CIRCULAR DATED 17 MARCH 2011 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 legal, financial, tax or other professional adviser immediately. If you have sold all your shares in the capital of Eastgate Technology Ltd (the Company ), you should immediately forward this Circular, the enclosed Notice of Extraordinary General Meeting and the Proxy Form to the purchaser or to the stockbroker or to the bank or to the agent through whom you effected the sale for onward transmission to the purchaser. The Singapore Exchange Securities Trading Limited (the SGX-ST ) assumes no responsibility for the correctness of any statements made, opinions expressed or reports contained in this Circular. The in-principle approval from the SGX- ST is not to be taken as an indication of the merits of the Capital Reduction, the Share Consolidation, the Rights Issue, the Rights Shares, the Consolidated Shares, the Consolidated Warrants, the Adjustment Shares, the Adjustment Warrants (as defined in paragraph 4.4 of this Circular), the Company, its subsidiaries or the Shares (as respectively defined herein). The Company was placed on the watch-list of the SGX-ST on 4 June 2008. Should the Company be unable to meet the requirements of Rule 1314 of the Listing Manual (as defined herein) by the time of the issue of its audited financial statements for the current financial year ending 31 August 2011 in December 2011, the SGX- ST may either remove the Company from its Official List, or suspend trading of the Shares (as defined herein) with a view to removing the Company from its Official List. Please refer to paragraph 1.1 of this Circular for further details of Rule 1314 of the Listing Manual. In the event that the SGX-ST exercises its power to remove the Company from its Official List at such time, any exit alternative offered by the Company may or may not be reasonable and Shareholders (as defined herein) may lose some or all of their investment in the Company (including any subscription monies paid by Entitled Shareholders (as defined herein) who accept their provisional allotments of Rights Shares (as defined herein) and (if applicable) are allotted excess Rights Shares under the Rights Issue). EASTGATE TECHNOLOGY LTD (Company Registration Number 198905519R) (Incorporated in the Republic of Singapore on 16 December 1989) CIRCULAR TO SHAREHOLDERS IN RELATION TO: (1) THE PROPOSED CAPITAL REDUCTION EXERCISE TO REDUCE THE ISSUED AND FULLY PAID-UP SHARE CAPITAL OF THE COMPANY (THE CAPITAL REDUCTION ); (2) THE PROPOSED SHARE CONSOLIDATION OF EVERY ONE HUNDRED (100) ORDINARY SHARES IN THE CAPITAL OF THE COMPANY INTO ONE (1) CONSOLIDATED SHARE, FRACTIONAL ENTITLEMENTS TO BE DISREGARDED (THE SHARE CONSOLIDATION ); AND (3) THE PROPOSED RENOUNCEABLE NON-UNDERWRITTEN RIGHTS ISSUE OF ELEVEN (11) RIGHTS SHARES FOR ONE (1) CONSOLIDATED SHARE IN THE CAPITAL OF THE COMPANY AFTER THE COMPLETION OF THE SHARE CONSOLIDATION (THE RIGHTS ISSUE ) (COLLECTIVELY, THE TRANSACTIONS ) Financial Adviser for the Capital Reduction and Share Consolidation and Manager for the Rights Issue ASIASONS WFG CAPITAL PTE LTD (Company Registration Number 200002789M) (Incorporated in the Republic of Singapore on 1 April 2000) IMPORTANT DATES AND TIMES: Last date and time for lodgment of Proxy Form : 6 April 2011 at 10:00 a.m. Date and time of Extraordinary General Meeting : 8 April 2011 at 10:00 a.m. Place of Extraordinary General Meeting : RELC International Hotel 30 Orange Grove Road (off Orchard Road) Singapore 258352 Stevens Room, Level 5
CONTENTS DEFINITIONS... 3... 8 1. INTRODUCTION... 8 2. THE CAPITAL REDUCTION... 9 3. THE SHARE CONSOLIDATION... 12 4. THE RIGHTS ISSUE... 16 5. SUMMARY OF PAST FINANCIAL PERFORMANCE... 26 6. SUMMARY OF THE FINANCIAL POSITION OF THE GROUP... 28 7. CONSOLIDATED FINANCIAL EFFECTS OF THE TRANSACTIONS... 30 8. CHANGES IN SHAREHOLDING STRUCTURE... 33 9. DIRECTORS AND SUBSTANTIAL SHAREHOLDERS INTERESTS... 34 10. MATERIAL LITIGATION... 35 11. MATERIAL CONTRACTS... 35 12. EXTRAORDINARY GENERAL MEETING... 36 13. ACTION TO BE TAKEN BY SHAREHOLDERS... 36 14. DIRECTORS RECOMMENDATION... 36 15. DIRECTORS RESPONSIBILITY STATEMENT... 36 16. RESPONSIBILITY STATEMENT OF FINANCIAL ADVISER AND MANAGER... 36 17. CONSENT OF FINANCIAL ADVISER AND MANAGER... 36 18. DOCUMENTS AVAILABLE FOR INSPECTION... 37 NOTICE OF EXTRAORDINARY GENERAL MEETING... 38 PROXY FORM 2
DEFINITIONS In this Circular, the following definitions apply throughout unless the context otherwise requires or otherwise stated: Act or Companies Act : Companies Act (Chapter 50) of Singapore, as may be amended and/or supplemented from time to time ACRA : Accounting and Corporate Regulatory Authority of Singapore ARE : Application and acceptance form for Rights Shares and excess Rights Shares to be issued to Entitled Depositors in respect of their provisional allotments of Rights Shares under the Rights Issue ARS : Application and acceptance form for Rights Shares to be issued to purchasers of the provisional allotments of Rights Shares traded on the SGX-ST through the book-entry (scripless) settlement system ATM : Automated teller machine Authority : Monetary Authority of Singapore Capital Reduction : The proposed capital reduction exercise to be carried out by the Company pursuant to Section 78A of the Companies Act read together with Section 78C of the Companies Act CDP : The Central Depository (Pte) Limited Circular : This circular to Shareholders dated 17 March 2011 Closing Date : The date and time to be determined by the Directors, being the last time and date for acceptance and/or excess application and payment, and renunciation and payment of the Rights Shares through the CDP or the Share Registrar or an ATM of a Participating Bank Consolidated Shares : The consolidated ordinary shares in the issued share capital of the Company held by Shareholders pursuant to the completion of the Share Consolidation Consolidated W110911 : The consolidated W110911 pursuant to the completion of the Share Consolidation, with each consolidated warrant carrying the right to subscribe for one new Consolidated Share in the Company Consolidated W120514 : The consolidated W120514 pursuant to the completion of the Share Consolidation, with each consolidated warrant carrying the right to subscribe for one new Consolidated Share in the Company Consolidated Warrants : The consolidated warrants of the Company pursuant to the completion of the Share Consolidation Company : Eastgate Technology Ltd Corporate Restructuring : The corporate restructuring exercise undertaken by the Company in 2009 to dispose of loss-making subsidiaries CPF : Central Provident Fund 3
DEFINITIONS Deed Polls : The deed polls dated 1 September 2006 and 4 May 2007 executed by the Company constituting W110911 and W120514 and containing, inter alia, the provisions for the protection of the rights and interests of the holders of the W110911 and W120514, respectively Directors : Directors of the Company as at the Latest Practicable Date EGM : The extraordinary general meeting of the Company to be held to approve the Transactions, notice of which is set out on pages 38 to 40 of this Circular Entitled Depositors : Shareholders with Consolidated Shares entered against their names in the Depository Register maintained by CDP as at the Rights Issue Books Closure Date and whose registered addresses with CDP are in Singapore or who have, at least five (5) Market Days prior to the Rights Issue Books Closure Date, provided CDP with addresses in Singapore for the service of notices and documents Entitled Scripholders : Shareholders whose share certificates have not been deposited with CDP and who have tendered to the Share Registrar valid transfers of their Consolidated Shares and the certificates relating thereto for registration up to the Rights Issue Books Closure Date and whose registered addresses with the Company are in Singapore as at the Rights Issue Books Closure Date or who have, at least five (5) Market Days prior to the Rights Issue Books Closure Date, provided the Share Registrar with addresses in Singapore for the service of notices and documents Entitled Shareholders : Entitled Depositors and Entitled Scripholders Foreign Shareholders : Shareholders whose registered addresses with the Company or CDP were outside Singapore as at the Rights Issue Books Closure Date and who had not, at least five (5) Market Days prior to the Rights Issue Books Closure Date, provided to CDP or the Company, as the case may be, addresses in Singapore for the service of notices and documents Financial Adviser or : Asiasons WFG Capital Pte Ltd, as financial adviser for the Capital Manager Reduction and Share Consolidation and manager to the Rights Issue FY : Financial year ended 31 August Group : The Company and its subsidiaries Latest Practicable Date : 10 March 2011, 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 from time to time Market Day : A day on which the SGX-ST is open for trading in securities New Share Certificates : Physical share certificates for Consolidated Shares Notice of EGM : The notice of EGM set out on pages 38 to 40 of this Circular 4
DEFINITIONS NTA : Net tangible assets Offer Information : The offer information statement to be issued by the Company in Statement or OIS relation to the Rights Issue together with (where the context requires) the PAL, ARE and the ARS and all other accompanying documents, including any supplementary or replacement document, which may be issued by the Company and to be lodged with the Authority in connection with the Rights Issue Old Share Certificates : Physical share certificates for the existing Shares Outstanding Warrants : 593,826,909 warrants as at the Latest Practicable Date, comprising 241,855,111 W110911 and 351,971,798 W120514; or 2,418,551 Consolidated W110911 and 3,519,717 Consolidated W120514 upon completion of the Share Consolidation Participating Banks : DBS Bank Ltd. (including POSB), United Overseas Bank Limited, Oversea-Chinese Banking Corporation Limited and its subsidiary, Far Eastern Bank Limited Provisional Allotment : The provisional allotment letter issued to an Entitled Scripholder Letter or PAL setting out the provisional allotment of Rights Shares of such Entitled Scripholder under the Rights Issue Record Date : In relation to any dividends, rights, allotments or other distributions, the date as at the close of business (or such other time as may have been notified by the Company) on which the Shareholders must be registered with the Company or with CDP, as the case may be, in order to participate in such dividends, rights, allotments or other distributions Register of Members : Register of members of the Company Rights Issue : The proposed renounceable non-underwritten rights issue by the Company of up to 1,161,972,251 Rights Shares at the Rights Issue Price of S$0.015 for each Rights Share, on the basis of eleven (11) Rights Shares for every one (1) Consolidated Share held as at the Rights Issue Books Closure Date Rights Issue Books : Subject to Shareholders approval for the Share Consolidation and Closure Date the Rights Issue, the date and time to be determined by the Directors, at and on which the Depository Register and Register of Members of the Company will be closed to determine the provisional allotments of Entitled Shareholders under the Rights Issue Rights Issue Price : The issue price of S$0.015 for each Rights Share Rights Shares : Up to 1,161,972,251 new Consolidated Shares to be allotted and issued by the Company pursuant to the Rights Issue Securities Account : The securities account maintained by a Depositor with CDP but does not include a securities sub-account SFA : Securities and Futures Act (Chapter 289) of Singapore, as may be amended and/or modified from time to time SGX-ST : Singapore Exchange Securities Trading Limited 5
DEFINITIONS SGXNET : The SGX-ST Corporate Announcement System Share Consolidation : The proposed share consolidation of every one hundred (100) Shares into one (1) Consolidated Share, fractional entitlements to be disregarded. Every one hundred (100) Outstanding Warrants of the Company to also be consolidated into one (1) Consolidated Warrant, fractional entitlements to be disregarded Share Conso Books : Subject to Shareholders approval for the Share Consolidation, the Closure Date date and time to be determined by the Directors, at and on which the Depository Register and Register of Members of the Company will be closed to determine the entitlement of Shareholders to the Consolidated Shares and the entitlement of Warrant Holders to Consolidated Warrants Share Registrar : Boardroom Corporate and Advisory Services Pte. Ltd. Shareholders : Registered holders of Shares, or Consolidated Shares, as the case may be, except that where the registered holder is CDP, the term Shareholders shall, where the context admits, mean the depositors in the Depository Register maintained by CDP whose Securities Accounts are credited with the Shares Shares : Ordinary shares in the capital of the Company Subsidiaries : Shall have the meaning ascribed to it by the Act Substantial Shareholder : A person who has an interest in the Shares of which is not less than five per cent. (5%) of all the voting shares THB : The official currency of Thailand Transactions : Collectively, the Capital Reduction, the Share Consolidation and the Rights Issue W110911 : The warrants granted on 8 September 2006 which will expire on 11 September 2011. Each warrant carries the right to subscribe for one new ordinary share in the capital of the Company. As at the Latest Practicable Date, there are 241,855,111 W110911 W120514 : The warrants granted on 11 May 2007 which will expire on 14 May 2012. Each warrant carries the right to subscribe for one new ordinary share in the capital of the Company. As at the Latest Practicable Date, there are 351,971,798 W120514 Warrant Holders : Holders of Outstanding Warrants % or per cent. : Per centum or percentage S$ and cents : Singapore dollar and cents respectively The terms Depositor, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Companies Act. 6
DEFINITIONS Words importing the singular shall, where applicable, include the plural and vice versa. Words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall include corporations. Any reference to a time of day in this Circular shall be a reference to Singapore time unless otherwise stated. Any reference to a date and/or time in this Circular in relation to the Rights Issue (including but not limited to the Closing Date, and the last dates and times for splitting, acceptance and payment, renunciation and payment, and excess application and payment) shall include such other date(s) and/or time(s) as may be announced from time to time by or on behalf of the Company. Any reference in this Circular to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any term defined under the SFA, the Companies Act or the Listing Manual or any statutory or regulatory modification thereof and used in this Circular shall, where applicable, have the meaning assigned to it under the SFA, the Companies Act or the Listing Manual or such statutory or regulatory modification thereof, as the case may be, unless otherwise provided. All discrepancies in the figures included herein between the listed amounts and totals thereof are due to rounding. Accordingly, figures shown as totals in this Circular may not be an arithmetic aggregation of the figures that precede them. Any reference to we, us and our in this Circular is a reference to the Group or any member of the Group as the context requires. 7
EASTGATE TECHNOLOGY LTD (Company Registration Number 198905519R) (Incorporated in the Republic of Singapore on 16 December 1989) Directors Registered Office Ang Kong Hwee (Executive Director) 20 Tampines Street 92 Teo Teck Leong (Non-executive Director) Singapore 528875 Dr Chua Sik Ting (Independent Director) Saw Meng Tee (Independent Director) 17 March 2011 To: The Shareholders of Eastgate Technology Ltd Dear Shareholders, (1) THE PROPOSED CAPITAL REDUCTION EXERCISE TO REDUCE THE ISSUED AND FULLY PAID-UP SHARE CAPITAL OF THE COMPANY (THE CAPITAL REDUCTION ); (2) THE PROPOSED SHARE CONSOLIDATION OF EVERY ONE HUNDRED (100) ORDINARY SHARES IN THE CAPITAL OF THE COMPANY, INTO ONE (1) CONSOLIDATED SHARE, FRACTIONAL ENTITLEMENTS TO BE DISREGARDED (THE SHARE CONSOLIDATION ); AND (3) THE PROPOSED RENOUNCEABLE NON-UNDERWRITTEN RIGHTS ISSUE OF ELEVEN (11) RIGHTS SHARES FOR ONE (1) CONSOLIDATED SHARE IN THE CAPITAL OF THE COMPANY AFTER THE COMPLETION OF THE SHARE CONSOLIDATION (THE RIGHTS ISSUE ) (COLLECTIVELY, THE TRANSACTIONS ). 1. INTRODUCTION The Directors are convening an extraordinary general meeting ( EGM ) to be held on 8 April 2011 at 10:00 a.m. at RELC International Hotel, 30 Orange Grove Road (off Orchard Road), Singapore 258352, Stevens Room, Level 5 to seek Shareholders approval for the following proposals: (a) the Capital Reduction (Resolution 1); (b) the Share Consolidation (Resolution 2); and (c) the Rights Issue (Resolution 3). This Circular has been prepared to provide Shareholders with information relating to the proposals, which will be tabled at the EGM. Shareholders are advised that the SGX-ST assumes no responsibility for the correctness of any statements made, opinions expressed or reports contained in this Circular. The in-principle approval from the SGX-ST is not to be taken as an indication of the merits of the Capital Reduction, the Share Consolidation, the Rights Issue, the Rights Shares, the Consolidated Shares, the Consolidated Warrants, the Adjustment Shares, the Adjustment Warrants (as defined in paragraph 4.4 of this Circular), the Company, its subsidiaries or the Shares (as respectively defined herein). 8
Shareholders should note that Resolutions 2 and 3 are inter-conditional upon each other. The passing of the ordinary resolution for the approval of the Share Consolidation ( Resolution 2 ) is a pre-requisite for the tabling of the ordinary resolution for the approval of the Rights Issue ( Resolution 3 ). Shareholders should note that in the event that Resolution 2 is not passed, the Rights Issue cannot proceed. In addition, in the event that Resolution 3 is not passed, the Share Consolidation will not proceed. 1.1 Background of the Transactions The Transactions are part of the steps proposed to be undertaken by the Company to achieve the ultimate objective of removal from the watch-list of the SGX-ST. The Company was placed on the watch-list of the SGX-ST on 4 June 2008. Pursuant to Rule 1314 of the Listing Manual ( Rule 1314 ), the Company may apply for its removal from the watch-list of the SGX-ST if it records consolidated pre-tax profit for the most recently completed financial year and has an average daily market capitalisation of S$40 million or more over the last 120 market days on which trading was not suspended or halted, or if the Company satisfies the quantitative criteria in Rules 210(2)(a) or 210(2)(b) of the Listing Manual for listing of equity securities on the Main Board of the SGX-ST. The Company has written to the SGX-ST and has on 3 June 2010 received a letter from the SGX- ST that the SGX-ST will assess the Company s compliance with Rule 1314 based on the Company s financial performance for two full financial years after its entry into the watch-list, namely FY2009 and FY2010, following the announcement of its results for FY2010. The Company has submitted the signed audited financial statements of the Group for FY2010 to the SGX-ST after its annual general meeting held on 22 December 2010. The SGX-ST had, on 31 January 2011, issued a letter to the Company, stating that while the SGX-ST noted that Company has achieved an audited consolidated pre-tax profit for FY2010 and has maintained an average daily market capitalisation of at least S$40 million for the last 120 markets days prior to the Company s application for exit from the watch-list, the Company s financial statements for FY2010 are qualified. In view of the audit qualification, the SGX-ST will re-consider the Company s application for an exit from the watch-list only when the Company s subsequent audited financial statements are unqualified. Despite the above, the SGX-ST has no objection to the Company s application for an extension of time for compliance with Rule 1314 of the Listing Manual until the issuance of its audited financial statements for the financial year ending 31 August 2011 ( FY2011 ). The Company expects to submit its signed audited consolidated financial statements for FY2011 to the SGX-ST in December 2011. Shareholders should, however, note that the SGX-ST reserves the right to consider delisting the Company, notwithstanding that the Company s audited consolidated financial statements for FY2011 are unqualified, if at the end of the extension period, the Company is not able to achieve an audited consolidated pre-tax profit for FY2011 and maintain an average daily market capitalisation of at least S$40 million for the last 120 markets days prior to the Company s application for exit from the watch-list in December 2011. 2. THE CAPITAL REDUCTION 2.1 Introduction The Capital Reduction is to cancel the accumulated losses of the Company amounting to S$76,514,299 as at 31 August 2010 ( Accumulated Losses ). The Capital Reduction does not entail any outflow of cash or change to the net assets of the Company. 9
It is a requirement under the Companies Act that a company proposing to undertake a capital reduction exercise should, inter alia, obtain the approval of their shareholders at a general meeting of shareholders by way of a special resolution ( Capital Reduction Resolution ), to be tabled at such general meeting for the Capital Reduction. 2.2 Details of the Capital Reduction The Capital Reduction will be undertaken pursuant to Section 78A read together with Section 78C of the Companies Act and will be effected in the following manner:- (a) (b) by reducing the share capital of the Company from S$87,165,253 to S$10,650,954 by the cancellation of the share capital of the Company which is unrepresented by available assets to the extent of S$76,514,299; and the amount equal to S$76,514,299 being the credit arising from the cancellation of the share capital of the Company shall be applied to fully write off the Accumulated Losses of the Company as at 31 August 2010. 2.3 Resultant Effect on the Share Capital of the Company The Capital Reduction will reduce the share capital of the Company by S$76,514,299 and fully write off the Company s Accumulated Losses as at 31 August 2010 from S$76,514,299 to nil. The Capital Reduction will not involve the diminution of any liability in respect of unpaid capital or payment to any Shareholder of any paid-up share capital of the Company. There will be no change in the number of Shares held by Shareholders immediately after the Capital Reduction and no change in their share of the Company s net equity. 2.4 Rationale of the Capital Reduction The Company had undertaken a Corporate Restructuring in 2009 to dispose of loss-making subsidiaries. Thus, the Accumulated Losses of the Company would arose principally from writedowns in the carrying values of investments in, and amounts due from subsidiaries of the Company and losses from past operations. The purpose of the Capital Reduction is to cancel paid-up share capital no longer represented by available assets and to write off the Accumulated Losses of the Company as at 31 August 2010, amounting to S$76,514,299. The Capital Reduction is necessary to re-position and help the Company in its preparation for the future, in particular: (a) (b) serves to strengthen the balance sheet of the Company to better reflect the financial position of the Company; and to facilitate the declaration of dividends to the Shareholders in the future, if appropriate. If the Capital Reduction is not carried out, the Company may not be able to declare any dividend to its Shareholders until the accumulated losses are fully eliminated by future years profits. Hence, the Directors believe that it is in the best interests of the Company and its Shareholders to undertake the Capital Reduction to eliminate the accumulated losses to facilitate future declaration of dividends, if appropriate. With a stronger balance sheet position upon the completion of the Capital Reduction, the Directors believe that the Company will have better grounds in seeking SGX-ST s approval for the removal of the Company from the SGX-ST s watch-list. 10
2.5 Financial Effects of the Capital Reduction The Capital Reduction is an accounting procedure that reduces the existing issued and paid-up share capital of the Company to eliminate the accumulated deficit in the balance sheet. The exercise represents merely a change in the composition of the shareholders equity and does not entail any outflow of cash or change to the net assets of the Company or affect the number of the Company s Shares in issue. The Capital Reduction will not have any impact on the Outstanding Warrants. There will be no change to the number of Outstanding Warrants of the Company and no adjustments to the exercise price of the Outstanding Warrants as a result of the Capital Reduction. For illustration purposes only and based on the consolidated financial statements of the Company as at 31 August 2010, the financial effects of the proposed Capital Reduction are set out as follows:- (a) Share Capital The effect of the Capital Reduction will reduce the share capital by S$76,514,299 and eliminate the accumulated deficit in the balance sheet account of the Company. The effect of the Capital Reduction on the issued share capital of the Company as at 31 August 2010 is set out below: As at 31 August 2010 Share Capital No. of Shares S$ Before the Capital Reduction 9,969,557,314 87,165,253 After the Capital Reduction 9,969,557,314 10,650,954 No capital will be returned to Shareholders and the number of Shares held by Shareholders will remain unchanged following the proposed Capital Reduction. (b) Shareholders Funds The effect of the Capital Reduction on the Shareholders Funds of the Company and the Group as at 31 August 2010 assuming that the Capital Reduction had been completed on the aforementioned date is set out below: Group Company Before After the Before the After the the Capital Capital Capital Capital S$ 000 Reduction Reduction Reduction Reduction Share Capital 87,165 10,651 87,165 10,651 (Accumulated Losses) / Revenue Reserves (75,335) 1,179 (76,514) Equity attributable to owners of the parents 11,830 11,830 10,651 10,651 Non-controlling interests 79 79 Total equity 11,909 11,909 10,651 10,651 11
(c) NTA, Earnings and Gearing The Capital Reduction will not have any impact on the NTA per Share, earnings per Share and gearing of the Company and the Group. 2.6 Effective Date of Capital Reduction After Shareholders approval has been obtained for the Capital Reduction at the EGM, the Company will send a notice to the Comptroller of Income Tax stating that the Capital Reduction Resolution has been duly passed at the EGM. If no application is received from any creditor of the Company for the cancellation of the Capital Reduction Resolution within six (6) weeks commencing from the date on which it is passed, the Company will lodge the relevant documents with ACRA, upon which the Capital Reduction will take effect. The Company will then publicly announce and notify Shareholders of the effective date of the proposed Capital Reduction through a SGXNET announcement to be posted on the SGX-ST website at http://www.sgx.com. 2.7 Conditions of the Capital Reduction The proposed Capital Reduction is subject to, inter alia, the following: (a) (b) (c) (d) (e) the approval of Shareholders by way of a special resolution passed at the EGM; the notification to the Comptroller of Income Tax that the Capital Reduction Resolution has been passed at the EGM, within eight (8) days from the date of the Capital Reduction Resolution; compliance with the relevant publicity requirements as prescribed in the Companies Act; no application for cancellation of the Capital Reduction Resolution by any creditor of the Company within the timeframe prescribed in the Companies Act, or if such application was made, the dismissal thereof by the judicial authorities; and lodgement of the relevant documents with ACRA after the end of six (6) weeks (but before the end of eight (8) weeks) commencing from the date of the Capital Reduction Resolution. 3. THE SHARE CONSOLIDATION 3.1 Basis of the Share Consolidation Under the Share Consolidation, every one hundred (100) existing Shares registered in the name of each Shareholder as at the Share Conso Books Closure Date will be consolidated to constitute one (1) Consolidated Share. Each Consolidated Share will rank pari passu in all respects with each other. The Consolidated Shares will be traded in board lots of 1,000 Consolidated Shares. Shareholders should note that the number of Consolidated Shares which they are entitled to, based on their holdings of Shares as at the Share Conso Books Closure Date, will be rounded down to the nearest whole Consolidated Share and any fractions of a share arising from the Share Consolidation shall be disregarded. Fractions of a Consolidated Share arising from the Share Consolidation will be aggregated and dealt with in such manner as the Directors may, in their absolute discretion, deem fit in the interests of the Company. As at the Latest Practicable Date, Company has an issued and paid-up share capital of S$87,165,253 divided into 9,969,557,314 Shares and 241,855,111 W110911 and 351,971,798 W120514, each warrant carrying the right to subscribe for one new Share. 12
On the assumption that there will be no new Shares issued by the Company up to the Share Conso Books Closure Date, following the implementation of the Share Consolidation, the Company will have a share capital of S$87,165,253 divided into 99,695,573 Consolidated Shares (or a share capital of S$10,650,954 divided into 99,695,573 Consolidated Shares upon the completion of the Capital Reduction) and 2,418,551 outstanding Consolidated W110911 and 3,519,717 outstanding Consolidated W120514, each Consolidated Warrant carrying the right to subscribe for one new Consolidated Share in the capital of the Company. Upon the completion of the Share Consolidation, the Company expects the share price of the Consolidated Shares to trade at around S$0.50 for each Consolidated Share. The exercise price of the Outstanding Warrants will also be adjusted accordingly to reflect the Share Consolidation. The new exercise price for Consolidated W110911 and Consolidated W120514 will be S$2.00 and S$3.00 respectively, based on the current exercise price of S$0.02 and S$0.03 respectively, as a result of the Share Consolidation. The Share Consolidation will have no impact on the issued and paid-up share capital of the Company. The Share Consolidation will not involve the diminution of any liability in respect of unpaid capital or the payment to any Shareholder of any paid-up capital of the Company, and has no effect on the shareholders equity of the Company and its subsidiaries. Shareholders are not required to make any payment to the Company in respect of the Share Consolidation. 3.2 Rationale for the Share Consolidation The absolute price of the Shares traded on the SGX-ST has been closing at a low level, ranging between 0.5 cent to 1.0 cent in the last 12 months before the Latest Practicable Date. Low trading share prices translate to higher transaction costs, relative to the trading share price, for each trading of one board lot of 1,000 Shares. The highest and lowest trading prices as well as the trading volume of the Shares for the last 12 months prior to the Latest Practicable Date are set out below: Share Price (S$) High (1) Low (2) Volume (3) March 2010 0.010 0.005 847,514,000 April 2010 0.005 0.005 10,545,000 May 2010 0.005 0.005 34,350,000 June 2010 0.005 0.005 8,740,000 July 2010 0.005 0.005 210,560,000 August 2010 0.005 0.005 10,895,000 September 2010 0.005 0.005 7,548,000 October 2010 0.005 0.005 16,906,000 November 2010 0.005 0.005 1,100,000 December 2010 0.005 0.005 31,718,000 January 2011 0.005 0.005 8,636,000 February 2011 0.005 0.005 8,692,000 1 March 2011 to the Latest Practicable Date 0.005 0.005 2,551,000 Source: Bloomberg L.P. (4) Notes: (1) High price was based on the highest intraday price for the Shares in a particular month (2) Low price was based on the lowest intraday price for the Shares in a particular month (3) Volume was based on the total volume of the Shares traded in a particular month (4) Bloomberg L.P. has not consented to the inclusion of the prices quoted under this section and is thereby not liable for such information under Sections 253 and 254 of the Securities and Future Act. The Company and the Financial Adviser has included the above information in their proper form and context in this Circular and has not verified the accuracy of these statements 13
The Board of Directors of the Company believes that the Share Consolidation will generally be beneficial to the Company and its Shareholders as it would help to reduce the relative transaction cost for each trading of one board lot of Consolidated Shares. However, Shareholders should note that there is no assurance that the Share Consolidation will achieve the desired results, nor is there assurance that such results (if achieved) can be sustained in the longer term. 3.3 Approvals and Conditions The Share Consolidation is subject to, inter alia: (a) (b) the approval of the SGX-ST for the Share Consolidation and the dealing in, listing of and quotation for the Consolidated Shares and Consolidated Warrants on the SGX-ST; and the approval of Shareholders by ordinary resolution at the EGM. Shareholders should note that Resolutions 2 and 3 are inter-conditional upon each other. The passing of the ordinary resolution for the approval of the Share Consolidation ( Resolution 2 ) is a pre-requisite for the tabling of the ordinary resolution for the approval of the Rights Issue ( Resolution 3 ). Shareholders should note that in the event that Resolution 2 is not passed, the Rights Issue cannot proceed. In addition, in the event that Resolution 3 is not passed, the Share Consolidation will not proceed. By a letter dated 9 March 2011, the SGX-ST granted its in-principle approval for the listing and quotation of up to 105,633,841 Consolidated Shares and up to 5,938,268 Consolidated Warrants (comprising up to 2,418,551 Consolidated W110911 and up to 3,519,717 Consolidated W120514) subject to the following conditions: (a) (b) (c) Shareholders approval being obtained for the Share Consolidation at the EGM; Compliance with the SGX-ST s listing requirements; and Submission of the notification stipulated in Listing Rule 864(4), if applicable, upon any significant changes affecting any matter contained in the application, when a significant new matter has arisen which would be required to be included in the application if it had arisen before the application was submitted. Shareholders are advised that the in-principle approval from the SGX-ST is not to be taken as an indication of the merits of the Share Consolidation. Subject to the Shareholders approval at the EGM, an announcement will be made by the Company to notify Shareholders of the Share Conso Books Closure Date, the date when the Share Consolidation will become effective and the date on which the Shares will trade on the SGX- ST in board lots of 1,000 Consolidated Shares (the Effective Trading Date ) in due course. 3.4 Updating of Register of Members and Depository Register for the Rights Shares and the Consolidated Shares If Shareholders at the EGM approve the Share Consolidation, Shareholders entitlements to the Consolidated Shares will be determined on the Share Conso Books Closure Date. The Register of Members and the Depository Register will be updated to reflect the number of Consolidated Shares held by Shareholders, and the Shares will begin trading in board lots of 1,000 Consolidated Shares on the Effective Trading Date. 14
(a) Deposit of Share Certificates with CDP Shareholders who hold physical share certificates for the existing Shares in their own names ( Old Share Certificates ) and who wish to deposit the same with CDP and have their Consolidated Shares credited to their Securities Accounts maintained with CDP must deposit their Old Share Certificates, together with duly executed instruments of transfer in favour of CDP, no later than twelve (12) Market Days prior to the Share Conso Books Closure Date. After the Share Conso Books Closure Date, CDP will only accept the deposit of share certificates for Consolidated Shares ( New Share Certificates ). Shareholders who wish to deposit their share certificates with CDP after the Share Conso Books Closure Date must first deliver their Old Share Certificates to the Share Registrar for cancellation and issuance of New Share Certificates in replacement thereof as described below. (b) Issue of New Share Certificates Shareholders who have deposited their Old Share Certificates with CDP at least twelve (12) Market Days prior to the Share Conso Books Closure Date need not take any action. The Company will make arrangements with CDP to effect the exchange for New Share Certificates pursuant to the Share Consolidation. Shareholders who have not deposited their Old Share Certificates as aforesaid or who do not wish to deposit their Old Share Certificates with CDP are advised to forward all their Old Share Certificates to the Share Registrar, Boardroom Corporate and Advisory Services Pte. Ltd., 50 Raffles Place, #32-01 Singapore Land Tower Singapore 048623, as soon as possible after they have been notified of the Share Conso Books Closure Date for cancellation and exchange for New Share Certificates. No receipt will be issued by the Share Registrar upon receipt of any Old Share Certificates. The New Share Certificates will be sent by ordinary mail to the registered addresses of Shareholders at their own risk within ten (10) Market Days from the Share Conso Books Closure Date or the date of receipt of the Old Share Certificates, whichever is later. Shareholders should note that New Share Certificates will not be issued to Shareholders unless their Old Share Certificates have already been tendered to the Share Registrar for cancellation. Shareholders should notify the Share Registrar if they have lost any of their existing Old Share Certificates or if there is any change in their respective addresses from that reflected in the Register of Members of the Company. Shareholders shall deliver their respective Old Share Certificates to the Share Registrar or CDP in accordance with the provisions set out above, only after the Company s announcement of the Share Conso Books Closure Date. (c) Share Certificates Not Valid for Settlement of Trades on SGX-ST Shareholders are reminded that their Old Share Certificates are no longer good for settlement of trading in the Shares on the SGX-ST, as the Company is under a book-entry (scripless) settlement system, but will continue to be accepted by the Share Registrar for cancellation and issue of New Share Certificates in replacement thereof for an indefinite period. The New Share Certificates will not be valid for delivery for trades done on the SGX-ST although they will continue to be prima facie evidence of legal title. 15
3.5 Trading Arrangements for the Shares and Odd Lots (a) Trading Arrangements for the Shares Subject to the approval for the Share Consolidation by Shareholders at the EGM, with effect from 9.00 a.m. on the Effective Trading Date, trading in the Shares will be in board lots of 1,000 Consolidated Shares. Accordingly, one hundred (100) existing Shares as at 5.00 p.m. on the Market Day immediately preceding the Effective Trading Date will represent one (1) Consolidated Share with effect from 9.00 a.m. on the Effective Trading Date. Trading in the existing Shares will cease after 5.00 p.m. on the Market Day immediately preceding the Effective Trading Date. (b) Trading Arrangements for Odd Lots The existing Shares are currently traded in board lots of 1,000 Shares. Following the Share Consolidation, the securities accounts maintained with CDP of Shareholders may be credited with odd lots of Consolidated Shares (that is, lots other than board lots of 1,000 Shares). The market for trading of such odd lots of Consolidated Shares may be illiquid. To minimise the problems arising from odd lots as a result of the Share Consolidation, an application will be made to the SGX-ST to include a new trading board lot size of 10 Consolidated Shares per board lot for a period of one month. The Company will update Shareholders on the outcome of this application through a SGXNET announcement to be posted on the SGX-ST website at http://www.sgx.com. Shareholders who receive odd lots of Consolidated Shares pursuant to the Share Consolidation and who wish to trade in odd lots on the SGX-ST can trade with a minimum size of one (1) Consolidated Share on the SGX-ST s unit share market. The SGX-ST s unit share market was set up in 2003 to enable trading in odd lots in any quantity less than one board lot of the underlying Shares in the ready market. 3.6 Share Conso Books Closure Date An announcement will be made by the Company to notify Shareholders of the Share Conso Books Closure Date. 4. THE RIGHTS ISSUE 4.1 Basis of the Rights Issue The Company also proposes that, following the completion of the Share Consolidation, the Company shall undertake a renounceable non-underwritten rights issue of up to 1,161,972,251 new Consolidated Shares (the Rights Shares ) at an issue price of S$0.015 for each Rights Share (the Rights Issue Price ), on the basis of eleven (11) Rights Share for every one (1) Consolidated Share held as at the books closure date to be determined (the Rights Issue Books Closure Date ). As at the Latest Practicable Date, the Company has total issued share capital of 9,969,557,314 ordinary shares and 241,855,111 outstanding W110911 and 351,971,798 outstanding W120514, each Outstanding Warrant carrying the right to subscribe for one Share of the Company. Upon the completion of the Share Consolidation, the Company would have total issued share capital of 99,695,573 Consolidated Shares and 2,418,551 outstanding Consolidated W110911 and 3,519,717 outstanding Consolidated W120514, each Consolidated Warrant carrying the right to subscribe for one new Consolidated Share. Based on the maximum number of new Consolidated Shares that could arise from the exercise of the Consolidated Warrants, the Rights Issue will involve the issuance of up to 1,161,972,251 new Consolidated Shares. Please also refer to paragraph 4.3.3 of this Circular for adjustments to be made to the Consolidated Warrants as a result of the Rights Issue. 16
The Rights Issue (including adjustments to the Consolidated Warrants arising therefrom) shall be subject to the approval of Shareholders by ordinary resolution at the EGM. In view of the cost savings by the Company in respect of underwriting fees for an underwritten rights issue, the Company has decided to proceed with the Rights Issue on a non-underwritten basis. As the Rights Issue is not and will not be underwritten, Shareholders are advised to carefully evaluate their individual investment positions and if they are in doubt as to the Rights Issue, to consult their own financial or other adviser. The Company wishes to highlight that, should the Company be unable to meet the requirements of Rule 1314 of the Listing Manual by the time of the issue of its audited financial statements for the financial year ending 31 August 2011 in December 2011, the SGX-ST may either remove the Company from its Official List, or suspend trading of the Shares with a view to removing the Company from its Official List. Please refer to paragraph 1.1 of this Circular for further details of Rule 1314 of the Listing Manual. In the event that the SGX-ST exercises its power to remove the Company from its Official List at such time, any exit alternative offered by the Company may or may not be reasonable and Shareholders may lose some or all of their investment in the Company (including any subscription monies paid by Entitled Shareholders who accept their provisional allotments of Rights Shares and (if applicable) are allotted excess Rights Shares under the Rights Issue). 4.2 Rights Issue Price The Rights Issue Price is proposed to be S$0.015 for each Rights Share. The closing price price of one Share on SGX-ST as at 28 January 2011, being the day of the release of the announcement relating to the Rights Issue was S$0.005 (the Closing Price ). Accordingly, the Rights Issue Price represents a premium of 200% to the closing price of one Share prior to the announcement of the Rights Issue. Given that the Rights Issue will only proceed upon the completion of the Share Consolidation, it would not be relevant to compare the Rights Issue Price with the existing trading prices of the Shares. Based on the Closing Price, the Company expects the share price of the Consolidated Shares to trade at around S$0.50 for each Consolidated Share ( Consolidated Share Price ) after the completion of the Share Consolidation. Accordingly, the Rights Issue Price represents a discount of approximately 97% to the Consolidated Share Price. The volume weighted average price for the 10 Market Days prior to the announcement of the Rights Issue was S$0.005 (the 10D VWAP ). Accordingly, the Rights Issue Price represents a 200% premium to the VWAP for the 10 Market Days prior to the announcement of the Rights Issue. Based on the 10D VWAP, the Company expects the share price of the Consolidated Shares to trade at around S$0.50 for each Consolidated Share ( Consolidated Share Price ) after the completion of the Share Consolidation. Accordingly, the Rights Issue Price represents a discount of approximately 97% to the Consolidated Share Price. The theoretical ex-price of one Share after all the Transactions are completed is approximately S$0.055. Accordingly, the Rights Issue Price represents a discount of approximately 73% to the theoretical ex-price of one Share. 17
4.3 Terms of the Rights Issue 4.3.1 Principal terms of the Rights Issue Number of Rights : Up to 1,161,972,251 Rights Shares. Shares Basis of Provisional : Eleven (11) Rights Shares for every one (1) Consolidated Share Allotment held by Entitled Shareholders as at the Rights Issue Books Closure Date. Rights Issue Price : S$0.015 for each Rights Share, payable in full upon acceptance and/or application. Status of the Rights : The Rights Shares, when allotted and issued, will rank pari Shares passu in all respects with the then existing Consolidated Shares save for any dividends, rights, allotments or other distributions, the Record Date for which falls before the date of issue of the Rights Shares. Eligibility to : Please see Section 4.6 of this Circular. participate in the Rights Issue Listing of the Rights : By a letter dated 9 March 2011, the SGX-ST granted its Shares approval-in-principle for the listing of and quotation for the Rights Shares on the SGX-ST subject to certain conditions, the details of which are set out on Section 4.4 of this Circular. The inprinciple approval of SGX-ST is not an indication of the merits of the Rights Issue and the Rights Shares. Trading of the : Upon the listing of and quotation for the Rights Shares on the Rights Shares SGX-ST, the Rights Shares will be traded on the SGX-ST under the book-entry (scripless) settlement system. For the purposes of trading on the SGX-ST, each board lot of Shares will comprise 1,000 Shares. Trading of Odd : To minimise the problems arising from odd lots as a result of the Lots Rights Issue, an application will be made to the SGX-ST to include a new trading board lot size of 10 Rights Shares per board lot for a period of one month. The Company will update Shareholders on the outcome of this application through a SGXNET announcement to be posted on the SGX-ST website at http://www.sgx.com. Shareholders who receive odd lots of Rights Shares pursuant to the Rights Issue and who wish to trade in odd lots on the SGX- ST can trade with a minimum size of one (1) Rights Share on the SGX-ST s unit share market. The SGX-ST s unit share market was set up in 2003 to enable trading in odd lots in any quantity less than one board lot of the underlying Shares in the ready market. 18
Acceptance, : Provisional allotments which are not taken up for any reason excess applications shall be aggregated and used to satisfy excess applications (if and payment any) or otherwise dealt with in such manner as the Directors procedures may, in their absolute discretion, deem fit in the interests of the Company. In the allotment of excess Rights Shares, preference will be given to the rounding up of odd lots, and Substantial Shareholders and Directors will rank last in priority. Non-Underwritten : The Rights Issue is not underwritten. basis Use of CPF Funds : Members of the Company under the CPF Investment Scheme Ordinary Account may use their CPF account savings ( CPF Funds ) for the payment of the Rights Issue Price to subscribe for their provisional allotments of Rights Shares and (if applicable) the excess Rights Shares, if they have previously bought their Shares using CPF Funds. Such members who wish to accept the provisional allotments of Rights Shares and (if applicable) apply for excess Rights Shares using CPF Funds will need to instruct their respective approved banks, where they hold their CPF Investment Accounts, to accept and (if applicable) apply for excess Rights Shares on their behalf in accordance with the terms and conditions of the OIS. CPF Funds may not, however, be used for the purchase of the provisional allotments of the Rights Shares directly from the market. Governing Law : Laws of the Republic of Singapore. The final terms and conditions of the Rights Issue will be set out in the Offer Information Statement to be despatched to Entitled Shareholders in due course, subject to, inter alia, the approval of the Shareholders for the Rights Issue at the EGM. 4.3.2 Summary of other key information on the Rights Issue The Rights Shares will be payable in full upon acceptance and/or application. The Rights Shares, when allotted and issued, will rank pari passu in all respects with the then existing Consolidated Shares save for any dividends, rights, allotments or other distributions, the Record Date for which falls before the date of issue of the Rights Shares. Shareholders whose registered addresses with the Company or CDP, as the case may be, are in Singapore as at the Rights Issue Books Closure Date, or who have, at least five (5) Market Days prior to the Rights Issue Books Closure Date, provided to the Share Registrar or CDP, as the case may be, addresses in Singapore for the service of notices and documents, will be entitled to participate in the Rights Issue and receive the OIS at their respective Singapore addresses. Entitled Shareholders will be at liberty to accept (in full or in part), decline or otherwise renounce or trade their provisional allotments of Rights Shares and will be eligible to apply for additional Rights Shares in excess of their provisional allotments under the Rights Issue. The final allotment will be determined at the absolute discretion of the Directors, as they may deem fit in the interests of the Company. In the allotment of excess Rights Shares, preference will be given to the rounding of odd lots, and Substantial Shareholders and Directors will rank last in priority. 19