FALCON ENERGY GROUP LIMITED (Incorporated in the Republic of Singapore) (Company Registration No G)

Transcription

1 CIRCULAR DATED 2 MARCH 2009 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN ANY DOUBT AS TO THE ACTION YOU SHOULD TAKE, YOU SHOULD CONSULT YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT, TAX ADVISER OR OTHER PROFESSIONAL ADVISER IMMEDIATELY. Unless otherwise stated, capitalised terms on this cover are defined in this Circular under the Section entitled Definitions. If you have sold or transferred all your Shares, you should immediately forward this Circular, the Notice of Extraordinary General Meeting and the Proxy Form to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited ( SGX-ST ) assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular. Approval in-principle has been granted by the SGX-ST to Falcon Energy Group Limited ( Company ) for the admission of the Consideration Shares to the Official List of Catalist and the listing and quotation of the Consideration Shares on Catalist subject to certain conditions. Approval in-principle granted by the SGX-ST to the Company for the admission of the Consideration Shares to the Official List of Catalist and the listing and quotation of the Consideration Shares on Catalist are not to be taken as an indication of the merits of the Proposed Acquisition, the Proposed Issue, the Company and its subsidiaries, the Longzhu Group Companies or the Shares (including the Consideration Shares). FALCON ENERGY GROUP LIMITED (Incorporated in the Republic of Singapore) (Company Registration No G) CIRCULAR TO SHAREHOLDERS in relation to (1) The proposed acquisition by the Company from Cai Wenxing, Cai Wenting and Other Parties of 65% of the equity interest in Terasa-Star International Shipping Pte Ltd, approximately 52% of the equity interest in Longzhu Oilfield Services (S) Pte. Ltd. and approximately 87% of the equity interest in CDS Oilfield Services (S) Pte. Ltd. for an aggregate purchase consideration of S$8,775,000 to be satisfied by the allotment and issue of 23,716,216 new Shares in the share capital of the Company at an issue price of S$0.37 per new Share; and (2) The proposed allotment and issue of 23,716,216 new Shares at the issue price of S$0.37 per new Share to be allotted and issued to Cai Wenxing and/or Cai Wenting and/or their nominee(s) in satisfaction of the consideration for the Proposed Acquisition. Independent Financial Adviser to the Independent Directors KPMG CORPORATE FINANCE PTE LTD (Incorporated in the Republic of Singapore) (Company Registration No D) IMPORTANT DATES AND TIMES: Last date and time for lodgment of Proxy Form : 18 March 2009 at a.m. Date and time of Extraordinary General Meeting : 20 March 2009 at a.m. Place of Extraordinary General Meeting : 10 Anson Road #14-19, International Plaza, Singapore

2 CONTENTS Page DEFINITIONS... 3 LETTER TO SHAREHOLDERS 1. INTRODUCTION CHAPTERS 9 AND 10 OF THE LISTING MANUAL APPROVAL IN-PRINCIPLE FROM THE SGX-ST INFORMATION ON THE LONGZHU GROUP COMPANIES PRINCIPAL TERMS OF THE PROPOSED ACQUISITION RATIONALE FOR THE PROPOSED ACQUISITION FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION RISK FACTORS IN RESPECT OF THE PROPOSED ACQUISITION INTERESTS OF THE DIRECTORS AND SUBSTANTIAL SHAREHOLDERS INDEPENDENT FINANCIAL ADVISER S OPINION STATEMENT OF THE AUDIT COMMITTEE DIRECTORS RECOMMENDATION EXTRAORDINARY GENERAL MEETING ACTION TO BE TAKEN BY SHAREHOLDERS DIRECTORS RESPONSIBILITY STATEMENT CONSENTS DOCUMENTS FOR INSPECTION APPENDIX... A-1 NOTICE OF EXTRAORDINARY GENERAL MEETING... B-1 PROXY FORM 2

3 DEFINITIONS The following definitions shall apply throughout unless otherwise stated in this Circular: General Astanient : Astanient S.A. de C.V., a corporation incorporated under the laws of Mexico which is a subsidiary of FOS Associate : (a) In relation to any director, chief executive officer, Substantial Shareholder or Controlling Shareholder (being an individual) means: (i) (ii) (iii) his immediate family; the trustees of any trust of which he or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; and any company in which he and his immediate family together (directly or indirectly) have an interest of 30% or more (b) In relation to a Substantial Shareholder or a Controlling Shareholder (being a company) means any other company which is its subsidiary or holding company or is a subsidiary of any such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have an interest in 30% or more Audit Committee : The audit committee of the Company Auditors : The auditors of the Company Board : The board of directors of the Company from time to time Catalist : The SGX-ST s sponsor supervised listing platform which was launched on 17 December 2007 (formerly known as the SGX-ST Dealing and Automated Quotation System or SGX-SESDAQ) CDP : The Central Depository (Pte) Limited CDS Singapore : CDS Oilfield Services (S) Pte. Ltd., a corporation incorporated under the laws of Singapore CDS Tianjin : CDS Oilfield Services (Tianjin) Co., Ltd., a corporation incorporated under the laws of the PRC Circular : This circular to Shareholders dated 2 March 2009 Companies Act : Companies Act (Chapter 50) of Singapore, as may be amended, modified or supplemented from time to time Company : Falcon Energy Group Limited Completion Date : The date of completion of the Proposed Acquisition which, pursuant to the SPA, shall be a date no later than 30 days from the date Shareholders shall have approved the transactions contemplated by the SPA (and any other agreement(s) or documents in connection therewith) 3

4 DEFINITIONS Consideration Shares : The 23,716,216 new Shares to be allotted and issued to the Vendors (and/or their nominee(s)) at the Issue Price to satisfy the consideration for the Proposed Acquisition pursuant to the terms and conditions of the SPA Control : The capacity to dominate decision-making, directly or indirectly, in relation to the financial and operating policies of a company Controlling Shareholder : A person who: (a) (b) holds directly or indirectly 15% or more of the total number of issued shares excluding treasury shares in the company (the SGX-ST may determine that a person who satisfies this sub-paragraph is not a Controlling Shareholder); or in fact exercises Control over a company Cumulative Profits : The aggregate cumulative after-tax profits of the Longzhu Group Companies and Astanient in respect of the four financial years commencing with the financial year ended 31 December 2008 Directors : The directors of the Company as at the date of this Circular Enlarged Group : The Group after the completion of the OSCL Acquisition EGM : The extraordinary general meeting of the Company, notice of which is set out on page B-1 of this Circular Escrow Agent : The escrow agent, namely, Messrs Abraham, holding the Escrowed Shares pursuant to the terms and conditions of the SPA and the escrow agreement (the agreed form of the escrow agreement being prescribed in a schedule to the SPA) Escrowed Shares : 11,858,108 of the Consideration Shares to be held in escrow pursuant to the terms and conditions of the SPA FOS : Falcon Oilfield Services Pte. Ltd., a corporation incorporated under the laws of Singapore which is a wholly-owned subsidiary of the Company Group : The Company and its subsidiaries IFA : KPMG Corporate Finance Pte Ltd, the independent financial adviser to the Independent Directors of the Company in respect of the Proposed Acquisition IFA Letter : The letter dated 17 February 2009 from the IFA to the Independent Directors, a copy of which is reproduced and set out in the Appendix of this Circular Independent Directors : The independent directors of the Company as at the date of this Circular, namely, Lien Kait Long and Tan Kian Huay Issue Price : The issue price of S$0.37 for each Consideration Share 4

5 DEFINITIONS Latest Practicable Date : 17 February 2009, being the latest practicable date prior to the printing of this Circular Listing Manual The listing manual of the SGX-ST, as may be amended, modified or supplemented from time to time Longzhu BVI : Longzhu Oilfield Services Limited, a corporation incorporated under the laws of the British Virgin Islands Longzhu Group Companies : Refers collectively to Longzhu Singapore, Terasa-Star and CDS Singapore Longzhu Singapore : Longzhu Oilfield Services (S) Pte. Ltd., a corporation incorporated under the laws of Singapore Management Accounts : Unaudited accounts of each of the Longzhu Group Companies for the period ended 31 August 2008 Marine Division : Has the meaning ascribed to the term in Section 1.10 of this Circular MOU 1 : Has the meaning ascribed to the term in Section 1.1 of this Circular MOU 2 : Has the meaning ascribed to the term in Section 1.1 of this Circular NBV : Net book value Notice of EGM : The notice of EGM as set out on page B-1 of this Circular NTA : Net tangible assets Oilfield Services Division : Has the meaning ascribed to the term in Section 1.10 of this Circular Ordinary Resolution(s) : The ordinary resolution(s) as set out in the Notice of EGM OSCL : Oilfield Services Company Limited, a corporation incorporated under the laws of Hong Kong S.A.R. OSCL Acquisition : The acquisition of the entire issued share capital of OSCL by the Company which was undertaken in April 2008 and was the subject matter of the circular to Shareholders dated 19 March 2008 OSCL Group : OSCL and its group of companies (including Innovest Resources Limited and 40% of the equity interest in Federal Offshore Services Pte Ltd) which were acquired by the Company pursuant to the OSCL Acquisition Other Parties : Refers collectively to Long Qiongzhen, Han Min and Li Chunsheng whose respective interests in the relevant Longzhu Group Companies are set out in Section 2.3 of this Circular 5

6 DEFINITIONS Project Division : Has the meaning ascribed to the term in Section 1.10 of this Circular Proposed Acquisition : The Proposed Acquisition by the Company from the Vendors and Other Parties of 65% of the equity interest in Terasa-Star, approximately 52% of the equity interest in Longzhu Singapore and approximately 87% of the equity interest in CDS Singapore for an aggregate purchase consideration of S$8,775,000 to be satisfied by the allotment and issue of 23,716,216 new Shares in the share capital of the Company at the Issue Price per new Share on the terms and subject to the conditions of the SPA Proposed Issue : The proposed allotment and issue of 23,716,216 new Shares at the Issue Price per new Share to the Vendors (and/or their nominee(s)) as consideration for the Proposed Acquisition Purchase Consideration : The purchase consideration of S$8,775,000 for the Proposed Acquisition Securities Account : The securities account maintained by a depositor with the CDP but does not include a securities sub-account SGX-ST : Singapore Exchange Securities Trading Limited Shareholders : Registered holders of Shares, except that where the registered holder is the CDP, the term Shareholders shall, where the context admits, mean the Depositors whose Securities Accounts are credited with Shares Shares : Ordinary shares in the share capital of the Company SPA : The sale and purchase agreement entered into between the Company and Vendors on 25 September 2008 (as amended by the supplemental agreement dated 5 December 2008) in relation to the Proposed Acquisition Substantial Shareholder : A person who has an interest in one or more voting shares in a company and the total votes attached to such share(s) is not less than 5% of the total votes attached to all of the voting shares in the company Terasa-Star : Terasa-Star International Shipping Pte Ltd, a corporation incorporated under the laws of Singapore Vendors : Refers collectively to Cai Wenting and Cai Wenxing Countries, currencies, units and others Hong Kong S.A.R. : Hong Kong Special Administrative Region Mexican Peso : The lawful currency of the United Mexican States Mexico : The United Mexican States PRC : People s Republic of China 6

7 DEFINITIONS S$ : Singapore dollars, the lawful currency of Singapore US$ and US cents : United States dollars and cents respectively, the lawful currency of the United States of America The expressions Depositors, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Companies Act. The terms interested person and interested person transactions shall have the meanings ascribed to them respectively in Rule 904 of the Listing Manual. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. Words importing persons shall, where applicable, include corporations and unincorporated associations. Any reference in this Circular to the Appendix is a reference to the appendix to this Circular. Any reference in this Circular to Rule or Chapter is a reference to the relevant rule or chapter in the Listing Manual as for the time being amended. Any reference in this Circular to any statute or enactment or the Listing Manual is a reference to that statute or enactment or the Listing Manual as for the time being amended or re-enacted. Any word defined under the Companies Act or the Listing Manual or any amendment thereof, and used in this Circular shall, where applicable, have the meaning ascribed to it under the Companies Act or the Listing Manual or such amendment thereof, as the case may be, unless otherwise provided. Any reference to a time of day in this Circular shall be a reference to Singapore time unless otherwise provided. Any discrepancies in the tables included in this Circular between the listed amounts and the totals thereof are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. 7

8 LETTER TO SHAREHOLDERS FALCON ENERGY GROUP LIMITED (Incorporated in the Republic of Singapore) (Company Registration No G) Directors Registered Office Tan Pong Tyea (Chairman and Chief Executive Officer) 10 Anson Road Neo Chin Lee (Executive Director) #22-14 Cai Wenxing (Executive Director) International Plaza Lien Kait Long (Non-Executive and Lead Independent Director) Singapore Tan Kian Huay (Non-Executive and Independent Director) Mohan Raj s/o Charles Abraham (Non-Executive and Non-Independent Director) Tan Sooh Whye (alternate to Tan Pong Tyea) Cai Wenting (alternate to Cai Wenxing) 2 March 2009 To: The Shareholders of Falcon Energy Group Limited Dear Sir/Madam (1) The proposed acquisition by the Company from Cai Wenxing, Cai Wenting and Other Parties of 65% of the equity interest in Terasa-Star International Shipping Pte Ltd, approximately 52% of the equity interest in Longzhu Oilfield Services (S) Pte. Ltd. and approximately 87% of the equity interest in CDS Oilfield Services (S) Pte. Ltd. for an aggregate purchase consideration of S$8,775,000 to be satisfied by the allotment and issue of 23,716,216 new Shares in the share capital of the Company at an issue price of S$0.37 per new Share; and (2) The proposed allotment and issue of 23,716,216 new Shares at the issue price of S$0.37 per new Share to be allotted and issued to Cai Wenxing and/or Cai Wenting and/or their nominee(s) in satisfaction of the consideration for the Proposed Acquisition. 1. INTRODUCTION 1.1 On 4 April 2007, the Board announced that the Company had entered into the following: (i) (ii) 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 (a) 65% of the equity interest in the share capital of CDS Tianjin; (b) 65% of the equity interest in the share capital of PT LPS Indonesia, a corporation incorporated under the laws of Indonesia; (c) 65% of the equity interest in the share capital of Longzhu Singapore; and (d) 65% of the equity interest in the share capital of Terasa-Star; and 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 OSCL, a corporation incorporated under the laws of Hong Kong S.A.R. 1.2 The OSCL Acquisition was the subject matter of the circular to Shareholders dated 19 March Shareholders approval for the OSCL Acquisition was obtained at the extraordinary general meeting of the Company held on 4 April The OSCL Acquisition was completed on 30 April

9 LETTER TO SHAREHOLDERS 1.3 By way of background, the Company had entered into the said MOU 1 and MOU 2 on the same date but the Company had proceeded with the OSCL Acquisition separately and prior to the acquisition contemplated under MOU 1. This is due to several reasons, namely, (i) the acquisition targets under MOU 1 are in a different business segmentation from that of the acquisition targets under MOU 2; (ii) the vendors of the acquisition targets under MOU 1 and MOU 2 are different; and (iii) the OSCL Acquisition was a very substantial acquisition which necessitated the attention and focus of the Company s management on, inter alia, the due diligence exercise on the acquisition targets and the preparation of a detailed circular to Shareholders. 1.4 Following on from MOU 1, on 25 September 2008, the Directors announced that, subject to the terms of the SPA, the Company will: (a) (b) acquire approximately 87% of the equity interest in the share capital of CDS Singapore instead of acquiring 65% of the equity interest in the share capital of CDS Tianjin. The equity interest in CDS Singapore to be sold to the Company (amounting to 212,688 shares in CDS Singapore) represents a 65% indirect interest in CDS Tianjin; and not acquire 65% of the equity interest in the share capital of PT LPS Indonesia, as the Company decided that it will set up a new subsidiary in Indonesia should the business warrants. For purposes of further information to Shareholders, the Company wishes to inform Shareholders that: (i) (ii) With reference to Section 1.4(a) above, the Company and the Vendors agreed to the Company acquiring the 65% equity interest in CDS Tianjin through its holding company, CDS Singapore, as it would be administratively less cumbersome. This is because CDS Tianjin is a foreign-invested enterprise (FIE) established in Tianjin, PRC which pursuant to Article 3 of the Provisions for the Alteration of Investors Equity Interests in Foreign-Invested Enterprises would require the approval from the Tianjin People s Government for any change in shareholding. Further, CDS Tianjin is established within the Tianjin Port Free Trade Zone which requires any change in shareholding to be reported to the Management Committee of the Tianjin Port Free Trade Zone. Accordingly, it was agreed that the Company would acquire an approximate 87% of the equity interest in the share capital of CDS Singapore (representing a 65% equity interest in CDS Tianjin) as this would avoid the abovesaid approval and reporting procedures under PRC law. With reference to Section 1.4(b) above, the Company decided that it was in its best interests not to proceed with the acquisition of 65% of the equity interest in PT LPS Indonesia and instead set up a subsidiary in Indonesia if the business should so warrant for the following reasons: Subsequent to entering into MOU 1, the Company had conducted preliminary examinations on the accounting records of PT LPS Indonesia which findings proved less than satisfactory to the Company. PT LPS Indonesia was set up by the Vendors as a vehicle for conducting their business activities and operations in Indonesia as required by host country requirements in Indonesia. In view of the abovementioned less than satisfactory findings and the Company s initial intention to acquire PT LPS Indonesia for the purposes of having an already established vehicle in Indonesia to cater to the Company s future business needs in Indonesia, the Company decided that it would be preferable to set up a new subsidiary in Indonesia if the business should so warrant. 9

10 LETTER TO SHAREHOLDERS 1.5 In the said announcement dated 25 September 2008, the Directors also announced that the Company had on 25 September 2008 entered into a conditional sale and purchase agreement with the Vendors for the proposed acquisition by the Company from the Vendors and certain other parties (namely, Long Qiongzhen, Han Min, Terasa-Star and Li Chunsheng) of: (a) (b) (c) 2,232,815 shares in the issued and paid-up share capital of Longzhu Singapore, representing 65% of the equity interest in the said company; 455,000 shares in the issued and paid-up share capital of Terasa-Star, representing 65% of the equity interest in the said company; and 212,688 shares in the issued and paid-up share capital of CDS Singapore, representing approximately 87% of the equity interest in the said company, for an aggregate purchase consideration of S$8,775,000 to be satisfied by the allotment and issue of 23,716,216 Consideration Shares in the share capital of the Company at the issue price of S$0.37 for each Consideration Share. 1.6 On 5 December 2008, the Company entered into a supplemental agreement to the abovesaid sale and purchase agreement to amend certain terms of the SPA. As announced by the Directors on 5 December 2008, pursuant to the terms of the said supplemental agreement, the Company will instead acquire 1,777,815 shares in the share capital of Longzhu Singapore from Cai Wenting. As explained in the said announcement, the reason for the change to the number of shares in Longzhu Singapore to be acquired by the Company is to streamline the structure of the Proposed Acquisition and to ensure that after the Proposed Acquisition, the Company will directly and indirectly own an aggregate of 65% of the equity of Longzhu Singapore through its direct ownership of 1,777,815 shares therein and indirect ownership of 700,000 shares therein through its ownership of 65% of the equity interest in Terasa-Star. For the purposes of further information to Shareholders, the Company wishes to inform Shareholders that the revised acquisition structure is, in the Company s view, more straightforward and streamlined than that contemplated in the conditional sale and purchase agreement dated 25 September Pursuant to the said sale and purchase agreement, it was contemplated that the Company would acquire an aggregate of 2,232,815 shares in Longzhu Singapore (representing a 65% equity interest in Longzhu Singapore) comprising (i) 1,532,815 shares held by Cai Wenting and (ii) 700,000 shares held by Terasa-Star. Under the said supplemental agreement described above, the revised acquisition structure entails a single transfer of 1,777,815 shares in Longzhu Singapore from Cai Wenting instead of two transfers of 1,532,815 shares and 700,000 shares in Longzhu Singapore from Cai Wenting and Terasa-Star respectively. There is also no need for Terasa-Star to transfer its 700,000 shares in Longzhu Singapore to the Vendors as an intermediate step prior to the Vendors transferring the same to the Company (such an intermediate step would have incurred additional stamp duties on the said transfer by Terasa-Star to the Vendors). Ultimately, the Company would meet its objective of acquiring 65% of the equity interest in Longzhu Singapore as contemplated under MOU 1. The Company would, through FOS, hold an aggregate interest of 65% of the equity interest in Longzhu Singapore consisting of: (i) a direct interest in 1,777,815 shares in Longzhu Singapore (an approximate 51.8% equity interest in Longzhu Singapore); and (ii) an indirect interest in 700,000 shares in Longzhu Singapore (an approximate 13.2% equity interest in Longzhu Singapore) held through Terasa-Star. 1.7 As at the Latest Practicable Date, the Company intends to hold its proposed investments in the Longzhu Group Companies through FOS, a wholly-owned subsidiary of the Company. Upon the completion of the Proposed Acquisition, the Company will, through FOS, hold: (a) a 65% interest in the share capital of Terasa-Star; 10

11 LETTER TO SHAREHOLDERS (b) (c) an approximate 51.8% interest and a 13.2% indirect interest (through its shareholding in Terasa-Star) in the share capital of Longzhu Singapore; and an approximate 87% interest in the share capital of CDS Singapore. FOS is part of the Oilfield Services Division (as defined below). As at the Latest Practicable Date, FOS holds a 100% equity interest in Astanient and a 100% equity interest in Falcon Oilfield Services (USA) Inc. The Company intends to hold the equity interests in the Longzhu Group Companies through FOS as the business activities of the Longzhu Group Companies are similar to that of Astanient and fall within the scope of the business activities of their Oilfield Services Division (as defined below). 1.8 For the purposes of further information to Shareholders, the Company wishes to inform Shareholders that the Company had, at the outset, intended to acquire a majority stake in the each of the acquisition targets contemplated under MOU 1 while the Vendors wanted to retain a direct ownership in each of the acquisition targets contemplated under MOU 1. Pursuant to commercial negotiations and for the reasons set out above, it was eventually agreed between the Company and the Vendors that the Company would acquire the relevant shareholding interest in each of the Longzhu Group Companies as set out in Section 1.7 above. This represents a 65% effective equity interest in each of Terasa-Star, CDS Tianjin (held through CDS Singapore) and Longzhu Singapore. 1.9 Assuming that the Company holds its proposed investments in the Longzhu Group Companies through FOS, the Group structure before the Proposed Acquisition and after the completion of the Proposed Acquisition is set out below: Before the Proposed Acquisition: Falcon Energy Group Limited 100% 100% 100% 100% Falcon Energy Projects Pte Ltd FEG Offshore Pte Ltd Falcon Oilfield Services Pte Ltd Oilfield Services Company Limited 100% 100% 100% 100% 100% 100% Sears Marine S.A. Imel Assets Corp. Excel Marine S.A. Century Marine S.A. Asetanian Marine Pte Ltd Trio Victory Inc 100% 100% 100% 100% 100% Morrison Marine Services S.A. Imperial Marine S.A. Atlantic Marine S.A. Innovest Resources Limited Motley Trio Offshore Pte Ltd 100% 40% 100% Otira Corporation Federal Offshore Services Pte Ltd Passiflora Capital Limited 100% Astanient S.A. de C.V. 100% Falcon Oilfield Services (USA) Inc. 11

12 LETTER TO SHAREHOLDERS After the completion of the Proposed Acquisition: Falcon Energy Group Limited 100% 100% 100% 100% Falcon Energy Projects Pte Ltd FEG Offshore Pte Ltd Falcon Oilfield Services Pte Ltd Oilfield Services Company Limited 100% 100% 100% 100% 100% 100% Sears Marine S.A. Imel Assets Corp. Excel Marine S.A. Century Marine S.A. Asetanian Marine Pte Ltd Trio Victory Inc 100% 100% 100% 100% 100% Morrison Marine Services S.A. Imperial Marine S.A. Atlantic Marine S.A. Innovest Resources Ltd Motley Trio Offshore Pte Ltd 100% 40% 100% Otira Corporation Federal Offshore Services Pte Ltd Passiflora Capital Limited 65% Astanient S.A. de C.V. 65% Terasa-Star International Shipping Pte Ltd 86.67% CDS Oilfield Services (S) Pte Ltd 100% 20.38% 51.75% 75% Falcon Oilfield Services (USA) Inc. Longzhu Oilfield Services (S) Pte Ltd CDS Oilfield Services (Tianjin) Co Ltd 1.10 The Company and its group of companies are involved in three core business activities which may be categorised in the following three divisions: (i) marine division which provides offshore support vessels to the marine and oil and gas industries ( Marine Division ); (ii) oilfield services division which provides oilfield services (such as logistics, agency, procurement and warehousing services) to oil and gas companies globally ( Oilfield Services Division ); and (iii) oilfield projects division which is involved in projects and investments related to the marine and oil and gas industries ( Project Division ). The relevant companies in each of the said divisions are as follows: Marine Division: FEG Offshore Pte Ltd and its subsidiary, Sears Marine S.A.; OSCL and its subsidiaries, namely, Imel Assets Corp., Morrison Marine Services S.A., Excel Marine S.A., Imperial Marine S.A., Century Marine S.A., Atlantic Marine S.A., Asetanian Marine Pte. Ltd., Innovest Resources Limited, Trio Victory Inc., and Motley Trio Offshore Pte Ltd. Oilfield Services Division: FOS and its subsidiaries, namely, Astanient S.A. de C.V. and Falcon Oilfield Services (USA) Inc. Project Division: Falcon Energy Projects Pte Ltd and its group of companies, namely, Otira Corporation, Federal Offshore Services Pte Ltd and Passiflora Capital Limited The Directors are convening an extraordinary general meeting to be held on 20 March 2009 to seek the approval of Shareholders in relation to (a) the Proposed Acquisition as an interested person transaction pursuant to Chapter 9 of the Listing Manual and (b) the Proposed Issue The purpose of this Circular is to provide Shareholders with information regarding the Proposed Acquisition and the Proposed Issue and to seek the approval of Shareholders for the Ordinary Resolutions set out in the Notice of EGM. 12

13 LETTER TO SHAREHOLDERS 2. CHAPTERS 9 AND 10 OF THE LISTING MANUAL 2.1 Chapter 9 of the Listing Manual applies to interested person transactions entered into between a listed company or any of its subsidiaries (other than a subsidiary that is listed on the SGX-ST or an approved exchange) or associated companies (other than an associated company that is listed on the SGX-ST or an approved exchange or over which the listed group, or the listed group and its interested person(s), has no Control) with a party who is an interested person of the listed company. An interested person is defined to mean a director, chief executive officer or Controlling Shareholder of the listed company, or any Associate of such director, chief executive officer or Controlling Shareholder. 2.2 Cai Wenxing is a Director of the Company and Cai Wenting is an alternate Director to Cai Wenxing. Accordingly, the Vendors are interested persons and the Proposed Acquisition constitutes an interested person transaction under Chapter 9 of the Listing Manual. 2.3 In the interests of full disclosure, it is hereby mentioned that under the Proposed Acquisition and the terms of the SPA, the Vendors will transfer and will procure the Other Parties to transfer, their respective shareholding in each of the relevant Longzhu Group Companies as set out below: Name of shareholder Number of shares in Longzhu Singapore to be transferred pursuant to the Proposed Acquisition Cai Wenting 1,777,815 Total 1,777,815 Name of shareholder Number of shares in Terasa-Star to be transferred pursuant to the Proposed Acquisition Long Qiongzhen 150,000 Han Min 160,000 Cai Wenxing 80,000 Cai Wenting 65,000 Total 455,000 Name of shareholder Number of shares in CDS Singapore to be transferred pursuant to the Proposed Acquisition Cai Wenxing 212,685 Li Chunsheng 3 Total 212, As indicated above, the Vendors will be procuring (a) Long Qiongzhen to transfer her 150,000 shares in the share capital of Terasa-Star, (b) Han Min to transfer his 160,000 shares in the share capital of Terasa-Star, and (c) Li Chunsheng to transfer his three shares in the share capital of CDS Singapore, to the Company and/or the Company s subsidiary or subsidiaries. 13

14 LETTER TO SHAREHOLDERS Long Qiongzhen is the mother of Cai Wenxing and Cai Wenting and is therefore an interested person. The said transfer by Long Qiongzhen described in (a) above falls within the definition of an interested person transaction under Chapter 9 of the Listing Manual. In accordance with the SPA (which is entered into between the Company and the Vendors), the Consideration Shares will be allotted and issued to the Vendors (and/or their nominees). The Vendors have confirmed to and undertaken with the Company in writing that they will be nominating Cai Wenting to be allotted and issued with all the 23,716,216 Consideration Shares. In the circumstances and as confirmed by the Vendors to the Company, none of the Consideration Shares will be allotted and issued to Long Qiongzhen. The Vendors have also confirmed to the Company in writing that neither Han Min nor Li Chunsheng is an Associate of Cai Wenxing or Cai Wenting. 2.5 Under Chapter 9 of the Listing Manual, where an entity at risk proposes to enter into a transaction with interested persons of the issuer, an immediate announcement and/or shareholders approval is required in respect of that transaction if its value is equal to or exceeds certain financial thresholds. Pursuant to Rule 906 of the Listing Manual, shareholders approval (in addition to an immediate announcement) is required where: (a) (b) the value of such transaction is equal to or exceeds 5% of the latest audited NTA of the issuer and its subsidiaries; or the value of such transaction with interested persons when aggregated with the values of other transactions previously entered into with the same interested person in the same financial year, equals to or exceeds 5% of the latest audited NTA of the issuer and its subsidiaries, such aggregation need not include any transaction that has been approved by shareholders previously or is the subject of aggregation with another transaction that has been previously approved by shareholders. The requirements for an immediate announcement and/or shareholders approval do not apply to interested person transactions below S$100,000 each. 2.6 Based on the latest audited consolidated financial statements of the Group, the Purchase Consideration constitutes approximately 70.6% of the latest audited NTA of the Group. Based on the proforma financial information on the Enlarged Group for the 12-month period ended 31 December 2007 as announced by the Company on 23 June 2008, the Purchase Consideration constitutes approximately 7.0% of the NTA of the Enlarged Group. Based on the restated consolidated financial statements of the Enlarged Group for the financial period ended 30 September 2007, the Purchase Consideration constitutes approximately 8.1% of the NTA of the Enlarged Group. The said restated consolidated financial statements of the Enlarged Group for the financial period ended 30 September 2007 have been restated by applying the principles of merger accounting as set out in the Recommended Accounting Practice 12 Merger Accounting for Common Control Combinations (as disclosed in the Company s results announcement dated 13 November 2008). 2.7 Pursuant to Rule 906(1)(a) of the Listing Manual, the Proposed Acquisition requires the approval of Shareholders of the Company. 14

15 LETTER TO SHAREHOLDERS 2.8 Pursuant to Rule 917(5) of the Listing Manual, the value of interested person transactions (excluding any transaction below S$100,000) in respect of (a) the previous financial year from 1 October 2007 to 31 December 2008; and (b) as at the Latest Practicable Date in respect of the current financial year from 1 January 2009 to 31 December 2009 are set out below: Interested Person Transactions In respect of the financial As at the Latest Practicable (S$) year from 1 October 2007 Date in respect of the to 31 December 2008 current financial year from 1 January 2009 to 31 December 2009 with Cai Wenxing : Nil Nil with Cai Wenting : Nil Nil with all other interested persons : 30,503,963 (1) 169,379 (2) (excluding interested person transactions involving Cai Wenxing and Cai Wenting in their personal capacity) Notes: (1) Consisting of the following interested person transactions of aggregate values as set out below: (i) S$611,753 with Tan Pong Tyea (a Director of the Company); (ii) S$3,743,835 with Longzhu Singapore (a company controlled by Cai Wenting (an alternate Director of the Company)); (iii) S$23,856,000 with Star Marine S.A. (a company controlled by Tan Pong Tyea who is a Director of the Company); (iv) S$139,417 with Messrs Abraham (a law firm of which the sole-proprietor is Mohan Raj s/o of Charles Abraham (a Director of the Company)); and (v) S$2,152,958 with CDS Tianjin (a company controlled by Cai Wenxing (a Director of the Company)). (2) Consisting of the following interested person transactions of aggregate values as set out below: (i) SS$71,950 with Longzhu Singapore (a company controlled by Cai Wenting (an alternate Director of the Company)); and (ii) S$97,429 with CDS Tianjin (a company controlled by Cai Wenxing (a Director of the Company)). 2.9 Save as disclosed in Sections 2.2 and 2.4 above, none of the Directors or Controlling Shareholders of the Company is interested, directly or indirectly, in the Proposed Acquisition Under Chapter 10 of the Listing Manual, where any of the relative figures computed on the bases set out in Rule 1006 exceeds 5% but does not exceed 20%, an issuer must, after terms have been agreed, immediately make an announcement in accordance with Rule Under Rule 1013 of the Listing Manual, if any of the relative figures computed on the bases set out in Rule 1006 exceeds 20%, the transaction is classified as a major transaction and the issuer must immediately make an announcement containing the information required under Rule 1010 and provide shareholders with a circular containing the said information. The relative figures for the Proposed Acquisition computed on the relevant bases set out in Rule 1006 of the Listing Manual are as follows: Relative figure computed in accordance with the bases set out in Rule 1006 Rule 1006(a) Rule 1006(b) The net asset value of the assets to be disposed of, compared with the Enlarged Group s net asset value The net profits attributable to the assets acquired, compared with the Enlarged Group s net profits (Under Rule 1002(3)(b) of the Listing Manual, net profits is defined as profit or loss before income tax, minority interest and extraordinary items) Not Applicable 7.82% (1)(2) 15

16 LETTER TO SHAREHOLDERS Rule 1006(c) Rule 1006(d) The aggregate value of the consideration given, compared with the Company s market capitalisation (which as at 24 September 2008 being the date immediately preceding the date of the SPA was approximately S$408,490,784) The number of equity securities issued by the Company as consideration for an acquisition, compared with the number of equity securities previously in issue (Based on the allotment and issue of 23,716,216 Consideration Shares pursuant to the Proposed Acquisition) Relative figure computed in accordance with the bases set out in Rule % 3.34% Notes: (1) Computed based on the net profits of the Longzhu Group Companies audited financial statements for the financial year ended 31 December 2007 of approximately US$1,404,204 divided by the net profits of the Enlarged Group s restated consolidated financial statements for the financial period ended 30 September 2007 of approximately US$17,959,482. (2) In the interests of full disclosure it is hereby stated that the Rule 1006(b) relative figure above differs from that disclosed in the announcement by the Company dated 25 September 2008 because the former is computed based on the Enlarged Group s restated consolidated financial statements (as mentioned in note (1) above) while the latter is computed based on the proforma financial information on the Group incorporating OSCL for the 12 month period ended 31 December 2007 as announced by the Company on 23 June Having regard to the above, the Proposed Acquisition will constitute a discloseable transaction but not a major transaction for the purposes of Chapter 10 of the Listing Manual and accordingly, no Shareholders approval is required for the Proposed Acquisition. However, as mentioned in Section 2.7 above, Shareholders approval is required for the Proposed Acquisition as an interested person transaction and for the Proposed Issue. 3. APPROVAL IN-PRINCIPLE FROM THE SGX-ST 3.1 On 22 January 2009, the SGX-ST granted approval in-principle to the Company for the listing and quotation of the Consideration Shares on Catalist subject to, among other things, the following conditions: (a) (b) (c) compliance with the SGX-ST s continuing listing requirements; the approval of the independent Shareholders of the Company being obtained for the Proposed Acquisition and Proposed Issue; and if applicable, submission of the relevant notification under Rule 864(4) of the Listing Manual upon any significant changes affecting the matters in the additional listing application submitted by the Company. 16

17 LETTER TO SHAREHOLDERS 3.2 It should be noted that the above approval in-principle granted by the SGX-ST to the Company is not to be taken as an indication of the merits of the Proposed Acquisition, the Proposed Issue, the Company and its subsidiaries, the Longzhu Group Companies or the Shares (including the Consideration Shares). 4. INFORMATION ON THE LONGZHU GROUP COMPANIES 4.1 Longzhu Singapore Longzhu Singapore was incorporated in Singapore on 12 August 1997 under the name TDCO International (S) Pte Ltd and registration number E. On 27 January 2003, the name of the company was changed to Longzhu Oilfield Services (S) Pte. Ltd.. The issued and paid-up share capital of Longzhu Singapore is S$3,435,100 and consists of 3,435,100 ordinary shares. The directors of the said company are Cai Wenxing and Cai Wenting and its shareholders are Terasa-Star (as to 20.4%), Cai Wenxing (as to 7.3%) and Cai Wenting (as to 72.3%). The principal business of Longzhu Singapore is in the provision of one-stop professional door-todoor logistic services, rig services (both offshore and onshore) at all times of the day, the supply and installation of equipment and spare parts, the refurbishment of equipment and the manufacture of customised equipment. Longzhu Singapore also owns a supply vessel. The balance sheets of Longzhu Singapore as at 31 December 2007 and 30 November 2008 are as follows: Longzhu Oilfield Services (S) Pte. Ltd. Balance Sheet (US$ 000) 31 December November 2008 (Audited) (Unaudited) (1) Current assets 5,358 6,670 Non-current assets 1,737 1,708 Total assets 7,095 8,378 Current liabilities (1,280) (1,420) Non-current liabilities (820) (796) Total liabilities (2,100) (2,216) Net tangible assets 4,995 6,162 Share capital 2,304 2,304 Retained profits 2,691 3,858 Note: (1) The balance sheet as at 30 November 2008 is based on unaudited management report. 17

18 LETTER TO SHAREHOLDERS The profit and loss accounts of Longzhu Singapore for the period from 1 January 2007 to 31 December 2007 and the period from 1 January 2008 to 30 November 2008 are as follows: Profit and Loss Account (US$ 000) 1 January 2007 to 1 January 2008 to 31 December November 2008 (Audited) (Unaudited) (1) Revenue 5,482 12,318 Cost of goods sold (2,846) (8,470) Gross profit 2,636 3,848 Other operating income 20 8 Other operating expenses (1,977) (2,494) Taxation (86) (195) Profit after tax 593 1,167 Note: (1) The profit and loss account for the 11 months ended 30 November 2008 is based on unaudited management report. 4.2 Terasa-Star Terasa-Star was incorporated in Singapore on 23 June 1995 under registration number C. The issued and paid-up share capital of Terasa-Star is S$700,000 and consists of 700,000 ordinary shares. The directors of the said company are Han Min, Long Qiongzhen, Cai Wenxing and Cai Wenting who are also the shareholders of the said company. Han Min, Long Qiongzhen, Cai Wenxing and Cai Wenting each holds an approximate equity interest of 22.9%, 21.4%, 30.7% and 25.0% in the said company respectively. The principal business of Terasa-Star is in the provision of services such as integrated project cargo forwarding and management, mobilisation and de-mobilisation of rigs, offshore marine management services and worldwide ship agency (husbandry/supervisory and protective). Terasa- Star is also in the business of providing management services to vessels. The balance sheets of Terasa-Star as at 31 December 2007 and 30 November 2008 are as follows: Terasa-Star International Shipping Pte Ltd Balance Sheet (US$ 000) 31 December November 2008 (Audited) (Unaudited) (1) Current assets 3,745 5,183 Non-current assets (2) 1,051 1,283 Total assets 4,796 6,466 Current liabilities (1,519) (1,147) Non-current liabilities (301) (1,023) Total liabilities (1,820) (2,170) Net tangible assets 2,976 4,296 Share capital Retained profits 2,506 3,826 18

19 LETTER TO SHAREHOLDERS Notes: (1) The balance sheet as at 30 November 2008 is based on unaudited management report. (2) Includes an investment of US$1,042,687 and US$1,280,524 (equivalent to approximately S$1,554,646 and S$1,909,261 respectively based on the approximate exchange rate of US$1.00 = S$1.491) as at 31 December 2007 and 30 November 2008 respectively in Longzhu Singapore. The profit and loss accounts of Terasa-Star for the period from 1 January 2007 to 31 December 2007 and the period from 1 January 2008 to 30 November 2008 are as follows: Profit and Loss Account (US$ 000) 1 January 2007 to 1 January 2008 to 31 December November 2008 (Audited) (Unaudited) (1) Revenue 4,730 15,164 Cost of goods sold (3,479) (13,246) Gross profit 1,251 1,918 Other operating income Other operating expenses (529) (576) Share of profit of associate 121 (2) 238 (3) Taxation (118) (275) Profit after tax 740 1,320 Notes: (1) The profit and loss account for the 11 months ended 30 November 2008 is based on unaudited management report. (2) Share of profit from Longzhu Singapore of US$121,131 (equivalent to approximately S$180,606 based on the approximate exchange rate of US$1.00 = S$1.491). (3) Share of profit from Longzhu Singapore of US$237,837 (equivalent to approximately S$354,615 based on the approximate exchange rate of US$1.00 = S$1.491). 4.3 CDS Singapore CDS Singapore was incorporated in Singapore on 23 August 2004 under registration number H. The issued and paid-up share capital of CDS Singapore is S$245,410 and consists of 245,410 ordinary shares. The directors of the said company are Yang Liqing, Cai Wenxing and Cai Wenting and its shareholders are Li Chunsheng (as to 0.001%) and Cai Wenxing (as to %). The principal business of CDS Singapore and its subsidiary, CDS Tianjin, is in the provision of one-stop professional door-to-door logistic services, rig services (both offshore and onshore) at all times of the day, the supply and installation of equipment and spare parts, the refurbishment of equipment and the manufacture of customised equipment. 19

20 LETTER TO SHAREHOLDERS The balance sheets of CDS Singapore as at 31 December 2007 and 30 November 2008 are as follows: CDS Oilfield Services (S) Pte. Ltd. Balance Sheet (1) (US$ 000) 31 December November 2008 (Audited) (Unaudited) (2) Current assets 932 3,795 Non-current assets Total assets 1,092 4,002 Current liabilities (1,024) (3,735) Non-current liabilities Total liabilities (1,024) (3,735) Net tangible assets Share capital Minority interests Translation reserves 1 30 Accumulated losses (129) (4) Notes: (1) The balance sheets of CDS Singapore as at 31 December 2007 and 30 November 2008 are consolidated with those of its subsidiary, CDS Tianjin. (2) The balance sheet as at 30 November 2008 is based on unaudited management report. The profit and loss accounts of CDS Singapore for the period from 1 January 2007 to 31 December 2007 and the period from 1 January 2008 to 30 November 2008 are as follows: Profit and Loss Account (1) (US$ 000) 1 January 2007 to 1 January 2008 to 31 December November 2008 (Audited) (Unaudited) (2) Revenue 1,142 12,647 Cost of goods sold (884) (11,808) Gross profit Other operating income 2 14 Other operating expenses (272) (631) Taxation (52) Minority interests (2) (45) (Loss)/Profit after tax (14) 125 Notes: (1) The profit and loss accounts of CDS Singapore for the year ended 31 December 2007 and the 11 months ended 30 November 2008 are consolidated with those of its subsidiary, CDS Tianjin. (2) The profit and loss account for the 11 months ended 30 November 2008 is based on unaudited management report. 20

21 LETTER TO SHAREHOLDERS 4.4 The type of business activities carried out by the Longzhu Group Companies, as described above, is similar to the type of business activities carried out by Astanient, a subsidiary of the Company located in Mexico. Astanient is engaged in the provision of services to oilfield companies such as agency, logistics, warehousing and procurement and other support services. The Longzhu Group Companies are similarly engaged in the provision of services to oilfield companies such as agency services (which include worldwide shipping agency, management services and rig services), logistic services (which include cargo forwarding, mobilisation and de-mobilisation and door-todoor logistic services) and procurement services (which include the supply and installation of equipment and spare parts, the refurbishment of equipment and manufacture of customised equipment). However the services provided by Astanient and the Longzhu Group Companies differ in terms of their geographical coverage, as Astanient has a distribution network in the North America while the Longzhu Group Companies have their distribution network in Asia, and in particular, have a strong presence in the PRC. 4.5 Asset value Based on the audited financial statements of Longzhu Singapore for the financial year ended 31 December 2007, the NTA value of Longzhu Singapore is US$4,995,235 (or equivalent to approximately S$7,447,895 based on the approximate exchange rate of US$1.00 = S$1.491). Based on the audited financial statements of Terasa-Star for the financial year ended 31 December 2007, the NTA value of Terasa-Star (which includes investment in Longzhu Singapore of US$1,042,687 or equivalent to approximately S$1,554,646 based on the approximate exchange rate of US$1.00 = S$1.491) is US$2,975,799 (or equivalent to approximately S$4,436,916 based on the approximate exchange rate of US$1.00 = S$1.491). Based on the audited consolidated financial statements of CDS Singapore and its group of companies for the financial year ended 31 December 2007, the NTA value of CDS Singapore is US$67,357 (or equivalent to approximately S$100,430 based on the approximate exchange rate of US$1.00 = S$1.491). 4.6 Profit The audited profit before income tax, minority interests and extraordinary items of Longzhu Singapore for the financial year ended 31 December 2007 was US$680,210 (or equivalent to approximately S$1,014,193 based on the approximate exchange rate of US$1.00 = S$1.491). The audited profit before income tax, minority interests and extraordinary items (but including share of profit in Longzhu Singapore of US$121,131 or equivalent to approximately S$180,606 based on the approximate exchange rate of US$1.00 = S$1.491) of Terasa-Star for the financial year ended 31 December 2007 was US$857,471 (or equivalent to approximately S$1,278,489 based on the approximate exchange rate of US$1.00 = S$1.491). The audited consolidated loss before income tax, minority interests and extraordinary items of CDS Singapore and its group of companies for the financial year ended 31 December 2007 was US$12,345 (or equivalent to approximately S$18,407 based on the approximate exchange rate of US$1.00 = S$1.491). 21