CIRCULAR DATED 24 DECEMBER 2004 THIS CIRCULAR IS IMPORTANT AS IT CONTAINS THE RECOMMENDATIONS OF THE INDEPENDENT DIRECTOR OF ELEC & ELTEK INTERNATIONAL COMPANY LIMITED AND THE ADVICE OF DBS BANK LTD. THIS CIRCULAR REQUIRES YOUR IMMEDIATE ATTENTION AND YOU SHOULD READ IT CAREFULLY. If you are in any doubt in relation to this Circular or as to the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or other professional adviser immediately. If you have sold or transferred all your issued and paid-up ordinary shares of S$0.80 each in the capital of Elec & Eltek International Company Limited (the Shares ), you should immediately forward this Circular to the purchaser or transferee or to the bank, stockbroker or agent through whom you effected the sale or transfer for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular. ELEC & ELTEK INTERNATIONAL COMPANY LIMITED (Incorporated in the Republic of Singapore) (Company Registration Number 199300005H) Circular to Shareholders in relation to the Mandatory Unconditional Cash Offer by Citigroup Global Markets Singapore Pte. Ltd. for and on behalf of Elitelink Holdings Limited (Incorporated in the British Virgin Islands with limited liability) an indirect wholly-owned subsidiary of KINGBOARD CHEMICAL HOLDINGS LIMITED (Incorporated in the Cayman Islands with limited liability) to acquire all the Shares other than those already owned, controlled or agreed to be acquired by Elitelink Holdings Limited (the Offeror ) or parties acting in concert with it and those owned by Elec & Eltek International Holdings Limited Financial Adviser to the Independent Director of Elec & Eltek International Company Limited Shareholders should note that the Offer Document states that the Offer will close at 3.30 p.m. on 7 January 2005. Shareholders who wish to accept the Offer must do so by 3.30 p.m. on 7 January 2005. Further, the Offeror has given notice that it does not intend to revise or extend the Offer beyond 3.30 p.m. on 7 January 2005 save that such notice shall not be capable of being enforced in a competitive situation.
CONTENTS Page DEFINITIONS... 3 LETTER FROM THE BOARD OF DIRECTORS OF ELEC & ELTEK INTERNATIONAL COMPANY LIMITED 1 Introduction... 8 2 Terms of the Offer... 9 3 The EEIC Share Option Schemes... 11 4 Information on the Offeror... 11 5 Reasons for the Offer and Intentions of the Offeror... 12 6 Exemption Relating to Directors Recommendation... 14 7 Advice and Recommendations... 14 8 Overseas Shareholders... 17 9 Action to be Taken by Shareholders... 18 10 Directors Responsibility Statement... 18 LETTER FROM DBS BANK LTD 1 Introduction... 19 2 Terms of Reference... 19 3 The Offer... 20 4 EEIC Share Option Schemes... 22 5 Information on the Offeror... 22 6 Information on the EEIC Group... 23 7 Rationale for the Offer and the Offeror s Plans for EEIC... 28 8 Financial Assessment of the Offer... 31 9 Other Considerations... 53 10 Conclusion and Recommendations... 56 11 Action to be Taken... 59 1
Page APPENDICES I General Information... 60 II III IV V Audited financial statements of the EEIC Group for the Financial Year ended 30 June 2004... 79 Unaudited financial statements of the EEIC Group for the three-months period ended 30 September 2004... 114 Letter from Ernst & Young in relation to the unaudited consolidated profit and loss account for the three-month period ended 30 September 2004 and the unaudited consolidated balance sheet as at 30 September 2004... 125 Letter from DBS Bank in relation to the unaudited consolidated profit and loss account for the three-month period ended 30 September 2004 and the unaudited consolidated balance sheet as at 30 September 2004... 126 VI Statements of Prospects of the EEIC Group... 127 VII Letter from Ernst & Young in relation to the Statements of Prospects... 129 VIII Letter from DBS Bank in relation to the Statements of Prospects... 130 IX Valuation Letter, Valuation Report and Valuation Certificates of B. I. Appraisals... 131 X Details of the Comparable Companies... 173 2
DEFINITIONS Except where the context otherwise requires, the following definitions apply throughout this Circular:- Act or Companies Act : The Companies Act, Chapter 50 of Singapore B.I. Appraisals : B.I. Appraisals Limited CDP : The Central Depository (Pte) Limited Circular : This circular to Shareholders dated 24 December 2004 in relation to the Offer setting out, inter alia, the recommendation of the Independent Director and DBS Bank s Letter Citigroup Asia : Citigroup Global Markets Asia Limited Citigroup Singapore : Citigroup Global Markets Singapore Pte. Ltd. Closing Date : 3.30 p.m. on 7 January 2005, being the last day for the lodgement of acceptances of the Offer Code : The Singapore Code on Take-overs and Mergers (as revised with effect from 1 January 2002) Comparable Companies : The companies used in DBS Bank s analysis which are broadly comparable to EEIC, details of which are set out in Appendix X of this Circular DBS Bank : DBS Bank Ltd DBS Bank s Letter : Letter dated 24 December 2004 from DBS Bank to the Independent Director in relation to the Offer, as set out on pages 19 to 59 of this Circular. Directors : The directors of the Company (including the Independent Director) as at the Latest Practicable Date Dividends : Final and special dividends of S$0.18 in aggregate per Share declared by EEIC on 5 October 2004 and paid on 20 October 2004 EBITDA : Earnings before interest, tax, depreciation and amortisation EEIC or Company : Elec & Eltek International Company Limited EEIC Group or Group : EEIC and its subsidiaries EEIC Share Option Schemes : The 1999 Scheme and the 2002 Scheme collectively EEIH : Elec & Eltek International Holdings Limited, a company incorporated in Bermuda and listed on the Hong Kong Stock Exchange EPS : Earnings per share EV : Enterprise value, which is defined as the sum of market capitalisation, preferred equity, minority interests, short-term and long-term debt less cash and cash equivalents 3
FAA : Form of Acceptance and Authorisation, which forms part of the Offer Document FAT : Form of Acceptance and Transfer, which forms part of the Offer Document FY : Financial year ended or ending 30 June, as the case may be Hong Kong Offeror or : Ease Ever Investments Limited, an indirect wholly-owned Ease Ever subsidiary of Kingboard Hong Kong Offers : The voluntary conditional cash offer to acquire all of the issued shares in the capital of, and for cancellation of all the outstanding options of, EEIH, other than those already owned by the Hong Kong Offeror or parties acting in concert with it Hong Kong Offers : Announcement of the Hong Kong Offers dated 12 October 2004 Announcement and released in Hong Kong on 13 October 2004 Hong Kong Stock Exchange : The Stock Exchange of Hong Kong Limited Independent Director : Mr. Au Eng Kok, the Director who is independent for the purpose of making recommendations to Shareholders in respect of the Offer Interim Announcement : The announcement dated 3 November 2004 on the unaudited financial statements of the EEIC Group for the three-month period ended 30 September 2004 Kingboard : Kingboard Chemical Holdings Limited, a company incorporated in the Cayman Islands with limited liability and listed on the Hong Kong Stock Exchange Kingboard Group : Kingboard and its subsidiaries Latest Practicable Date : 17 December 2004, being the latest practicable date prior to the printing of this Circular Listing Manual : The listing manual of SGX-ST in force as at the Latest Practicable Date Market Day : A day on which SGX-ST is open for trading of securities Member : Any registered holder of Shares in the Company N.A. : Not applicable NTA : Net tangible assets Offer or Chain Principle : The mandatory unconditional cash offer made by Citigroup Offer Singapore, for and on behalf of the Offeror, to acquire the Offer Shares on the terms and subject to the conditions set out in the Offer Document, as such offer may be amended, extended or revised (in a competitive situation) by or on behalf of the Offeror Offer Announcement : The announcement dated 26 November 2004 released by Citigroup Singapore, for and on behalf of the Offeror, of the Offer Offer Announcement Date : 26 November 2004, being the date of the Offer Announcement 4
Offer Document : The document dated 8 December 2004 and any other document which may be issued by Citigroup Singapore, for and on behalf of the Offeror, to amend or revise the document in a competitive situation, or to supplement or update the document from time to time Offer Price : US$2.85 in cash for each Offer Share Offer Shares : All the Shares to which the Chain Principle Offer relates, as more particularly defined in paragraph 2.1 of this Circular Offeror or Elitelink : Elitelink Holdings Limited, an indirect wholly-owned subsidiary of Kingboard Office : The registered office for the time being of the Company Option : A right to subscribe for new Shares pursuant to the EEIC Share Option Schemes Overseas Shareholders : Shareholders whose addresses are outside Singapore, as shown in the Register of Members PCB : Printed Circuit Board PER : Price-earnings ratio Possible Offer Announcement : Announcement of the Offeror s intention, subject to the Hong Kong Offers becoming or being declared unconditional in all respects, to make the Chain Principle Offer on the Possible Offer Announcement Date Possible Offer Announcement : 13 October 2004 Date PRC or China : People s Republic of China Register of Members : Register of members of the Company kept pursuant to Section 190 of the Act Securities Account : The securities account maintained by a depositor with CDP SESELEC : The Singapore Electronic Equities Index SGX-ST : Singapore Exchange Securities Trading Limited Share Registrar : Lim Associates (Pte) Ltd, the share registrar of the Company having its address at 10 Collyer Quay #19-08, Ocean Building, Singapore 049315 Shareholders : The holders of the Offer Shares, including persons whose Offer Shares are deposited with CDP or who have purchased Offer Shares on the SGX-ST Shares : Ordinary shares of par value S$0.80 each in the share capital of the Company 5
SIC or Council : The Securities Industry Council of Singapore Statutes : Companies Act and every other act or legislation for the time being in force concerning companies and affecting the Company STI : Straits Times Index Substantial Shareholder : A person (including a corporation) who has an interest in not less than 5 per cent. of the issued voting shares of the Company 1999 Scheme : The 1999 Elec & Eltek Employees Share Option Scheme adopted by the Company on 30 November 1999 2002 Scheme : The 2002 Elec & Eltek International Company Limited Employees Share Option Scheme adopted by the Company on 12 November 2002 2003/2004 Annual Report : Annual Report 2003/2004 of the Company for the financial year ended 30 June 2004 Currencies Baht : Thai baht, being the lawful currency of Thailand HKD or HK$ : Hong Kong dollars, being the lawful currency of Hong Kong NT$ : New Taiwan dollars, being the lawful currency of Taiwan RMB : Renminbi, being the lawful currency of the PRC S$ or $ and cents : Singapore dollars and cents, respectively, being the lawful currency of Singapore USD or US$ and US cents : United States dollars and cents, respectively, being the lawful currency of the United States of America Metrics per cent. or % : Percentage or per centum sq. ft. : square feet Unless otherwise defined, the expressions acting in concert, concert parties and associate shall have the meaning ascribed to them, respectively, in the Code. The terms Depositor, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Act. 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. References to persons shall, where applicable, include references to corporations. 6
Any reference in this Circular to an enactment is a reference to that enactment as for the time being amended or re-enacted. Any word defined under the Act, the Listing Manual or the Code or any statutory or regulatory modification thereof and not otherwise defined in this Circular shall, where applicable, have the meaning assigned to it under the Act, the Listing Manual or the Code or any such statutory or regulatory modification as the case may be. Any reference in this Circular to a time of day and date shall be a reference to Singapore time and date respectively, unless otherwise stated. Any discrepancies in tables included herein between the amounts listed and the totals thereof are due to rounding. 7
ELEC & ELTEK INTERNATIONAL COMPANY LIMITED (Incorporated in the Republic of Singapore) (Company Registration Number: 199300005H) Directors:- Registered Office:- Thomas Tang Koon Yiu (Chairman and Managing Director) 80 Raffles Place #25-01, Canice Chung Tai Keung (Chief Executive Officer) UOB Plaza 1, Cheung Kwok Wa Singapore 048624 Mok Cham Hung, Chadwick Claudia Heng Nguan Leng Principal Office:- David So Cheung Sing 8 Shenton Way #37-03 Marcus Tsang Ming Pui Temasek Tower Wilson Tam Kam Ho Singapore 068811 Johnny Ng Ho Kin Cheung Kwok Wing Chan Wing Kwan Chang Wing Yiu Au Eng Kok Keith Tay Ah Kee Eugene Lee Kenneth Shim Hing Choi 24 December 2004 To: The Shareholders of Elec & Eltek International Company Limited Dear Sir/Madam MANDATORY UNCONDITIONAL CASH OFFER BY CITIGROUP SINGAPORE, FOR AND ON BEHALF OF THE OFFEROR, FOR THE OFFER SHARES 1. INTRODUCTION On 13 October 2004, Kingboard issued an announcement dated 12 October 2004 that Citigroup Asia, for and on behalf of Ease Ever, will make a voluntary conditional cash offer in Hong Kong to acquire all of the issued shares in the share capital of EEIH (a company listed on the Hong Kong Stock Exchange), other than those already owned by the Hong Kong Offeror or parties acting in concert with it, and a voluntary conditional cash offer for the cancellation of all outstanding options granted by EEIH under the share option scheme of EEIH adopted on 29 October 2002. The Hong Kong Offers are conditional upon, inter alia, valid acceptances having been received (and not, where permitted, withdrawn) at or before 4.00 p.m. on the closing date of the Hong Kong Offers in respect of the EEIH shares which, together with the EEIH shares then held by the Hong Kong Offeror and parties acting in concert with it, will result in the Hong Kong Offeror and parties acting in concert with it, holding more than 50 per cent. of the voting rights of EEIH. As stated in the Hong Kong Offers Announcement, as at the date of the said announcement, Kingboard is, directly and through its subsidiaries, interested in an aggregate of 336,799,000 EEIH shares, representing approximately 27.66 per cent. of the entire issued share capital of EEIH (calculated based on the existing number of EEIH shares held by Kingboard and the total number of issued shares of EEIH as at 30 June 2004, according to the audited annual report of EEIH for the year ended 30 June 2004). As at 23 August 2004 (being the reference date stated in the 2003/2004 Annual Report), EEIH is interested in approximately 51.71 per cent. of the entire issued and paid-up share capital of EEIC. 8
Both the Offeror and the Hong Kong Offeror are indirect wholly-owned subsidiaries of Kingboard. In accordance with Note 6 to Rule 14.1 of the Code, in the event that the Hong Kong Offeror and its concert parties were to acquire statutory control of EEIH pursuant to the Hong Kong Offers, and thereby acquires or consolidates effective control (as defined in the Code) of EEIC, the Offeror may be required to make a chain principle offer for EEIC in Singapore. Accordingly, Citigroup Singapore, for and on behalf of the Offeror, issued the Possible Offer Announcement on 13 October 2004 and had in the Possible Offer Announcement announced that, subject to the Hong Kong Offers becoming or being declared unconditional in all respects, Citigroup Singapore, for and on behalf of the Offeror, will be making a Chain Principle Offer to acquire all the Offer Shares in EEIC. On 26 November 2004, Kingboard and the Hong Kong Offeror announced that the Hong Kong Offers had become unconditional in all respects. In compliance with Note 6 on Rule 14.1 of the Code, Citigroup Singapore had, for and on behalf of the Offeror, announced on even date the firm intention on the part of the Offeror to make the Chain Principle Offer. According to the Offer Document, as at 1 December 2004, Kingboard is, directly and through its subsidiaries (including the Hong Kong Offeror), interested in an aggregate of 1,106,259,479 shares in EEIH, representing approximately 90.33 per cent. of the entire issued share capital of EEIH. EEIH is, accordingly, deemed to be a party acting in concert with the Offeror under the Code. The Chain Principle Offer will therefore not be made for the Shares held by EEIH. According to the Offer Announcement, as at the Offer Announcement Date, the Offeror and parties acting in concert with it hold 75,625,459 Shares, representing approximately 51.71 per cent. of the entire issued and paid-up share capital of EEIC (calculated based on the number of Shares in issue as disclosed in the 2003/2004 Annual Report). The Hong Kong Offeror, had on 9 December 2004 issued an announcement stating that the Hong Kong Offeror and parties acting in concert with it are interested in 1,152,978,415 shares in EEIH representing approximately 94.15 per cent. of the entire issued share capital of EEIH as at 9 December 2004. The closing date for the Hong Kong Offers has been extended to 23 December 2004. Shareholders should by now have received a copy of the Offer Document issued by Citigroup Singapore, for and on behalf of the Offeror, setting out, inter alia, the terms and conditions of the Offer. Shareholders are urged to read carefully the terms and conditions contained therein. The Company has appointed DBS Bank as the financial adviser to the Independent Director in respect of the Offer. The purpose of this Circular is to provide relevant information pertaining to the Offer and to set out the recommendations of the Independent Director and the advice of DBS Bank in relation to the Offer. Shareholders should consider carefully the recommendations of the Independent Director and the advice of DBS Bank before deciding whether to accept or reject the Offer. 2. TERMS OF THE OFFER The Offeror has offered to acquire all the Offer Shares in accordance with Rule 14 of the Code. The Offer is extended to all the Offer Shares, and is made subject to the terms and conditions set out in sections 2 to 7 of the Offer Document, the FAA and the FAT, on the following basis:- 9
2.1 Consideration FOR EACH OFFER SHARE : US$2.85 IN CASH The Offeror has stated in the Offer Document that it reserves its right to revise the terms of the Chain Principle Offer in the event of a competitive situation arising. If the Chain Principle Offer terms are revised, all Shareholders who have accepted the previous Chain Principle Offer will receive the revised consideration. The Offer Document has stated that a competitive situation shall be deemed (i) to arise when an offer or possible offer for EEIC is announced by or on behalf of a person other than the Offeror and (ii) to end when such offer or possible offer lapses or is withdrawn. The Offer Price was computed based on the simple average of the daily highest and lowest traded prices of the Shares on the 22 trading days in the calendar month prior to the Possible Offer Announcement Date and the date of the Hong Kong Offers Announcement, that is, being the period from 13 September 2004 up to and including 12 October 2004. The Chain Principle Offer is extended to:- (a) (b) all the Shares not already owned, controlled or agreed to be acquired by the Offeror and parties acting in concert with the Offeror and those owned by EEIH as at the date of the Chain Principle Offer in accordance with Section 139 of the Securities and Futures Act, Chapter 289 and the Code; and all new Shares which are unconditionally issued or to be issued pursuant to the valid exercise, prior to the close of the Chain Principle Offer, of any Options granted under the EEIC Share Option Schemes to subscribe for new Shares. For the purposes of the Chain Principle Offer, the expression Offer Shares shall include all such Shares. The Offer Shares will be acquired (a) fully paid; (b) free from all liens, equities, charges, encumbrances, rights of pre-emption and any other third party rights or interests of any nature whatsoever; and (c) together with all rights, benefits and entitlements attached thereto as of the Offer Announcement Date and thereafter attaching thereto, including the right to receive and retain all dividends, rights and other distributions (if any) declared, paid or made by EEIC on or after the Offer Announcement Date. For the avoidance of doubt, Shareholders will be entitled to retain the Dividends. 2.2 Unconditional Offer The Offer is unconditional in all respects. 2.3 Warranty A Shareholder who tenders his Offer Shares in acceptance of the Offer will be deemed to warrant that he sells such Offer Shares, as or on behalf of the beneficial owner(s) thereof, (a) fully paid; (b) free from all liens, equities, charges, encumbrances, rights of pre-emption and any other third party rights or interests of any nature whatsoever; and (c) together with all rights, benefits and entitlements attached thereto as of the Offer Announcement Date and thereafter attaching thereto, including the right to receive and retain all dividends, rights and other distributions (if any) declared, paid or made by EEIC on or after the Offer Announcement Date. 2.4 Duration of the Offer (a) Except insofar as the Offer may be withdrawn with the consent of the SIC and every person released from any obligation incurred thereunder, the Offer will remain open for acceptances by Shareholders for a period of at least 28 days from the date of posting of the Offer Document. 10
Accordingly, the Offer will close at 3.30 p.m. on 7 January 2005. The Offeror does not intend to revise the terms of the Offer or to extend the Offer beyond 3.30 p.m. on the Closing Date. The Offeror has given notice that the Offer will not be revised or be open for acceptance beyond 3.30 p.m. on 7 January 2005 save that such notice shall not be capable of being enforced in a competitive situation. For these purposes, a competitive situation shall be deemed (i) to arise when an offer or possible offer for EEIC is announced by or on behalf of a person other than the Offeror and (ii) to end when such offer or possible offer lapses or is withdrawn. (b) Although no revision of the Offer is contemplated by the Offeror, pursuant to Rule 20.1 of the Code, if the Offer is revised, the Offer will remain open for acceptance for a period of at least 14 days from the date of despatch of the written notification of the revision to the Shareholders. In any case, where the terms are revised, the benefit of the Offer (as so revised) will be made available to each of the Shareholders who had previously accepted the Offer. (c) Although no revision of the Offer is contemplated by the Offeror, pursuant to Rule 22.4 of the Code, in any announcement of an extension of the Offer, the next closing date will be stated. If a statement is made that the Offer will remain open until further notice, at least 14 days notice will be given before the Offer is closed. Terms of the Offer (including the procedures for acceptance) are contained in sections 2 to 7 and Appendices 1 and 2 of the Offer Document. 3. THE EEIC SHARE OPTION SCHEMES Under the rules of the EEIC Share Option Schemes, the Options are not transferable by the holders thereof. In view of this restriction, the Offeror will not make an offer to acquire the Options. However, the Offer will be extended to any Shares which are issued pursuant to the valid exercise of any Options on or prior to the close of the Offer. As at the date of this Circular, there are no outstanding Options. 4. INFORMATION ON THE OFFEROR 4.1 General The Offeror is a company incorporated in the British Virgin Islands with limited liability on 20 September 2004 and the directors of the Offeror are Messrs. Cheung Kwok Wing, Chan Wing Kwan, Chang Wing Yiu, Cheung Kwok Wa and Mok Cham Hung, Chadwick, all of whom are also executive directors of Kingboard and the Hong Kong Offeror. The Offeror is an indirect wholly-owned subsidiary of Kingboard, a company incorporated in the Cayman Islands with limited liability, whose shares are listed on the Main Board of the Hong Kong Stock Exchange. The Offeror is an investment holding company set up for making the Chain Principle Offer. The Chain Principle Offer will not affect the shareholding structure of Kingboard. As at 1 December 2004, the Offeror has an issued share capital of US$1 comprising of one ordinary share of US$1. The Kingboard Group is principally engaged in the manufacture and sale of laminates, copper foil, glass fabric, glass yarn, bleached kraft paper, PCBs and chemicals. Most of the copper foil, glass fabric, glass yarn and bleached kraft paper produced are used by the Kingboard Group in its manufacturing of laminates. Information on the Offeror and Kingboard is set out in section 8 and Appendices 3 and 4 of the Offer Document. 11
5. REASONS FOR THE OFFER AND INTENTIONS OF THE OFFEROR 5.1 Reasons for the Offer The full text of the rationale for the Offer and the Offeror s intentions relating to the Company have been extracted from the Offer Document and set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. Shareholders are advised to read the extract below carefully and note the Offeror s intentions relating to EEIC as set out therein. 10. RATIONALE FOR THE HONG KONG OFFERS AND THE CHAIN PRINCIPLE OFFER The Kingboard Group and the E&E Group participate in related segments of the electronics industry. The E&E Group is engaged primarily in the manufacture and sale of electronics components, including double-sided and multi-layer PCBs, liquid crystal displays and magnetic products. Kingboard is engaged primarily in the production of laminates, which is the key raw material for the PCBs. Kingboard is also engaged in the production of PCBs and chemicals. The boards of the Offeror and Kingboard believe that the Hong Kong Offers and the Chain Principle Offer will enable the Kingboard Group, together with the E&E Group (the Enlarged Group ), to enhance the level of vertical integration of its operations, as well as enhance the economies of scale of its PCB business. With the increased size of the PCB operations, the Enlarged Group will enhance its ability to attract orders from large customers as well as improve its bargaining position with suppliers. In addition, Kingboard and the E&E Group have complementary customer bases for their respective PCB businesses, which will enlarge the market coverage of the Enlarged Group. Based on the above reasons, the boards of directors of Kingboard and the Offeror believe that the Hong Kong Offers and the Chain Principle Offer will be beneficial to Kingboard and its shareholders as a whole. 11. THE OFFEROR S INTENTIONS IN RELATION TO EEIC 11.1 Continuation of Business. It is the intention of Kingboard and the Offeror that EEIC and its subsidiaries will continue to carry on the business of engaging in the design, development, manufacture and distribution of high-density double-sided and multi-layer PCBs. Accordingly, Kingboard and the Offeror currently do not have any intentions for any major changes relating to the business of EEIC (including any redeployment of fixed assets) and any changes relating to the continued employment of the employees of EEIC and its subsidiaries. 11.2 Directors and Management. As announced in the Hong Kong Offers Announcement, it is the intention of Kingboard, through the Hong Kong Offeror and the Offeror respectively, to review the existing structure of the boards of directors of E&E and EEIC. By a resolution of the boards of directors of E&E dated 25 November 2004, Messrs. Cheung Kwok Wa and Mok Cham Hung, Chadwick have been appointed as executive directors of E&E and Messrs. Cheung Kwok Wing, Chan Wing Kwan and Chang Wing Yiu have been appointed as non-executive directors of E&E, all with effect from 29 November 2004. In addition, the majority of the current board of directors of EEIC has provided an irrevocable undertaking on 25 November 2004 (the Undertaking ) to cause the appointments of Messrs. Cheung Kwok Wing, Chan Wing Kwan, Chang Wing Yiu, Cheung Kwok Wa and Mok Cham Hung, Chadwick, who are all nominated by the Offeror, to the board of directors of EEIC to take effect no later than the third day after the Despatch Date. 12
Kingboard, through the Hong Kong Offeror and the Offeror respectively, will ensure that a sufficient number of independent directors will continue to be appointed to the boards of directors of E&E and EEIC respectively. Any such appointments of new directors to the board of directors of E&E will be in full compliance with the requirements under the Hong Kong Takeovers Code and the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange and any appointment of new directors to the board of directors of EEIC will be in full compliance with the relevant rules and regulations applicable to EEIC. Pending the outcome of the proposed review of the existing structures of the boards of directors of E&E and EEIC, in order to maintain continuity and minimise transactionrelated business disruption, Kingboard, through the Hong Kong Offeror and the Offeror, does not have any intention to make any major changes to the management structures of E&E and EEIC respectively in the near-term save for the appointments and proposed appointments to the boards of directors of E&E and EEIC respectively as set out above. 5.2 Listing Status and Compulsory Acquisition The Offer Document also sets out the following:- 11.3 Listing and Compulsory Acquisition (a) Trading Suspension. Under Rule 1105 of the Listing Manual, in the event that the Offeror and parties acting in concert with it should, as a result of the Chain Principle Offer or otherwise, own or control more than 90 per cent. of the issued share capital of EEIC, SGX-ST may suspend the listing of the Shares until such time when SGX-ST is satisfied that at least ten per cent. of the Shares are held by at least 500 shareholders who are members of the public. It is the current intention of Kingboard and the Offeror to maintain the listing of EEIC on SGX-ST. (b) Compulsory Acquisition. Under Section 215(1) of the Companies Act, if the Offeror receives acceptances pursuant to the Chain Principle Offer for not less than 90 per cent. of the Shares (other than those already held or agreed to be acquired at the date of the Chain Principle Offer by the Offeror or any of its related corporations or by a nominee on behalf of the Offeror or such related corporations), the Offeror will have the right to compulsorily acquire all Shares from the Shareholders who have not accepted the Chain Principle Offer at the Offer Price. In addition, pursuant to Section 215(3) of the Companies Act, if the Offeror acquires such number of Shares which, together with Shares already held by it or any of its related corporations or by a nominee on behalf of the Offeror or such related corporations, comprise 90 per cent. or more of the issued share capital of EEIC, Shareholders who have not accepted the Chain Principle Offer have a right to require the Offeror to acquire their Shares at the Offer Price. Shareholders who wish to exercise such a right are advised to seek their own independent legal advice. Kingboard and the Offeror have no current intention of exercising the compulsory acquisition right under the Companies Act in relation to EEIC. Having reviewed and assessed the rationale for the Offer and the Offeror s intentions relating to the Company, the Independent Director would like to draw the attention of Shareholders to the comments of DBS Bank in relation to the rationale for the Offer and the Offeror s intentions regarding the Company as set out on pages 29 to 31 of this Circular. 13
6. EXEMPTION RELATING TO DIRECTORS RECOMMENDATIONS The Directors (other than the Independent Director) are either directors of the Offeror or directors or nominees of EEIH (being a party deemed acting in concert with the Offeror). Accordingly, those Directors have applied to the SIC to be exempted from making recommendations to Shareholders on the Offer principally for the reasons stated above. The SIC has ruled that, after considering all the information and representations given to the SIC, they are exempted from making recommendations to Shareholders on the Offer. As such, only Mr Au Eng Kok is considered independent for the purpose of making recommendations to Shareholders on the Offer. However, all the Directors, including those exempted from making recommendations to Shareholders on the Offer, are responsible for this Circular on the terms set out in paragraph 10 of this Circular below. 7. ADVICE AND RECOMMENDATIONS Shareholders are also advised to read the Offer Document carefully. Shareholders should consider carefully the recommendations of the Independent Director and the advice of DBS Bank in its entirety before deciding whether to accept or reject the Offer. 7.1 Advice of DBS Bank Unless otherwise defined in the section on Definitions (on pages 3 to 7 of this Circular), all capitalised terms in the analysis herein below shall have the same meanings as defined in DBS Bank s Letter. In arriving at its conclusion and recommendations in respect of the Offer, DBS Bank has taken into consideration, inter alia, the following factors:- (a) (b) (c) (d) (e) The Offer Price was computed based on the simple average of the daily highest and lowest traded prices of the Shares, on the 22 trading days in the calendar month prior to the Possible Offer Announcement Date and the date of the Hong Kong Offers Announcement. The Offer Price is at a premium of 4.01 per cent. over the last transacted market price of the Shares on the Market Day prior to the Possible Offer Announcement Date but at a small discount of 0.16 per cent. to the volume-weighted average prices of the Shares during the one-month period prior to the Possible Offer Announcement Date. The Offer Price represents a premium of 15.75 per cent. over the volume-weighted average price of US$2.46 of the Shares for the past 21-month period prior to the Possible Announcement Date. The Offer Price is generally reflective of the volume-weighted average prices of the Shares for the one-month, three-month, six-month and one-year periods prior to the Possible Offer Announcement Date. Since the Offer Announcement Date up to the Latest Practicable Date, the Shares traded within the range of US$2.83 per Share and US$2.87 per Share. As at the Latest Practicable Date, the last transacted price of the Share was US$2.84 which is marginally below the Offer Price. The Shares were thinly traded with an average daily trading volume of approximately 203,901 Shares in the past 21-month period up to the Market Day prior to the Possible Offer Announcement Date. The trading volumes of the Shares increased significantly upon the release of the Possible Offer Announcement Offer but the trading volume of the Shares have since declined with a daily trading volume of approximately 115,000 Shares as at the Latest Practicable Date. Based on comparison with recent Take-Over Transactions, the premium of 4.01 per cent. and 0.35 per cent. over the last transacted market price of the Shares prior to the Possible Offer Announcement Date and the Offer Announcement Date as implied by the Offer Price are within the range of discount/premium paid for the recent Take-Over Transactions. 14
(f) (g) (h) (i) (j) (k) (l) The historical PER of 10.46 times for EEIC Group as implied by the Offer Price is at a discount of approximately 30.91 per cent., 44.42 per cent., and 45.00 per cent. to the median, mean and weighted average historical PERs of the Comparable Companies, respectively. The historical EV/EBITDA multiple of 7.18 times for EEIC Group as implied by the Offer Price is at a discount of approximately 16.41 per cent., 24.50 per cent. and 37.24 per cent. to median, mean and weighted average historical EV/EBITDA multiples of the Comparable Companies, respectively. The Offer Price represents a price-to-nta ratio of 1.70 times for EEIC Group which is at a premium of 84.78 per cent., 41.67 per cent. and 18.06 per cent. over the median, mean and weighted average price-to-nta ratios of the Comparable Companies, respectively. Shareholders should bear in mind that the NTA basis of valuation is meaningful only insofar as it shows the extent to which the value of each Share is backed by tangible assets, and would be relevant in the event that the Company changes the nature of its business or realises or converts the uses of all its assets. Accordingly, we would consider it relatively more meaningful to assess the Offer Price from an earnings perspective on an on-going basis. For comparison with the Precedent PCB Transactions, the premium of the Offer Price over the last transacted price on the Market Day prior to the Possible Offer Announcement Date and the Offer Announcement Date are below the range of premiums paid for the Precedent PCB Transactions. The historical PER multiple as implied by the Offer Price is also below the range of the implied historical PER of the Precedent PCB Transactions. Accordingly, the Offer does not compare favourably with the Precedent PCB Transactions (including the Hong Kong Offers) on the basis of PER and the premium to the one-month volume-weighted average price prior to the Offer Announcement Date. As a consequence of the Hong Kong Offers, Kingboard has already acquired statutory control of EEIC. DBS Bank notes that the Offer Price is the minimum that the Offeror is obliged to offer under the Code. Accordingly, the Offer Price does not reflect any premium over the market price of the Shares. The Company had issued statements of prospects for the financial year 2005 in its 2003/2004 Annual Report and the Interim Announcement, which have been reiterated in this Circular. Based on the statements of prospects set out in the 2003/2004 Annual Report, the Directors expect the Group s performance for the financial year 2005 to improve over financial year 2004. In the Company s unaudited results for the threemonth period ended 30 September 2004, the Directors expect the Group to maintain good results in the second quarter of FY2005 on a year-to-year basis. In FY2004, the Company paid a dividend of S$0.30 per Share which represents a net dividend yield of 6.39 per cent. based on the Offer Price. The net dividend yields based on the Offer Price ranged from 5.96 per cent. to 7.88 per cent. between FY2000 and FY2004. DBS Bank further notes from the letter from Citigroup Asia in relation to the Hong Kong Offers (the Letter ) that Kingboard had secured a loan facility of up to HK$7,270 million to finance the Hong Kong Offers, the Chain Principle Offer and to refinance the existing facilities of the Kingboard Group. To the extent that the existing cash flows of EEIH (including dividend income from EEIC) is important to the Kingboard Group in servicing its increased indebtedness as a result of the Hong Kong Offers and Chain Principle Offer, it would be in Kingboard s interest to maintain at least the existing dividend policy of EEIC. However, in the absence of any expressed intention by the Offeror, there is no certainty as to whether EEIC s current dividend policy will be maintained after completion of the Offer. 15
(m) (n) (o) Regardless of the outcome of the Offer, Kingboard through the Offeror and parties acting in concert with it had as a result of the Hong Kong Offers gained statutory control over the Company. The Offeror s nominees have also been appointed to the board of EEIC on 13 December 2004. As the controlling Shareholders, the Offeror and its nominees together with parties acting in concert with it will be in a position to determine the future business direction and long-term prospects of the EEIC Group. The Offeror has stated its intention to maintain the listing status of EEIC on the main board of the SGX-ST and does not intend to exercise any rights of compulsory acquisition that the Offeror may have in connection with the Offer. As at the Latest Practicable Date, there is neither evidence of a competing offer for Shares from any third party nor is one likely to be forthcoming without the support of the Offeror. In conclusion, having carefully considered all the above factors, and having evaluated the factors set out in paragraphs (a) to (e) which are favourable to the Offer and the factors set out in paragraphs (f) to (k) which are less favourable to the Offer, DBS Bank is of the opinion that the Offer does not fully reflect the value of the Shares from a financial point of view. Accordingly, DBS Bank has advised the Independent Director to recommend to Shareholders as follow:- (a) (b) Shareholders who take a longer-term view of their investment in the Company and who are confident of the long-term prospects of the EEIC Group under the strategic direction of Kingboard, may wish to reject the Offer and retain all or part of their investment in the Shares. Shareholders who retain their Shares, however, should understand that the future performance of the Share price of the Company would depend, amongst others, the performance and prospects of the EEIC Group, prevailing economic conditions and general market risks associated with stock investments. Shareholders who wish to realise all or part of their Shares in the near term should consider selling their Shares in the open market if they can obtain a price higher than the Offer Price. However, if they are unable to obtain a price higher than the Offer Price (after deducting related expenses) by selling their Shares in the open market, they should consider accepting the Offer. Shareholders should also note that the trading liquidity of the Shares has been relatively low. It may therefore be difficult for Shareholders to sell significant number of Shares through the open market. The Offer as such represents an alternative avenue to the open market for Shareholders seeking to realise their investment in a significant number of Shares. In rendering the above advice, DBS Bank has not had regard to the specific investment objectives, financial situation, tax position or particular needs and constraints of any individual Shareholder. As each Shareholder would have different investment objectives and profiles, DBS Bank advise that any individual Shareholder who may require specific advice in relation to his investment objectives or portfolio should consult his stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser immediately. DBS Bank further advises Shareholders to note that the trading of the Shares are subject to, inter alia, the performance and prospects of the Group, prevailing economic conditions, economic outlook and stock market conditions and sentiments. Accordingly, DBS Bank s advice on the Offer does not and cannot take into account future trading activities or patterns or price levels that may be established for the Shares after the Latest Practicable Date since these are governed by factors beyond the ambit of DBS Bank s review and also, such advice, if given, would not fall within DBS Bank s terms of reference in connection with the Offer. 16
7.2 Recommendations of the Independent Director The Independent Director, having considered carefully the terms of the Offer and the advice given by DBS Bank in this Circular, CONCURS with the advice of DBS Bank in respect of the Offer. Accordingly, the Independent Director s recommendations in respect of the Offer are as set out in paragraph 7.1 above. Shareholders are advised to read DBS Bank s Letter to the Independent Director dated 24 December 2004 set out on pages 19 to 59 of this Circular carefully. In rendering his advice, the Independent Director has not had regard to the specific investment objectives, financial situation, tax position, tax status, risk profiles or particular needs, constraints and circumstances of any individual Shareholder. As each Shareholder would have different investment objectives and profiles, the Independent Director, as advised by DBS Bank, recommends that any individual Shareholder who may require specific advice in relation to his specific investment objectives or portfolio should consult his stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser immediately. 8. OVERSEAS SHAREHOLDERS 8.1 Overseas Shareholders The availability of the Offer to Overseas Shareholders may be affected by the laws of the relevant overseas jurisdictions. Accordingly, any Shareholders not resident in Singapore should inform themselves about, and observe, any applicable requirements in their own jurisdiction. For the avoidance of doubt, the Chain Principle Offer is made to all Shareholders, including those to whom this Offer Document, the FAAs and the FATs have not been, or will not be, sent. 8.2 Copies of Offer Document Overseas Shareholders may obtain copies of the Offer Document, the FAAs, the FATs and any related documents, during normal business hours up to the Closing Date at Lim Associates (Pte) Ltd at 10 Collyer Quay #19-08, Ocean Building, Singapore 049315 or The Central Depository (Pte) Limited at 4 Shenton Way, #02-01 SGX Centre 2, Singapore 068807. Alternatively, an Overseas Shareholder may write to Elitelink Holdings Limited c/o Lim Associates (Pte) Ltd at 10 Collyer Quay #19-08, Ocean Building, Singapore 049315 to request for the Offer Document, the FAAs, the FATs and any related documents to be sent to an address in Singapore by ordinary post at his own risk, up to three Market Days prior to the Closing Date. 8.3 Overseas Jurisdiction It is the responsibility of any Overseas Shareholders who wish to accept the Offer to satisfy himself as to the full observance of the laws of the relevant jurisdiction in that connection, including the obtaining of any governmental or other consent which may be required, or compliance with other necessary formalities or legal requirements. If any Shareholder is in any doubt about his position, he should consult his professional adviser in the relevant jurisdiction. 8.4 Notice The Offeror and Citigroup Singapore each reserves the right to notify any matter, including the fact that the Chain Principle Offer has been made, to any or all Overseas Shareholders by announcement or paid advertisement in a daily newspaper published and circulated in Singapore, in which case, such notice shall be deemed to have been sufficiently given notwithstanding any failure by any Overseas Shareholder to receive or see such announcement or advertisement. Further details in relation to the Overseas Shareholders is contained in the Offer Document. 17
9. ACTION TO BE TAKEN BY SHAREHOLDERS Shareholders who wish to accept the Offer must do so not later than 3.30 p.m. on 7 January 2005. The Independent Director would like to draw the attention of Shareholders who wish to accept the Offer to the Procedures for Acceptance as set out in Appendix 2 of the Offer Document. Acceptances should be completed and returned so as to be received by CDP (in respect of the FAA) or the Share Registrar (in respect of the FAT), as the case may be, no later than 3.30 p.m. on 7 January 2005. Shareholders who do not wish to accept the Offer need not take any further action in respect of the Offer Document and the FAA and/or FAT which have been sent to them. 10. DIRECTORS RESPONSIBILITY STATEMENT This Circular has been reviewed and approved by the Directors (including those who may have delegated detailed supervision of this Circular) who have taken all reasonable care to ensure that the facts stated and opinions expressed in this Circular are fair and accurate in all material respects and that no other material facts have been omitted which might cause this Circular to be misleading. The Directors jointly and severally accept responsibility accordingly. Where information relating to the Offer, the Offeror and parties acting in concert with the Offeror has been extracted from published or otherwise publicly available sources, the sole responsibility of the Directors is to ensure that such information has been accurately extracted from those sources, or as the case may be, accurately reflected or reproduced in this Circular. The recommendations of the Independent Director to Shareholders set out on page 17 of this Circular are the sole responsibility of the Independent Director. Yours faithfully For and on behalf of the Board of Directors Thomas Tang Koon Yiu Chairman 18
DBS Bank Ltd 6 Shenton Way DBS Building, Tower One Singapore 068809 (Incorporated in the Republic of Singapore) (Company Registration Number : 196800306E) 24 December 2004 To: The Independent Director Elec & Eltek International Company Limited 80 Raffles Place #25-01 UOB Plaza 1 Singapore 048624 Dear Sirs MANDATORY UNCONDITIONAL CASH OFFER BY CITIGROUP SINGAPORE, FOR AND ON BEHALF OF THE OFFEROR, FOR THE OFFER SHARES 1. INTRODUCTION DBS Bank has been appointed by the Company to advise the Independent Director in respect of the Offer. This letter sets out, inter alia, our views and evaluation of the financial terms of the Offer and our recommendations thereon. It will form part of the circular to be dated 24 December 2004 and issued by the Company providing, inter alia, details of the Offer and the recommendations of the Independent Director thereon. Unless otherwise defined or the context otherwise requires, all terms defined in the Circular shall have the same meaning herein. 2. TERMS OF REFERENCE Our appointment as the financial adviser to the Independent Director is to advise him on the financial terms of the Offer and recommend whether Shareholders should accept or reject the Offer. Our evaluation is confined to the financial terms of the Offer and is based solely on publicly available information and other information provided by the Company and its management. We have not evaluated or commented on the commercial rationale or merits of the Offer, or the future prospects of the Company or the Group after the completion of the Offer. Such evaluation or comment remains the responsibility of the Directors and the management of the Company, although we may draw upon their views or make such comments in respect thereof (to the extent deemed necessary or appropriate by us) in arriving at our view as set out in this letter. We have not been requested or authorised to solicit, and we have not solicited, any indications of interest from any third party with respect to the Shares. In the course of our evaluation of the financial terms of the Offer, we have relied on, and assumed without independent verification, the accuracy and completeness of published information relating to the Company and the Group. We have also relied on information provided and representations made by the Directors and management of the Company and the Group, including information provided by the Company s solicitors, auditors and tax advisers. We have not independently verified such information but, nevertheless, have made such enquiry and exercised such judgement as we deemed necessary and have found no reason to doubt the reliability of the information. 19