FALCON ENERGY GROUP LIMITED (Registration No G) (1) EXERCISE OF PUT OPTION BY THE COMPANY (2) EXECUTION OF MEMORANDA OF UNDERSTANDING

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1 FALCON ENERGY GROUP LIMITED (Registration No G) (1) EXERCISE OF PUT OPTION BY THE COMPANY (2) EXECUTION OF MEMORANDA OF UNDERSTANDING 1. Exercise of Put Option by the Company 1.1 Introduction The Directors of Falcon Energy Group Limited ("Company") refer to the announcement made on 17 May 2006 in respect of the Put Option ( 17 May 2006 Announcement ). Unless otherwise defined, all terms defined in the 17 May 2006 Announcement shall have the same meanings when used or referred to in paragraph 1 of this announcement. The Directors are pleased to announce that the Company intends to exercise the Put Option in accordance with the terms and conditions of the Put Option Deed dated 24 May 2006 entered into by Boo Hee Chiang ( BHC ) in favour of the Company (as supplemented by the Supplemental Deed dated 5 September 2006 entered into by BHC in favour of the Company) ( Put Option Deed ). As referred to in the 17 May 2006 Announcement: The exercise of the Put Option under the Put Option Deed is conditional upon, inter alia, all approvals and consents (including all necessary board and shareholders approvals of the Company) as may be necessary for the transactions contemplated under the Put Option Deed or to the entry into and completion of the Put Option under the Put Option Deed, being granted or obtained, and being in full force and effect and not having been withdrawn, suspended, amended or revoked, and if such consents or approvals are granted or obtained subject to any conditions, such conditions being reasonably acceptable to the parties to the Put Option Deed. The exercise of the Put Option and completion thereof may be an interested person transaction under Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited ( SGX-ST ). If so, the Company will comply with the applicable requirements under the SGX-ST Listing Manual and, if required, seek Shareholders approval for the exercise and completion of the Put Option. Based on the audited consolidated financial statements of the Company and its subsidiaries ( Group ) for the financial year ended 30 September 2005, the sale of the Option Shares and Subsidiaries Debt by the Company to BHC pursuant to an exercise of the Put Option will constitute a major transaction for the purposes of Chapter 10 of the SGX-ST Listing Manual, and under Rule 1014 thereof, is conditional upon Shareholders approval. 1

2 1.2 Information on Sembawang Music Centre Pte Ltd, Orange Music Pte Ltd and True Music Private Limited (collectively, Relevant Subsidiaries ) and rationale for divestment Brief information on the Relevant Subsidiaries is set out as follows: Name Date and place of incorporation Principal business Sembawang Centre Pte Ltd Music 15 October 1993 Singapore Retail of audio CDs, DVDs, VCDs and related audio and visual products Orange Music Pte Ltd True Music Private Limited 18 February 2000 Singapore 7 June 2004 Singapore Wholesale and distribution of audio CDs Retail of audio CDs, DVDs, VCDs and related audio and visual products (dormant) As noted in the Chairman s message in the Company s Annual Report 2006: (d) In FY2006, the Group recorded a decline in total revenue by 3.1% or S$0.64 million as compared to FY2005. The overall average gross margin in FY2006 fell by approximately 1.5% at 30.7% from an average of 32.2% in FY2005. In FY2006, the wholesale and distribution business segment contributed revenue of S$4.39 million while the retail segment brought in S$15.86 million. The Group incurred a loss before tax of S$0.97 million in FY2006 as compared to a profit before tax of S$0.84 million in FY2005. The aforesaid performance is mainly attributed to the overall slowdown in the global music industry largely due to record labels merging and increased competition from the digital music industry. The Group expects to face tough challenges in the audio and visual entertainment industry with the increasing popularity of illegal MP3 downloading, the increase in channels distribution and the slowdown in demand as the contributing negative factors. The Directors noted that the said revenue and loss before tax in FY2006 were substantially contributed by the music related business. In view of the above factors and after reviewing and evaluating the music related business, the Directors considered that, in the light of its past and present performance, the music related business could no longer contribute to the enhancement of the Company s earnings and share value, and accordingly have decided to seek Shareholders approval to exercise the Put Option in order to divest the Company s equity interests in the Relevant Subsidiaries and, thereby, the Group s music related business. 1.3 Interests of Directors and controlling shareholders The Directors noted that BHC is a Director of the Company and is interested in the Put Option. The Option Price is S$3,200,000 (consisting of the amount of loans owing by the Relevant Subsidiaries and Audiophile Heaven Pte. Ltd. (now known as Falcon Oilfield Services Pte. Ltd.) to the Company of S$1,605, and the purchase price of 2

3 S$1,594, for the investments in the issued share capitals of the Relevant Subsidiaries) and constitutes 61% of the latest audited net tangible assets of the Group. Accordingly, the exercise and completion of the Put Option by the Company constitute an interested person transaction under Chapter 9 of the SGX-ST Listing Manual and, pursuant to Rule 906 of the SGX-ST Listing Manual, require the approval of Shareholders of the Company. The Company has appointed Ernst & Young as independent financial adviser to advise the independent Directors on whether or not the exercise and completion of the Put Option are on normal commercial terms and are prejudicial to the interests of the Company or its minority Shareholders. Save as disclosed, none of the Directors or controlling shareholders of the Company is interested, directly or indirectly, in the Put Option. 1.4 Audit Committee The Audit Committee will form its view after considering the advice of the independent financial adviser. The Audit Committee s view will be set out in a circular to be despatched to Shareholders. 1.5 Interested Person Transactions for the Financial Year ending 30 September 2007 Except for the exercise and completion of the Put Option: there are no interested person transactions with BHC or his associates since the beginning of the financial year ending 30 September 2007 to the date of this announcement; and there are no transactions of value S$100,000 or above with any other interested person since the beginning of the financial year ending 30 September 2007 to the date of this announcement. 1.6 Application of Rule 1006 of the SGX-ST Listing Manual for illustrative purposes Upon the exercise of the Put Option by the Company, solely for illustrative purposes and based on the current Group structure and Business, and the latest audited consolidated financial statements of the Group for the financial year ended 30 September 2006, the relative figures for the Put Option computed on the bases set out in Rule 1006 of the SGX-ST Listing Manual are presented as follows: Relative figure computed in accordance with the bases set out in Rule 1006 Rule 1006 Rule 1006 The net asset value of the Option Shares and the Subsidiaries Debt compared with the Group s net asset value The net losses attributable to the Option Shares and the Subsidiaries Debt compared with the Group s net losses 86% 86% 3

4 Rule 1006 The aggregate value of the Option Price compared with the Company s market capitalisation (which as at the date immediately preceding this announcement was S$42,229,392) 8% Rule 1006(d) The number of equity securities issued by the Company as consideration for an acquisition, compared with the number of equity securities previously in issue Not applicable to a disposal of assets As the relative figures under Rules 1006 and exceed 20%, the sale of the Option Shares and Subsidiaries Debt by the Company to BHC pursuant to an exercise of the Put Option will constitute a major transaction for the purposes of Chapter 10 of the SGX- ST Listing Manual, and under Rule 1014, is conditional upon Shareholders approval. 1.7 Illustrative Financial Effects Solely for illustrative purposes and based on the current Group structure and Business, the financial effects of the disposal of the Option Shares pursuant to an exercise of the Put Option, are set out below: Based on the latest audited financial statements of the Group for the financial year ended 30 September 2006, the net book value attributable to the Option Shares is approximately S$2,939,147. Based on the latest audited financial statements of the Group for the financial year ended 30 September 2006, the net loss attributable to the Option Shares is approximately S$749, The Option Price for the Option Shares amounting to S$1,594, represents a deficit of approximately S$1,344,328 over the value attributable to the Option Shares of approximately S$2,939,147 as set out in paragraph above. On this basis, the Company will record an estimated net loss of approximately S$1,344,328 from an exercise and completion of the Put Option The proceeds from the exercise and completion of the Put Option (in respect of all the Option Shares and all the Subsidiaries Debt) would be S$3,200,000, being the value of the Option Price. The Company intends to use the proceeds for general working capital purposes, and if required, the Company will use them for the purchase of equipments in connection with the new business in the marine and oil and gas industries For illustrative purposes only, based on the latest audited financial statements of the Group for the financial year ended 30 September 2006, the financial effects of an exercise and completion of the Put Option on the Company would be as follows: 4

5 The net tangible assets per share of the Group would decrease from 9.80 cents to 7.30 cents, assuming that an exercise and completion of the Put Option had been completed on 30 September Document for inspection The loss per share of the Group would increase from 1.62 cents to 2.73 cents, assuming that an exercise of the Put Option had been completed on 1 October Copies of the Put Option Deed will be available for inspection at the Company s registered office at Block 1 Ang Mo Kio Industrial Park 2A #07-04 AMK Tech 1 Singapore during business hours for 3 months from the date of this announcement. 1.9 Circular to Shareholders A circular containing details of the Put Option and the opinion of the independent financial adviser, and enclosing a notice of Extraordinary General Meeting of the Company in connection therewith will be despatched to Shareholders in due course. 2. Execution of Memoranda of Understanding 2.1 Introduction The Directors refer to the resolution by Shareholders of the Company at the Extraordinary General Meeting of the Company held on 6 November 2006 pursuant to which Shareholders of the Company have given the Company the mandate to enter into the new business in the marine and oil and gas industries. Subsequent to the aforesaid Extraordinary General Meeting, the Company announced on 8 February 2007 that the Company, through its wholly-owned subsidiary, Falcon Oilfield Services Pte. Ltd., had established a subsidiary in Mexico known as Astanient S.A. de C.V. ( Mexican Subsidiary ) for the purpose of providing services to oilfield companies. The Directors are pleased to further announce that the Company has on 4 April 2007 entered into the following: a memorandum of understanding ( MOU 1 ) between the Company, Cai Wenxing, Cai Wenting and Long Qiongzhen in relation to the acquisition by the Company from Cai Wenxing, Cai Wenting and Long Qiongzhen of 65% equity interest in the share capital of each of following corporations ( Longzhu Group Companies ): (i) (ii) (iii) (iv) PT LPS Indonesia, a corporation incorporated under the laws of Indonesia; Longzhu Oilfield Services (S) Pte Ltd, a corporation incorporated under the laws of Singapore; Terasa-Star International Shipping Pte Ltd, a corporation incorporated under the laws of Singapore; and CDS Oilfield (TianJin) Co., Ltd., a corporation incorporated under the laws of the People s Republic of China ( PRC ); and 5

6 a memorandum of understanding ( MOU 2 ) between the Company and Sunlight Marine Services S.A. in relation to the acquisition by the Company from Sunlight Marine Services S.A. of the entire equity interest in the share capital of Oilfield Services Company Limited, a corporation incorporated under the laws of Hong Kong ( OSCL ). 2.2 Brief information on Longzhu Group Companies The Longzhu Group Companies are engaged in the business of providing oilfield services to companies that are involved in the oil and gas industry around the world, such as agencies, logistics and procurement services and other general supporting activities. 2.3 Brief information on OSCL OSCL is the holding company of the following wholly-owned subsidiaries: (d) (e) (f) (g) Imel Assets Corp., a corporation incorporated under the laws of Panama; Morrison Marine Services S.A., a corporation incorporated under the laws of Panama; Excel Marine S.A., a corporation incorporated under the laws of Panama; Century Marine S.A., a corporation incorporated under the laws of Panama; Imperial Marine S.A., a corporation incorporated under the laws of Panama; Atlantic Marine S.A., a corporation incorporated under the laws of Panama; and Asetanian Marine Pte Ltd, a corporation incorporated under the laws of Singapore. It is contemplated that prior to the completion of the acquisition by the Company from Sunlight Marine Services S.A. of the entire equity interest in the share capital of OSCL, OSCL will have acquired the entire equity interest in the share capital of Innovest Resources Limited (a corporation incorporated under the laws of the British Virgin Islands) and the entire equity interest in the share capital of Longzhu Oilfield Services Limited (a corporation incorporated under the laws of the British Virgin Islands). The aforesaid companies ( OSCL Group ) are principally involved in the maritime business, particularly in the provision of maritime equipment such as supply vessels and large work and accommodation barges required by oil companies. The OSCL Group companies generally provide support vessels for oil companies and major contractors to enable them to carry out work in offshore production facilities. 2.3 The Directors are of the view that the acquisitions contemplated under MOU 1 and MOU 2 will enable the Company to enter into the new business in the marine and oil and gas industries. 2.4 Interests of Directors and controlling shareholders The Directors noted that Cai Wenxing and Cai Wenting are Directors of the Company and Long Qiongzhen is the mother of Cai Wenxing and Cai Wenting and thus, Cai Wenxing, Cai Wenting and Long Qiongzhen are interested in the transaction contemplated under MOU 1. The Directors also noted that Tan Pong Tyea, a Director of 6

7 2.5 MOU 1 the Company, is a substantial shareholder of Sunlight Marine Services S.A. and is interested in the transaction contemplated under MOU 2. The Company will comply with the applicable requirements under the Chapter 9 of the SGX-ST Listing Manual relating to interested person transactions and, if required, seek Shareholders approval for the transactions contemplated under MOU 1 and MOU 2. Save as disclosed, none of the Directors or controlling shareholders of the Company is interested, directly or indirectly, in the transactions contemplated under MOU 1 and MOU 2. MOU 1 contemplates that the acquisition thereunder will be subject to, inter alia, the following: (d) (e) (f) (g) the negotiation of, and entry by the parties to MOU 1 into, a definitive written agreement setting out all the terms and conditions relating to the acquisition as may be mutually agreed upon; the Company being completely satisfied with the results of a due diligence to be conducted by the Company or its representatives or advisers in respect of the business and affairs of the Longzhu Group Companies; the Company causing its Mexican Subsidiary to increase its paid-up capital and Cai Wenxing, Cai Wenting and Long Qiongzhen subscribing to 35% of the proposed enlarged capital; the approval of the board of Directors of the Company of the terms and conditions of the acquisition; Cai Wenxing, Cai Wenting and Long Qiongzhen undertaking that the aggregate after-tax profits of the Longzhu Group Companies and the Mexican subsidiary for each of the four successive financial years commencing the current financial year shall be no less than S$3.25 million or that the aggregate cumulative after-tax profits for all the said companies in respect of the said four years shall be no less than S$13 million.in the event of any shortfall in the said profits, the Sellers shall compensate the Company for non-fulfilment of this undertaking, in accordance with a formula to be mutually agreed and set out in the definitive written agreement pertaining to the acquisition; the approval of the Shareholders of the Company, the SGX-ST and the relevant authorities (if so required); and the parties to MOU 1 executing the definitive written agreement pertaining to the acquisition within 30 days from the execution of MOU 1 The consideration for the acquisition contemplated under MOU 1 is arrived at on the premise that the unaudited management accounts of the Longzhu Group Companies for the year ended 31 December 2006 reveal an aggregate after-tax profit of approximately S$3.6 million, and it has been mutually agreed by the parties to MOU 1 on an arm s length basis to be S$8,775,000. The consideration will be satisfied by the issue of new shares in the capital of the Company at the issue price of S$0.37 per share credited as fully paid. The issued price per share has been arrived at on the basis of the weighted average of the daily transactions between the period 18 May 2006 (being the day following the date of announcement of the acquisition of 55.01% equity interest in the 7

8 2.6 MOU 2 Company by the current controlling shareholder, Ruben Capital Ventures Limited) and the day preceding the date of MOU 1. MOU 2 contemplates that the acquisition thereunder will be subject to, inter alia, the following: (d) (e) (f) the negotiation of, and entry by the parties to MOU 2 into, a definitive written agreement setting out all the terms and conditions relating to the acquisition as may be mutually agreed upon; the Company being completely satisfied with the results of a due diligence to be conducted by the Company or its representatives or advisers in respect of the business and affairs of the OSCL Group; the completion of the acquisition of the entire equity interest in the share capital of Innovest Resources Limited and the entire equity interest in the share capital of Longzhu Oilfield Services Limited (a corporation incorporated under the laws of the British Virgin Islands) by OSCL; the approval of the board of Directors of the Company and the board of directors of Sunlight Marine Services S.A. of the terms and conditions of the acquisition; the approval of the Shareholders of the Company, the SGX-ST and the relevant authorities (if so required); and the parties to MOU 2 executing the definitive written agreement pertaining to the acquisition within 30 days from the execution of MOU 2. The consideration for the acquisition contemplated under MOU 2 has been computed on the basis of a price earnings ratio of 10.8 times on the audited after-tax profits of the OSCL Group for the year ended 31 December 2006 at a conversion rate of US$1=S$1.52 set on the day prior to the execution of MOU 2 and shall be satisfied by the issue of new shares in the capital of the Company at the issue price of S$0.37 per share credited as fully paid. The issue price per share has been arrived at on the basis of a weighted average of the daily transactions between the period 18 May 2006 (being the day following the date of announcement of the acquisition of 55.01% equity interest in the Company by the current controlling shareholder, Ruben Capital Ventures Limited) and the day preceding the date of MOU 2. The foregoing is mutually agreed by the parties to MOU 2 on an arm s length basis to be S$ million predicated on the audited after-tax profits for the OSCL Group for the year ended 31 December 2006 to be US$13.95 million and that such profits should not be less than 90% of this predicated amount, failing which the purchase consideration shall be re-negotiated. 2.7 The Company will make further announcements when the definitive written agreements to implement the transactions contemplated under MOU 1 and MOU 2 are entered into by the relevant parties. The Company has appointed Stirling Coleman Capital Limited as financial adviser to the Company in relation to the Put Option and the transactions contemplated under MOU 1 and MOU 2. By Order of the Board Tan Pong Tyea Director 4 April