FALCON ENERGY GROUP LIMITED Company Registration No. 200403817G PROPOSED ACQUISITION BY THE COMPANY FROM SUNLIGHT MARINE SERVICES S.A. OF THE ENTIRE EQUITY INTEREST IN THE SHARE CAPITAL OF OILFIELD SERVICES COMPANY LIMITED FOR A PURCHASE CONSIDERATION OF S$229,000,000 TO BE SATISFIED BY THE ALLOTMENT AND ISSUE OF 618,918,919 NEW ORDINARY SHARES IN THE SHARE CAPITAL OF THE COMPANY AT AN ISSUE PRICE OF S$0.37 PER SHARE 1. Introduction The Directors of Falcon Energy Group Limited (hereinafter referred to as "Company" and Group refers to the Company and its subsidiaries) refer to the announcement made on 4 April 2007 in respect of MOU 2 ( 4 April 2007 Announcement ). Unless otherwise defined, all terms defined in the 4 April 2007 Announcement shall have the same meanings when used or referred to in this announcement. The Directors are pleased to further announce that the Company has on 20 June 2007 entered into a conditional sale and purchase agreement ( SPA ) with Sunlight Marine Services S.A. ( Vendor ) for the proposed acquisition ( ) by the Company from the Vendor of the entire equity interest in the share capital of Oilfield Services Company Limited ( OSCL ), a corporation incorporated under the laws of Hong Kong, held by the Vendor for a purchase consideration of S$229,000,000 to be satisfied by the allotment and issue of 618,918,919 new ordinary shares ( Consideration Shares ) in the share capital of the Company at the issue price of S$0.37 for each Consideration Share ( Issue Price ). Under the SPA, the purchase consideration of S$229,000,000 is subject to adjustment as described below, and the number of Consideration Shares that may be allotted and issued may vary depending on the adjustment to the purchase consideration. 2. 2.1 Information on OSCL OSCL is the holding company of the following wholly-owned subsidiaries: (c) (d) (e) (f) (g) Imel Assets Corporation, a corporation incorporated under the laws of Panama; Morrison Marine Services S.A., a corporation incorporated under the laws of Panama; Excel Marine S.A., a corporation incorporated under the laws of Panama; Century Marine S.A., a corporation incorporated under the laws of Panama; Imperial Marine S.A., a corporation incorporated under the laws of Panama; Atlantic Marine S.A., a corporation incorporated under the laws of Panama; and Asetanian Marine Pte Ltd, a corporation incorporated under the laws of Singapore. 1
It is contemplated that prior to the completion of the acquisition by the Company from the Vendor of the entire equity interest in the share capital of OSCL, OSCL will have acquired the entire equity interest in the share capital of Innovest Resources Limited (a corporation incorporated under the laws of the British Virgin Islands) and 40% of the equity interest in the share capital of Federal Offshore Services Pte Ltd (a corporation incorporated under the laws of Singapore). The aforesaid companies ( OSCL Group or OSCL Group Companies ) are principally involved in the maritime business, particularly in the provision of maritime equipment such as supply vessels and large work and accommodation barges required by oil companies. The OSCL Group companies generally provide support vessels for oil companies and major contractors to enable them to carry out work in offshore production facilities. 2.2 Asset value 2.3 Profit Based on the unaudited proforma consolidated financial statements of the OSCL Group for the financial year ended 31 December 2006 which had been prepared based on the unaudited financial statements of each of the OSCL Group Companies ( Proforma Financial Statements ), the net tangible asset value of the OSCL Group was US$59,574,366. Based on the Proforma Financial Statements, the profit income tax, minority interests and extraordinary items of the OSCL Group was US$14,151,835. 2.4 Purchase consideration 2.4.1 The purchase consideration for the is, subject to adjustment as described in paragraph 3.2 below, S$229,000,000 ( Purchase Consideration ). The Purchase Consideration was arrived at after arm s length negotiations, on a willing buyerwilling seller basis, and computed on the basis of a price earnings ratio of 10.8 times and the net profit after tax of the OSCL Group Companies based on its proforma financial statements for the financial year ended 31 December 2006 (which will be based on the audited financial statement of each of the OSCL Group Companies) ( OSCL Group Profits ) of US$13,950,000 (subject to a maximum of US$15,345,000 and a minimum of US$12,550,000), and at the conversion rate of US$1=S$1.52 set on the day prior to the execution of MOU 2. Accordingly, if the OSCL Group Profits deviate from US$13,950,000, the Purchase Consideration will be adjusted in the manner described in paragraph 3.2 below. 2.4.2 The Purchase Consideration will be satisfied entirely by the allotment and issue to the Vendor of the Consideration Shares at the Issue Price. The actual number of Consideration Shares that may be allotted and issued may vary depending on the adjustment to the Purchase Consideration as described in paragraph 3.2 below. Assuming the maximum OSCL Group Profits of US$15,345,000 is reached or exceeded, the maximum Purchase Consideration will be S$251,900,000 and a maximum of 680,810,810 Consideration Shares may be allotted and issued to the Vendor. The Consideration Shares, when allotted and issued, shall rank pari passu in all respects with the then existing shares in the share capital of the Company and, so far as regards any dividends declared or paid by reference to a record date falling on or after the date of their registration in the Company s register of members, shall rank as if they had been issued (fully paid) on and from the commencement of the period in respect of which that dividend is declared or paid. The Issue Price represents a discount of 50% to the last 2
transacted price of the Company s shares for trades done on the Singapore Exchange Securities Trading Limited Dealing and Automated Quotation System ( SGX-SESDAQ ) on 19 June 2007 being the last trading day preceding the date of this announcement on which there were trades in the shares. 2.4.3 The Company intends to apply to the Singapore Exchange Securities Trading Limited ( SGX-ST ) for the listing and quotation of the Consideration Shares on the SGX- SESDAQ. 3. Principal terms of SPA 3.1 Conditions precedent Under the terms of the SPA, the is conditional upon, inter alia: (c) (d) (e) (f) where the terms of any prescribed material contract contain any restrictions or prohibition on the change in control of the shareholdings and/or the boards of directors of any OSCL Group Company or include any right to terminate exercisable prior to or as a result of any matter contemplated by the SPA, written confirmation in a form and on terms (if any) satisfactory to the Company by the counterparties thereto, of the wavier of such restrictions or prohibition in relation to any such change arising from the transactions under the SPA or of any such right to terminate; the regulatory permissions and registrations necessary or desirable for or in respect of the proposed acquisition of the OSCL Group Companies by the Company having been obtained on terms satisfactory to the Company and the regulatory permissions and registrations remaining in full force and effect; the Company having been completely satisfied at its discretion with the result of a due diligence to be conducted by the Company (or its representative or advisors) in respect of the business and affairs of the OSCL Group Companies (including legal, financial, tax and operational matters), the value of the OSCL Group Companies, the earning potential of the OSCL Group Companies and the justification for the purchase consideration that has been agreed upon by the parties to the SPA; the SGX-ST having granted in-principal approval to the transactions contemplated by the SPA and having granted its consent to list and quote the Consideration Shares on the SGX-SESDAQ, and such approval and permission being in full force and effect and not having been withdrawn, suspended, amended or revoked on the completion date, and if such approval or consent is granted or obtained subject to any condition, such condition being reasonably acceptable to the Vendor; the requisite approval of the shareholders of the Company having been obtained at a general meeting of the shareholders of the Company for the transactions contemplated in the SPA, and such approval not having been withdrawn or revoked as at the completion date; the Vendor having made an application or representation to the Securities Industry Council of Singapore ( SIC ) on behalf of itself and the parties acting in concert with it to seek a waiver from their obligation to make a mandatory offer pursuant to Rule 14 of the Singapore Code on Take-Overs and Mergers to purchase the shares in the capital of the Company not held by them, and the SIC 3
either having ruled that a waiver is not necessary or having granted a waiver, and if such waiver is subject to any condition or restriction imposed by the SIC, such condition and restriction being acceptable to the Vendor; (g) (h) (i) (j) (k) if so required by the SIC, a Whitewash Resolution having been passed at a general meeting of the shareholders of the Company and such resolution not having been withdrawn or revoked as at the completion date; the execution and performance of the SPA by the parties thereto not being prohibited or restricted, curtailed, hindered, impaired or otherwise affected to a material adverse extent, by any relevant statute, law, rule, directive or regulation promulgated by any legislative or regulatory body or authority after the date of the SPA; the completion of the acquisition of the entire equity interest in the share capital of Innovest Resources Limited and 40% of the equity interest in the share capital of Federal Offshore Services Pte Ltd; the transaction contemplated by the SPA being approved by the board of directors of the Company; and the OSCL Group Profits shall not be less than US$12,550,000. In the event that any of the above conditions is not satisfied or waived on or the expiry of 9 months from the date of the SPA, then save as expressly provided in the SPA, the SPA shall lapse and either party may terminate the SPA and neither party shall have any claim against the other. 3.2 Other salient terms The Purchase Consideration was determined on the basis of the OSCL Group Profits being US$13,950,000. In the event that the OSCL Group Profits is a sum other than US$13,950,000, then the Purchase Consideration shall be arrived at as follows: OSCL Group Profits US$13,950,000 X S$229,000,000 provided always that, if the OSCL Group Profits shall be in excess of the sum of US$15,345,000, then it shall for the purposes of this computation be deemed to be US$15,345,000. 4. as an interested person transaction 4.1 The Directors noted that Mr Tan Pong Tyea, a Director and controlling shareholder of the Company, holds an approximately 91.65% shareholding interest in the Vendor. Accordingly, the Vendor is an interested person, and the constitutes an interested person transaction, under Chapter 9 of the SGX-ST Listing Manual. The Purchase Consideration of S$229,000,000 constitutes approximately 4,355.57% of the latest audited net tangible assets of the Group and, pursuant to Rule 906 of the SGX-ST Listing Manual, requires the approval of shareholders of the Company. 4
4.2 The Company has appointed Ernst & Young Corporate Finance Pte Ltd as independent financial adviser to advise the independent Directors on whether or not the is on normal commercial terms and is prejudicial to the interests of the Company or its minority Shareholders. 4.3 The Audit Committee will form its view after considering the advice of the independent financial adviser. The Audit Committee s view will be set out in a circular to be dispatched to Shareholders. 4.4 Save as disclosed, none of the Directors or controlling shareholders of the Company is interested, directly or indirectly, in the. 4.5 Except for the : there are no interested person transactions with Mr Tan Pong Tyea or any of his associates (including the Vendor) since the beginning of the financial year ending 30 September 2007 to the date of this announcement; and there are no transactions of value S$100,000 or above with any other interested person since the beginning of the financial year ending 30 September 2007 to the date of this announcement. 5. Very substantial acquisition or reverse takeover The relative figures for the computed on the relevant bases set out in Rule 1006 of the SGX-ST Listing Manual, and assuming that there is no adjustment to the Purchase Consideration of S$229,000,000 and an aggregate of 618,918,919 Consideration Shares are allotted and issued, are as follows: Relative figure computed in accordance with the bases set out in Rule 1006 Rule 1006 Rule 1006 Rule 1006(c) Rule 1006(d) The net asset value of the assets to be disposed of, compared with the Group s net asset value The net profits attributable to the assets acquired, compared with the Group s net profits (Under Rule 1002 of the SGX-ST Listing Manual, net profits is defined as profit or loss income tax, minority interest and extraordinary items.) The aggregate value of the consideration given, compared with the Company s market capitalisation (which as at the date immediately preceding the date of the SPA on 20 June 2007 was approximately S$60,649,450) The number of equity securities issued by the Company as consideration for an Not Applicable Not meaningful (1) 377.58% 769.45% (2) 5
acquisition, compared with the number of equity securities previously in issue Note: (1) Not meaningful as the Group was in a net loss position for the financial year ended 30 September 2006. (2) Based on the allotment and issue of 618,918,919 Consideration Shares. As the relative figures under Rules 1006, (c) and (d) exceed 100%, the constitutes a very substantial acquisition and reverse takeover pursuant to Rule 1015 of the SGX-ST Listing Manual. Accordingly, the is subject to the approval of Shareholders and the SGX-ST pursuant to Rule 1015. 6. Summary proforma financial information of OSCL Group FY 2004 FY 2005 FY 2006 US$ 000 US$ 000 US$ 000 Unaudited Unaudited Unaudited Summary Profit and Loss Account Turnover 8,054 15,313 23,423 Gross profit 4,240 8,037 13,204 Profit tax 3,717 7,829 14,152 Profit after tax 3,717 7,828 14,152 Summary Balance Sheet Non-current assets 13,477 31,538 54,768 Current assets 10,298 8,794 11,314 Non-current liabilities 7,479 6,336 - Current liabilities 2,158 7,854 6,508 Net Asset Value 14,138 26,142 59,574 Net Tangible Assets 14,138 26,142 59,574 7. Rationale for the 7.1 The Company has, since the mandate given by shareholders on 6 November 2006 to enter into the new business in the marine and oil and gas industries, taken steps to diversify into the marine and oil and gas business. In particular: the Company had announced on 4 January 2007 that the Company had acquired two wholly-owned subsidiaries, namely, Falcon Energy Projects Pte. Ltd. ( Falcon Energy Projects ) and FEG Offshore Pte. Ltd. ( FEG Offshore ). As stated in the said announcement, the principal activity of Falcon Energy Projects is projects and investments related to oil and gas while the principal activity of FEG Offshore is marine, oil and gas services; the Company had announced on 8 February 2007 that the Company, through its wholly-owned subsidiary, Falcon Oilfield Services Pte. Ltd. ( Falcon Oilfield 6
Services ), had established a subsidiary in Mexico known as Astanient S.A. de C.V. for the purpose of providing services to oilfield companies; (c) (d) (e) (f) the Company had announced in the 4 April 2007 Announcement that the Company intended to divest its equity interests in its music related subsidiaries, namely, Sembawang Music Centre Pte Ltd, Orange Music Pte Ltd and True Music Private Limited. On 23 May 2007, shareholders of the Company approved the said divestment at an Extraordinary General Meeting of the Company; the Company had announced on 25 April 2007 that FEG Offshore had entered into a memorandum of agreement with Semicor Diamond Mining (Pty) Ltd for the purchase of a vessel at a consideration of US$5,300,000. FEG Offshore had also entered into a management agreement with Asetanian Marine Pte Ltd for the appointment of Asetanian Marine Pte Ltd as manager of the said vessel; the Company had announced on 27 April 2007 that the Company, through FEG Offshore, had established a Panama subsidiary known as Sears Marine S.A. for the purpose of owning and chartering vessels; and the Company had announced on 1 June 2007 that the Company, through Falcon Oilfield Services, had established a subsidiary in Houston known as Falcon Oilfield Services (USA) Inc. for the purpose of providing services to oilfield companies. 7.2 The Directors are of the view that the is in the interest of Shareholders for the following principal reasons: (c) (d) The is in line with the Company s strategy to enter into new business, i.e. in the marine industry, to ensure long term growth and consistent shareholder value creation. The will also provide the Company with the opportunity to leverage on the experience of the Company s senior management in the marine industry. The business of the OSCL Group is in a buoyant industry and has tremendous growth potential for the Company and will augment the Company s cash flow and value. The will also be in line with the Company s diversification strategy to spread its market risks, broaden the spectrum of the Company s existing business and ultimately achieve a better return for shareholders. 8. Financial effects of the 8.1 Assumptions The proforma financial effects of the presented below: have been prepared based on the audited consolidated financial statements of the Group for the financial year ended 30 September 2006 and on the unaudited proforma financial statements of the OSCL Group for the financial year ended 31 December 2006; 7
(c) (d) (e) assuming that the had been completed on (i) 1 October 2005 for illustrating the financial effects on the consolidated earnings of the Group, and (ii) 30 September 2006 for illustrating the financial effects on the NTA and gearing of the Group; an exchange rate of US$1.00 to S$1.5869 in translating the financial figures of the Group reported in S$ to US$; assume that there is no adjustment to the Purchase Consideration of S$229,000,000 and an aggregate of 618,918,919 Consideration Shares are allotted and issued; and are based on the Consideration Shares being issued to the Vendor on 1 October 2005. Given that the proforma financial effects presented below are for illustrative purposes only, they do not represent the actual financial performance and/or financial position of the Group immediately after completion of the. 8.2 Share capital of the Company Number of shares Share capital (US$) Share capital of the Company as at 30 September 2006 53,624,625 3,433,926 Share capital of the Company as at 30 September 2006 after Rights Issue but the Share capital of the Company as at 30 September 2006 after Rights Issue and the Disposal but the Share capital of the Company as at 30 September 2006 after Rights the Disposal and the 80,436,937 7,657,934 80,436,937 7,657,934 699,355,856 151,964,444 Notes: 1. The Rights Issue refers to the rights issue of 26,812,312 new ordinary shares in the share capital of the Company undertaken in January and February 2007 but assumed to have been fully issued and paid up as at 30 September 2006 for the purposes of illustrating the financial effects of the above. 2. Please see note 1 above for the definition of Rights Issue. The Disposal refers to the disposal of (i) all the shares in Sembawang Music Centre Pte Ltd, Orange Music Pte Ltd and True Music Private Limited held by the Company and (ii) the loans owing to the Company by Sembawang Music Centre Pte Ltd, Orange Music Pte Ltd, True Music Private Limited and Falcon Oilfield Services Pte. Ltd. (formerly known as Audiophile Heaven Pte. Ltd.) as referred to in the 4 April 2007 Announcement, assuming that the Disposal had been completed as at 30 September 2006. 8.3 Earnings/(loss) per share Before Rights Issue but Issue & Disposal but 8
Profit/(loss) attributable to Shareholders (US$) Total number of shares in the Company s issued and paid-up share capital Earnings/(loss) per share (US cents) (548,068) (548,068) (923,091) 13,228,744 53,624,625 80,436,937 80,436,937 699,355,856 (1.02) (0.68) (1.15) 1.89 8.4 Net tangible assets Before Rights Issue but Issue & Disposal but Net tangible assets as at 30 September 2006 (US$) Total number of shares in the Company s issued and paid-up share capital Net tangible assets per share (US cents) 3,313,150 7,537,158 6,690,017 66,264,382 53,624,625 80,436,937 80,436,937 699,355,856 6.18 9.37 8.32 9.48 8.5 Gearing Before Rights Issue but Issue & Disposal but Total borrowings 623,023 623,023 623,023 2,723,810 (US$) (1) Cash & cash equivalent (US$) 1,361,261 5,585,269 6,590,259 8,797,342 Shareholders 3,313,150 7,537,158 6,690,017 66,264,382 funds(us$) (1) Gross gearing (times) (1) 0.19 0.08 0.09 0.04 Net gearing (times) (1) (2) 0 0 0 0 Note: (1) The expression Total borrowings means the aggregate liabilities arising out of borrowings from banks and financial institutions. The expression Shareholders funds refers to the 9
aggregate of issued and paid-up share capital and other reserves and share premium of the Group and excludes minority interests. Gross gearing is computed based on the ratio of Total borrowings to Shareholders funds and Net gearing is computed based on the ratio of Total borrowings less Cash & cash equivalent to Shareholders funds. (2) The Group is in a net cash position. 9. Waiver or ruling from the Securities Industry Council Upon the completion of the (and assuming there is no adjustment to the Purchase Consideration), the Vendor will hold approximately 88.5% of the enlarged issued share capital of the Company. Mr Tan Pong Tyea, a Director and a controlling shareholder of the Company, currently owns 90% of the shareholding interests in Ruben Capital Ventures Limited, which, in turn, owns 48,338,997 shares in the Company (equivalent to approximately 60.10% of the issued shares of the Company) which are held in the name of Fraser Securities Pte Ltd, thereby giving Mr Tan Pong Tyea an indirect 54.09% shareholding interest in the Company. Mr Tan Pong Tyea currently also holds an approximately 91.65% shareholding interest in the Vendor and controls the Vendor. Under the SPA, it is a condition precedent to the that the Vendor shall have made an application to the SIC on behalf of itself and parties acting in concert with it to seek a waiver from their obligation to make a mandatory offer pursuant to Rule 14 of the Singapore Code on Take-Overs and Mergers to purchase the shares in the capital of the Company not held by them, and the SIC either having ruled that a waiver is not necessary or having granted a waiver, and if such waiver is subject to any condition or restriction imposed by the SIC, such condition and restriction being acceptable to the Vendor. 10. Financial adviser The Company has appointed Stirling Coleman Capital Limited as its financial adviser in respect of the. 11. Responsibility statement The Directors (including those who have been delegated supervision of this announcement) collectively and individually accept full responsibility for the accuracy of the information given in this announcement (save for information relating to the Vendor and/or the OSCL Group Companies) and confirm, after making all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and opinions expressed in this announcement are fair and accurate in all material respects as at the date hereof, and that there are no material facts the omission of which would make this announcement misleading in any material respect. Where information relating to the Vendor and/or the OSCL Group Companies has been extracted from published or otherwise available sources or is otherwise based on information obtained from the Vendor and/or the OSCL Group Companies, the sole responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted from these sources or, as the case may be, reflected or reproduced in this announcement. 12. Document for inspection 10
A copy of the SPA will be available for inspection at the Company s registered office at Block 1 Ang Mo Kio Industrial Park 2A #07-04 AMK Tech 1 Singapore 568049 during business hours for 3 months from the date of this announcement. 13. Circular to Shareholders A circular containing details of the and the opinion of the independent financial adviser, and enclosing a notice of Extraordinary General Meeting of the Company in connection therewith will be despatched to Shareholders in due course. By Order of the Board Tan Pong Tyea Director 20 June 2007 11