MEGACHEM LIMITED Registration No. 198803293M ANNOUNCEMENT ON ACQUISITION OF ASSET PROPOSED PURCHASE OF FACTORY AT 11 TUAS LINK 1 SINGAPORE 638588 INTRODUCTION The Board of Directors of Megachem Limited (the Company ) is pleased to announce that its wholly-owned subsidiary Megachem Manufacturing Pte Ltd ( MGM ) was granted an option to purchase the Property (as defined below) on 20 May 2011 from the Vendor (as defined below) and MGM has exercised the option to purchase the Property on 26 May 2011 (the Proposed Transaction ). 1. DETAILS OF THE PROPOSED TRANSACTION PROPERTY Address 11 Tuas Link 1 Singapore 638588 Description JTC detached factory Land area 48,100 sq ft Built-in area 43,420 sq ft Tenure 30 years + 30 years wef 17 May 1994 Purchase Price S$5.6 million subject to goods and services tax ( GST ) The purchase price was determined and arrived at after taking into account the current market condition. The purchase price was agreed on a willing-buyer-willing-seller basis after arm s length negotiation with the Vendor. Having reviewed publicly available information on past transacted prices of similar properties, the Directors consider that the purchase consideration is fair and reasonable and no valuation of the property has been done. 1
VENDOR The Vendor is Ensure Engineering Pte Ltd. To the best of our Directors knowledge, information and belief having made all reasonable enquiry, the Vendor is an independent third party not connected with our Directors or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates as defined under the Listing Manual Section B: s of Catalist of the Singapore Exchange Securities Trading Limited (the Catalist s ). THE AGREEMENT Option Fee Exercise of Option Completion S$56,000 equivalent to 1% of purchase consideration, subject to GST. MGM exercised the option on 26 May 2011 by paying to the Vendor another S$224,000, being 4% of the purchase consideration, subject to GST. Balance of the purchase consideration of S$5,320,000, subject to GST shall be payable by MGM on the date of legal completion expected to take place by end of October 2011. The completion of the Proposed Transaction is subject to JTC Corporation s approval and successful completion of legal documentation. There is no other material condition attached to the agreement. FUNDING The purchase will be funded with internal funds and bank borrowings. No equity security will be issued for the purpose of funding the purchase. RATIONALE The proposed transaction is in line with and in furtherance of the Company s business plans to develop its manufacturing activities as an engine of growth. The purchase of this factory will enable us to expand our production facilities to accommodate future growth in business. 2
2 RELEVANT FIGURES UNDER RULE 1006 OF THE CATALIST RULES 2.1 The relative figures computed on the bases set out under 1006 of the Catalist s based on the latest announced audited consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2010 are as follows :- 1006 (a) 1006 (b) 1006 (c) 1006 (d) 1006 (e) Net asset value of assets to be disposed of, compared with the Group s net asset value. This basis is not applicable to an acquisition of assets. Net profits attributable to the assets acquired or disposed of, compared with the Group s net profits. Aggregate value of the consideration given or received, compared with the issuer s market capitalization based on the total number of issued shares excluding treasury shares. Number of equity securities issued by the issuer as consideration for an acquisition, compared with the number of equity securities previously issued. Aggregate volume or amount of proven and probable reserves to be disposed of, compared with the aggregate of the Group s proven and probable reserves. This basis is applicable to a disposal of mineral, oil or gas assets by a mineral, oil or gas company, but not to an acquisition of such assets. 19% (1) 0% Note: (1) Based on the purchase consideration of S$5,600,000 and market capitalization of the Company as at 25 May 2011 of S$29,326,000. As none of the relative figure under 1006 of the Catalist s exceeds 75%, the Company is not required to convene a general meeting of the shareholders to seek specific approval on the Proposed Transaction. 2.2 Under the provision of 1010 of the Catalist s, the Proposed Transaction constitutes a discloseable transaction based on the above bases. 3
3. FINANCIAL EFFECTS 3.1 Net Tangible Assets ( NTA ) For illustration purposes, assuming that the Proposed Transaction had been effected on 31 December 2010, the proforma financial effects of the Proposed Transaction on the audited consolidation financial statements of the Company and its subsidiaries as at 31 December 2010 would not be material. The Proposed Transaction would have the following effects on the consolidated NTA of the Group :- NTA NTA per share S$ cents Before adjusting for the Proposed Transaction 36,079,908 27.07 After adjusting for the Proposed Transaction 36,079,908 27.07 3.2 Earnings per Share ( EPS ) For illustration purposes, assuming that the Proposed Transaction had been effected on 1 January 2010, the proforma financial effects of the Proposed Transaction on the consolidated EPS based on the audited financial statements of the Company and its subsidiaries for the year ended 31 December 2010 would be as follows :- Earnings EPS S$ cents Before adjusting for the Proposed Transaction 4,626,500 3.47 After adjusting for the Proposed Transaction 4,292,022 (1) 3.22 (1) Note: (1) The proforma financial effects are determined based on the following assumptions: (i) bank loan to be obtained to finance the acquisition is S$5,000,000 at floating interest rate ranging from 1.75% to 2.5% per annum over the tenure of 5 years; (ii) other cost incurred in relation to the property such as depreciation expense, stamp duty and professional fees are included; and (iii) possible revenue that the additional factory space may generate is excluded. 4
4. INTEREST OF DIRECTORS AND CONTROLLING SHAREHOLDERS None of the directors and controlling shareholders of the Company (other than in their capacity as Director or shareholders of the Company) has any interest, direct or indirect, in the Proposed Transaction except as disclosed below. Name Position Interest Lee Bon Leong Independent Director Solicitor for the Company in the completion of the legal documents. 5. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the option agreement will be made available for inspection during normal business hours at the registered office of MGM at 132 Pioneer Road Singapore 639588 for a period of 3 months from the date of this announcement. By order of the Board Megachem Limited Date : 26 May 2011 This announcement has been prepared by the Company and the contents have been reviewed by the Company s Sponsor, SAC Capital Private Limited, for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited ( Exchange"). The Company s Sponsor has not independently verified the contents of this announcement. This announcement has not been examined or approved by the Exchange and the Exchange assumes no responsibility for the contents of this announcement, including the correctness of any of the statements or opinions made or reports contained in this announcement. The contact person for the Sponsor is Mr Bernard Lim (tel: (65) 6221 5590) at 79 Anson Road, #15-03 Singapore 079906. 5