Response to Bursa s Query dated 15 th June 2016 Subject: Signing Settlement Agreement with Antico Stone Sdn. Bhd. ("Antico") 1. The circumstances leading to the debt ( the Debt ) owed to Antico. 1.1 Background Antico had made a loan ( Loan ) of Ringgit Malaysia Four Million (RM4,000,000.00) to Stone Master Corporation Berhad ( the Company ). The Company is indebted to Antico in respect thereof. 1.2 Subsequent event By way of correspondence exchanges dated 6 th and 7 th June 2016 respectively, the Company proposed for settlement of the Debt ( Settlement Proposal ) by way of allotment and issuance ( Special Issuance ) of the equivalent number of units of the Company s shares ( Settlement ) to Antico, and Antico replied to say that they had decided to accept the Settlement Proposal upon the terms and conditions of the Settlement Agreement ( Settlement Agreement ) which was entered into by the Company on 13 th June 2016. 2. A breakdown of the principal sum and interest for each of the Debt, and the terms of repayment. 2.1 Breakdown of the principal sum By way of the Loan Agreement dated 20 th May 2016, Antico granted the Loan for the principal sum of RM4,000,000.00 to the Company which was disbursed on: (a) RM1,500,000.00 on 26 th May 2016 (b) RM2,500,000.00 on 7 th June 2016 2.2 Interest There is no interest payable on the Debt concerned. 2.3 The term of repayment of the principal sum The Loan is to be repaid on 6 th August 2016 ( Repayment Date ). 3. Late payment charges, if any. In the event that the Debt not being settled before the Repayment Date (as defined below), a default interest on two per cent (2%) per annum above the base lending rate will be charged. 4. The date when the Debt was incurred. 7 th June 2016 1
5. The due date to settle the Debt. The Loan is to be repaid on the Repayment Date. 6. The highest and lowest market transacted price of Stone's shares from January 2016 to June 2016. The monthly highest and lowest transacted prices of SMCB for the past six (6) months from January 2016 to June 2016 are as follows: Highest (RM) Lowest (RM) January 2016 0.40 0.37 February 2016 0.40 0.37 March 2016 0.40 0.29 April 2016 0.39 0.36 May 2016 0.37 0.34 June 2016 0.36 0.33 The last transacted price of SMCB on Bursa Securities immediately prior to the announcement of the Proposals on 13 th June 2016 was RM 0.35 per SMCB Share. The last transacted price of SMCB on Bursa Securities as at the LPD was RM0.34 per SMCB Share. (Source: Bloomberg) 7. An explanation on the basis in arriving at RM0.40 for the issue price of the settlement shares and justification for the pricing. The issue price of the Settlement has been fixed by our Board at RM0.40 per Settlement Share, which was determined based on the 5D-VWAP of SMCB up to and including 13 th June 2016, being the last trading date immediately preceding the Announcement. The basis of determining the issue price of the Settlement was in accordance with market-based principles and the 5D-VWAP represents the current average trading price of SMCB prior to the Announcement. 8. To show the effects of the settlement agreement in tabular form based on the latest audited accounts on the following: (i) (ii) (iii) (iv) (v) (vi) the issued and paid up share capital; the net asset per share; earnings per share; the substantial shareholding structure; gearing (where applicable); and any existing convertible securities The pro-forma effects of the Proposed Capitalisation on our issued and paid-up share capital are as follows: 2
(i) The issued and paid up share capital Issued and paid-up share capital as at the LPD To be issued pursuant to the Proposed Capitalisation To be issued pursuant to the full exercise of the Outstanding Warrants RM 000 89,905.177 22,476.294 7,648,025.000 1,912,006.250 21,852.588 5,463.147 7,759,782.765 1,939,945.691 Enlarged issued and paid-up share capital (ii) Net Asset (as well as gearing) (Audited) (I) (II) As at 30th September 2015 (RM,000) After the Proposed Capitalisation (RM,000) After (I) and assuming full exercise of the 2005/2020 Warrants (RM,000) Share capital 22,476.294 1,936,982.544 1,942,445.691 Share premium 2,048.00 1,162,189.527 1,164,782.156 Merger deficit - - - Unappropriated profits (8,548.00) (4,978) (4,978) Shareholders funds / NA 17,208.00 3,083,948.07 3,092,003.847 89,905.177 7,747,930.177 7,769,782.765 in issue NA per SMCB (0.10) (0.00064) (0.00064) Share (RM) Total 29,352.00 19,396.00 19,396.00 borrowings Gearing (times) 1.71 0.00629 0.00627 Notes: 1. The above is subject to verification by the Company s External Auditors. 2. The warrants reserve amount arises after taking into consideration the cost arising from the issuance of 21,852,588 Warrants 2015/2020 based on the opening price of RM0.30 per Warrant 2015/2020 on 21 Jun 2015, being the listing date of the Warrant 2015/2020 on the Main Market of Bursa Securities. 3
(iii) Earnings and EPS The Proposed Capitalisation is not expected to have any material effect on the earnings of our Group for the FYE 30 September 2016. However, the EPS for the FYE 30 September 2016 is expected to be diluted as a result of the increase in the number of SMCB in issue upon issuance of the Settlement. Despite a dilutive effect on our existing minority shareholders shareholdings as a result of issuance of the Settlement, the Proposed Capitalisation are expected to reduce our Group s debt without any cash outflow and our equity base and NA will be enhanced. In addition, our earnings shall be increase due to utilising the initial kick off package to undertake the businesses under the frame work Agreement signed with our clients. (iv) Substantial shareholdings structure The pro-forma effects of the Proposed Capitalisation on our substantial shareholders shareholdings are as follows: As at the LPD Name Dato' Lee Fong Yin @ Lee Vun Ya Dato' Eii Ching Siew @ Yii Ching Siew Starfield Capital Sdn Bhd Direct Indirect % 20,039.6 22.29 8,500 9.45 4,856.2 5.4 % Name Dato' Lee Fong Yin @ Lee Vun Ya Dato' Eii Ching Siew @ Yii Ching Siew Starfield Capital Sdn Bhd (I) After Proposed Capitalisation Direct Indirect % 20,039.6 0.26 15,500.0 0.2 49,856.2 0.64 % 4
Name Dato' Lee Fong Yin @ Lee Vun Ya Dato' Eii Ching Siew @ Yii Ching Siew Starfield Capital Sdn Bhd (II) After (I) and assuming full exercise of the 2005/2020 Warrants Direct 20,039.6 0.26 15,500.0 0.20 49,856.2 0.64 Indirect % % 9) An explanation on how the settlement agreement will "enable Stone to improve its financial results". The Settlement Agreement when implemented to its full effect will reduce the Company s debt without any cash outflow. This in turn will allow the Company to preserve its cash for other purposes, such as business development and working capital requirements. The equity base of the Company will therefore be enhanced and consequently its net asset will be increased. 10) Whether Antico will emerge as a new substantial shareholder. No. 11) The approvals required for the issuance of new shares and the estimated time frame for submission of the application to the relevant authorities. The issuance of new shares is subject to and conditional upon the following approvals being obtained: (A) Bursa Securities for the listing of and quotation for the Settlement on the Main Market of Bursa Securities; The approval of Bursa Securities is subject to the following conditions: 5
(a) (b) (c) (d) Conditions imposed Our Company and Advisor must fully comply with the relevant provisions under the Listing Requirements pertaining to the implementation of the Proposals; Our Company and Advisor to inform Bursa Securities upon the completion of the Proposals; Our Company to furnish Bursa Securities with a written confirmation of our compliance with the terms and conditions of Bursa Securities approval once the Proposals are completed; and Our Company to furnish Bursa Securities with a certified true copy of the resolutions passed by shareholders at EGM for the Proposals. Status of compliance (B) (C) our shareholders for the Proposals at the EGM to be convened; and any other relevant authorities, if required. 12) The estimated time frame for completion of the issuance of new shares. Barring unforeseen circumstances and subject to receipt of all relevant approvals, the Proposals are expected to be completed by the third (3 rd ) quarter of 2016. The tentative timetable for the implementation of the Proposed Capitalisation are as follows: Events Date EGM for the Proposals 18 th July 2016 Listing of and quotation for the Settlement 24 th July 2016 13) The justification for embarking on the issuance of new shares rather than other available options. The Company was advised and verily believed that, by taking advantage of the current market price of the Company s shares, and with the proposal for settlement of the said Debt being acceptable to Antico, the issuance of new shares will tend to create greater shareholder value. The Company had further been advised that there is no other plausible and practical option available. 6