Allotment of the Equity Shares arising upon the exercise of the Detachable Warrants

X+51

Company to apply to the Stock Exchanges for listing and trading approval for the Equity Shares arising upon the exercise of the Detachable Warrants

X+58

Listing of the Equity Shares arising upon the exercise of the Detachable Warrants

X+60

* Investors may note that the aforesaid time periods are indicative and subject to changes on account of several factors, many of them which may be unforeseen and not within our Company’s control, and that these timelines are subject to receipt of certain regulatory approvals. The assumptions on the basis of which the aforesaid timelines have been drawn may not fructify. These timelines have been described for the benefit and understanding of the investors and no responsibility shall lie on our Company or the Lead Manager for any of the aforesaid timelines not being met for any reasons whatsoever. Further, the aforesaid is an indicative timeline containing the major steps involved, and other steps may be involved in the exercise of the Detachable Warrants and consequential matters not detailed hereinabove. The application for exercise of any Detachable Warrants would be made on the prescribed warrant exercise application form (“Warrant Exercise Application Form”). The Warrant Exercise Application Forms will be sent by registered post / speed post to all the Warrant Holders, as identified on the Warrant Record Date, at their address in India registered with the Registrar to the Issue from time to time. The Warrant Exercise Application Forms will also be available on request by the Warrant Holders with the Registrar to the Issue during the Notice Period and can be downloaded from our Company’s website. The exercise of the Detachable Warrant will be subject to the terms and conditions set out in the Warrant Exercise Application Form. Our Company shall disregard applications which are liable for rejection, due to factors such as dishonor of the payment instrument, short payment etc. In case of the Detachable Warrants held in Physical Mode: During the Notice Period, the Warrant Holders should send their applications for the issue of Equity Shares to the Registrar to the Issue, by completing the requisite particulars on the Warrant Exercise Application Form. For resident Equity Shareholders/applicants and Non Resident Equity Shareholders/applicants applying on a non-

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repatriation basis, the Warrant Exercise Application Form should be accompanied by a cheque/demand draft/pay order favouring “APPM-Warrant Issue” payable at Hyderabad for the requisite amount. For Non Resident Equity Shareholders/applicants applying on a repatriation basis, the application should be accompanied by a cheque/demand draft/pay order favouring “APPM-Warrant Issue -NR” payable at Hyderabad for the requisite amount. For making the payment, Non Resident Equity Shareholders/applicants are required to follow the similar procedures as specified under “Submission of Application and Modes of Payment for the Issue” under this section titled “Terms of the Issue” on page 152 of this Letter of Offer. In case of the Detachable Warrants held in Demat Mode: Our Company will, through the Registrar to the Issue, at least two days prior to the commencement of the Warrant Exercise Period for the Detachable Warrants, open a special depository account with the NSDL “APPM” - Warrant Conversion Escrow Account” with a Depository Participant (the “Special Depository Account”). Equity Shareholders/applicants that have depository accounts with the CDSL must use inter depository delivery instruction slips for the purpose of crediting their Detachable Warrants in favour of the Special Depository Account with the NSDL. Beneficial owners (Warrant Holders in dematerialized form) who wish to exercise their Detachable Warrant, will be required to send their Warrant Exercise Application Forms, accompanied by a cheque/demand draft/pay order payable at Hyderabad along with a photocopy of the delivery instruction in “off market” mode or counterfoil of the delivery instruction in “off market” mode, duly acknowledged by the Depository Participant in favour of the Special Depository Account, to the Registrar to the Issue prior to the expiry of the Notice Period. For Resident Equity Shareholders/applicants and Non Resident Equity Shareholders/applicants applying on a non-repatriation basis, the Warrant Exercise Application Forms should be accompanied by a cheque/demand draft/pay order favoring ““APPM-Warrant Issue” payable at Hyderabad for the requisite amount. For Non Resident Equity Shareholders/applicants applying on a repatriation basis, the application should be accompanied by a cheque/demand draft/pay order favoring “APPM-Warrant Issue -NR” payable at Hyderabad for the requisite amount. For making the payment, Non Resident Equity Shareholders/applicants are required to follow the similar procedures as specified under “Submission of Application and Modes of Payment for the Issue” under this section titled “Terms of the Issue” on page 153 of this Letter of Offer. In case the Warrant Exercise Application Forms along with the cheques/demand drafts/pay orders towards full payment of the Warrant Exercise Price do not reach the Registrar to the Issue prior to the expiry of the Notice Period, the Detachable Warrants shall lapse. Cheques/demand drafts/pay orders for lesser amounts shall be rejected and returned. Any amounts in excess of the Warrant Exercise Price shall be refunded by our Company within 15 days from the expiry of the Notice Period. If the amount to be refunded is not paid within eight days from the day our Company becomes liable to pay it, our Company and every Director of our Company who is an officer in default shall be jointly and severally liable to repay the money with interest for the delayed period, at the rates stipulated under sub-sections (2) and (2A) of Section 73 of the Companies Act. 6. Variance in the Terms of the Detachable Warrants The rights, privileges and conditions attached to the Detachable Warrants may be modified or varied or abrogated with the consent of the Warrant Holders by a resolution passed with simple majority at a special meeting of the Warrant Holders present and voting, provided that nothing in such resolution shall be operative against our Company when such resolution modifies or varies the terms and conditions governing the Detachable Warrants if the modification or variation is not acceptable to our Company. At a meeting of the Warrant Holders, each Warrant Holder, and in the case of joint holders, the first Warrant Holder shall be entitled to vote, either in person or by proxy, in respect of such Detachable Warrants. The Warrant Holder will be entitled to one vote on a show of hands and the Warrant Holder’s voting rights on a poll shall be in proportion to the number of the Detachable Warrants outstanding held by such Warrant Holder from among all the Warrant Holders present and voting. The quorum for such meetings shall be at least five Warrant Holders present in person. The proceedings of the meeting of the

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Warrant Holders shall be governed by the provisions contained in the Articles of Association regarding meetings of the Equity Shareholders and such other rules in force for the time being to the extent applicable and in relation to matters not otherwise specifically provided for in this Letter of Offer. 7. Allotment of Equity Shares upon Exercise of the Detachable Warrants The Board of Directors of our Company shall allot Equity Shares upon exercise of the Detachable Warrants within 15 days from the expiry of the Notice Period. Pursuant to the exercise of any Detachable Warrants allotted to the Promoters and/or members of the Promoter Group in the Issue, the percentage shareholding of the Promoters and members of the Promoter Group may increase. Any such increase in the percentage shareholding of the Promoters and members of the Promoter Group pursuant to the exercise of the Detachable Warrants allotted in the Issue will be exempt from the applicability of Regulations 11 and 12 of the Takeover Code in terms of the proviso to Regulation 3(1) (b) (ii) of the Takeover Code. Further, any such increase in their shareholding will not result in a change of control of the management of our Company. In the event that the public shareholding falls below the minimum prescribed in the Listing Agreements, our Company will take such steps as may be necessary to restore the minimum public shareholding in accordance with the SEBI regulations and undertakes to comply with such directions as may be issued by the Stock Exchanges. As such, other than meeting the requirements indicated in the section titled “Objects of the Issue” on page 40 of this Letter of Offer, there is no other intention or purpose for the Issue, including any intention to delist our Company, even if, as a result of any allotment in the Issue to the Promoters and/or members of the Promoter Group, the shareholding of the Promoters and/or Promoter Group in our Company exceeds the prescribed shareholding. 8. Issue of Duplicate Warrant Certificates If any Warrant Certificate is mutilated or defaced or the cages for recording transfers of the Detachable Warrants, as the case may be, are fully utilized, our Company against the surrender of such certificates may replace the certificates, provided that it shall be replaced as aforesaid only if the certificate number and the distinctive numbers are legible. If any Warrant Certificate is destroyed, stolen, lost or misplaced, then upon production of proof thereof to the satisfaction of our Company and upon furnishing such indemnity/surety and/or such other documents as our Company may deem adequate, a duplicate certificate shall be issued. 9. Rights available to Warrant Holders The Detachable Warrants shall be transferable and transmittable in the same manner and to the same extent and shall be subject to the same restrictions and limitations and other related matters applicable to the Equity Shares. The Detachable Warrants shall not be transferable (by sale or gift) in favor of OCBs. The Detachable Warrants shall not confer upon the holders thereof any right to receive any notice of general meetings of the Shareholders of our Company or the annual report of our Company or to attend or vote at any general meetings of the Shareholders of our Company. Save and except the right of subscription for the Equity Shares as per the terms of the issue of the Detachable Warrants, the holders of the Detachable Warrants in their capacity as Warrant Holders shall have no other rights or privileges. 10. Caution

• Each Warrant Exercise Application Form shall be accompanied by a single instrument of payment.

• Clubbing of folios/securities for the purpose of making a consolidated payment is not permitted.

• Cheques/demand drafts/pay orders should be payable at Hyderabad for the full amount and outstation payment instructions or payments for less than the full amount will be rejected.

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• Investors are advised not to close or transfer their demat accounts between the period of application for the

exercise of the Detachable Warrants until the time of allotment or receipt of credit in their account so as to avoid rejection of credit from the Depositories and resultant delay in receiving the intimation of allotment.

• The Detachable Warrants may not be exercised from within the United States by or on behalf of U.S.

Persons. Each person exercising the Detachable Warrants must provide a written certification that he/she is not a U.S. Person or that the Detachable Warrants are not being exercised on behalf of a U.S. Person. No exercise will be accepted from any person whose address is within the United States.

• If the Detachable Warrants are not exercised prior to the expiry of the notice period, the Detachable

Warrants shall lapse and shall be dealt with by the Board of Directors in such manner as it deems fit, in consultation with the Stock Exchanges, and in accordance with applicable law.

IV. How to Apply?

1. Procedure for Application The CAF will be printed in black ink for all Equity Shareholders, with separate advice for Non Resident Equity Shareholders. The CAF consists of four parts: Part A: Form for accepting the Equity Shares with Detachable Warrants offered and for applying for additional

Equity Shares with Detachable Warrants; Part B: Form for renunciation of Equity Shares with Detachable Warrant; Part C: Form for application for Equity Shares with Detachable Warrant by renouncees; and Part D: Form for request for split application forms. The Warrant Exercise Application Forms will be sent separately to the holders of the Detachable Warrants, as identified on the Warrant record date. 2. Options available to the Equity Shareholders The CAF clearly indicates the number of Equity Shares with Detachable Warrants that an Equity Shareholder is entitled to. An Equity Shareholder will have the following five options: A. Apply for his Rights Entitlement in full; B. Apply for his Rights Entitlement in part (without renouncing the other part); C. Apply for his Rights Entitlement in full and apply for additional Equity Shares with Detachable Warrants; D. Renounce his entire Rights Entitlement; or E. Apply for his Rights Entitlement in part and renounce the other part. Options A and B: Acceptance of the Rights Entitlement: The Equity Shareholders may accept their rights entitlement and apply for the Equity Shares with Detachable Warrants offered, either (i) in full or (ii) in part, without renouncing the other part, by completing Part A of the CAF.

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For details in relation to submission of the CAF and mode of payment, please refer to the sub-section titled “Submission of Application and Modes of Payment for the Issue” under this section titled “Terms of the Issue” on page 152 of this Letter of Offer. Option C: Acceptance of the Rights Entitlement and Application for Additional Equity Shares with Detachable Warrants: The Equity Shareholders are eligible to apply for additional Equity Shares with Detachable Warrants, over and above their rights entitlements, provided that such Equity Shareholders have applied for all the Equity Shares with Detachable Warrants offered to them without renouncing some or all of them in favor of any other person(s). The application for the additional Equity Shares with Detachable Warrants shall be considered and allotment shall be made at the sole discretion of the Board of Directors, in consultation, if necessary, with the Designated Stock Exchange. Where the number of Equity Shares with Detachable Warrants applied for exceeds the number of Equity Shares with Detachable Warrants available for allotment, the allotment of additional Equity Shares with Detachable Warrants shall be made on a fair and equitable basis with reference to the number of Equity Shares held by the applicant on the Record Date. For details of the manner in which applications for additional Equity Shares with Detachable Warrants shall be considered and allotted, please refer to the sub-section titled “Basis of Allotment” under this section titled “Terms of the Issue” on page 154 of this Letter of Offer. If you desire to apply for additional Equity Shares with Detachable Warrants, please indicate your requirement in the place provided for additional Equity Shares with Detachable Warrants in Part A of the CAF. Options D and E: Renunciation of the Rights Entitlement: As an Equity Shareholder, you have the right to renounce your entitlement to the Equity Shares with Detachable Warrants, in full or in part, in favor of one or more persons. Your attention is drawn to the fact that our Company shall not allot and/or register any Equity Shares with Detachable Warrants, in favor of: • More than three persons, including joint holders • Partnership firms or their nominees • Minors • Hindu Undivided Families (HUFs) or • Trusts or Societies (unless registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or any other law applicable to trusts and societies and is authorised under its constitution or bye-laws to hold Equity Shares and Detachable Warrants of a company). The person(s) in whose favor any Equity Shares with Detachable Warrants are renounced should complete and sign Part C of the CAF and submit the CAF to the Bankers to the Issue on or prior to the Issue Closing Date along with the Application Money. Renouncees need not be existing Equity Shareholders of our Company. Renouncees who have subscribed for all the Equity Shares with Detachable Warrants renounced in their favor may also apply for additional Equity Shares with Detachable Warrants. However, the right of renunciation is subject to the express condition that the Board of Directors shall be entitled, in its absolute discretion, to reject the request from the renouncees for the allotment of Equity Shares with Detachable Warrants without assigning any reason thereof. Renunciation by and/or in favor of Non Residents: Any renunciation (i) from a resident Indian Equity Shareholder to a Non Resident, or (ii) from a Non Resident Equity Shareholder to a resident Indian, or (iii) from a Non Resident Equity Shareholder to a Non Resident is subject to the renouncer/renouncee obtaining the necessary approvals, including from the RBI under FEMA, and

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such approvals should be attached to the CAF. Applications not accompanied by the aforesaid approvals are liable to be rejected. No single FII can hold more than 10% of our Company’s post-issue paid-up share capital. In respect of an FII investing in the Equity Shares with Detachable Warrants on behalf of its sub-accounts, the investment on behalf of each sub-account shall not exceed 10% of the total paid-up share capital of our Company or 5% of the total paid-up share capital of our Company, in case such sub-account is a foreign corporate or an individual. Currently, the aggregate FII investment in our Company cannot exceed 24% of our Company’s total paid-up capital. With the approval of the Board and the Equity Shareholders by way of a special resolution, the aggregate FII holding can go up to 100%. However, as on the date of this Letter of Offer, our Company has not obtained any approval from the Board or the Equity Shareholders to increase the FII limit to more than 24%. Pursuant to Circular No. 14 dated September 16, 2003 issued by the RBI, OCBs have been derecognized as an eligible class of investors and the RBI has subsequently issued the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003. Accordingly, the existing Equity Shareholders of our Company who do not wish to subscribe for the Equity Shares with Detachable Warrants being offered but wish to renounce the same in favor of one or more persons shall not renounce the same (whether for consideration or otherwise) in favor of any OCB. Procedure for Renunciation:- (a) To renounce the entire Rights Entitlement in favor of one renouncee: If you wish to renounce the rights entitlement indicated in Part A, in whole, please complete Part B of the CAF and send it to the renouncee. In case of joint holding, all joint holders must sign Part B of the CAF. The renouncee should complete and sign Part C of the CAF. In case of joint renouncees, all joint renouncees must sign Part C of the CAF. Renouncees shall not be entitled to further renounce their entitlement in favor of any other person. (b) To renounce a part of the Rights Entitlement or the entire Rights Entitlement to more than one person: If you wish to either (i) accept the rights entitlement in part and renounce the balance or (ii) renounce the entire rights entitlement in favor of two or more renouncees, the CAF must be first split into the requisite number of forms. For this purpose, you shall have to apply to the Registrar to the Issue. Please indicate your requirement of split application forms in the space provided for this purpose in Part D of the CAF and return the CAF to the Registrar to the Issue so as to reach them at the latest by the close of business hours on the last date for receiving requests for split application forms. On receipt of the required number of split application forms from the Registrar to the Issue, the procedure as set out in paragraph (a) above will have to be followed. In case the signature of the Equity Shareholder, who has renounced the Equity Shares with Detachable Warrants, does not tally with the specimen registered with our Company, the application is liable to be rejected. A summary of the options available to the Equity Shareholders is set out below. You may exercise any of the following options with regard to the Equity Shares with Detachable Warrants offered, using the CAF: Option Description Action required:

Options Available Actions Required Accept your rights entitlement in full. Fill in and sign Part A. (All joint holders must sign) Accept your rights entitlement in part without renouncing the balance.

Fill in and sign Part A. (All joint holders must sign)

Accept your rights entitlement in full and apply for additional Equity Shares with Detachable Warrants.

Fill in and sign Part A including Block III relating to the acceptance of the rights entitlement and Block IV

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Options Available Actions Required relating to additional Equity Shares with Detachable Warrants. (All joint holders must sign)

Renounce your Rights Entitlement in full to: One person (Joint renouncees are considered as one) Fill in and sign Part B (all joint holders must sign)

indicating the number of Equity Shares with Detachable Warrants renounced and hand it over to the renouncee. The renouncee must complete and sign Part C. (All joint renounces must sign)

More than one person Fill in and sign Part D (all joint holders must sign) requesting for split application forms. Send the CAF to the Registrar to the Issue, so as to reach the Registrar on or prior to the last date for receiving requests for split application forms. Splitting will be permitted only once. Upon receipt of the split application form, take action as indicated below:

i. Fill in and sign Part B indicating the number of Equity Shares with Detachable Warrants renounced and hand it over to the renouncees.

ii. Each of the renouncees should Fill in and sign

Part C for the Equity Shares with Detachable Warrants accepted by them.

Accept a part of your rights entitlement and renounce the balance to one or more person(s)

Fill in and sign Part D (all joint holders must sign) requesting for split application forms. Send the CAF to the Registrar to the Issue, so as to reach the Registrar on or prior to the last date for receiving requests for split application forms. Splitting will be permitted only once. Upon receipt of the split application form, take action as indicated below:

i. For the Equity Shares with Detachable Warrants you wish to accept, Fill in and sign Part A. (All joint holders must sign)

ii. For the Equity Shares with Detachable Warrants you wish to renounce, Fill in and sign Part B indicating the number of Equity Shares with Detachable Warrants renounced and hand it over to the renouncees.

iii. Each of the renouncees should Fill in and

sign Part C for the Equity Shares with Detachable Warrants accepted by them.

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3. Change and/or Introduction of Additional Holders If you wish to apply for the Equity Shares with Detachable Warrants jointly with any other person(s), not more than three, who is/are not already a joint holder(s) with you, it shall amount to a renunciation and the procedure for renunciation, as applicable, set out above will have to be followed. Even a change in the sequence of the names of joint holders shall amount to a renunciation and the procedure for renunciation, as applicable, set out above will have to be followed. 4. Please note that:

1. Part A of the CAF must not be used by any persons other than those in whose favor the Issue has been made. If used, this will render the application invalid.

2. While applying for or renouncing their rights entitlement, joint holders must sign in the same order and as

per the specimen signatures registered with our Company.

3. A request by an Equity Shareholder for a split application form should be made for a minimum of one Equity Share with Detachable Warrant or in multiples thereof.

4. A request by an Equity Shareholder for a split application form should reach our Registrar on or prior to

March 11, 2010.

5. Only the person to whom the Letter of Offer has been addressed, and not the renouncee(s), shall be entitled to renounce and apply for split application forms. Forms once split cannot be split further.

6. Split forms will be sent to the applicants by post at the applicant’s risk.

7. In the case of a renunciation, the submission of the CAF to the Bankers to the Issue at the collecting

branches specified on the reverse of the CAF together with Part B of the CAF duly completed shall be conclusive evidence of the right of the person applying for the Equity Shares with Detachable Warrants to receive allotment of such Equity Shares with Detachable Warrants.

8. For details on completing the CAF and other general instructions, please follow the instructions indicated

on the reverse of the CAF. In addition, please refer to the sub-section titled “General Instructions for Applicants” under this section titled “Terms of the Issue” on page 159 of this Letter of Offer.

5. Availability of Duplicate CAFs In case the original CAF is not received, or is misplaced by the Equity Shareholder/applicant, the Registrar to the Issue will issue a duplicate CAF on the request of the Equity Shareholder/applicant who should furnish the registered folio number/ DP ID number and client ID number and his/her full name and address to the Registrar to the Issue. Please note that the request for a duplicate CAF should reach the Registrar to the Issue within eight days from the Issue Opening Date. Please note that those who are making the application in the duplicate form should not utilize the original CAF for any purpose, including renunciation, even if it is received or found subsequently. If the Equity Shareholder/applicant violates any of these requirements, he/she shall face the risk of rejection of both the applications. Our Company or the Registrar to the Issue will not be responsible for postal delays or loss, if any, of a duplicate CAF in transit. 6. Application on Plain Paper

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An Equity Shareholder who has not received the original CAF nor is in a position to obtain a duplicate CAF may make an application to subscribe for the Issue on plain paper, along with a cheque drawn on a local bank or a demand draft/pay order payable at Hyderabad in favor of the Bankers to the Issue, crossed account payee only and marked “The Andhra Pradesh Paper Mills Limited - Rights Issue” (in the case of a resident Equity Shareholder or a Non Resident Equity Shareholder applying on a non-repatriation basis) or “The Andhra Pradesh Paper Mills Limited -Rights Issue NR” (in the case of a Non Resident Equity Shareholder applying on a repatriation basis) and send the same by registered post directly to the Registrar to the Issue, to reach the Registrar to the Issue on or prior to the Issue Closing Date. An application on plain paper, duly signed by the Equity Shareholders, including any joint holders, in the same order as per the specimen recorded with our Company, should contain the following particulars:-

• Name of the issuer, being The Andhra Pradesh Paper Mills Limited. • Name and address of the Equity Shareholder, including any joint holders. • Registered folio number/DP ID number and client ID number. • Number of Equity Shares held as on the Record Date, i.e., February 24, 2010. • Rights Entitlement. • Number of Equity Shares with Detachable Warrants applied for. • Number of additional Equity Shares with Detachable Warrants applied for, if any. • Total number of Equity Shares with Detachable Warrants applied for. • Total Application Money paid at the rate of Rs.50.00 per Equity Share with Detachable Warrant. • Particulars of the cheque/demand draft/pay order. • Savings/Current Account Number and the name and address of the bank where the Equity Shareholder will

be depositing the refund order. In case of Equity Shares with Detachable Warrants allotted in demat mode, the bank account details will be obtained from the information available with the Depositories.

• The permanent account number (PAN) of the Equity Shareholder and where relevant, for each joint holder, except in respect of Central and State Government officials and officials appointed by the court (e.g., official liquidators and court receivers) who, in terms of a SEBI circular dated June 30, 2008, may be exempt from specifying their PAN for transacting in the securities market, subject to submitting sufficient documentary evidence in support of their claim for exemption, provided that such transactions are undertaken on behalf of the Central and State Government and not in their personal capacity.

• A representation that the Equity Shareholder is not a “U.S. Person” (as defined in Regulations under the Securities Act).

• Signature of the Equity Shareholders to appear in the same sequence and order as they appear in the records of our Company; and

• Additionally, Non Resident applicants shall include the following: “I/We will not offer, sell or otherwise transfer any of the Equity Shares with Detachable Warrants which may be acquired by us in any jurisdiction or under any circumstances in which such offer or sale is not authorised or to any person to whom it is unlawful to make such offer, sale or invitation except under circumstances that will result in compliance with any applicable laws or regulations. We satisfy, and each account for which we are acting satisfies, all suitability standards for investors in investments of the type subscribed for herein imposed by the jurisdiction of our residence. I/We understand and agree that the Equity Shares with Detachable Warrants may not be reoffered, resold, pledged or otherwise transferred except in an offshore transaction in compliance with Regulations, or otherwise pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act.” Please note that those who are making the application otherwise than on original CAF shall not be entitled to renounce their rights and should not utilize the original CAF for any purpose including renunciation even if it is

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received subsequently. If the Investor violates such requirements, he/she shall face the risk of rejection of both the applications. Our Company shall refund such application amount to the Investor without any interest thereon. The Equity Shareholders are requested to strictly adhere to these instructions. Failure to do so could result in the application being rejected, with our Company, the Lead Manager and the Registrar to the Issue not having any liability to such Equity Shareholders.

V. Submission of Application and Modes of Payment for the Issue

1. Procedure for Applications by Mutual Funds A separate application can be made in respect of each scheme of an Indian mutual fund registered with the SEBI and such applications shall not be treated as multiple applications. The applications made by asset management companies or custodians of a mutual fund should clearly indicate the name of the concerned scheme for which the application is being made.

2. Investment by FIIs In accordance with the current regulations, the following restrictions are applicable for investment by FIIs:- The Issue of Equity Shares under this Issue to a single FII should not exceed 10% of the post-issue paid up capital of our Company. In respect of an FII investing in the Equity Shares on behalf of its sub-accounts the investment on behalf of each sub-account shall not exceed 5% of the total paid up capital of our Company. In accordance with foreign investment limits applicable to our Company, the total FII investment cannot exceed 24% of the total paid up capital of our Company. The limit may be increased further if the shareholders so consent by way of a special resolution.

3. Investment by NRIs Investments by NRIs are governed by the Portfolio Investment Scheme under Regulation 5(3)(i) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.

4. For Resident Equity Shareholders or Applicants

Equity Shareholders or applicants who are applying through the CAF and residing at places where the bank collection centers have been opened by our Company for collecting applications, are requested to submit, on or prior to the Issue closing date, the completed CAFs at the corresponding collection center, together with a cheque/demand draft/pay order for the Application Money in favor of the Bankers to the Issue, crossed account payee only and marked “The Andhra Pradesh Paper Mills Limited -Rights Issue”. Equity Shareholders or applicants residing at places other than places where the bank collection centers have been opened by our Company for collecting applications, and Equity Shareholders who are applying on plain paper, are requested to send the completed CAF or plain paper application, as case may be, together with an at par cheque/demand draft/pay order payable at Hyderabad for the Application Money net of bank charges in respect of Demand Draft/ Pay order , crossed account payee only and marked “The Andhra Pradesh Paper Mills Limited -Rights Issue”, directly to the Registrar to the Issue, by registered post so as to reach the Registrar on or prior to the Issue closing date. Our Company or the Registrar to the Issue will not be responsible for postal delays or loss of applications in transit, if any.

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5. For Non Resident Equity Shareholders or Applicants

Application with repatriation benefits Non Resident Equity Shareholders or applicants applying on a repatriation basis are required to submit the completed CAF or the application on plain paper, as the case may be, along with payment in the following manner:-

• By Indian Rupee drafts purchased from abroad and payable at Hyderabad funds remitted from abroad (submitted along with a Foreign Inward Remittance Certificate); or

• By cheques/demand drafts/pay orders remitted through normal banking channels or out of funds held in

Non Resident External (NRE) Accounts or Foreign Currency Non Resident (FCNR) Accounts maintained in Hyderabad or with banks authorised to deal in foreign currency, along with documentary evidence in support of the remittance; or

• By Indian Rupee drafts purchased by debit to an NRE/FCNR Account maintained elsewhere in India and

payable at Hyderabad.

• FIIs registered with SEBI must remit funds from special nonresident rupee deposit accounts.

• For Equity Shareholders applying through a CAF, the CAF is to be sent to the bank collection center specified in the CAF, along with cheques/demand drafts/pay orders for the Application Money payable at Hyderabad in favor of the Bankers to the Issue and marked “The Andhra Pradesh Paper Mills Limited -Rights Issue NR” and must be crossed account payee only.

A separate cheque/demand draft/pay order must accompany each CAF. Non Resident Equity Shareholders or applicants may note that where payment is made by demand drafts purchased from NRE/FCNR Accounts as the case may be, an account debit certificate from the bank issuing the demand draft confirming that the demand draft has been issued by debiting the NRE/FCNR Account should be enclosed with the CAF. In the absence of the above, the CAF shall be considered incomplete and is liable to be rejected. In the case of NRIs who remit their Application Money from funds held in NRE/FCNR Accounts, refunds and other disbursements, if any, shall be credited to such accounts, details of which should be furnished in the appropriate columns in the CAF. In the case of NRIs who remit their Application Money through Indian Rupee demand drafts from abroad, refunds and other disbursements, if any, will be made in any convertible foreign currency at the rate of exchange prevailing at such time subject to the permission of the RBI and will be made net of bank charges or commission in US Dollars, at the rate of exchange prevailing at such time. Our Company will not be liable for any loss on account of exchange rate fluctuation for converting the Indian Rupee amount into any convertible foreign currency or for any collection charges charged by the applicant’s bankers. Payments through Non Resident Ordinary (NRO) Accounts will not be permitted. Neither our Company nor the Registrar to the Issue will be responsible for postal delays or loss, if any, of the application in transit. Application without repatriation benefits In the case of Non Resident Equity Shareholders or applicants applying on a non-repatriation basis, in addition to the modes specified above, payment may also be made by way of cheques drawn on NRO Accounts maintained in Hyderabad or Indian Rupee demand drafts purchased out of an NRO Account maintained elsewhere in India but payable at Hyderabad. In such cases, the allotment of Equity Shares with Detachable Warrants will be on a non-

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repatriation basis. For Non Resident Equity Shareholders or applicants applying through a CAF, the CAF is to be sent to the bank collection center specified in the CAF along with cheques/demand drafts/pay orders for the Application Money drawn in favor of the Bankers to the Issue and marked “The Andhra Pradesh Paper Mills Limited - NR” and must be crossed account payee only. Non Resident Equity Shareholders or applicants may note that where payment is made by demand drafts purchased from NRE/FCNR/NRO Accounts, as the case may be, an account debit certificate from the bank issuing the demand draft confirming that the demand draft has been issued by debiting such NRE/FCNR/NRO Account should be enclosed with the CAF. Otherwise the application shall be considered incomplete and is liable to be rejected. New demat accounts shall be opened for holders who have had a change in status from resident Indian to NRI. Note:

• In case repatriation benefits are available, interest, dividend and sales proceeds derived from the investment in Equity Shares can be remitted outside India, subject to tax, as applicable, according to the IT Act.

• In case Equity Shares are allotted on a non-repatriation basis, the dividend and sale proceeds of the Equity

Shares cannot be remitted outside India.

• The CAF duly completed together with the Application Money must be deposited with the Bankers to the Issue or any branches thereof indicated on the reverse of the CAF before the close of banking hours on or prior to the Issue Closing Date. A separate cheque/demand draft/pay order must accompany each CAF.

• In case of a CAF received from a Non Resident, allotment, refunds and other distributions, if any, will be made in accordance with the guidelines/rules prescribed by the RBI, as applicable at the time of making such allotment or remittance and subject to necessary approvals.

Last Date of Application The last date for submission of the duly completed CAF is March 18, 2010, i.e., the Issue Closing Date. The Board of Directors will have the right to extend the Issue Closing Date for such period as it may determine from time to time but not exceeding 30 days from the Issue Opening Date. If the CAF together with the Application Money is not received by the Bankers to the Issue or the Registrar to the Issue, as the case may be, on or prior to the close of banking hours on the Issue Closing Date or such extended date as may be fixed by the Board, the offer contained in the Letter of Offer shall be deemed to have been declined and the Board of Directors shall be at liberty to dispose of the Equity Shares with Detachable Warrants offered thereby, as provided under “Basis of Allotment” under this section “Terms of the Issue” on page 154 of this Letter of Offer.

VI. Basis of Allotment

Subject to the provisions contained in the Letter of Offer, the Articles of Association and the approval of the Designated Stock Exchange, the Board of Directors will proceed to allot the Equity Shares with Detachable Warrants in the following order of priority:-

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a) Full allotment to those Equity Shareholders who have applied for their Rights Entitlement either in full or in part and also to the renouncees who have applied for the Equity Shares with Detachable Warrants renounced in their favor, in full or in part.

b) If the shareholding of any Equity Shareholders is less than 11 or not in multiples of 11, then the fractional entitlements of such Equity Shareholders will be ignored, and such Equity Shareholders will be given preference in allotment of one additional Equity Share each if they have applied for additional Equity Shares with Detachable Warrants. Allotment under this head shall be considered if there are any unsubscribed Equity Shares with Detachable Warrants after allotment under (a) above. If the number of Equity Shares with Detachable Warrants required for allotment under this head are more than the number of Equity Shares with Detachable Warrants available after allotment under (a) above, the allotment will be made on a fair and equitable basis, in consultation with the Designated Stock Exchanges. For details in relation to fractional entitlements, see “Principal Terms and Conditions of the Issue of Equity Shares—Fractional Entitlements” above under this section titled “Terms of the Issue” on 139 of this Letter of Offer.

c) In case of Equity Shareholders who have applied for all the Equity Shares with Detachable Warrants offered to

them as part of the Issue and have also applied for additional Equity Shares with Detachable Warrants, the allotment of such additional Equity Shares with Detachable Warrants will be made as far as possible on a proportionate basis having due regard to the number of Equity Shares held by them on the Record Date, i.e., February 24, 2010, provided there is an unsubscribed portion after making full allotment under (a) and (b) above. The allotment of such Equity Shares with Detachable Warrants will be at the sole discretion of the Board of Directors in consultation with the Designated Stock Exchange, as a part of the Issue and not as a preferential allotment.

d) In case of renouncees who have applied for the Equity Shares with Detachable Warrants renounced in their favor

and have also applied for additional Equity Shares with Detachable Warrants, provided there is an unsubscribed portion after making full allotment under (a), (b) and (c) above, the allotment of such additional Equity Shares with Detachable Warrants will be made as far as possible on a proportionate basis at the sole discretion of the Board of Directors in consultation with the Designated Stock Exchange, as a part of the Issue and not as a preferential allotment.

e) Allotment to any other person as the Board of Directors may, in its absolute discretion, deem fit provided there is surplus available after making full allotment under (a), (b) (c) & (d), above. After taking into account allotment to be made under (a) and (b) above, if there is any unsubscribed portion, the same shall be deemed to be “undersubscribed” for the purposes of the proviso to Regulation 3(1)(b)(ii) of the Takeover Code which will be available for allocation under (c), (d) and (e) above.

Our Company expects to complete the allotment of Equity Shares within a period of 15 days from the Issue Closing Date in accordance with the Listing Agreements with the BSE and the NSE. In the event of oversubscription, allotment will be made within the overall size of the Issue. Our Company shall retain no over subscription. Basis of allotment of Detachable Warrants In case the number of additional Equity Shares applied for by the Warrant Holders exceeds the number of Equity Shares available for allotment, the allotment of such Equity Shares shall be made on a proportionate basis having due regard to the number of Detachable warrants held by them on the Warrant Record date on a fair and equitable basis, in consultation with the Designated Stock Exchange.

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VII. Allotment and Refund

Our Company will issue and dispatch allotment advice/letters of allotment/Share Certificates/demat credit and/or letters of regret along with refund orders or credit the allotted securities to the respective beneficiary accounts, if any, within a period of 15 days from the Issue closing date. If the amount to be refunded is not paid within eight days from the day our Company becomes liable to pay it, Company and every Director of our Company who is an officer in default shall be jointly and severally liable to repay the money with interest for the delayed period, at the rates stipulated under sub-sections (2) and (2A) of Section 73 of the Companies Act. In case of those Equity Shareholders or applicants who have opted to receive the Equity Shares in dematerialized form using electronic credit under the depository system, advice regarding their credit of the Equity Shares shall be given separately. In case of those Equity Shareholders or applicants who have opted to receive the Equity Shares in physical form and in respect of which our Company issues letters of allotment, the corresponding Share Certificates will be delivered within three months from the date of allotment thereof or such extended time as may be approved by the Central Government under Section 113 of the Companies Act or other applicable provisions, if any. Allottees are requested to preserve such letters of allotment, which will subsequently be exchanged for the Share Certificates. The allotment advice/letters of allotment and refund orders exceeding Rs.1, 500.00 will be sent by registered post to the sole/first applicant’s registered address in India. Refund orders up to the value of Rs.1, 500.00 will be sent under certificate of posting. Such refund orders will be payable at par at all places where the applications were originally accepted. The same will be marked “account payee only” and will be drawn in favor of the sole/first applicant. Adequate funds will be made available to the Registrar to the Issue for this purpose. Our Company shall ensure at par facility is provided for encashment of refund orders or pay orders at the places where applications are accepted. In the case of Non Resident Equity Shareholders or applicants who remit their Application Money from funds held in NRE/FCNR Accounts, refunds and/or payment of interest or dividend and other disbursements, if any, shall be credited to such accounts, the details of which should be furnished in the CAF. Subject to the approval of the RBI, in case of Non Resident Equity Shareholders or applicants who remit their Application Money through Indian Rupee demand drafts purchased from abroad, refund and/or payment of dividend or interest and any other disbursement, shall be credited to such accounts and will be made net of bank charges or commission in US Dollars, at the rate of exchange prevailing at such time. Our Company will not be responsible for any loss on account of exchange rate fluctuations for conversion of the Indian Rupee amount into US Dollars. The Share Certificate(s) will be sent by registered post to the address in India of the Non Resident Equity Shareholders or applicants. Printing of Bank Particulars on Refund Orders As a matter of precaution against possible fraudulent encashment of refund orders due to loss or misplacement, the particulars of the applicant’s bank account are mandatorily required to be given for printing on refund orders. Bank account particulars will be printed on the refund orders/refund warrants, which can then be deposited only in the account specified. Our Company will in no way be responsible if any loss occurs through these instruments falling into improper hands either through forgery or fraud. Mode of making Refunds The payment of refund, if any, will be through various modes in the following order of preference:-

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A. ECS

Payment of refund shall be undertaken through ECS for applicants having an account at any of the following 68 centers notified by SEBI: Ahmedabad, Bengaluru, Bhubaneshwar, Kolkata, Chandigarh, Chennai, Gauhati, Hyderabad, Jaipur, Kanpur, Mumbai, Nagpur, New Delhi, Patna, Thiruvananthapuram (managed by the RBI); Baroda, Dehradun, Nashik, Panaji, Surat, Trichy, Trichur, Jodhpur, Gwalior, Jabalpur, Raipur, Calicut, Siliguri (Non-MICR), Puducherry, Hubli, Shimla (Non-MICR), Tirupur, Burdwan (Non-MICR), Durgapur (Non- MICR), Sholapur, Ranchi, Tirupati (Non-MICR), Dhanbad (Non-MICR), Nellore (Non- MICR) and Kakinada (Non-MICR) (managed by State Bank of India); Agra, Allahabad, Jalandhar, Lucknow, Ludhiana, Varanasi, Kolhapur, Aurangabad, Mysore, Erode, Udaipur, Gorakpur and Jammu (managed by Punjab National Bank); Indore (managed by State Bank of Indore); Pune, Salem and Jamshedpur (managed by Union Bank of India); Visakhapatnam (managed by Andhra Bank); Mangalore (managed by Corporation Bank); Coimbatore and Rajkot (managed by Bank of Baroda); Kochi/Ernakulum (managed by State Bank of Travancore); Bhopal (managed by Central Bank of India); Madurai (managed by Canara Bank); Amritsar (managed by Oriental Bank of Commerce); Haldia (Non-MICR) (managed by United Bank of India); Vijaywada (managed by State Bank of Hyderabad); and Bhilwara (managed by State Bank of Bikaner and Jaipur). This mode of payment of refunds will be subject to availability of complete bank account details including the Magnetic Ink Character Recognition (“MICR”) code as appearing on a cheque leaf, from the Depositories. The payment of refunds through ECS is mandatory for applicants that have bank accounts at any of the 68 centers notified by SEBI, except where the applicant, being eligible, elects to receive refund through NEFT, direct credit or RTGS. B. NEFT

Payment of refund shall be undertaken through NEFT wherever the applicants’ bank has been assigned the Indian Financial System Code (“IFSC”), which can be linked to the MICR code, if any, available to that particular bank branch. The IFSC will be obtained from the website of the RBI as on a date immediately prior to the date of payment of refund, duly mapped with MICR codes. Wherever the applicants have registered their nine-digit MICR code and their bank account number while opening and operating the demat account, the same will be duly mapped with the IFSC of that particular bank branch and the payment of refund will be made to the applicants through this method. C. Direct Credit

Applicants that have bank accounts with the Bankers to the Issue shall be eligible to receive refunds through direct credit. Charges, if any, levied by the Bankers to the Issue for the same will be borne by our Company. D. RTGS

Applicants that have bank accounts at any of the 68 centers notified by SEBI and whose refund amount exceeds Rs. 50.00 lacs, have the option to receive refund through RTGS. Such eligible applicants who indicate their preference to receive refund through RTGS are required to provide the IFSC, the type of account, the account number and the branch where the account is maintained, in the CAF. In the event the IFSC is not provided, refund shall be made through ECS. Charges, if any, levied by the Refund Bank for the same will be borne by our Company. Charges, if any, levied by the applicant’s bank receiving the credit will be borne by the applicant. Please note that only applicants that have bank accounts at any of the 68 centers notified by SEBI where clearing houses for ECS are managed by the RBI are eligible to receive refunds through the modes detailed in (a), (b), (c) and (d) hereinabove. For all other applicants, including those who have not updated their bank particulars with the MICR code, the refund orders of value up to Rs.1,500 will be dispatched “Under Certificate of Posting” and through registered post for refund orders of Rs.1,500 and above. Such refunds will be made by refund orders, cheques, demand drafts or pay orders and will be payable at par.

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For applicants opting for allotment in physical mode, bank account details as mentioned in the CAF shall be considered for electronic credit or printing of refund orders, as the case may be. Refund orders will be made by cheques, demand drafts or pay orders drawn on the Refund Bank and will be payable at par at places where the applications were received and will be marked account payee only and will be drawn in the name of the sole/first applicant. The bank charges, if any, for encashing such cheques, demand drafts or pay orders at other centers will be payable by the applicants. Option to receive Equity Shares in Dematerialized Form The Equity Shares in the Issue shall be allotted to the Equity Shareholders or applicants in dematerialized (electronic) form at the option of the relevant Equity Shareholder or applicant. Our Company has entered into a tripartite agreement with the NSDL on 24th March, 2000 and with the CDSL on 21st March, 2000, which enables the investors to hold and trade in securities in dematerialized form, instead of holding the securities in the form of physical certificates. In the Issue, the Equity Shareholders or applicants who have opted for Equity Shares in dematerialized form will receive their Equity Shares in the form of an electronic credit to their beneficiary account with a Depository Participant. Investors will have to give the relevant particulars for this purpose in the appropriate place in the CAF. CAFs that do not accurately contain this information will be issued the Equity Shares in physical form. No separate applications for Equity Shares in physical and dematerialized form should be made. If such applications are made, the application for Equity Shares in physical form will be treated as multiple applications and is liable to be rejected. In case of partial allotment, allotment will be made in dematerialized form for the shares sought in dematerialized form and the balance, if any, may be allotted in physical form. The Equity Shares in the Issue will be listed on the BSE and the NSE and can be traded on the Stock Exchanges in dematerialized form only. The procedure for availing of the facility for allotment of Equity Shares in the Issue in dematerialized form is as set out below:-

a) Open a beneficiary account with any Depository Participant (care should be taken that the beneficiary account should carry the name of the holder in the same manner as is exhibited in the records of our Company. In the case of joint holding, the beneficiary account should be opened carrying the names of the holders in the same order as recorded with our Company). In case of investors having various folios in our Company with different joint holders, the investors will have to open separate accounts for such holdings. Those Equity Shareholders who have already opened such beneficiary accounts need not adhere to this step.

b) For Equity Shareholders already holding Equity Shares of our Company in dematerialized form as on the

Record Date, i.e., February 24, 2010, the beneficial account number shall be printed on the CAF. For those who open accounts later or those who change their accounts and wish to receive the Equity Shares by way of credit to such account, the necessary details of their beneficiary account should be completed in the space provided in the CAF. It may be noted that the allotment of the Equity Shares arising out of the Issue may be made in dematerialized form even if the original Equity Shares of our Company are not dematerialized. Nonetheless, it should be ensured that the depository account is in the name of the Equity Shareholder, or the joint holders, as the case may be, with the names appearing in the same order as in the records of our Company.

c) Responsibility for correctness of information (including the applicant’s age and other details) completed in

the CAF vis-à-vis such information with the applicant’s Depository Participant, will rest with the applicant. Applicants should ensure that the names of the applicants and the order in which they appear in the CAF should be the same as registered with the applicant’s Depository Participant.

d) Applicants must necessarily complete the details (including the beneficiary account number or client ID

number) appearing in the CAF under the heading “Request for Shares in Electronic Form”.

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e) The Equity Shares allotted to an applicant in dematerialized form will be credited directly to the applicant’s

beneficiary account with the Depository Participant as provided in the CAF, and the Depository Participant will provide the applicant confirmation of such credit.

f) Non-transferable allotment advice/refund orders will be directly sent to the applicant by the Registrar to the

Issue.

g) If incomplete/incorrect details are provided under the heading “Request for Shares in Electronic Form” in the CAF, the applicant will be issued the Equity Shares in physical form.

h) Renouncees can also exercise the option to receive Equity Shares in dematerialized form by indicating in

the relevant block and providing the necessary details about their beneficiary account.

i) It may be noted that Equity Shares in dematerialized form can be traded only on the Stock Exchanges that have electronic connectivity with the NSDL or the CDSL. Dividend or other benefits with respect to the Equity Shares held in dematerialized form will be paid to those Equity Shareholders whose names appear in the list of beneficial owners given by the Depository Participant to our Company as on the Record Date, i.e., February 24, 2010.

VIII. General Instructions for Applicants

Please read the instructions printed on the CAF carefully. Except as provided under “Application on Plain Paper” under this section titled “Terms of the Issue” on page 163 of this Letter of Offer, the application should be made on the printed CAF provided by our Company and should be completed in all respects. A CAF found incomplete with regard to any of the particulars required to be given therein, and/or which is not completed in conformity with the terms of the Letter of Offer, is liable to be rejected and the Application Money paid, if any, in respect thereof will be refunded without interest and after deduction of any bank commission and other charges. The CAF must be completed in English and the names of all the applicants, details of occupation, address, father’s/husband’s name must be completed in block letters. The CAF together with a cheque/demand draft/pay order should be sent to the Bankers to the Issue/bank collection centers or to the Registrar to the Issue, as the case may be, and not to our Company or the Lead Manager. Applicants residing at places other than cities where the branches of the Bankers to the Issue have been authorised by our Company for collecting applications, will have to make payment by account payee cheques drawn on a local bank or a demand draft/pay order payable at Hyderabad in favor of the Bankers to the Issue, crossed account payee only and marked “The Andhra Pradesh Paper Mills Limited - Rights Issue” and send their application forms directly to the Registrar to the Issue, by registered post to reach them on or prior to the Issue Closing Date. If any portion of the CAF is detached or separated, such application is liable to be rejected. The applicant or in the case of an application in joint names, each of the applicants, should mention his/her PAN allotted under the Income Tax Act, 1961. CAFs without the PAN will be considered incomplete and are liable to be rejected. In terms of a SEBI circular dated June 30, 2008, Central and State Government officials and officials appointed by the court (e.g., official liquidators and court receivers) may be exempt from specifying their PAN for transacting in the securities market, subject to submitting sufficient documentary evidence in support of their claim for exemption, provided that such transactions are undertaken on behalf of the Central and State Government and not in their personal capacity.

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APPLICANTS MAY PLEASE NOTE THAT FOR EQUITY SHARES HELD IN DEMATERIALIZED MODE, THE BANK ACCOUNT DETAILS WILL BE OBTAINED FROM THE DEPOSITORY PARTICIPANT. ACCORDINGLY, APPLICANTS SHOULD ENSURE THAT THEIR BANK ACCOUNT DETAILS ARE UPDATED WITH THE DEPOSITORIES.

a) Applicants are advised to provide information as to their savings/current account number, nine-digit MICR code and the name of the bank and the branch with whom such account is held, in the CAF to enable the Registrar to the Issue to print the said details in the refund orders, if any, after the names of the payees.

b) The payment against the application should not be effected in cash if the amount to be paid is in excess of

Rs.20,000. In case payment is effected in contravention of this, the application may be deemed invalid and the Application Money will be refunded, without payment of any interest thereon. Payment against the application if made in cash, subject to the conditions mentioned above, should be made only to the Bankers to the Issue.

c) Signatures should be either in English, Hindi or in any other language specified in the Eighth Schedule to

the Constitution of India. Signatures other than in English, Hindi or in any other language specified in the Eighth Schedule to the Constitution of India, and thumb impressions must be attested by a Notary Public or a Special Executive Magistrate under his/her official seal. The Equity Shareholders must sign the CAF as per the specimen signature recorded with our Company.

d) In case of an application under power of attorney or by a body corporate or by a society, a certified true

copy of the relevant power of attorney or relevant resolution or authority to the signatory to make the relevant investment under the Issue and to sign the application and a copy of the memorandum and articles of association and/or bye laws of such body corporate or society must be lodged with the Registrar to the Issue, giving reference of the serial number of the CAF. In case these papers are sent to any other entity besides the Registrar to the Issue, or are sent after the Issue Closing Date, then the application is liable to be rejected.

e) In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per

the specimen signature(s) recorded with our Company. Further, in case of joint applicants who are renouncees, the number of applicants should not exceed three. In case of joint applicants, reference, if any, will be made in the first applicant’s name and all communication will be addressed to the first applicant.

f) Applications received from Non Residents, including from persons of Indian origin residing outside India,

for the allotment of Equity Shares and the Detachable Warrants shall, inter alia, be subject to such conditions, as may be imposed from time to time by the RBI or any regulatory authority under FEMA and any other applicable law, rule or regulation in the matter of refund of Application Money, allotment of Equity Shares and the Detachable Warrants, subsequent issue and allotment of Equity Shares, export of the Consolidated Certificates, etc. In case a Non Resident Equity Shareholder has specific approval from the RBI in connection with his shareholding, he should enclose a copy of such approval with the CAF.

g) All communication in connection with application for the Equity Shares with Detachable Warrants,

including any change in address of the Equity Shareholders should be addressed to the Registrar to the Issue, prior to the date of allotment in the Issue quoting the name of the first/sole applicant, folio numbers and serial number of the CAF. Please note that any intimation for change of address of Equity Shareholders, after the date of allotment, should be sent to the Registrar to the Issue in the case of Equity Shares held in physical form and to the respective Depository Participant, in case of Equity Shares held in dematerialized form.

h) Split application forms cannot be re-split.

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i) Only the person or persons to whom Equity Shares with Detachable Warrants have been offered, and not

renouncees, shall be entitled to obtain split application forms.

j) Applicants must write the serial number of their CAF on the reverse of the cheque/demand draft/pay order.

k) Only one mode of payment per application should be used. The payment must be either in cash (subject to the limits specified above) or by cheque/demand draft/pay order drawn on any of the banks, including a co-operative bank, which is situated at and is a member or a sub-member of the bankers clearing house located at the center indicated on the reverse of the CAF where the application is to be submitted.

l) A separate cheque/demand draft/pay order must accompany each CAF. Outstation cheques/demand

drafts/pay order or post-dated cheques and postal/money orders will not be accepted and applications accompanied by such cheques/demand drafts/money orders or postal orders will be rejected. For details of the restriction on payment in cash, please refer to paragraph (b) above.

m) No receipt will be issued for the Application Money received. The Bankers to the Issue/Collecting

Bank/Registrar will acknowledge receipt of the same by stamping and returning the acknowledgment slip at the bottom of the CAF.

Grounds for Technical Rejections Applicants are advised to note that applications are liable to be rejected on technical grounds, including the following:-

• The Application Money paid does not tally with the amount payable in respect of the Equity Shares with Detachable Warrants.

• In case of Equity Shares held in physical form, bank account details (for refund) are not given. • The age of the first applicant is not given while completing Part C of CAF. • The PAN is not given. • In case of applications under powers of attorney or by limited companies, bodies corporate, trusts, etc.

relevant documents are not submitted. • If the signature of the existing Equity Shareholder does not match with the one given on the CAF, and for

renouncees, if the signature does not match with the records available with their Depositories. • If the applicant wishes to receive Equity Shares in dematerialized form , but the CAF does not have the

applicant’s depository account details. • CAFs are not submitted by the applicants within the time prescribed as per the CAF and the Draft Letter of

Offer. • Applications are not duly signed by the sole/joint applicants. • Applications by OCBs unless accompanied by specific approval from the RBI permitting the OCBs to

invest in the Issue. • Applications accompanied by Stock invest. • In case no corresponding record is available with the Depositories that matches three parameters, namely,

names of the applicants (including the order of names of joint holders), the Depository Participant’s identity (DP ID) and the beneficiary’s identity.

• Applications that do not include the certification set out in the CAF to the effect that the subscriber is not a U.S. Person and is purchasing the Equity Shares with Detachable Warrant in an “offshore transaction” (as defined in Regulations), and is authorised to acquire the Equity Shares with Detachable Warrantin compliance with all applicable laws and regulations.

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• Applications by ineligible Non Residents (including on account of restrictions or prohibition under applicable local laws) and where a registered address in India has not been provided;

• Applications where our Company believes that the CAF is incomplete or acceptance of such CAF may infringe applicable legal or regulatory requirements; or

• Multiple applications, including where an applicant submits a CAF and a plain paper application. Procedure for application through the Applications Supported by Blocked Amount ("ASBA") Process SEBI, by its circular dated December 30, 2009, extended ASBA process facility to all the shareholders of the issuer company. Since this is a new mode of payment in Rights Issues, set forth below is the procedure for applying under the ASBA procedure, for the benefit of the shareholders. This section is only to facilitate better understanding of aspects of the procedure which is specific to ASBA Investors. ASBA Investors should nonetheless read this document in entirety. Our Company and the Lead Manager are not liable for any amendments or modifications or changes in applicable laws or regulations, which may occur after the date of this Letter of Offer. Equity Shareholders who are eligible to apply under the ASBA Process are advised to make their independent investigations and ensure that the number of Equity Shares applied for by such Equity Shareholders do not exceed the applicable limits under laws or regulations. ASBA Process An ASBA Investor can submit his application through CAF/plain paper, either in physical or electronic mode, to the SCSB with whom the bank account of the ASBA Investor or bank account utilized by the ASBA Investor is maintained. The SCSB shall block an amount equal to the application amount in the ASBA Account specified in the CAF, physical or electronic, on the basis of an authorization to this effect given by the account holder at the time of submitting the CAF. The application data shall thereafter be uploaded by the SCSB in the web enabled interface of the Stock Exchanges as prescribed under circular issued by SEBI -SEBI/CFD/DIL/DIP/38/2009/08/20 dated August 20, 2009 read with SEBI circular no. SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009 or in such manner as may be decided in consultation with the Stock Exchanges. The amount payable on application shall remain blocked in the ASBA Account until finalization of the Basis of Allotment and consequent transfer of the amount against the allocated Equity Shares to the separate account opened by our Company for Rights Issue or until failure of the Issue or until rejection of the ASBA application, as the case may be. Once the basis of Allotment is finalized, the Registrar to the Issue shall send an appropriate request to the Controlling Branch for unblocking the relevant ASBA Accounts and for transferring the amount allocable to the successful ASBA Investors to the separate account opened by our Company for Rights Issue. In case of withdrawal/failure of the Issue, the blocked amount shall be unblocked on receipt of such information from the Registrar to the Issue The Lead Manager, our Company, its directors, affiliates, associates and their respective directors and officers and the Registrar to the Issue shall not take any responsibility for acts, mistakes, errors, omissions and commissions etc. in relation to applications accepted by SCSBs, Applications uploaded by SCSBs, applications accepted but not uploaded by SCSBs or applications accepted and uploaded without blocking funds in the ASBA Accounts. It shall be presumed that for applications uploaded by SCSBs, the amount payable on application has been blocked in the relevant ASBA Account. Equity Shareholders who are eligible to apply under the ASBA Process The option of applying for Equity Shares in this Issue through the ASBA Process is only available to the following Equity Shareholders of our Company on the Record Date, i.e., February 24, 2010. Equity Shareholders who:-

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• Holds the shares of our Company in dematerialized form as on the Record Date, i.e., February 24, 2010 and has applied for entitlements and / or additional shares in dematerialized form.

• Has not renounced his/her entitlements in full or in part.

• Is not a renouncee.

• Is applying through a bank account maintained with SCSBs.

CAF The Registrar will despatch the CAF to all Equity Shareholders as per their entitlement on the Record Date for the Issue. Those Equity Shareholders who wish to apply through the ASBA payment mechanism, will have to select for this mechanism in Part A of the CAF and provide necessary details or in plain paper application and indicate that they wish to apply through ASBA payment mechanism. Application in electronic mode will only be available with such SCSB who provides such facility. The Equity Shareholder shall submit the CAF/plain paper application to the SCSB for authorising such SCSB to block an amount equivalent to the amount payable on the application in the said bank account maintained with the same SCSB. Equity Shareholders applying under the ASBA Process are also advised to ensure that the CAF is correctly filled up, stating therein the bank account number maintained with the SCSB in which an amount equivalent to the amount payable on application as stated in the CAF will be blocked by the SCSB. Application on Plain Paper An Equity Shareholder who has neither received the original CAF nor is in a position to obtain a duplicate CAF and wanting to apply under ASBA process may make an application to subscribe for the Issue on plain paper. The application on plain paper, duly signed by the applicants including joint holders, in the same order as per specimen recorded with our Company, must be submitted at a designated branch of a SCSB on or before the Issue Closing Date and should contain the following particulars:- • Name of the issuer, being The Andhra Pradesh Paper Mills Limited. • Name and address of the Equity Shareholder, including any joint holders. • Registered folio number/DP ID number and client ID number. • Number of Equity Shares held as on the Record Date, i.e., February 24, 2010. • Rights Entitlement. • Number of Equity Shares with Detachable Warrants applied for. • Number of additional Equity Shares with Detachable Warrant applied for, if any. • Total number of Equity Shares with Detachable Warrant applied for. • Savings/Current Account Number along with name and address of the SCSB and Branch from which the money

will be blocked. • The permanent account number (PAN) of the Equity Shareholder and where relevant, for each joint holder, except

in respect of Central and State Government officials and officials appointed by the court (e.g., official liquidators and court receivers) who, in terms of a SEBI circular dated June 30, 2008, may be exempt from specifying their PAN for transacting in the securities market, subject to submitting sufficient documentary evidence in support of their claim for exemption, provided that such transactions are undertaken on behalf of the Central and State Government and not in their personal capacity.

• A representation that the Equity Shareholder is not a “U.S. Person” (as defined in Regulations under the Securities Act).

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• Signature of the Equity Shareholders to appear in the same sequence and order as they appear in the records of our Company.

• In case of Non Resident Shareholders, NRE/FCNR/NRO A/c no. Name and address of the SCSB and Branch. • In the application, the ASBA Investor shall, inter alia, give the following confirmations/declarations:-

• That he/she is an ASBA Investor as per the SEBI ICDR.

• That he/she has authorized the SCSBs to do all acts as are necessary to make an application in the Issue, upload his/her application data, block or unblock the funds in the ASBA Account and transfer the funds from the ASBA Account to the separate account maintained by our Company for Rights Issue after finalization of the basis of Allotment entitling the ASBA Investor to receive Equity Shares in the Issue etc.

• The Equity Shareholder shall submit the plain paper application to the SCSB for authorising such SCSB to

block an amount equivalent to the amount payable on the application in the said bank account maintained with the same SCSB If an applicant makes an application in more than one mode i.e both in the Composite Application.

• Form and on plain paper, then both the applications may be liable for rejection. The list of banks who have

been notified by SEBI to act as SCSB for the ASBA Process are provided on http://www.sebi.gov.in/pmd/scsb.html. For details on designated branches of SCSB collecting the CAF, please refer the above mentioned SEBI link.

Acceptance of the Issue The Equity Shareholder may accept the Issue and apply for the Equity Shares offered, either in full or in part, by filling Part A of the CAF sent by the Registrar, selecting the ASBA process option in Part A of the CAF and submit the same to the SCSB before the close of the banking hours on or before the Issue Closing Date or such extended time as may be specified by the Board of Directors of our Company in this regard. Mode of payment The Equity Shareholder applying under the ASBA Process agrees to block the entire amount payable on application (including for additional Equity Shares, if any) with the submission of the CAF, by authorizing the SCSB to block an amount, equivalent to the amount payable on application, in a bank account maintained with the SCSB. After verifying that sufficient funds are available in the bank account provided in the CAF, the SCSB shall block an amount equivalent to the amount payable on application mentioned in the CAF until it receives instructions from the Registrars. Upon receipt of intimation from the Registrar, the SCSBs shall transfer such amount as per Registrar’s instruction allocable to the Equity Shareholders applying under the ASBA Process from bank account with the SCSB mentioned by the Equity Shareholder in the CAF. This amount will be transferred in terms of the SEBI ICDR, into the separate bank account maintained by our Company as per the provisions of section 73(3) of the Companies Act. The balance amount remaining after the finalisation of the basis of allotment shall be either unblocked by the SCSBs or refunded to the investors by the Registrar on the basis of the instructions issued in this regard by the Registrar to the Issue and the Lead Manager to the respective SCSB. The Equity Shareholders applying under the ASBA Process would be required to block the entire amount payable on their application at the time of the submission of the CAF. The SCSB may reject the application at the time of acceptance of CAF if the bank account with the SCSB, details of which have been provided by the Equity Shareholder in the CAF, does not have sufficient funds equivalent to the amount payable on application mentioned in the CAF. Subsequent to the acceptance of the application by the SCSB, our Company would have a right to reject the application only on technical grounds.

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Options available to the Equity Shareholders applying under the ASBA Process The summary of options available to the Equity Shareholders is presented below. The Equity Shareholder may exercise any of the following options with regard to the Equity Shares offered, using the respective CAFs received from Registrar:-

S. No. Options available Requirement 1 Accept whole or part of your entitlement

without renouncing the Balance. Fill in and sign Part A of the CAF (All joint holders must sign).

2 Accept your entitlement in full and apply for additional Equity Shares.

Fill in and sign Part A including Block III relating to the acceptance of entitlement and Block IV relating to additional Equity Shares (All joint holders must sign)

The Equity Shareholder(s) applying under the ASBA Process will need to select the ASBA option process in the CAF and provide required necessary details. However, in cases where this option is not selected, but the CAF is tendered to the SCSB with the relevant details required under the ASBA process option and SCSB blocks the requisite amount, then that CAF would be treated as if the Equity Shareholder has selected to apply through the ASBA process option. Additional Equity Shares The Equity Shareholder is eligible to apply for additional Equity Shares over and above the number of Equity Shares that he is entitled to, provided that he has applied for all the Equity Shares offered without renouncing them in whole or in part in favour of any other person(s). Applications for additional Equity Shares shall be considered and allotment shall be made at the sole discretion of the Board, in consultation with the Designated Stock Exchange and in the manner prescribed under “Basis of Allotment” on page 154 of this Letter of Offer. The allotment of additional equity shares will be made on an equitable basis with reference to number of shares held by you on the Record Date, i.e., February 24, 2010. If a Shareholder desires to apply for additional Equity Shares, he should indicate his requirement in the place provided for additional securities in Part A of the CAF. Renunciation under the ASBA Process Renouncees cannot participate in the ASBA Process. Last date of Application The last date for submission of the duly filled in CAF/plain paper application is March 18, 2010. The Issue will be kept open for a minimum of 15 days and the Board or any committee thereof will have the right to extend the said date for such period as it may determine from time to time but not exceeding 30 (thirty) days from the Issue Opening Date. If the CAF/plain paper application is not received by the SCSB on or before the close of banking hours on the aforesaid last date or such date as may be extended by the Board/Committee of Directors, the offer contained in this Letter of Offer shall be deemed to have been declined and the Board/Committee of Directors shall be at liberty to dispose off the Equity Shares hereby offered, as provided under “Basis of Allotment”. Option to receive securities in Dematerialized Form EQUITY SHAREHOLDERS UNDER THE ASBA PROCESS MAY PLEASE NOTE THAT THE EQUITY SHARES OF OUR COMPANY UNDER THE ASBA PROCESS CAN ONLY BE ALLOTTED IN DEMATERIALIZED FORM AND TO THE SAME DEPOSITORY ACCOUNT IN WHICH THE EQUITY SHARES ARE BEING HELD ON RECORD DATE, i.e., FEBRUARY 24, 2010.

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Issuance of Intimation Letters Upon approval of the basis of Allotment by the Designated Stock Exchange, the Registrar to the Issue shall send the Controlling Branches, a list of the ASBA Investors who have been allocated Equity Shares in the Issue, along with:-

• The number of Equity Shares to be allotted against each successful ASBA. • The amount to be transferred from the ASBA Account to the separate account opened by our Company for

Rights Issue, for each successful ASBA. • The date by which the funds referred to in para above, shall be transferred to separate account opened by

our Company for Rights Issue. • The details of rejected ASBAs, if any, along with reasons for rejection to enable SCSBs to unblock the

respective ASBA Accounts. General instructions for Equity Shareholders applying under the ASBA Process a) Please read the instructions printed on the CAF carefully. b) Application made in CAF should be completed in all respects. The CAF found incomplete with regard to any of

the particulars required to be given therein, and/or which are not completed in conformity with the terms of this Letter of Offer is liable to be rejected. The CAF/plain paper application must be filled in English.

c) The CAF/plain paper application in the ASBA Process should be submitted at a Designated Branch of the SCSB and whose bank account details are provided in the CAF and not to the Bankers to the Issue/ Collecting Banks (assuming that such Collecting Bank is not a SCSB), to our Company or Registrar or Lead Manager to the Issue. Alternatively the shareholders can submit the form electronically through the internet banking facility offered by SCSB.

d) All applicants, and in the case of application in joint names, each of the joint applicants, should mention his/her PAN allotted under the Income-Tax Act, 1961, irrespective of the amount of the application. CAFs/plain paper applications without PAN will be considered incomplete and are liable to be rejected.

e) All payments will be made by blocking the amount in the bank account maintained with the SCSB. Cash payment is not acceptable. In case payment is affected in contravention of this, the application may be deemed invalid and the application money will be refunded and no interest will be paid thereon.

f) Signatures should be either in English or Hindi or in any other language specified in the Eighth Schedule to the Constitution of India. Signatures other than in English or Hindi and thumb impression must be attested by a Notary Public or a Special Executive Magistrate under his/her official seal. The Equity Shareholders must sign the CAF/plain paper application as per the specimen signature recorded with our Company/or Depositories.

g) In case of joint holders, all joint holders must sign the relevant part of the CAF/plain paper application in the same order and as per the specimen signature(s) recorded with our Company. In case of joint applicants, reference, if any, will be made in the first applicant’s name and all communication will be addressed to the first applicant.

h) All communication in connection with application for the securities, including any change in address of the Equity Shareholders should be addressed to the Registrar to the Issue prior to the date of allotment in this Issue quoting the name of the first/sole applicant Equity Shareholder, folio numbers and CAF number.

i) Only the person or persons to whom securities have been offered and not Renouncee(s) shall be eligible to participate under the ASBA process.

Do’s:

• Ensure that the ASBA Process option is selected in part A of the CAF and necessary details are filled in. • In case of non-receipt of the CAF, the Application can be made on a Plain Paper with all the necessary

details as required under para ‘Application on Plain Paper’ appearing under procedure for application under ASBA.

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• Ensure that you submit your application in physical mode only. Electronic mode is only available with certain SCSBs and not all SCSBs and you should ensure that your SCSB offers such facility to you.

• Ensure that the details about your Depository Participant and beneficiary account are correct and the beneficiary account is activated as Equity Shares will be allotted in the dematerialized form only.

• Ensure that the CAFs/plain paper applications are submitted at the SCSBs whose details of bank account have been provided in the CAF.

• Ensure that you have mentioned the correct bank account number in the CAF plain paper application. • Ensure that there are sufficient funds (equal to {number of Equity Shares applied for} x {Issue Price of

Equity Shares) available in the bank account maintained with the SCSB mentioned in the CAF/plain paper application before submitting the CAF/ plain paper application to the respective Designated Branch of the SCSB.

• Ensure that you have authorised the SCSB for blocking funds equivalent to the total amount payable on application mentioned in the CAF/ plain paper application, in the bank account maintained with the respective SCSB, of which details are provided in the CAF/ plain paper application and have signed the same.

• Ensure that you receive an acknowledgement from the SCSB for your submission of the CAF/ plain paper application in physical form.

• Each applicant should mention their Permanent Account Number (“PAN”) allotted under the Income Tax Act, 1961.

• Ensure that the name(s) given in the CAF/plain paper application is exactly the same as the name(s) in which the beneficiary account is held with the Depository Participant. In case the CAF/plain paper application is submitted in joint names, ensure that the beneficiary account is also held in same joint names and such names are in the same sequence in which they appear in the CAF/plain paper application.

• Ensure that the Demographic details are updated, true and correct, in all respects. Don’ts:

• Do not apply on duplicate CAF after you have submitted a CAF to a Designated Branch of the SCSB. • Do not send your physical CAFs/ plain paper applications to the Lead Manager to Issue / Registrar /

Collecting Banks (assuming that such Collecting Bank is not a SCSB) / to a branch of the SCSB which is not a Designated Branch of the SCSB / Company; instead submit the same to a Designated Branch of the SCSB only.

• Do not submit the GIR number instead of the PAN as the application is liable to be rejected on this ground. • Do not instruct your respective banks to release the funds blocked under the ASBA Process. • Grounds for technical rejection under the ASBA Process, in addition to the grounds listed under “Grounds

for Technical Rejection” on page 161 of this Letter of Offer, applications under the ASBA Process are liable to be rejected on the following grounds:

Application for entitlements or additional shares in physical form. DP ID and Client ID mentioned in CAF/plain paper application not matching with the DP ID and

Client ID records available with the Registrar. Sending CAF/plain paper application to a Lead Manager / Registrar / Collecting Bank (assuming

that such Collecting Bank is not a SCSB) / to a branch of a SCSB which is not a Designated Branch of the SCSB / Company.

Renouncee applying under the ASBA Process. Insufficient funds are available with the SCSB for blocking the amount. Funds in the bank account with the SCSB whose details are mentioned in the CAF/ plain paper

application having been frozen pursuant to regulatory orders. Account holder not signing the CAF/plain paper application or declaration mentioned therein. PAN not stated. Signature of sole/joint shareholder missing in the CAF

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CAF not submitted within the prescribed time Application on split form.

COMMUNICATIONS All future communication in connection with ASBA applications made in this Issue should be addressed to the Registrar to the Issue quoting the full name of the sole or First ASBA Investor, CAF number, details of Depository Participant, number of Equity Shares applied for, date of CAF, name and address of the Designated Branch where the application was submitted and bank account number of the ASBA Account, with a copy to the relevant SCSB. The Registrar to the Issue shall obtain the required information from the SCSBs for addressing any clarifications or grievances. The SCSB shall be responsible for any damage or liability resulting froFm any errors, fraud or willful negligence on the part of any employee of the concerned SCSB, including its Designated Branches and the branches where the ASBA Accounts are held. ASBA Investors can contact the Compliance Officer, the Designated Branch where the application was submitted, or the Registrar to the Issue in case of any pre or post-issue related problems such as non-receipt of credit of allotted Equity Shares in the respective beneficiary accounts, blocking of excess Amount, etc. Disposal of Investor Grievances All grievances relating to the ASBA may be addressed to the Registrar to the Issue, with a copy to the SCSB, giving full details such as name, address of the applicant, number of Equity Shares applied for, Amount blocked on application, bank account number of the ASBA Account number and the Designated Branch or the collection centre of the SCSB where the CAF was submitted by the ASBA Investors. Depository account and bank details for Equity Shareholders applying under the ASBA Process IT IS MANDATORY FOR ALL THE EQUITY SHAREHOLDERS APPLYING UNDER THE ASBA PROCESS TO RECEIVE THEIR EQUITY SHARES IN DEMATERIALISED FORM. ALL THE EQUITY SHAREHOLDERS APPLYING UNDER THE ASBA PROCESS SHOULD MENTION THEIR DEPOSITORY PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE CAF/PLAIN PAPER APPLICATION. EQUITY SHAREHOLDERS APPLYING UNDER THE ASBA PROCESS MUST ENSURE THAT THE NAME GIVEN IN THE CAF/PLAIN PAPER APPLICATION IS EXACTLY THE SAME AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. IN CASE THE CAF IS SUBMITTED IN JOINT NAMES, IT SHOULD BE ENSURED THAT THE DEPOSITORY ACCOUNT IS ALSO HELD IN THE SAME JOINT NAMES AND ARE IN THE SAME SEQUENCE IN WHICH THEY APPEAR IN THE CAF/PLAIN PAPER APPLICATION. Equity Shareholders applying under the ASBA Process should note that on the basis of name of these Equity Shareholders, Depository Participant’s name and identification number and beneficiary account number provided by them in the CAF/plain paper application, the Registrar to the Issue will obtain from the Depository demographic details of these Equity Shareholders such as address, bank account details for printing on refund orders and occupation. Hence, Equity Shareholders applying under the ASBA Process should carefully fill in their Depository Account details in the CAF/Plain paper application. These Demographic Details would be used for all correspondence with such Equity Shareholders including mailing of the letters intimating unblock of bank account of the respective Equity Shareholder. The Demographic details given by Equity Shareholders in the CAF/plain paper application would not be used for any other purposes by the Registrar. Hence, Equity Shareholders are advised to update their Demographic details as provided to their Depository Participants. By signing the CAFs/plain paper application, the Equity Shareholders applying under the

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ASBA Process would be deemed to have authorised the Depositories to provide, upon request, to the Registrar to the Issue, the required Demographic details as available on its records. Letters intimating allotment and unblocking or refund (if any) would be mailed at the address of the Equity Shareholder applying under the ASBA Process as per the Demographic details received from the Depositories. Refunds, if any, will be made directly to the bank account in the SCSB and which details are provided in the CAF/plain paper application and not the bank account linked to the DP ID. Equity Shareholders applying under the ASBA Process may note that delivery of letters intimating unblocking of bank account may get delayed if the same once sent to the address obtained from the Depositories are returned undelivered. In such an event, the address and other details given by the Equity Shareholder in the CAF/plain paper application would be used only to ensure dispatch of letters intimating unblocking of bank account. Note that any such delay shall be at the sole risk of the Equity Shareholders applying under the ASBA Process and none of our Company, the SCSBs, the Lead Manager or the Registrar to the Issue shall be liable to compensate the Equity Shareholder applying under the ASBA Process for any losses caused to such Equity Shareholder due to any such delay or liable to pay any interest for such delay. In case no corresponding record is available with the Depositories that match three parameters, namely, names of the Equity Shareholders (including the order of names of joint holders), the DP ID and the beneficiary account number, then such applications are liable to be rejected. Disposal of CAFs and Application Money The Board of Directors reserves its full, unqualified and absolute right to accept or reject any application, in whole or in part, and in each case without assigning any reason therefor. In case an application is rejected in full, the whole of the Application Money received will be refunded. Wherever an application is rejected in part, the balance of the Application Money, if any, after adjusting any money due on the Equity Shares with Detachable Warrants allotted, will be refunded to the applicant within 15 days from the Issue closing date. For further instructions, please read the CAF carefully. Utilisation of Issue Proceeds The Board of Directors declares that: (i) All monies received out of this Issue shall be transferred to a separate bank account other than the bank account referred to sub-section (3) of Section 73 of the Companies Act; (ii) Details of all monies utilized out of the Issue shall be disclosed under an appropriate separate head in the balance sheet of our Company indicating the purpose for which such monies have been utilized; and (iii) Details of all unutilized monies out of the Issue, if any, shall be disclosed under an appropriate separate head in the balance sheet of our Company indicating the form in which such unutilized monies have been invested. (iv) Our Company may utilize the funds collected in the Issue only after the basis of allotment is finalized. Undertakings by our Company

1. The complaints received in respect of the Issue shall be attended to by our Company expeditiously and satisfactorily.

2. All steps for completion of the necessary formalities for listing and commencement of trading at all Stock

exchanges where the securities are to be listed will be taken within seven working days of finalization of basis of allotment.

3. The funds required for making refunds to unsuccessful applicants as per the modes disclosed shall be made

available to the Registrar to the Issue by our Company.

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4. Our Company undertakes that where refunds are made through electronic transfer of funds, a suitable

communication shall be sent to the Investor within 15 days of the Issue Closing Date, giving details of the banks where refunds shall be credited along with amount and expected date of electronic credit of refund.

5. Adequate arrangements shall be made to collect all ASBA applications and to consider then similar to non-

ASBA applications while finalizing the Basis of Allotment.

6. At any given time there shall be only one denomination for the shares of our Company.

7. We shall comply with such disclosure and accounting norms specified by SEBI from time to time. Important

a) Please read the Letter of Offer and the accompanying CAF carefully before taking any action. The instructions contained in the accompanying CAF are an integral part of the conditions of this Draft Letter of Offer and must be carefully followed; otherwise the application is liable to be rejected.

b) All enquiries in connection with the Letter of Offer or the accompanying CAF and requests for SAFs must

be addressed (quoting the registered folio number/DP ID, the client ID number, the serial number of the CAF and the name of the first Equity Shareholder as mentioned on the CAF and superscribed “The Andhra Pradesh Paper Mills Limited -Rights Issue” in case of resident Equity Shareholders and Non Resident Equity Shareholders applying on a non repatriation basis or Unit APPM Rights Issue 2010” in case of Non Resident Equity Shareholders applying on a repatriation basis on the envelope) to the Registrar to the Issue, at the following address:

M/s. Sathguru Management Consultants Pvt. Ltd. Unit: The Andhra Pradesh Paper Mills Limited Plot No. 15, Hindi Nagar, Panjagutta, Hyderabad - 500 034. Tel: +91 40 23350586 Fax: +91 40 40040554 Website: www.sathguru.com E-mail: sta@sathguru.com Contact Person: Mr. R. Chandra Sekhar The Issue will be kept open for a minimum period of 15 days, but will not be kept open in excess of 30 days from the Issue Opening Date.

SECTION VIII – OTHER INFORMATION AND MATERIAL CONTRACTS

STATUTORY AND OTHER INFORMATION Option to subscribe Other than the present Issue, and except as disclosed in ―Terms of the Issue on page 135, our Company has not given any person any option to subscribe to the Equity Shares of our Company. The Investors shall have an option either to receive the security certificates or to hold the securities in dematerialised form with a depository.

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MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION The following contracts (not being contracts entered into in the ordinary course of business carried on by us or entered into more than two years before the date of this Letter of Offer) which are or may be deemed material have been entered or are to be entered into by us. Copies of these contracts and also the documents for inspection referred to hereunder, may be inspected at the registered office of our Company situated at Rajahmundry 533105, East Godavari District, Andhra Pradesh, India from 9.00 a.m. to 11.00 a.m. from the date of this Letter of Offer until the date of closure of the Rights Issue.

A. MATERIAL CONTRACTS

1. Engagement Letter dated November 5, 2009 between our Company and the Lead Manager to the Issue. 2. Issue Agreement dated November 5, 2009 entered into with the Lead Manager to the Issue. 3. Memorandum of Understanding dated September 11, 2009 entered into with the Registrar to the Issue

B. DOCUMENTS

1. Certificate of Incorporation of our Company dated 29th June, 1964. 2. Consents of the Directors, Company Secretary, Auditors, Lead Manager to the Issue, Bankers to the Issue,

Bankers to our Company and the Registrar to the Issue to include their names in this Draft Letter of Offer to act in their respective capacities.

3. Resolutions of the Board of Directors dated 31st July, 2009 & Resolution passed by members in the Annual

General Meeting held on 25th September, 2009 authorizing the Issue and related matters.

4. Letter from the Auditors, M/s. Brahmayya & Co. Visakhapatnam, dated 2nd December, 2009 confirming Tax Benefits as mentioned in this Letter of Offer.

5. The Report of the Auditors, M/s. Brahmayya & Co. Visakhapatnam as set out herein dated 12th May, 2008,

12th June, 2009 and 23rd October, 2009 in relation to the financial information of our Company for the last year ended 31st March, 2008, 31st March, 2009, quarter ended 30th September, 2009 and year to date for the period from 1st April, 2009 to 30th September, 2009 respectively.

6. Annual Reports of our Company for the last three financial years.

7. Shareholders Agreement dated April 21, 2005 between DIL, Shri L.N. Bangur, Smt. Alka Bangur.

Maharaja Shree Umaid Mills Ltd, Shreeyash Bangur, The Peria Karamalai Tea & Produce Co.Ltd. and IFC, EG and Finnfund and The Andhra Pradesh Paper Mills Ltd.

8. The Share Retention Agreement dated April 21, 2005 between Digvijay Investments Ltd, Shri L.N. Bangur,

Maharaja Shree Umaid Mills Ltd, The Peria Karamalai Tea & Produce Co. Ltd.,Digvijay Shareholders, The Andhra Pradesh Paper Mills Ltd. and, IFC.

9. The Share Retention Agreement dated April 21, 2005 between Digvijay Investments Ltd, Shri L.N.

Bangur, Maharaja Shree Umaid Mills Ltd., The Peria Karamalai Tea & Produce Co. Ltd., Digvijay Shareholders, The Andhra Pradesh Paper Mills Ltd. and DEG.

10. In-principle listing approval dated December 8, 2009 and December 16, 2009 from BSE and NSE

respectively.

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11. Letter dated 11th December, 2009 from the FIPB approving the proposal of the Company to issue rights

shares with detachable warrants to Non Residents.

12. Letter dated 16th February 2010 from SEBI granting relaxation from Rule 19(2)(b) of Securities Contract (Regulations) Rules 1957 for listing of detachable warrants.

13. Due Diligence Certificate from Axis Bank Limited dated November 05, 2009.

14. Tripartite Agreement dated 24th March 2000 between our Company, NSDL and Sathguru Management

Consultants Pvt. Ltd. to establish direct connectivity.

15. Depository Tripartite Agreement dated 21st March, 2000 between our Company, CDSL and Sathguru Management Consultants Pvt. Ltd. to establish direct connectivity with Depository.

16. Letter of Offer issued by our Company in connection with the previous Rights Issue.

17. No Objection letter from Canara Bank dated 17th July, 2009 for the proposed Rights Issue

18. No Objection letter from State Bank of India dated 15th July, 2009 for the proposed Rights Issue.

19. No Objection letter from International Finance Corporation (IFC) dated 28th July, 2009 for the proposed

Rights Issue.

20. No Objection letter from Finnish Fund for Industrial Cooperation Ltd. dated 26th May, 2009 for the proposed Rights Issue

21. No Objection letter from DEG dated 1st July, 2009 for the proposed Rights Issue

22. SEBI observation letter No. SRO/DIL/5801/2010 dated February 11, 2010

Any of the contracts or documents mentioned in this Letter of Offer may be amended or modified at any time if so required in the interest of our Company or if required by the other parties, without reference to the Shareholders subject to compliance of the provisions contained in the Companies Act and other relevant statutes.

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DECLARATION No statement made in this Letter of Offer contravenes any of the provisions of the Companies Act, 1956 and the rules made thereunder. All the legal requirements connected with the Issue as also the guidelines, instructions etc. issued by SEBI, Government and any other competent authority in this behalf have been duly complied with. We hereby certify that all the disclosures in this Letter of Offer are true and correct.

Signed by all the Directors of our Company _______________________ Shri L.N.Bangur, Chairman

______________________ Smt. Alka Bangur, Director

_______________________ Shri N.Srinivasan, Director

_______________________ Shri R.C.Sarin, Director

_______________________ Shri P.J.V.Sarma, Director

_______________________ Shri R.V.Raghavan, Director

_______________________ Shri P.K.Paul, Director

______________________ Shri Rajiv Kapasi, Director

_______________________ Shri M.K.Tara, Managing Director

______________________ Ms.Sheetal Bangur, Director (Commercial)

_______________________ Shri Shreeyash Bangur, Director (Corporate)

_______________________ Shri P.K.Suri, Director (Operations)

______________________ Shri E.Sairam, Chief Finance Officer

Place: Hyderabad Date: February 22, 2010