FEDERAL INTERNATIONAL ( 2000 ) LTD Manager PROSPECTUS DATED 29 AUGUST 2000 We have made an application to the Singapore Exchange Securities Trading Limited (“SGX-ST”) for permission to deal in, and for quotation of, all the ordinary shares of $0.20 each (“Shares”) in the capital of Federal International (2000) Ltd (the “Company”) already issued as well as the new Shares (the “New Shares”) which are the subject of this Invitation. Such permission will be granted when the Company has been admitted to the Official List of the SGX-ST. Acceptance of applications will be conditional upon permission being granted to deal in, and for quotation of, all of the issued Shares as well as the New Shares. Moneys paid in respect of any application accepted will be returned without interest or any share of revenue earned or other benefit arising therefrom, and at the applicant’s risk, if the said permission is not granted. The SGX-ST assumes no responsibility for the correctness of any of the statements made or reports contained or opinions expressed in this Prospectus. Admission to the Official List of the SGX-ST is not to be taken as an indication of the merits of the Invitation, the Company, its subsidiaries or of the Shares. A copy of this Prospectus has been lodged with and registered by the Registrar of Companies and Businesses in Singapore who takes no responsibility for its contents. Investing in the Shares involves risks which are described in the “Risk Factors” section beginning on page 17 of this Prospectus. (Incorporated in the Republic of Singapore on 13 November 1999) Invitation in respect of 44,000,000 new ordinary shares of $0.20 each as follows: (1) 4,400,000 Offer Shares at $0.30 for each Offer Share by way of public offer; and (2) 39,600,000 Placement Shares by way of placement comprising: (a) 35,200,000 Placement Shares at $0.30 for each Placement Share; and (b) 4,400,000 Reserved Shares at $0.29 for each Share reserved for the Independent Directors, management and staff of the Group, payable in full on application Lead Underwriter and Lead Placement Agent FEDERAL INTERNATIONAL (2000) LTD Co-Underwriter and Co-Placement Agent Industrial & Commercial Bank Limited
Transcript
Pakistan
China
UAE
Hong Kong
Thailand
Japan
Philippines
Singapore
Indonesia
Brunei
New Zealand
Founded in 1974, Federa l (2000) Group’soperations have rapidly expanded over the yearsand today the Group has 4 subsidiaries and 6assoc iated companies spanning S ingapore,Indonesia, the Philippines, Thailand and China.I n a d d i t i o n , we ha v e age n t s i n B rune iDarussalam, Hong Kong, China, Indonesia,India, Malaysia, Japan, New Zealand, UnitedArab Emirates and Pakistan.
Des
ign
by
Vib
es C
omm
unic
atio
ns P
te L
tdP
rod
uced
by
Str
atag
em C
onsu
ltant
s P
te L
td
FEDER
AL IN
TER
NA
TIO
NA
L (2000
) LTD
HEADQUARTERS:
Federal International (2000) Ltd47 / 49 Genting Road Singapore 349489Tel: 65-7478118 Fax: 65-7430690 / 7450048E-mail: [email protected]: http://www.federal.com.sg
SUBSIDIARIES:
Federal Hardware Engineering Co Pte Ltd47 / 49 Genting Road Singapore 349489Tel: 65-7478118 Fax: 65-7430690 / 7450048E-mail: [email protected]: http://www.federal.com.sg
UAEFedsin Oilfield Equipment Co Ltd (LLC)Tel: 971-4-2856430Fax: 971-4-2856429
Fedsin Supply (Abu Dhabi)Tel: 971-2-790342Fax: 971-2-790243
Manager
PROSPECTUS DATED 29 AUGUST 2000
We have made an application to the Singapore Exchange Securities Trading Limited (“SGX-ST”) for
permission to deal in, and for quotation of, all the ordinary shares of $0.20 each (“Shares”) in the capital of
Federal International (2000) Ltd (the “Company”) already issued as well as the new Shares (the “New
Shares”) which are the subject of this Invitation. Such permission will be granted when the Company has
been admitted to the Official List of the SGX-ST. Acceptance of applications will be conditional upon
permission being granted to deal in, and for quotation of, all of the issued Shares as well as the New
Shares. Moneys paid in respect of any application accepted will be returned without interest or any share
of revenue earned or other benefit arising therefrom, and at the applicant’s risk, if the said permission is not
granted.
The SGX-ST assumes no responsibility for the correctness of any of the statements made or reports
contained or opinions expressed in this Prospectus. Admission to the Official List of the SGX-ST is not to
be taken as an indication of the merits of the Invitation, the Company, its subsidiaries or of the Shares.
A copy of this Prospectus has been lodged with and registered by the Registrar of Companies and
Businesses in Singapore who takes no responsibility for its contents.
Investing in the Shares involves risks which are described in the “Risk Factors” section beginning on page
17 of this Prospectus.
(Incorporated in the Republic of Singapore on 13 November 1999)
Invitation in respect of 44,000,000 new ordinary shares of $0.20 eachas follows:
(1) 4,400,000 Offer Shares at $0.30 for each Offer Share by way ofpublic offer; and
(2) 39,600,000 Placement Shares by way of placement comprising:
(a) 35,200,000 Placement Shares at $0.30 for each PlacementShare; and
(b) 4,400,000 Reserved Shares at $0.29 for each Share reservedfor the Independent Directors, management and staff ofthe Group,
payable in full on application
Lead Underwriter and Lead Placement Agent
FEDERAL INTERNATIONAL (2000) LTD
Co-Underwriter and Co-Placement Agent
Industrial & Commercial Bank Limited
Pakistan
China
UAE
Hong Kong
Thailand
Japan
Philippines
Singapore
Indonesia
Brunei
New Zealand
Founded in 1974, Federa l (2000) Group’soperations have rapidly expanded over the yearsand today the Group has 4 subsidiaries and 6assoc iated companies spanning S ingapore,Indonesia, the Philippines, Thailand and China.I n a d d i t i o n , we ha v e a g e n t s i n B rune iDarussalam, Hong Kong, China, Indonesia,India, Malaysia, Japan, New Zealand, UnitedArab Emirates and Pakistan.
Des
ign
by
Vib
es C
omm
unic
atio
ns P
te L
tdP
rod
uced
by
Str
atag
em C
onsu
ltant
s P
te L
td
FEDER
AL IN
TER
NA
TIO
NA
L (2000
) LTD
HEADQUARTERS:
Federal International (2000) Ltd47 / 49 Genting Road Singapore 349489Tel: 65-7478118 Fax: 65-7430690 / 7450048E-mail: [email protected]: http://www.federal.com.sg
SUBSIDIARIES:
Federal Hardware Engineering Co Pte Ltd47 / 49 Genting Road Singapore 349489Tel: 65-7478118 Fax: 65-7430690 / 7450048E-mail: [email protected]: http://www.federal.com.sg
UAEFedsin Oilfield Equipment Co Ltd (LLC)Tel: 971-4-2856430Fax: 971-4-2856429
Fedsin Supply (Abu Dhabi)Tel: 971-2-790342Fax: 971-2-790243
Manager
PROSPECTUS DATED 29 AUGUST 2000
We have made an application to the Singapore Exchange Securities Trading Limited (“SGX-ST”) for
permission to deal in, and for quotation of, all the ordinary shares of $0.20 each (“Shares”) in the capital of
Federal International (2000) Ltd (the “Company”) already issued as well as the new Shares (the “New
Shares”) which are the subject of this Invitation. Such permission will be granted when the Company has
been admitted to the Official List of the SGX-ST. Acceptance of applications will be conditional upon
permission being granted to deal in, and for quotation of, all of the issued Shares as well as the New
Shares. Moneys paid in respect of any application accepted will be returned without interest or any share
of revenue earned or other benefit arising therefrom, and at the applicant’s risk, if the said permission is not
granted.
The SGX-ST assumes no responsibility for the correctness of any of the statements made or reports
contained or opinions expressed in this Prospectus. Admission to the Official List of the SGX-ST is not to
be taken as an indication of the merits of the Invitation, the Company, its subsidiaries or of the Shares.
A copy of this Prospectus has been lodged with and registered by the Registrar of Companies and
Businesses in Singapore who takes no responsibility for its contents.
Investing in the Shares involves risks which are described in the “Risk Factors” section beginning on page
17 of this Prospectus.
(Incorporated in the Republic of Singapore on 13 November 1999)
Invitation in respect of 44,000,000 new ordinary shares of $0.20 eachas follows:
(1) 4,400,000 Offer Shares at $0.30 for each Offer Share by way ofpublic offer; and
(2) 39,600,000 Placement Shares by way of placement comprising:
(a) 35,200,000 Placement Shares at $0.30 for each PlacementShare; and
(b) 4,400,000 Reserved Shares at $0.29 for each Share reservedfor the Independent Directors, management and staff ofthe Group,
payable in full on application
Lead Underwriter and Lead Placement Agent
FEDERAL INTERNATIONAL (2000) LTD
Co-Underwriter and Co-Placement Agent
Industrial & Commercial Bank Limited
COMPETITIVE STRENGTHS• Established track record
• Comprehensive range of inventory
• Good working relationships with principals
• Product speciality
• Quality service
• One-stop service provider
FY1995 FY1996 FY1997 FY1998 FY1999
0
10
20
30
40
50
60
70
80
90
TurnoverS$Million
26.7
51.9
65.2
48.0
80.3
FY1995 FY1996 FY1997 FY1998 FY1999
0
1
2
3
4
5
6
7
8
9
Profit before taxS$Million
1.11.4
3.32.9
8.3
FINANCIAL TRACK RECORD
Our four core business areas are:
Distribution and provision of flow-line controlproducts and services to the oil and gas, power,petrochemical and pharmaceutical industries
Distribution of oilfield drilling equipment foruse on onshore and offshore rigs as well asdrilling platforms
Prov i s ion of complete f i re protect ion anddetection systems (including design, supply,installation supervision and maintenance) forthe industrial, marine, oil and gas sectors
Distribution of electrical products and provisionof IT services including information systemssolutions, network systems solutions, internetand in t rane t f a c i l i t i e s , a s s i s t i ng theestablishment of e-commerce platforms as wellas data security measures and firewalls
Distribution and provision of flow-line controlproducts and services to the oil and gas, power,petrochemical and pharmaceutical industries
Distribution of oilfield drilling equipment foruse on onshore and offshore rigs as well asdrilling platforms
Prov i s ion of complete f i re protect ion anddetection systems (including design, supply,installation supervision and maintenance) forthe industrial, marine, oil and gas sectors
Distribution of electrical products and provisionof IT services including information systemssolutions, network systems solutions, internetand in t rane t f a c i l i t i e s , a s s i s t i n g t heestablishment of e-commerce platforms as wellas data security measures and firewalls
Founded in 1974, Federa l (2000) Group’soperations have rapidly expanded over the yearsand today the Group has 4 subsidiaries and 6assoc iated companies spanning S ingapore,Indonesia, the Philippines, Thailand and China.I n add i t i on , we have agen t s i n B rune iDarussalam, Hong Kong, China, Indonesia,India, Malaysia, Japan, New Zealand, UnitedArab Emirates and Pakistan.
Des
ign
by
Vib
es C
omm
unic
atio
ns P
te L
tdP
rod
uced
by
Str
atag
em C
onsu
ltant
s P
te L
td
FEDER
AL IN
TER
NA
TIO
NA
L (2000
) LTD
HEADQUARTERS:
Federal International (2000) Ltd47 / 49 Genting Road Singapore 349489Tel: 65-7478118 Fax: 65-7430690 / 7450048E-mail: [email protected]: http://www.federal.com.sg
SUBSIDIARIES:
Federal Hardware Engineering Co Pte Ltd47 / 49 Genting Road Singapore 349489Tel: 65-7478118 Fax: 65-7430690 / 7450048E-mail: [email protected]: http://www.federal.com.sg
UNAUDITED CONSOLIDATED PROFORMA FINANCIAL STATEMENTS FOR THE FIVEMONTHS ENDED 31 MAY 2000 ............................................................................................. 89
LETTER FROM THE AUDITORS AND REPORTING ACCOUNTANTS IN RELATION TOTHE UNAUDITED CONSOLIDATED PROFORMA FINANCIAL STATEMENTS FOR THEPERIOD FROM 1 JANUARY 2000 TO 31 MAY 2000 ............................................................ 90
LETTER FROM THE REPORTING ACCOUNTANTS IN RELATION TO THE PROFITFORECAST FOR THE YEAR ENDING 31 DECEMBER 2000 .............................................. 91
GENERAL AND STATUTORY INFORMATION ............................................................................ 118
APPENDIX:
— Terms and Conditions and Procedures for Application ....................................................... 134
— Additional Terms and Conditions for Applications using Printed Application Forms ......... 137
— Additional Terms and Conditions for Electronic Applications .............................................. 140
— Instructions for Electronic Applications through ATMs of the UOB Groupand the IB web-site of UOB .............................................................................................. 145
3
CORPORATE INFORMATION
Board of Directors : Mr Koh Kian Kiong(Executive Chairman and Chief Executive Officer)Mr Chew Keng Keong (Executive Director)Mr Yeo Teck Soon, John (Executive Director)Mr Tan Kah Imm (Executive Director)Ms Koh Maggie (Executive Director)Mr Iman Taufik (Non-Executive Director)Mr Heng Lee Seng (Independent Director)Mr Hoon Tai Meng (Independent Director)
Joint Company Secretaries : Chng Geok, CPAYvonne Choo, FCIS
For the purpose of this Prospectus and the accompanying Application Forms, the following definitionshave, where appropriate, been used:
General
“Act” : The Companies Act, Chapter 50 of Singapore
“Application Forms” : The printed application forms to be used for the purpose ofthe Invitation and which form part of this Prospectus
“Application List” : The list of applications for subscription of the New Shares
“Associated company” : With reference to the Company, a company in which at least20% but not more than 50% of its shares are held by theCompany or its subsidiaries
“ATM” : Automated teller machine
“CDP” : The Central Depository (Pte) Limited
“Chief Executive Officer” : The Chief Executive Officer of the Company as at the date ofthis Prospectus, namely Mr Koh Kian Kiong
“CPF” : Central Provident Fund
“Directors” : The directors of the Company as at the date of this Prospectus,unless otherwise stated
“Electronic Applications” : Applications for the Offer Shares made through an ATM ofone of the Participating Banks or through an Internet bankingweb-site of one of the relevant Participating Banks inaccordance with the terms and conditions of this Prospectus
“Executive Chairman” : The Executive Chairman of the Company as at the date ofthis Prospectus, namely Mr Koh Kian Kiong
“FY” : Financial year ended or ending 31 December
“Independent Directors” : The independent directors of the Company as at the date ofthis Prospectus, namely Mr Heng Lee Seng and Mr Hoon TaiMeng
“Invitation” : The invitation by the Company to the public to subscribe forthe New Shares, subject to and on the terms and conditionsof this Prospectus
“Invitation Shares” : The 44,000,000 New Shares which are the subject of theInvitation
“Issue Price” : $0.30 for each Offer Share and each Placement Share (otherthan a Reserved Share)
“New Shares” : The 44,000,000 new Shares for which the Company will inviteapplications to subscribe, subject to and on the terms andconditions of this Prospectus
“NTA” : Net tangible assets
“Offer” : The offer by the Company to the public for subscription of theOffer Shares at the Issue Price, subject to and on the termsand conditions of this Prospectus
“Offer Shares” : The 4,400,000 New Shares which are the subject of the Offer
“Participating Banks” : The Development Bank of Singapore Ltd (including itsPOSBank Services division) (“DBS”); Keppel TatLee BankLimited (“KTB”); Oversea-Chinese Banking Corporation Limited(“OCBC”) Group (comprising OCBC and Bank of SingaporeLimited); Overseas Union Bank Limited (“OUB”); and UOBGroup (comprising UOB, Far Eastern Bank Limited andIndustrial & Commercial Bank Limited)
“Placement” : The placement by the Placement Agents on behalf of theCompany of the Placement Shares for subscription at the IssuePrice or Reserved Price, as the case may be, subject to andon the terms and conditions of this Prospectus
“Placement Agents” : UOB as lead placement agent and Industrial & CommercialBank Limited as co-placement agent
“Placement Shares” : The 39,600,000 New Shares which are the subject of thePlacement, including the Reserved Shares
“PRC” : The People’s Republic of China
“Reserved Price” : $0.29 for each Reserved Share
“Reserved Shares” : 4,400,000 of the Placement Shares reserved for theIndependent Directors, management and staff of the Group
“Restructuring Exercise” : The restructuring exercise implemented in connection with theInvitation, more fully described on page 32 of this Prospectus
“Securities Account” : Securities account maintained by a depositor with CDP
“Subsidiary” : A subsidiary of the Company within the meaning of Section 5of the Act
“Shares” : Ordinary shares of $0.20 each in the capital of the Company
“UAE” : United Arab Emirates
“Underwriters” : UOB as lead underwriter and Industrial & Commercial BankLimited as co-underwriter
“USA” : United States of America
“%” or “per cent.” : Percentage
7
Companies
“Alton” : Alton International (S) Pte Ltd, a company incorporated inSingapore
“Company” or “Federal : Federal International (2000) LtdInternational”
“Eastern Jason” : Eastern Jason Fabrication Services Pte Ltd, a companyincorporated in Singapore
“Federal (2000) Group” or : The group of companies, comprising the Company, its“Group” or “Proforma Group” Subsidiaries and associated companies, treated in existence
since 1 January 1995
“Federal Hardware” : Federal Hardware Engineering Co Pte Ltd, a companyincorporated in Singapore
“Federal Phil-Nippon” : Federal Phil-Nippon Flow-Controls Inc, a company incorporatedin the Philippines
“Firematic” : Firematic Engineering Pte Ltd, a company incorporated inSingapore
“Gunanusa” : PT Gunanusa Utama Fabricators, a company incorporated inIndonesia
“Indoenergi” : PT Indoenergi Perkasa, a company incorporated in Indonesia
“Pratama” : PT Fedsin Rekayasa Pratama, a company incorporated inIndonesia
“Shanghai KVC” : Shanghai KVC Valve Co Ltd, a company incorporated in China
“Syntellect” or “STPL” : Syntellect Telesystems Pte Ltd, a company incorporated inSingapore
Other Organisations
“EDB” : Economic and Development Board
“JTC” : Jurong Town Corporation
“Stock Exchange” or “SGX-ST” : Singapore Exchange Securities Trading Limited
Words importing the singular shall, where applicable, include the plural and vice versa and wordsimporting the masculine gender shall, where applicable, include the feminine and neuter gendersand vice versa. References to persons shall include corporations.
Any reference in this Prospectus and the Application Forms to any enactment is a reference to thatenactment as for the time being amended or re-enacted. Any word defined in the Act or any statutorymodifications thereof and used in this Prospectus and the Application Forms, where applicable, shallhave the meaning assigned to it under the Act or statutory modification as the case may be.
Any reference in this Prospectus or the Application Forms to Shares being allotted to an applicantincludes allotment to CDP for the account of that applicant.
Any reference to a time of day in this Prospectus will be a reference to Singapore time.
Any reference in this Prospectus to “agent” and “agency” shall include references to “distributor” and“distributorship” as the case may be and vice versa.
9
GLOSSARY OF TECHNICAL TERMS
In this Prospectus, the following technical terms and abbreviations have, where appropriate, beenused:
“ABS” : American Bureau of Shipping, an organisation which providesclassification, inspection, certification, verification, quality assurance andconsulting services to the marine industry. As one of the leading shipsclassification societies, its primary purpose is to determine the structuraland mechanical fitness of ships and other marine structures for theirintended purpose.
“Actuators” : Equipment installed on valves for emergency and instantaneous on/off operation. The equipment can be electric, pneumatic or hydraulicoperated.
“ANSI” : American National Standards Institute, an internationally recognisednon-profit organisation with a primary goal of enhancing the globalcompetitiveness of US businesses and the America quality of life bypromoting and facilitating voluntary consensus standards and conformityassessment systems and promoting their integrity.
“API” : American Petroleum Institute, a major national trade associationrepresenting the entire petroleum industry.
API has developed some 500 equipment and operating standards usedaround the world. Manufacturers of drilling equipment are licensed toimprint products with the monogram that represents API’s exactingspecifications. API certifies inspectors of storage tanks, pressurevessels and pipelines and it accredits laboratories that test and certifythe quality of petroleum products.
“API Line Pipe” : Steel pipes manufactured in accordance to API standards. This includesspecification on dimensions and types of raw material used.
“ASME” : American Society of Mechanical Engineering, a worldwide engineeringorganisation which develops internationally accepted standards thatconform to the procedures set by ANSI. ASME has nearly 600 codesand standards in print and standards are used in over 90 countriesthroughout the world. The standards are authoritative technicalguidelines for promoting safety, reliability, productivity and efficiency inalmost every industry that relies on engineering components orequipment.
“ASTM” : American Society for Testing and Materials, an internationallyrecognised organisation which develops and provides voluntaryconsensus standards, related technical information and services havinginternationally recognised quality and applicability that, among otherthings, contribute to the reliability of materials, products, systems andservices.
10
“BS” : British Standards being standards developed by the British StandardsInstitute, an internationally recognised organisation which is responsiblefor the co-ordination and promotion of UK input to the development ofstandards, both national and international, for their production anddelivery.
“Detectors” : Instruments that detect hazardous or flammable gases and heat.
“DIN” : Deutsches Institut Fur Normung e.V., an internationally recognisedorganisation which develops and provides voluntary consensusstandards, related technical information and services. It also providesclassification, certification, verification and advisory services.
“DNV” : DetNorske Veritas, an organisation which provides safety and reliabilityservices, where classification, certification, verification and advisoryservices are key activities. DNV establishes rules and guidelines forthe classification of ships, mobile offshore platforms, floating marinestructures and fixed offshore structures.
“EEXD” : EEXD is the European standard that signifies a particular equipmentas explosion proof and suitable in hazardous locations.
“EPC” : Term used to identify the scope of projects which include engineering,procurement and construction.
“Ex-Proof junction box” : Metal boxes for electric cable terminals suitable for use in hazardouslocations.
“Fire alarm panels” : Metal boxes with glass windows and installed with instruments andelectrical cables that set off alarm in an emergency situation.
“Flanges” : Circular steel piece with holes that can be tied with other similarcompanion pieces by means of bolts and nuts.
“GL” : Germanischer Lloyds, an independent and impartial classificationsociety which supervises safety and quality mainly for ships and formaritime installations. It also provides classification and certification ofships and offshore systems, as well as certification of marine relatedmaterials and components, pipelines, petrochemical plants andindustrial installations.
“Hoses” : Long lengths of tubes made from various materials like rubber, nylonor steel for transfer of medium like water, oil and gas.
“IT” : Information technology.
“JIS” : Japan Industrial Standards, a voluntary organisation which providesstandards for industrial and mineral products such as the dimension,structure, quality, grade, durability, methods of operation, per unitmaterial requirement and other standardisation items.
“LR” : Lloyds Register of Shipping, an internationally recognised organisationwhich provides classification, certification and verification services,packaged to meet the safety, quality and environmental requirements.Its inspection and certification services cover a wide range ofengineering projects such as power generation, offshore developments,pressure equipment and plant and safety-critical software applications.
“Manifolds” : Pipes and fittings welded together for various flow-lines and sometimesincorporated with valves.
11
“MSS” : Manufacturers Standardization Society of the Valve and Fittings Industryis a technical association organised for the development andimprovement of industry, national and international codes and standardsfor valves, valve actuators, pipe fittings, flanges, pipe hangers andassociated seals.
“NACE” : National Association of Corrosion Engineering is a professionaltechnical society dedicated to protecting the environment, promotingpublic safety, and reducing the economic impact of corrosion byadvancing the knowledge of corrosion engineering and science. Itoversees more than 300 technical committees that research, studyand recommend corrosion technologies and produce consensusindustry standards in the form of test methods, recommended practicesand material requirements.
“OEM” : Original equipment manufacturer.
“Piping spools” : Pipes and fittings welded together for special requirements.
“Ship-chandling” : The business of supplying hardware and consumables to ships.
“Valves” : Equipment used for controlling flow of medium like water, oil and gas.
12
DETAILS OF THE INVITATION
LISTING ON SGX-ST
Application has been made to the SGX-ST for permission to deal in and for quotation for all theShares already issued as well as the New Shares. Such permission will be granted when the Companyhas been admitted to the Official List of the SGX-ST. Acceptance of applications will be conditionalupon permission being granted to deal in and for quotation for all of the issued Shares as well asthe New Shares. Moneys paid in respect of any application accepted will be returned, without interestor any share of revenue or other benefit arising therefrom and at the applicant’s risk, if the saidpermission is not granted.
The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinionsexpressed or reports contained in this Prospectus. Admission to the Official List of the SGX-ST isnot to be taken as an indication of the merits of the Invitation, the Company, the Subsidiaries or theShares.
The Directors collectively and individually accept full responsibility for the accuracy of the informationgiven in this Prospectus and confirm, having made all reasonable enquiries, that to the best of theirknowledge and belief, there are no other material facts the omission of which would make anystatement in this Prospectus misleading.
No person has been or is authorised to give any information or to make any representation notcontained in this Prospectus in connection with the Invitation and, if given or made, such informationor representation must not be relied upon as having been authorised by the Company or the Manager.Neither the delivery of this Prospectus and the Application Forms nor the Invitation shall, under anycircumstances, constitute a continuing representation or create any suggestion or implication thatthere has been no change in the affairs of the Company or the Group or in the statements of fact orinformation contained in this Prospectus since the date of this Prospectus. Where changes occur,the Company may make an announcement to the SGX-ST. All applicants should take note of anysuch announcement and, upon release of such an announcement, shall be deemed to have noticeof such changes. Save as expressly stated in this Prospectus, nothing herein is, or may be reliedupon as a promise or representation as to the future performance or policies of the Group. ThisProspectus has been prepared solely for the purpose of the Invitation and may not be relied upon byany persons other than the applicants in connection with their application for the Invitation Shares orfor any other purpose. This Prospectus does not constitute an offer of, or invitation, or solicitation tosubscribe for, the Invitation Shares in any jurisdiction in which such an offer or invitation or solicitationis unauthorised or unlawful nor does it constitute an offer or invitation or solicitation to any person towhom it is unlawful to make such an offer or invitation or solicitation.
Copies of this Prospectus and the Application Forms and envelopes may be obtained on request,subject to availability, from:
UOB ASIA LIMITED80 Raffles Place
UOB Plaza 1Singapore 048624
and from branches of the UOB Group, members of the Association of Banks in Singapore, membersof the SGX-ST and merchant banks in Singapore.
The Application List will open at 10.00 a.m. on 7 September 2000 and will remain open until12.00 noon on the same da y or f or suc h fur ther period or periods as the Director s may, intheir absolute discretion, decide , subject to an y limitations under all applicab le laws.
13
INDICATIVE TIMETABLE FOR LISTING
In accordance with the SGX-ST’s News Release of 28 May 1993 on the trading of initial publicoffering shares on a “when issued” basis, an indicative timetable for trading in the Shares is set outbelow for the reference of applicants:
Indicative date/time Event
7 September 2000, 12.00 noon Close of Application List
8 September 2000 Balloting of applications, or otherwise as may be approvedby the SGX-ST (in the event of an over-subscription forthe Offer Shares)
11 September 2000, 9.00 a.m. Commence trading on a “when issued” basis
19 September 2000 Last day of trading on a “when issued” basis
20 September 2000, 9.00 a.m. Commence trading on a “ready” basis
25 September 2000 Settlement date for all trades done on a “when issued”basis and for trades done on a “ready” basis on 20September 2000
The above timetable is only indicative as it assumes that the closing date of the Application List is7 September 2000, the date of admission of the Company to the Official List of the SGX-ST will be11 September 2000, the SGX-ST shareholding spread requirement will be complied with and theInvitation Shares will be issued and fully paid-up prior to 11 September 2000. The actual date onwhich the Shares will commence trading on a “when issued” basis will be announced when it isconfirmed by the SGX-ST. In the event of any early closure of Application List or the shortening ofthe time period during which the Invitation is open, this will be announced:
• through a MASNET announcement to be posted on the Internet at the SGX-ST website; and
• in the local English and Chinese newspapers, namely The Straits Times, The Business Timesand Lianhe Zaobao.
The above timetable and procedure may be subject to such modifications as the SGX-ST may in itsdiscretion decide, including the decision to permit trading on a “when issued” basis and thecommencement date of such trading. The commencement of trading on a “when issued” basis willbe entirely at the discretion of the SGX-ST. All persons trading in the Shares on a “when issued”basis do so at their own risk. In par ticular , persons trading in the Shares bef ore their SecuritiesAccounts with CDP are credited with the rele vant n umber of Shares do so at the risk ofselling Shares whic h neither the y nor their nominees, as the case ma y be , have been allottedor allocated with or are otherwise beneficiall y entitled to. Such per sons are also e xposed tothe risk of ha ving to co ver their net sell positions earlier if “when issued” trading endedsooner than the indicative date mentioned abo ve. Persons who ha ve a net sell position tradedon a “when issued” basis should c lose their position on or bef ore the fir st da y of “read y”basis trading.
Investors should consult the SGX-ST announcement on “ready” listing date on the Internet (at theSGX-ST website http://www.singaporeexchange.com), INTV or the newspapers, or inquire with theirbrokers on the date on which trading on a “ready” basis will commence.
14
PROSPECTUS SUMMARY
This summary highlights certain information found in greater detail elsewhere in this Prospectus. Inaddition to this summary, we urge you to read the entire Prospectus carefully, especially the discussionof the risks of investing in our Shares under “Risk Factors”, before deciding to buy our Shares.References in this Prospectus to “we,” “our,” and “us” refer to Federal International (2000) Ltd, alimited liability company formed in the Republic of Singapore and its Subsidiaries.
THE GROUP
The Company was incorporated in Singapore on 13 November 1999 as a private limited companyunder the name Federal International (2000) Pte Ltd. On 23 August 2000, the Company was convertedto a public company and our name was changed to Federal International (2000) Ltd.
We are mainly engaged in the distribution, procurement, sales, modification and installation of high-grade pressure flowline control products for oil and gas, petrochemical and refinery industries. Wehave been in this field for more than 25 years. We custom design, fabricate, supply and installautomatic emergency shutdown systems including engineering, sizing, selection and hook-up of valves,actuators and controls. In addition, we design, fabricate, supply and install piping spools and manifoldsaccording to our customers’ requirements. Our service and training centre, set up in 1994, providesvalue-added services which include pre-delivery pressure and operational testings to valves as wellas repairs on valves that are damaged but still serviceable. Faulty valves detected under the pre-delivery pressure and operational tests are repaired or replaced depending on the extensiveness ofthe damage. These value-added services, thus, enable our customers to improve on their turnaroundtime and overall throughput. Our customers include major oil and gas explorations and productioncompanies, foreign national oil and gas companies, pipeline companies, refining companies and awide range of industrial, marine, petrochemical and processing companies.
Since 1993, we have expanded our business to cover a diversified range of activities including thedesign, supply, installation supervision and maintenance of the fire protection and suppression systemsserving the said industries. We are also involved in the distribution of electrical products, marineproducts and oilfield drilling equipment. In addition, we undertake technical sourcing for products forour clients in the oil and gas industry. Technical sourcing involves discussions with our clients to gaina good understanding of their technical requirements on product specifications as well as their concernson product cost and the delivery lead-time. These discussions enable us to source for suitable productsto match their needs and to assist them in terms of budget control and project schedule management.
In 1998, we expanded our business to include the provision of information systems solutions. Wealso assist our clients to establish their e-commerce platforms, internet and intranet facilities.
Currently, we are the appointed distributor for more than 42 principals and manufacturers carryingmore than 4,000 product items. We sell our products through distributors, agents and sub-agents. Atpresent, we have operations in many locations including Malaysia, Indonesia, Brunei Darussalam,Philippines, Thailand, China, Japan, India, Pakistan and United Arab Emirates. Our operations areconducted either by the establishment of offices or the appointment of agencts in the respectivelocations.
15
THE INVITATION
Amount : 44,000,000 New Shares comprising 4,400,000 Offer Shares and39,600,000 Placement Shares. The New Shares will upon, registrationin the name of CDP or its nominee, rank pari passu in all respectswith the existing issued Shares.
Issue Price : $0.30 for each Invitation Share (other than a Reserved Share).
Reserved Price : $0.29 for each Reserved Share
Purpose of Invitation : The purpose of the Invitation is to secure admission of the Companyto the Official List of the SGX-ST to provide the members of thepublic, the management, staff, business associates and those whohave contributed to the success of the Group with an opportunity toparticipate in the equity of the Company. The Directors consider thatthe listing of the Company and the quotation of the Shares on theSGX-ST will enhance our public image and enable us to tap the capitalmarkets for the future expansion of its operations. The proceeds ofthe issue of the New Shares will also provide the Group with additionalworking capital to finance our business expansion.
Use of Proceeds : The net proceeds attributable to the Company from the issue of theNew Shares (after deducting the estimated expenses in relation tothe Invitation) will be approximately $12.156 million.
We intend to utilise the estimated net proceeds as follows:
1. approximately $5 million to be set aside towards the consolidationof our business operations in Singapore and for the expansion ofour service and testing centre (please refer to page 63 of thisProspectus);
2. approximately $1.75 million to be used to finance our businessexpansion which includes setting up operations in Houston, USAand Bangkok, Thailand and setting up manufacturing plants byway of joint ventures (please refer to page 62 of this Prospectus);
3. approximately $720,000 to be used to increase the paid up sharecapital of Alton; and
4. the balance amount of approximately $4.686 million to be usedas working capital towards reduction of our overdraft facilities andto finance our Group’s continued growth.
Pending the deployment of the net proceeds from the Invitation asaforesaid, the net proceeds may be placed in fixed deposit accountor may be used to invest in short term money market instruments, asthe Directors may deem fit.
Reserved Shares : 4,400,000 Placement Shares will be reserved for the IndependentDirectors, management and staff of the Group. In the event that anyof the Reserved Shares are not taken up, they will be made availableto satisfy applications for the Placement Shares, or in the event of anunder-subscription of the Placement Shares, to satisfy applicationsfrom the members of the public for the Offer Shares.
16
Listing Status : The Shares will be quoted on the Mainboard of the SGX-ST, subjectto admission of the Company to the Official List of SGX-ST andpermission for dealing in and for quotation of the Shares being grantedby the SGX-ST.
17
RISK FACTORS
An investment in the Shares involves a high degree of risk. Prior to making an investment decision,you should consider carefully, the following risk factors and all other information contained in thisProspectus, including our consolidated financial statements and related notes, before you make adecision to subscribe for the Shares. If any of the following risks actually occur, our business, resultsof operations and financial condition would suffer. In any such case, the market price of the Shareswould be adversely affected.
Dependence on the oil and gas, refining and petr ochemical industries
We derive a substantial proportion of our revenue from companies in the oil and gas, refining andpetrochemical industries which in aggregate accounted for approximately 90.0%, 85.3% and 89.7%of our turnover for FY1997, FY1998 and FY1999 respectively. The oil and gas, refining andpetrochemical industries are highly cyclical. World-wide economic downturns and the resulting pricingpressures experienced by chemical, petrochemical and petroleum companies have in the past led toworldwide reductions in capital and operating expenditures by many of these companies. As such,any decline in activities in the oil and gas, refining and petrochemical industries will have an adverseeffect on our operations and financial performance.
Dependence on principals
A substantial part of our business is generated from industrial distribution of items, namely flowlinecontrol products, marine products, oil drilling equipment, fire protection and distribution systems andelectrical products. Our success depends on our ability to retain our existing pool of principals werepresent and to secure new distribution rights.
Principal-distributorship arrangements are normally subjected to yearly renewal or periodic review bythe principals. Before re-appointing us as agent or distributor, it is the principal’s right to assess uson our past performance. It is only when our performance has been found to be satisfactory that theprincipal would renew the appointment for another period of one to two years. For the past threefinancial years and seven months ended 31 July 2000, we encountered five terminations in thedistributorships as discussed on page 48. In addition, for the non-exclusive distributorship agreements,it is possible that the principals may appoint additional distributors to distribute the same productsand in the same markets as us. Hence, we are constantly exposed to the risk of losing our marketshare and certain distributorship contracts to our competitors. The loss of these principals will havean adverse impact on our financial performance.
Some of the distributorship agreements with certain equipment manufacturers are exclusivedistributorship arrangements. These exclusivity arrangements deprive us of the opportunity to act forother competing equipment manufacturers due to the issue of conflicts of interest as perceived byour principals.
Exposure to credit risk
We are exposed to the credit risk of our customers. From time to time, in the ordinary course ofbusiness, certain customers may default on their payment to us. Although we regularly review ourcredit exposure to our customers through our fortnightly management reports, credit risk willnevertheless arise from events or circumstances that are difficult to anticipate or detect. Such eventsmay arise due to the inherent risk from our customers’ business, risk pertaining to the political,economic, social and legal evironment of our customers’ jurisdiction and foreign exchange risk. Inthe event that our customers face cash-flow problems, it may jeopardise their ability to settle promptlyamounts due to us for goods sold or services rendered. This will have an adverse impact on ourfinancial performance.
18
Product obsolescence
We carry a wide range of products of more than 4,000 product items. In order to serve our customerson a timely basis, we have to maintain a high level of inventory to avoid disruption to our customers’project schedule. The maintenance of such high level of inventory thus exposes us to the risk ofproduct obsolescence, which will have an adverse effect on our financial performance.
Foreign e xchang e exposure
We are exposed to fluctuations in foreign exchange rates particularly as our investment, sales andpurchases are denominated in various currencies, mainly US Dollar, RMB, and Sterling Pound. Ourpurchases are obtained from countries such as United Kingdom, United States, Italy, Japan, China,Korea, Taiwan, Holland and India. For FY1999, approximately 82.6% of our total purchases weremade in foreign currencies, mainly US Dollar and Sterling Pound. Our sales are mainly denominatedin US Dollar, S$ or the local currency of the respective country of domicile of the company makingthe sales. In FY1999, approximately 69.1% of our sales were denominated in US Dollar, 29.4% weredenominated in S$ and the rest in other currencies such as Sterling Pound and French Franc.Currently, we only hedge our foreign currency exposure by forward contract on sales and purchases.
Foreign currency monetary assets and liabilities are reported in the reporting currency of the Companyat the exchange rates as at the balance sheet date. All exchange adjustments are accounted for inthe profit and loss statement. Depending on the amount of monetary assets and liabilities denominatedin foreign currencies, significant fluctuations of the Singapore Dollar against foreign currencies willresult in unrealised exchange gains and losses. Our foreign exchange gains/losses for the past threefinancial years are set out on page 49 of this Prospectus.
Foreign economies
At present, we have associated companies and agents in many geographical markets namelyIndonesia, Philippines, PRC (Dalian, Beijing, Shanghai and Guangzhou), Brunei Darussalam, HongKong, Indonesia, Malaysia, Japan, New Zealand, United Arab Emirates and Pakistan serving ourgeographical spread of customers. By expanding our operations into foreign countries, we encounterrisks arising from the prevailing economic, political, legal, administrative and social conditions ofthese foreign countries, in particular Indonesia, Brunei Darussalam, Malaysia and PRC. Anyunfavourable changes in the economic, political, legal, administrative and social conditions of thesecountries will have an adverse effect on our operations and financial performance.
Interested per son transactions with Gunan usa, a compan y owned b y a Director and shareholder
Gunanusa is 77% owned by Mr Iman Taufik who is one of the Directors and is also one of theCompany’s shareholders. We derive a significant portion of our sales from Gunanusa. For FY1997,FY1998 and FY1999, sales to Gunanusa accounted for approximately 23.7%, 6.6% and 33.6% ofour turnover respectively (please refer to the section “Major Customers” set out on page 64 of thisProspectus). Gunanusa is mainly involved in executing large turnkey projects in offshore platformprojects, container cranes, boilers and pressure vessels and it purchases flowline products, structuraland specialised equipment from us. There can be no assurance that Gunanusa will continue to placeorders with us at current levels and any significant reductions in orders from Gunanusa will have anadverse effect on our financial performance.
Dependence on ke y per sonnel
Our future success would depend to a large extent on the continued services of our ExecutiveChairman and Chief Executive Officer, Mr Koh Kian Kiong and our Executive Directors, particularlyMr Chew Keng Keong and Mr Yeo Teck Soon, John. Since we commenced operations, the ExecutiveDirectors have been instrumental in charting the business directions and spearheading our growth.Under their stewardship, we have established a track record of many successfully completed projectsas well as built up a team of experienced management personnel. Our continued success is dependenton our ability to retain such key personnel. The loss of services of such key executives withoutsuitable and timely replacements will have a material adverse effect on our operations.
19
Dependence on skilled labour
We recognise the problem of the increasing shortage of labour in the oil and gas, petrochemical andrefining industries. As the oil and gas, petrochemical and refining industries are very specialisedfields, we face shortage of technical manpower and expertise when the demand for our productsincreases due to the boom in the industries. Shortages of such specialised manpower typically leadto competition in the industry for skilled labour and as a result, we may lose our valuable staff. Theloss of these experienced staff will directly adversely affect our operations and our financialperformance in the industry.
New businesses of the Group
We incorporated Syntellect with an investment of $135,000 in June 1999 as a joint venture companywith Mr Lee Sek Kheong and Mr Toh Chit Yong to undertake the business of an information systemsolutions provider and a supplier of related information technology equipment. Our experience in theIT industry was drawn from our business co-operation with an Indonesian company, PT ElanindoInfotronix, to supply computer equipment to the Ministry of Public Works in Indonesia in 1998 and1999. As we have no other prior experience in the business of IT, there is no assurance that Syntellectwill perform well. If this investment turns out to be unsuccessful, we will have to write off our investment.
No prior market f or the Shares
Prior to the Invitation, there has been no public market for the Shares. Although application hasbeen made to list the Shares on the Main Board of the SGX-ST, there can be no assurance that anactive trading market for the Shares will develop or be sustained if it develops or that the marketprice for the Shares will not decline below the Issue Price. The market price of the Shares could besubject to significant fluctuations in response to various external factors including the liquidity ofShares in the market, differences between our actual operating results compared to those expectedby investors and analysts and the general market conditions and broad market fluctuations.
20
ISSUE STATISTICS
ISSUE PRICE : $0.30
RESERVED PRICE : $0.29
NET TANGIBLE ASSETS (“NT A”)
NTA per Share, based on the audited balance sheet of the Proforma Group asat 31 December 1999:
Before adjusting for the estimated net proceeds from the Invitation and basedon the pre-Invitation share capital of 131,243,875 Shares : 21.83 cents
After adjusting for the estimated net proceeds from the Invitation and basedon the post-Invitation share capital of 175,243,875 Shares : 23.28 cents
Premium of Issue Price over NTA per Share as at 31 December 1999
Before adjusting for the estimated net proceeds from the Invitation and basedon the pre-Invitation share capital of 131,243,875 Shares : 37.4%
After adjusting for the estimated net proceeds from the Invitation and basedon the post-Invitation share capital of 175,243,875 Shares : 28.9%
EARNINGS
Historical net earnings per Share for FY1999 based on the pre-Invitationshare capital of 131,243,875 Shares : 4.32 cents
Forecast net earnings per Share for FY2000 based on the weightedaverage share capital of 145,910,542 Shares(1) : 3.08 cents
PRICE EARNING RATIO BASED ON THE ISSUE PRICE
Historical price earnings ratio based on the historical net earnings per Sharefor FY1999 : 6.9 times (3)
Forecast price earnings ratio based on the forecast net earnings per ShareFor FY2000 : 9.7 times (3)
NET OPERATING CASH FLOW(2)
Historical net operating cash flow per Share for FY1999 based on thepre-Invitation share capital of 131,243,875 Shares : 4.76 cents
Historical price to net operating cash flow based on the historical netoperating cash flow per Share for FY1999 : 6.3 times
Forecast net operating cash flow per Share for FY2000 based on theweighted average share capital of 145,910,542 Shares : 3.53 cents
Forecast price to net operating cash flow based on the forecast net operatingcash flow per Share for FY2000 : 8.5 times
21
MARKET CAPITALISATION
Market capitalisation after the Invitation based on the post-Invitation sharecapital of 175,243,875 Shares at the Issue Price : $52.6 million
Notes:
1. Weighted average share capital is calculated assuming the Company has the use of the net proceeds from the issue ofNew Shares from 1 September 2000.
2. Net operating cash flow is defined as profit after tax, adding back provisions for depreciation and amortisation of$583,000 and $655,000 for FY1999 and FY2000 respectively.
3. Had the service agreements set out on page 84 of this Prospectus been effected in FY1999, the adjusted profit beforetax of the Group after share of associated companies’ profit or loss for FY1999 would have been $7.9 million instead of$8.1 million and the adjusted net profit after tax but before extraordinary items would have been $5.4 million instead of$5.7 million. The historical net earnings per Share for FY1999, based on the pre-Invitation share capital of 131,243,875Shares would have been 4.12 cents instead of 4.32 cents. The historical price earnings ratio would have been 7.3 timesinstead of 6.9 times.
22
SUMMARY OF PROFORMA GROUP FINANCIAL INFORMATION
The following financial information should be read in conjunction with the full text of this Prospectus,including the Accountants’ Report set out on pages 92 to 112 of this Prospectus.
RESULTS OF THE PROFORMA GROUP
Audited UnauditedFinancial y ear ended 31December Five months ended 31 Ma y
1. Minority interests represent the minority shareholders’ share of profit after taxation of the Subsidiary, Alton.
2. In FY 1995, the extraordinary item relates to the net gain arising from the partial disposal of our Subsidiary, Alton andthe write-off of the other investments in Federal Fash Corp Pte Ltd and Energy Product & Engineering Services Pte Ltd.
In FY1996, the extraordinary item relates to the net loss arising from the partial disposal of our Subsidiary, Alton andthe write-off of the other investments in Thai-Federal Co Ltd and Haikou Federal Longzhu Oil Equipment Supplier CoLtd (under liquidation).
3. For comparative purposes, the net earnings per Share for the periods under review have been computed based onprofit after taxation and minority interests but before extraordinary items divided by the pre-floatation share capital of131,243,875 Shares.
4. Based on management accounts.
23
FINANCIAL POSITION OF THE PROFORMA GROUP
Audited UnauditedFinancial y ear ended 31December As at 31 Ma y
Share capital and reserves 12,254 15,083 17,345 18,661 28,647 21,036 29,985
Minority interests 10 — 12 18 — — 2
12,264 15,083 17,357 18,679 28,647 21,036 29,987
NTA per Share (cents)(1) 9.34 11.49 13.22 14.23 21.83 16.03 22.85
Notes:
1. For comparative purposes, the NTA per Share is calculated based on the pre-Invitation share capital of 131,243,875Shares.
2. Based on management accounts.
24
GENERAL INFORMATION OF THE GROUP
SHARE CAPITAL
The Company was incorporated in Singapore on 13 November 1999 under the Act as a privatelimited company under the name of Federal International (2000) Pte Ltd. Currently, the Companyhas only one class of shares. There are no founder, management, deferred or unissued sharesreserved for issue for any purpose. The rights and privileges of these Shares are stated in theArticles of Association of the Company.
As at 13 November 1999, the Company’s authorised share capital was $100,000, consisting of100,000 ordinary shares of $1.00 each, and the Company’s issued and paid-up share capital was$2.00 consisting of two ordinary shares of $1.00 each.
At an extraordinary general meeting held on 19 June 2000, the shareholders of the Company approvedinter-alia, the following:
1. an increase in the authorised share capital of the Company from $100,000 to $55,000,000comprising 55,000,000 ordinary shares of $1.00 each; and
2. the issue of 26,248,773 ordinary shares of $1.00 each in the capital of the Company pursuantto the Restructuring Exercise which when fully paid, allotted and issued, will rank pari passu inall respects with the existing issued Shares of the Company (the “Issue of New Shares”).
Subsequently, at an extraordinary general meeting held on 21 August 2000, the shareholders of theCompany approved inter-alia, the following:
1. the sub-division of each ordinary share of $1.00 in the existing authorised and issued and paid-up share capital of the Company into five ordinary shares of $0.20 each (the “Sub-division ofShares”);
2. the conversion of the Company into a public limited company and the change of its name toFederal International (2000) Ltd;
3. the adoption of a new set of Articles of Association;
4. the issue of 44,000,000 New Shares which are the subject of the Invitation. The New Shares,when issued, fully paid and registered in the name of CDP or its nominee, shall rank paripassu in all respects with the existing issued Shares of the Company;
5. that the Directors be authorised, pursuant to Section 161 of the Act, and subject to the Articlesof Association of the Company and the admission of the Company to the Official List of theSGX-ST, to issue Shares (whether by way of rights, bonus or otherwise) at any time and fromtime to time and upon such terms and conditions and for such purposes and to such personsas the Directors may in their absolute discretion deem fit provided that the aggregate numberof Shares issued pursuant to such authority shall not exceed 50% of the issued share capitalof the Company for the time being, of which the aggregate number of such Shares issuedother than on a pro rata basis to the shareholders of the Company shall not exceed 20% of theissued share capital of the Company for the time being, and, unless revoked or varied by theCompany in general meeting, such authority shall continue in force until the conclusion of thenext Annual General Meeting of the Company or the date by which the next Annual GeneralMeeting of the Company is required by law to be held, whichever is the earlier; and
6. the adoption of the Shareholders Mandate (the details of which are set out on pages 74 to 77of this Prospectus.
25
Details of the changes in the issued share capital of the Company since its incorporation and theresultant issued and paid-up capital after the issue of the New Shares are set out below:
No. of shares $
Issued and paid-up ordinary shares of $1.00 each beforethe subdivision of Shares 2 2
New ordinary shares of $1.00 each issued pursuant to theRestructuring Exercise 26,248,773 26,248,773
26,248,775 26,248,775
Sub-division of one ordinary share of $1.00 each intofive ordinary shares of $0.20 each 131,243,875 26,248,775
New Shares issued pursuant to the Invitation 44,000,000 8,800,000
Issued and paid-up ordinary shares of $0.20 each afterthe Invitation 175,243,875 35,048,775
The Company’s authorised share capital and the Company’s shareholders’ funds as at 31 May 2000,before and after the Restructuring Exercise, the Sub-division of Shares and the Issue of New Sharesare set out below.
After RestructuringAs at Exercise and Sub- After
31 May 2000 division of Shares Invitation($) ($) ($)
Authorised Share Capital
Ordinary shares of $1.00 each 100,000 — —
Ordinary shares of $0.20 each
— 275,000,000 275,000,000
Shareholder s’ Funds
Share capital 2 26,248,775 35,048,775
Share premium(1) — — 3,356,000
Revaluation reserves — 2,398,534 2,398,534
2 28,647,309 40,803,309
Note:
1. Net issue proceeds of approximately $12,156,000 (after deducting the estimated expenses of $1,000,000 in connectionwith the Invitation) less par value of the New Shares
26
DESCRIPTION OF ORDINARY SHARES
The discussion below provides information about the Company’s share capital, the main provisionsof the Articles of Association of the Company and the laws of Singapore relating to the Shares. Thisdescription is only a summary and is qualified by reference to Singapore law and the Articles ofAssociation of the Company.
Ordinar y Shares
The Company’s authorised capital is S$55,000,000 consisting of 275,000,000 ordinary shares of parvalue S$0.20 each. The Company has only one class of shares, namely ordinary shares, which haveidentical rights in all respects and rank equally with one another. The Articles of Association of theCompany provide that the Company may issue shares of a different class with preferential, deferred,qualified or other special rights, privileges or conditions as the Directors may determine and mayissue preference shares which are, or at the Company’s option are, subject to redemption, subject tocertain limitations. The Directors may issue shares at a premium. If shares are issued at a premium,a sum equal to the aggregate amount or value of the premium will, subject to certain exceptions, betransferred to a share premium account.
As of the date of this Prospectus, 131,243,875 ordinary shares of par value $0.20 were issued andpaid up. All of the Company’s ordinary shares are in registered form. The Company may, subject tothe provisions of the Act and the rules of SGX-ST, purchase its own ordinary shares. However, theCompany may not, except in circumstances permitted by the Act, grant any financial assistance forthe acquisition or proposed acquisition of its own ordinary shares.
New Ordinar y Shares
New ordinary shares may only be issued with the prior approval of the Company’s shareholders in ageneral meeting. The approval, if granted, will lapse at the conclusion of the annual general meetingfollowing the date on which the approval was granted. The Company’s shareholders have given theDirectors general authority to issue any remaining approved but unissued ordinary shares prior tothe Company’s next annual general meeting. Subject to the foregoing, the provisions of the Act andany special rights attached to any class of shares currently issued, all new ordinary shares areunder the control of the Directors who may allot and issue the same with such rights and restrictionsas they may think fit.
Shareholder s
Only persons who are registered in the Company’s register of shareholders and, in cases in whichthe person so registered is the CDP, the persons named as the depositors in the depository registermaintained by the CDP for the Company’s ordinary shares, are recognised as shareholders.
The Company will not, except as required by law, recognise any equitable, contingent, future orpartial interest in any ordinary share or other rights for any ordinary share other than the absoluteright thereto of the registered holder of the ordinary share or of the person whose name is enteredin the depository register for that ordinary share. The Company may close the register of shareholdersfor any time or times if it provides the Registrar of Companies and Businesses of Singapore at least14 days’ notice. However, the register may not be closed for more than 30 days in aggregate in anycalendar year. The Company typically close the register to determine shareholders’ entitlement toreceive dividends and other distributions.
27
Transf er of Or dinar y Shares
There is no restriction on the transfer of the Company’s fully paid ordinary shares except whererequired by law. The Directors may only decline to register any transfer of ordinary shares which arenot fully paid shares or ordinary shares on which the Company has a lien. The Company’s ordinaryshares may be transferred by a duly signed instrument of transfer in any form acceptable to theDirectors. The Directors may also decline to register any instrument of transfer unless, among otherthings, it has been duly stamped and is presented for registration together with the share certificateand such other evidence of title as they may require. The Company will replace lost or destroyedcertificates for the Company’s ordinary shares if the Company is properly notified and if the applicantpays a fee which will not exceed S$2.00 and furnishes any evidence and indemnity that the Directorsmay require.
General Meetings of Shareholder s
The Company is required to hold an annual general meeting every year. The Directors may convenean extraordinary general meeting whenever they think fit and must do so if shareholders representingnot less than 10% of the total voting rights of all shareholders request in writing that such a meetingbe held. In addition, two or more shareholders holding not less than 10% of the Company’s issuedshare capital may call a meeting. Unless otherwise required by Singapore law or by the Articles ofAssociation of the Company, voting at general meetings is by ordinary resolution, requiring anaffirmative vote of a simple majority of the votes cast at that meeting. An ordinary resolution suffices,for example, for the appointment of Directors. A special resolution, requiring the affirmative vote of atleast 75% of the votes cast at the meeting, is necessary for certain matters under Singapore law,including the voluntary winding up of the Company, amendments to the Memorandum and Articles ofAssociation of the Company, a change of corporate name and a reduction in share capital, sharepremium account or capital redemption reserve fund. The Company must give at least 21 days’notice in writing for every general meeting convened for the purpose of passing a special resolution.Ordinary resolutions generally require at least 14 days’ notice in writing. The notice must be given toevery shareholder who has supplied the Company with an address in Singapore for the giving ofnotices and must set forth the place, the day and the hour of the meeting and, in the case of specialbusiness, the general nature of that business.
Voting Rights
A shareholder is entitled to attend, speak and vote at any general meeting, in person or by proxy. Aproxy need not be a shareholder. A person who holds ordinary shares through the CDP book-entryclearance system will only be entitled to vote at a general meeting as a shareholder if his nameappears on the depository register maintained by CDP 48 hours before the general meeting.
Except as otherwise provided in the Articles of Association of the Company, two or more shareholdersmust be present in person or by proxy to constitute a quorum at any general meeting. Under theArticles of Association of the Company, on a show of hands, every shareholder present in personand each proxy shall have one vote and, on a poll, every shareholder present in person or by proxyshall have one vote for each ordinary share held. A poll may be demanded in certain circumstances,including by the chairman of the meeting or by any shareholder present in person or by proxy andrepresenting not less than 10% of the total voting rights of all shareholders having the right to attendand vote at the meeting or by any two shareholders present in person or by proxy and entitled tovote.
28
Dividends
The Company may, by ordinary resolution, declare dividends at a general meeting, but it may notpay dividends in excess of the amount recommended by the Directors. Any dividend which theCompany pays must be paid out of its profits or pursuant to Section 69 of the Act. The Directorsmay also declare an interim dividend. All dividends are paid pro rata among the shareholders inproportion to the amount paid upon each shareholder’s ordinary shares, unless the rights attachingto an issue of any ordinary share provides otherwise. Unless otherwise directed, dividends are paidby cheque or warrant sent through the post to each shareholder at his registered address.Notwithstanding the foregoing, a payment to the CDP of any dividend payable to a shareholderwhose name is entered in the depository register shall, to the extent of payment made to the CDP,discharge the Company from any liability to that shareholder in respect of that payment.
Bon us and Rights Issue
The Directors may, with the approval of the Company’s shareholders at a general meeting, capitaliseany reserves or profits (including profit or monies carried and standing to any reserve or to theshare premium account) and distribute the same as bonus shares credited as paid-up to theshareholders in proportion to their shareholdings. The Directors may also issue rights to take upadditional ordinary shares to shareholders in proportion to their shareholdings. Such rights are subjectto any conditions attached to such issue.
Takeovers
The Act and the Singapore Code on Takeovers and Mergers regulate the acquisition of ordinaryshares of public companies and contain certain provisions that may delay, deter or prevent a futuretakeover or change in control of the Company. Any person acquiring an interest, either acting singlyor together with other parties acting in concert with him, in 25% or more of the Company’s votingshares must extend a takeover offer for the remaining voting shares in accordance with the provisionsof the Singapore Code on Takeovers and Mergers.
“Parties acting in concert’’ include a company and its related and associated companies, a companyand its directors (including their relatives), a company and its pension funds, a person and anyinvestment company, unit trust or other fund whose investment such person manages on adiscretionary basis, and a financial adviser and its client in respect of shares held by the financialadviser and shares in the client held by funds managed by the financial adviser on a discretionarybasis. An offer for consideration other than cash must be accompanied by a cash alternative at notless than the highest price paid by the offeror or parties acting in concert with the offeror within thepreceding 12 months. A mandatory takeover offer is also required to be made if a person holding,either singly or together with parties acting in concert with him, between 25% and 50% of the votingshares acquires additional voting shares representing more than 3% of the voting shares in any 12-month period.
Liquidation or Other Return of Capital
If the Company is liquidated or in the event of any other return of capital, holders of the Company’sordinary shares will be entitled to participate in any surplus assets in proportion to their shareholdings,subject to any special rights attaching to any other class of shares then existing.
29
Indemnity
As permitted by Singapore law, the Articles of Association of the Company provide that, subject tothe Act, the Company will indemnify the Directors and officers against any liability incurred in defendingany proceedings, whether civil or criminal, which relate to anything done or omitted to have beendone as an officer, director or employee and in which judgment is given in their favour (or theproceedings otherwise disposed of without any finding or admission of any material breach of dutyor their part) or in which they are acquitted or in connection with any application under any statutefor relief from liability in respect in such act or omission in which relief is granted to him by the court.The Company may not indemnify Directors and officers against any liability which by law wouldotherwise attach to them in respect of any negligence, default, breach of duty or breach of trust ofwhich they may be guilty in relation to the Company.
Limitations on Rights to Hold or Vote Or dinar y Shares
Except as described in “Voting Rights’’ and “Takeovers’’ above, there are no limitations imposed bySingapore law or by the Articles of Association of the Company on the rights of non-residentshareholders to hold or vote the ordinary shares of the Company.
Minority Rights
The rights of minority shareholders of Singapore-incorporated companies are protected under Section216 of the Act, which gives the Singapore courts a general power to make any order, upon applicationby any shareholder, as they think fit to remedy any of the following situations:
• the Company’s affairs are being conducted or the powers of the Directors are being exercisedin a manner oppressive to, or in disregard of the interests of, one or more of the shareholdersof the Company; or
• the Company takes an action, or threaten to take an action, or the shareholders of the Companypass a resolution, or threaten to pass a resolution, which unfairly discriminates against, or isotherwise prejudicial to, one or more of the shareholders of the Company, including the applicant.
Singapore courts have wide discretion as to the reliefs they may grant and those reliefs are in noway limited to those listed in the Act itself.
Without prejudice to the foregoing, Singapore courts may:
• direct or prohibit any act or cancel or vary any transaction or resolution;
• regulate the conduct of Company’s affairs in the future;
• authorise civil proceedings to be brought in the name of, or on behalf of, the Company by aperson or persons and on such terms as the court may direct;
• provide for the purchase of a minority shareholder’s shares by the other shareholders of theCompany or by the Company and, in the case of a purchase of shares by the Company, acorresponding reduction of the Company’s share capital;
• provide that the Memorandum or Articles of Association of the Company be amended; or
• provide that the Company be wound up.
30
SHAREHOLDERS
The Company’s shareholders and their respective direct shareholdings, after the Restructuring Exercisebut before and after the Invitation, are set out below:
Before the In vitation After the In vitation (6)
Name of Shareholder s No. of Shares % No. of Shares %
Lim Tek Hua, Anthony(5) 1,784,910 1.36 2,034,910 1.16
Public — — 43,320,000 24.72
131,243,875 100.00 175,243,875 100.00
Notes:
1. Mr Koh Kian Kiong is the father of Ms Koh Maggie.
2. Ms Wong Kwee Ying is the sister-in-law of Mr Yeo Teck Soon, John.
3. Mr Chew Keng Keong is the brother of both Mr Chew Keng Chuan, Danny and Ms Chew Lay Peng, Janice.
4. In connection with the Invitation, Mr Heng Lee Seng and Mr Hoon Tai Meng will be allocated 50,000 Reserved Sharesand 100,000 Reserved Shares respectively.
5. In connection with the Invitation, Messrs Cai Wenting, Wang Hoi Ying, David, Lim Hwee Hoe, Teo Yew Teck and Lim TekHua, Anthony will be allocated 10,000, 60,000, 60,000, 150,000 and 250,000 Reserved Shares respectively.
6. The shareholding information is on the assumption that the Reserved Shares allocated to the persons stated in notes4 and 5 above have been fully taken up.
Save as disclosed above, there are no other relationships among the Directors and substantialshareholders of the Company.
31
MORATORIUM
To demonstrate their commitment to our Group, the Company’s shareholders, namely Mr Koh KianKiong, Mr Chew Keng Keong, Mr Yeo Teck Soon, John, Mr Tan Kah Imm, Ms Koh Maggie, Mr ImanTaufik, Mr Chew Keng Chuan, Danny and Ms Chew Lay Peng, Janice who in aggregate hold118,992,225 Shares representing 67.90% of the Company’s enlarged issued and paid-up share capitalafter the Invitation, gave undertakings not to dispose of or transfer any part of their interests in theCompany for a period of six months from the date of the Company’s admission to the Official List ofthe SGX-ST and in the six months thereafter, they will not reduce their shareholdings to below 50%of their original aggregate shareholding.
ALLOCATION OF RESERVED SHARES TO THE INDEPENDENT DIRECTORS
To give recognition to the future contribution of the Independent Directors, the Independent Directorsnamely Mr Heng Lee Seng and Mr Hoon Tai Meng, will be allocated 50,000 Reserved Shares and100,000 Reserved Shares respectively. The Reserved Shares allotted to the Independent Directorsare not subject to any moratorium and they may dispose of or transfer all or part of their respectiveshareholdings in the Company after the admission of the Company to the Official List of the SGX-ST. The Independent Directors do not intend to dispose of or transfer all or part of their respectiveshareholdings within a period of six months from the date of the Company’s admission to the OfficialList of the SGX-ST.
32
RESTRUCTURING EXERCISE
To streamline our corporate structure and business activities, the following Restructuring Exercisewas carried out, pursuant to which the Company became the holding company of the Group. Theinitial paid-up capital of Federal International of $2.00, comprising two ordinary shares of $1.00each, was increased to $26,248,775, comprising 26,248,775 ordinary shares of $1.00 each on 18August 2000. Details of the steps of the Restructuring Exercise are as follows:
1. The Company acquired 45% of the issued and paid-up share capital of Syntellect comprising135,000 ordinary shares of $1.00 each from Federal Hardware. The purchase considerationwas $147,414, based on the unaudited NTA of Syntellect as at 31 December 1999 of $327,586.
This purchase consideration is represented as an inter-company loan between the Companyand Federal Hardware, which is interest-free and payable upon 14 days of notice in writing.
2. The Company acquired the entire issued and paid-up share capital of Alton, comprising 280,000ordinary shares of $1.00 each from Federal Hardware. The purchase consideration was $209,496,based on the audited NTA of Alton as at 31 December 1999 of $209,496.
The purchase consideration is represented by way of an inter-company loan between theCompany and Federal Hardware, which is interest free and payable upon 14 days of notice inwriting.
3. The Company acquired the entire issued and paid-up share capital of Firematic, comprising300,000 ordinary shares of $1.00 each from its shareholders namely Federal Hardware, Mr TeoYew Teck and Mr Lim Tek Hua, Anthony. The purchase consideration was $1,427,928, based onthe audited NTA of Firematic as at 31 December 1999 of $1,427,928.
The purchase consideration of $713,964 in respect of the acquisition from Federal Hardware isrepresented by way of an inter-company loan between the Company and Federal Hardware,which is interest-free and payable upon 14 days of notice in writing.
The purchase consideration of $713,964 in respect of the acquisition from the remainingshareholders, namely Mr Teo Yew Teck and Mr Lim Tek Hua, Anthony, was satisfied by theallotment and issue of 713,964 new ordinary shares of $1.00 each in the capital of the Companyby way of share swap.
Issued to Number of shares
Teo Yew Teck 356,982
Lim Tek Hua, Anthony 356,982
4. Upon completion of steps (1) to (3) above, the Company acquired the entire issued and paid-up share capital of Federal Hardware, comprising 8,000,000 ordinary shares of $1.00 each.
The proforma consolidated NTA of Federal Hardware, its three associated companies (namelyFederal Phil-Nippon, Eastern Jason and Shanghai KVC) and one Subsidiary (namely Pratama)was $27,933,342 as at 31 December 1999. The purchase consideration was $25,534,809, basedon the audited NTA of Federal Hardware adjusted for the capitalisation of 50% of the revaluationsurplus. The revaluation surplus of $4,797,067 arose from the valuations of our freehold factorybuildings at 47 and 49 Genting Road. The valuation report is set out on pages 113 to 117 ofthis Prospectus.
33
The acquisition was completed and the purchase consideration was satisfied on 18 August2000 by the allotment and issue of 25,534,809 shares in the capital of the Company to thefollowing parties based on the original shareholding structure of Federal Hardware:
Issued to Number of shares
Koh Kian Kiong 9,317,653
Chew Keng Keong 7,407,649
Yeo Teck Soon, John 3,771,491
Tah Kah Imm 1,943,199
Koh Maggie 48,516
Iman Taufik 829,881
Cai Wenting 766,044
Wong Hoi Ying, David 337,059
Chan Tat Soon 319,185
Chew Keng Chuan, Danny 240,027
Chew Lay Peng, Janice 240,027
Narong Yamprasert 127,674
Yapp Oi Lien 127,674
Wong Kwee Ying 45,963
Lim Hwee Hoe 12,767
5. We sub-divided each ordinary share of $1.00 into five ordinary shares of $0.20 each.
34
GROUP STRUCTURE
The Group structure after the Restructuring Exercise and after conversion into a public company isshown as follows:
Notes:
1. We have taken steps to establish a company in Houston, Texas, USA with the name Alton International Inc. Thepurpose of Alton International Inc. will be to procure oilfield equipment for our Group and for sales to our customers.
2. We have had since 1996 a 10% indirect interest in Gunanusa; the shares are held in the name of Azmil Rahman.Pursuant to a Binding Agreement to a sale and purchase deed no. 6 dated 6 March 2000 between Azmil Rahman andPratama and a Deed of Sale and Purchase of Shares no. 4 dated 10 April 2000 between Azmil Rahman and Pratama,Azmil Rahman sold his 10% shareholding interests in Gunanusa to Pratama. Under the Ministry of Investment/Chairmanof BKPM Decree No. 38/SK/1999 dated 6 October 1999, in order for Pratama to acquire shares in Gunanusa, Gunanusais required to be converted into a Penanaman Modal Asing (PMA) company prior to the acquisition by the Company.The application for the conversion of Gunanusa into a PMA company has not been submitted to the relevant authoritiesto date. Accordingly, the transfer of shares from Azmil Rahman to Pratama has not been effected. Gunanusa intends toapply for the conversion before 31 December 2000.
Federal Hardware Engineering Co Pte Ltd
Shanghai KVC Valve Co Ltd
Alton International (S) Pte Ltd(1)
Syntellect Telesystems Pte Ltd
Federal Phil-Nippon Flow-Controls Inc
Firematic Engineering Pte Ltd
Eastern Jason Fabrication Services
Pte Ltd
Federal International (2000) Ltd
100%
100%
100%
45%
PT Fedsin Rekayasa Pratama
PT Gunanusa Utama Fabricators(2) PT Indoenergi Perkasa
50% 30% 50%
10% 40%
Alton International (Thailand) Ltd
99%
49%
35
Save as disclosed on pages 69 to 72 of this Prospectus, none of the Directors or substantialshareholders has an interest, direct or indirect, in any of the Subsidiaries.
Save as disclosed on page 120 of this Prospectus, none of the substantial shareholders of theSubsidiaries is related to the Directors or substantial shareholders.
SUBSIDIARIES AND ASSOCIA TED COMPANIES
Details of Subsidiaries and associated companies of the Group as at the date of this Prospectus areas follows:
Issued andDate and place paid-up Percenta ge
Name of compan y of incorporation Principal b usiness capital owned(%)
Subsidiaries
Federal Hardware 23 May 1980 Dealer in flowline control $8,000,000 100.0Engineering Co Pte Ltd Singapore material and services, and
investment holding
Alton International (S) 13 December 1978 Dealer in hardware and oilfield $280,000 100.0Pte Ltd Singapore engineering materials
Firematic Engineering 30 December 1993 Design and supply of fire $300,000 100.0Pte Ltd Singapore detection and protection systems
PT Fedsin Rekayasa 6 March 2000 Hardware merchant and US$100,000 99.0Pratama Indonesia investment holding
Associated companies
Alton International 30 June 2000 Dealer in hardware and Baht 5,000,000 49.0(Thailand) Limited Thailand oilfield engineering materials
Syntellect Telesystems 23 June 1999 An information systems solution $300,000 45.0Pte Ltd Singapore provider and supplier of related
information technology equipment
Federal Phil-Nippon 31 August 1999 Supply of Federal Hardware’s P2,340,000 30.0(1)
Eastern Jason Fabrication 4 December 1999 Engineering, fabrication and $450,000 50.0Services Pte Ltd Singapore sandblasting services
PT Indoenergi Perkasa 11 May 1996 Selling and distributing of Rp400,000,000 40.0Indonesia Ingersoll Rand air-compressors and
provision of after sales service
Shanghai KVC Valve 3 January 1993 Manufacture and export valves US$3,000,000 50.0Co Ltd PRC under OEM arrangement
Note:
(1) Each of Messrs Yeo Teck Soon, John and Koh Kian Kiong holds one share of par value P100.00 each in the sharecapital of Federal Phil-Nippon Flow Controls Inc in trust for Federal Hardware.
None of the Subsidiaries and associated companies is listed on any stock exchange.
36
HISTORY
We started off as a partnership on 23 December 1974 with Mr Koh Kian Kiong, Mr Yeo Teck Soon,John and Mr Chew Keng Keong as the partners. Our main activity then was to supply valves andrelated products such as pipes, pipe joints and valve accessories to the various industries dealingwith building, heating, ventilating and air-conditioning. A year later, we expanded our activities toinclude the supply of engineering goods and materials to the oil and gas industry.
To ride on the upswing of the oil drilling activities in the Middle East during mid 1970s, the threepartners set up Fedsin Supply International Corp (“Fedsin Supply”) in Sharjah, UAE, in 1977 toundertake the supply of assorted API line pipes, fittings, flanges and hoses, oilfield and rig requisites,ship-chandlers and industrial equipment to oil and gas companies and the EPC contractors in UAE.In 1993, Fedsin Supply was sold to Mr Tony Lim, the Technical Manager of Fedsin Supply at thattime.
In 1978, we moved to Goldhill Plaza so as to increase our proximity with the numerous oil anddrilling contractors, namely JL Offshore, Reading & Bates, Westburn Drilling, Rowan International,FORASOL and McDermott SEA Inc. That enabled us to provide them personalised and efficientservice by meeting their day-to-day requirements.
In December 1978, we established Alton to carry out the rental of heavy equipment serving theconstruction industry. Alton worked closely with large heavy equipment rental companies from boththe USA and Canada. In 1980, Alton expanded its business into the oil and gas sector and wasawarded a contract as the procurement agent of Lummus Company/PT Pupuk Kalimantan Timur forthe Pupuk Kaltim Project. This project involved the design and construction of a large fertiliser complexof substantial size located in the East Kalimantan, Indonesia.
Subsequently, Alton engaged substantially in the supply of valves, pipe fittings, steel materials andinstrumentation to the oil and gas sectors. In 1994, our Group underwent a major re-structuringexercise to refocus on our core business strategies and competencies. As a result, Alton began tofocus on the supply of oilfield equipment and spares targeted mainly at the oil and gas industry inthe Asia Pacific Region. Since the reorganisation, our client base has expanded substantially toinclude service companies, drilling contractors and operators in the onshore and offshore sectorsstretching from South East Asia to China and India.
In August 1979, due to our expansion into Malaysia, Mr Koh Kian Kiong and Mr Chew Keng Keongincorporated another company, Fedsin Oilfield Supplies (M) Sdn Bhd (“Fedsin Oilfield”) in KualaLumpur. The main activity of this company was to supply valves (ball, gate, globe, check and swing)to oil and gas companies, contractors and fabricators for their day-to-day requirements. However, by1996, Mr Koh Kian Kiong and Mr Chew Keng Keong disposed of their entire interests in FedsinOilfield.
On 23 May 1980, the partnership was converted to a private company, Federal Hardware. After theincorporation of Federal Hardware, we increased our manpower and recruited additional technicallyqualified personnel, which coincided with the subsequent boom in the oil and gas industry in 1981.The boom was due to the shortage in the supply of crude oil resulting from the conflicts between1973 and 1981 among some countries in the Middle East namely Israel, Syria, Egypt, Iran and Iraq.Consequently, the price of crude oil was driven up from US$3 per barrel in 1972 to US$35 in 1981.These conflicts in the Middle East caused oil exploration and drilling companies to engage in heavydrilling activities and at the same time, benefited our operations and turnover. In 1983, to keep pacewith our expansion and diversification into the oil rig sector of the oil and gas industry, we moved to49 Genting Road, which is presently our headquarters. Together with the adjacent unit, 47 GentingRoad, which we acquired in 1984, the additional space enabled us to keep stock on fast movingitems to cater for the daily requirements of the oil drilling contractors.
37
We expanded our function to undertake the role of a procurement agent in 1985. As a procurementagent, our activities include the handling and procuring of goods and raw materials on behalf of ourcustomers. We assist our customers to monitor and expedite the movement of goods and raw materialswith their manufacturers and suppliers. In addition, we provide progress updates and assistance inarranging for third-party inspection at either the manufacturer’s or supplier’s port of loading or inSingapore before shipment.
In 1991, we bought a JTC detached factory at 11 Tuas Avenue 1. The factory has since beenserving primarily as a warehouse for our inventory of more than 2,000 product items which wemaintain to respond better to our customers’ needs. It includes a service and testing centre that wasset up to provide value-added services, such as pre-delivery pressure and operating tests for valvesand repair works, to our customers.
On 30 December 1993, we set up Firematic which specialises in the design, supply, installationsupervision and maintenance of the fire protection and suppression systems in the marine and oiland gas industries. Firematic also deals in fire protection equipment such as fire alarm panels,detectors and fire systems accessories.
In 1995, our business portfolio was enlarged to include turnkey projects in the EPC sector. Underthe EPC arrangement, we are responsible for a customer’s defined procurement needs for the entireproject.
To capitalise on the booming IT industry, on 23 June 1999, we incorporated Syntellect as a jointventure company with Mr Lee Sek Kheong and Mr Toh Chit Yong. The principal activity of Syntellectis that of an information systems solutions provider and supplier of related information technologyequipment.
Today, we are the appointed distributor for more than 42 principals that comprise more than 4,000product items. For 1994 and 1997/1998, Federal Hardware was listed as one of the “Singapore Top1000 Company” by DP Information Network Pte Ltd. For 1999/2000, it was listed on the “Singapore500 SME” ranked by DP Information Network Pte Ltd. On 29 June 1999, Federal Hardware was alsoawarded ISO 9002 Certification. In addition, Federal Hardware was listed as one of the Enterprise50 companies on 25 November 1999.
38
BUSINESS
PRINCIPAL ACTIVITIES
We are mainly engaged in the sale and provision of flowline control products and services. Thisincludes the procurement, sales and distribution, modification and installation of high-grade pressureflowline control products for oil and gas, petrochemical and refinery industries. We are also involvedin the distribution of oilfield drilling equipment, fire protection and detection systems, and electricalproducts. In 1998, we diversified into the business of an information systems solutions provider.
Through the years, we have expanded our business to include a diversified range of activities andservices covering a wide geographical area. At present, we have offices in Indonesia, Philippinesand China (Dalian, Beijing and Shanghai). In addition, we have agents in Brunei Darussalam, HongKong, China (Guangzhou), Indonesia, Malaysia, Japan, New Zealand, United Arab Emirates andPakistan. Through the establishment of this network of regional operations, we are able to supply toa wide base of international customers and able to respond quickly to their requirements.
Generally, our activities can be categorised as follows:
1. Distribution and provision of flowline control products and services
2. Distribution of oilfield drilling equipment
3. Distribution of fire protection and detection systems
4. Other activities (provision of IT services and distribution of electrical products)
Distrib ution and pr ovision of flo wline contr ol pr oducts and ser vices
The sale and provision of flowline control products and services have been the main contributor toour turnover. This activity accounted for 76.1%, 67.8% and 81.3% of our total turnover in FY1997,FY1998 and FY1999 respectively. It can be further broken down into the following activities:
• Distribution of flowline control products
• Provision of flowline automation and fabrication service as well as support services in theservice and testing centre
• Provision of procurement and management services
• Distribution of marine products
39
Distribution of flowline control products
We supply valves, structural steel, steel flanges/connectors and pipe fittings to the oil majors in theoil and gas industry. The products distributed by us conform to international standards such as ANSI,ASME, API, ASTM, BS, MSS and NACE. Our client base has also expanded to cover thepetrochemical, power station and other industries such as the food, chemical and pharmaceuticalindustries. Our flowline control products can be broadly classified into the following categories:
Product Description
Valves Valves consist of a variety of ball, gate, globe, check, needle and butterflyvalves. These valves are used to control flow lines and direct oil and gas torefineries, storage tanks, petrochemical plants or special units and industrialplants for processing. The equipment used in this environment is required tomeet the standards set by the API and/or ANSI standards.
Besides supplying the products required by the customers, we also providevalue-added services such as design, supply and installation of safetyinterlocking system to meet the customers’ specifications. We modify standardmanually operated valves to hydraulic, electric or pneumatic automated valvesto meet our customers’ unique requirements.
Structural Steel Structural steel products are used in the construction of power plants, pipelines,machinery and pressure vessels, and offshore steel structures. In view of itsusage in structural and large complex applications, the product typicallyrequires adherence to international standards such as ASTM, DIN, JIS andANSI.
Steel Flanges/ Steel flanges are flat rims, which are used to connect pipes, valves and fittings.Connectors They come in different types (with varying dimensions) such as the welding
neck, the slip-on and the blinds. The same goes with the connectors, whichare usually threaded and come with socket/butt welding ends. The materialused for steel flanges and connectors come in standard carbon steel, stainlesssteel, duplex stainless steel and/or copper-nickle. Our products conform mainlyto the ANSI and ASTM Standards.
Pipe Fittings Fittings are primarily used to change the direction as well as the size ofpipelines. These fittings are required to conform to ANSI, ASTM and JISspecifications. The range includes elbows, tees and reducers. They are madeof standard carbon steel, stainless steel, duplex stainless steel and/or copper-nickle.
40
Principals
To meet the product demands and requirements of our customers, we hold product agencies anddistributorships in many countries including United States, United Kingdom, Italy, Korea and Japan.Our principals are listed below:
Exclusive/Non- Relationship
Name of Principal Appointed Territor y Major Pr oducts Renewal Clause exclusive Since
Goodwin International Singapore, Malaysia Wafer check 1 year w.e.f. Exclusive 1986Ltd and Indonesia valves 1 Jun 1989 and
thereafterautomatic renewal
Ishida Valve Singapore, Malaysia, Flowline control 1 year w.e.f. Non- 1993Manufacturing Co Indonesia, Brunei products 25 Jun 1993 and exclusiveLtd Darussalam and thereafter
Thailand automatic renewal
KVC Co Ltd(1) ASEAN Cast steel, stainless 3 years w.e.f. Exclusive 1992steel, carbon steel, 10 May 1999 andgate, globe, check thereafter automaticand ball valves renewal
Kitamura Valve Singapore, Malaysia, Ball valves No time limit unless Non- 1990Manufacturing Indonesia and Brunei written notice of exclusiveCo Ltd Darussalam termination is
served
LG Metals Corp PRC Stainless steel 2 years w.e.f Exclusive 1997tubes and pipes 1 Feb 1999
Marsh/Marshalltown Singapore Air pressure Automatic renewal Exclusive 1982Instruments regulators, on an annual basis
I/P transducers,valve positionersand air cylinders
Officine Ambrogio Singapore, Indonesia Flowline control 2 years w.e.f. Non- 1998Melesi & C. srl and Thailand products 22 Sep 1998 exclusive
Olmi Spa Singapore and Flowline control 1 year w.e.f. Exclusive 1999Malaysia products 7 Jun 1999 and
thereafter maybe renewed for anadditional 3 yearsif performance is
Scana Rotator As Brunei Darussalam, Flowline control Evergreen Exclusive 1997Malaysia and products agreement with
Indonesia annual review
SW International Malaysia Gate, globe and Minimum 2 years Exclusive 1997Co Ltd check valves w.e.f. 27 Jul 1997
Tormene Spa Indonesia Ball valves for Not mentioned Exclusive 1999project TOTALIndonesie
The Leeds Valves Singapore, Brunei Flowline control Not mentioned Non- 1998Co Ltd Darussalam, Thailand, products exclusive
PRC and UAE
Tong Yong Ind Singapore, Indonesia Gate, globe and 1 year w.e.f Exclusive 1993Co Ltd and Malaysia check valves 1 Sep 1999
Valves Incorporated Singapore, Malaysia, Flowline control 15-day written Exclusive 1983of Texas (Valtex) Indonesia, Brunei products notice by either
Darussalam and partyThailand
Vee Bee Ltd Singapore, Malaysia, Flowline control Not mentioned Non- 1991Indonesia, Brunei products exclusiveDarussalam, PRCand Hong Kong
W. Maass (UK) Ltd Singapore and Assorted pipes 1 year w.e.f. Exclusive 2000Malaysia and fittings 24 Mar 2000
Yoshida Factory Singapore, Indonesia, Flowline control 2 years w.e.f. Non- 1995Inc Malaysia, Thailand, products 14 Sep 1995 exclusive
Brunei Darussalam and a one yearand Philippines option thereafter
“w.e.f. “ – with effect from
Note:
(1) Corporate guarantee and loan given to KVC Co Ltd (“KVC Japan”)
KVC Japan, a company incorporated in Japan, is our principal for products such as cast carbon and alloy steel, gate,globe, check and ball valves. Our business relationship started in 1992 and has been strengthening through the years.
On 25 February 2000, Federal Hardware entered into a contract to extend a loan of £300,000 to KVC Japan for aperiod of 3 years for business exploration. As at 30 April 2000, the loan amount outstanding from KVC Japan was£52,000. On 31 March 1999, we extended a corporate guarantee through Federal Hardware for the amount of ¥20million (approximately S$322,000) in favour of the Dai-Ichi Kangyo Bank Ltd on behalf of KVC Japan. The expiry dateof the corporate guarantee is 30 November 2001. We believe that the provision of the loan and corporate guarantee willresult in future mutual benefit in terms of financial performance and business relationship.
42
Major projects
The following are some of the major projects which involve the distribution of flowline control products:
CONTRACTYEAR VALUE
AWARDED PROJECT LOCATION (‘000,000)
1995 Pelindo II – Tanjung Priok and Panjang Port Indonesia US$7.0Container Crane
1996 ARCO LLD Project – Job No. 95144 Indonesia US$6.7
1996 Construction and extension of gas pipeline 18” Dia from Indonesia US$9.2Kandanghaur East to Cilamaya Compressor Station.
1996-97 TOTAL GTS-J and GTS HXKRP Projects Indonesia US$0.7
1996-98 TOTAL NPU and Associated Facilities No. TN05/EPSC 1 Indonesia US$7.1
1997 Installation of gas pipelines in Subang – Pasirjadi-Citarik – Indonesia US$11.5Tegal Gede Barikut Block Station Pertamina OEPKarangampel
1997-98 SUT Pulau Sakra Service Corridor Singapore S$1.5
1997-98 JVPC – Wellhead Platform Vietnam US$1.1
1998 KOC GC 27 and 28 Production Facilities Expansion Kuwait US$1.24
1998 Muglad Basin Oil Development Sudan US$1.4
1998-99 TOTAL TUNU Field Development Project, Phase 2 Indonesia US$16.0
1999 Supply of valves to offshore “Angsi – A” production platform Malaysia S$2.8in South China Sea
1999 Supply of valves to offshore “Larut – A” production Malaysia S$1.6platform in South China Sea
1999 Supply of valves to offshore “Angsi – B” production platform Malaysia S$3.2in South China Sea
1999 Additional facilities - Pertamina Lawe-Lawe Balikpapan Indonesia US$1.4
project
1999 ANGSI Host Tie-in Project (GUD-12) Malaysia RM3.2
1999 TOTAL PECIKO Development Project onshore facilities Indonesia S$13.0
Provision of flow-line automation and fabrication services as well as support services in our serviceand testing centre
We offer package services to our customers. Through good understanding of the design of theirflowline automation systems, we source for and supply the various flowline control components requiredin the systems. Thereafter, we modify, custom design and install these various components into acomplete equipment. During the modification, design and installation phase, we undertake processessuch as engineering sizing, select and hook-up of valves, actuators and controls. The completeequipment, depending on customers’ requirements, may incorporate valves, piping, fittings, instrumentand controls and may even be mounted on skids.
We have a service and testing centre that provides value-added services to our customers. Suchservices entail the provision of pre-delivery pressure and operating tests to valves up to the ratedoperating pressure. In addition, the centre performs repairs on valves that are damaged but stillserviceable. Faulty valves detected under the pre-delivery pressure and operational tests are repairedor replaced depending on the extensiveness of the damage.
43
Provision of procurement and management services
We provide procurement services for our customers by assisting them to source for the requiredproducts and services in accordance with their stringent technical specifications and delivery schedules.We also expedite the delivery of goods and materials by their manufacturers and suppliers by providingprogress updates and assistance in the arrangement of third party inspection at either themanufacturer’s or supplier’s port of loading or in Singapore before shipment. In addition, we alsoprovide technical advice to our customers to enable them to manage the projects. Through discussions,we gain a good understanding of our clients’ technical requirements on product specifications as wellas their concern on product cost and the delivery lead-time. We source for alternative products withsimilar or superior performance characteristics but at more competitive prices. We achieve this throughour wide geographical network to source for such alternative products. In addition, we ensure thatthe products are delivered on time.
Distribution of marine products
We distribute heating coils, marine valve control systems and related marine and shipbuilding materials,including stainless steel pipes, anchors and anchor chains and marine deck fittings. These productsconform to the relevant marine international standards such as LR, ABS, DNV and GL as they areutilised by the marine and shipyard industries.
Major projects
The following are some of the major projects which involve the distribution of marine products:
CONTRACTYEAR VALUE
AWARDED PROJECT LOCATION (US$’000)
1998 13,600 DWT Chemical Tanker China 758
1998 61,500 DWT Product Oil Tanker China 226
1998 “Zhi Qiang Hao” Offshore Platform China 310
1998 45,000 DWT Chemical Tanker China 295
1999 12,500 DWT Chemical Tanker China 178
1999 61,500 DWT Product Oil Tanker China 178
44
Distribution of oilfield drilling equipment
Distribution of oilfield drilling equipment accounted for 13.9%, 17.5% and 8.4% of our total turnoverin FY1997, FY1998 and FY1999 respectively. The equipment comprises the following broad productrange used on onshore and offshore rigs as well as on drilling platforms.
Main categories of pr oduct Products
Power system Diesel engines and generators
Drilling equipment Draw-works, travelling blocks, mud pumps, top drives, casinghandling systems and rotary tables
Mud processing Shale shakers, desanders and desilters
Drill string Drill pipes, drill collars and casings
Subsea equipment Blow-out preventors, annular single and double choke andkill lines, drill string compensators and riser pensioners
Mooring systems Anchors, winches, chains, etc
Auxillary equipment Cranes, air-compressors, distillation units and lifeboats
Drill string Drill pipes, drill collars and casings
Welding items Electrodes, welding gloves and welding glasses
Safety items Safety glasses, helmets, shoes and belts
Principals
Currently, for our distribution of oilfield drilling equipment, we hold distributorships for the followingmanufacturers from the USA:
Exclusive/Non- Relationship
Name of Principal Appointed Territor y Major Pr oducts Renewal Clause exclusive Since
American Block ASEAN countries, Sheaves, blocks and Not mentioned Exclusive 1995Manufacturing Co PRC, Taiwan, Hong custom fabrications
Kong, Korea, India,Pakistan, Bangladesh
and Sri Lanka
Baker SPD Singapore, Indonesia, Drill pipe float Not mentioned Exclusive 1996Southern PRC, India, valves, metal/rubber,
Vietnam, Malaysia, repair kits, fluidBrunei Darussalam, end mud pump
Thailand, Philippines, parts, bakerlokMyanmar and thread compoundsBangladesh and gate valves
Bowen Tools Inc Singapore, Indonesia, Fishing tools and Not mentioned Non- 1995Malaysia, Thailand, jars exclusiveBrunei Darussalam,
Myanmar, Philippines,China and Vietnam
Copper State Rubber ASEAN countries, Oilfield high Not mentioned Non- 1995Inc PRC, Taiwan, Hong pressure hoses exclusive
Kong, Korea, India,Pakistan, Bangladesh
and Sri Lanka
Ennor Muds & ASEAN countries, Oilfield muds and Not mentioned Exclusive 1995Chemicals PRC, Taiwan, Hong chemicals
Kong, Korea, India,Pakistan, Bangladesh
and Sri Lanka
45
Exclusive/Non- Relationship
Name of Principal Appointed Territor y Major Pr oducts Renewal Clause exclusive Since
FMC Southeast Asia ASEAN countries, Chiksan swivel Not mentioned Non- 1995Pte Ltd PRC, Taiwan, Hong joints, Chiksan C exclusive
Kong, Korea, India, and C hoses,Pakistan, Bangladesh WECO butterfly
and Sri Lanka valves, WECOintegral plug valvesand WECO integralwring unions
Gold Crew Chemicals Singapore, Malaysia, Oil spill dispersant, Not mentioned Exclusive 1993and Services PRC, Vietnam, fire fighting control
Indonesia and Brunei agentDarussalam and all purpose
Jetlube Inc No restriction Thread compound Not mentioned Non- 1998exclusive
Kandle Oilfield Singapore, ASEAN Fluid end mud Not mentioned Non- 1998Products Inc countries, pump parts and exclusive
PRC, Taiwan, Hong mud pumpKong, Korea, India, expandable
Pakistan, Bangladeshand Sri Lanka
Retsco Inc Singapore, Indonesia, Type B, C, R and Not mentioned Exclusive 1994Brunei Darussalam, RX reset reliefThailand, Malaysia, valves and spares
Philippines, Myanmar, for relief valvesPRC and Vietnam
Winston Engineering Singapore and Wilden air Not mentioned Non- 1999Corp Malaysia diaphragm pump exclusive
Worldwide Oilfield Singapore, Malaysia, HP fittings, Not Exclusive 1998Machine Inc Brunei Darussalam, standpipe/choke mentioned
Thailand and manifold andMyanmar wellhead equipment,
API 6A + 6D gatevalves
Major projects
The following are some of the major projects which involve the distribution of oilfield drilling equipment:
CONTRACTYEAR VALUE
AWARDED PROJECT LOCATION (’000)
1995 Sedco Forex India S$119
1995 Saipem Asia Thailand S$220
1995 Saipem Asia Thailand S$110
1995 Great Eastern India US$546
1995 Great Eastern India US$125
1996 Saipem Thailand US$123
1996 Retsco UK S$107
1997 Thaipo Thailand US$103
46
Distrib ution of fire pr otection and detection systems
This activity accounted for 8.7%, 11.4% and 8.2% of our total turnover in FY1997, FY1998 andFY1999 respectively. Currently, we have a complete fire protection and suppression system whichincludes design, engineering, supply, installation supervision and maintenance in the industrial, marineand oil and gas industries. The main component of this fire suppression system is a gas commonlyknown as FM-200. We hold exclusive distributorship of Kidde-Fenwal Inc (“KFI” - a division of WilliamsPLC) for Singapore and Brunei Darussalam. In addition, we are the refill station exclusively authorisedby KFI for FM-200 suppression agents in Southeast Asian region.
Major projects
The following are some of the major projects which involve the distribution of the fire protection anddetection systems:
CONTRACTYEAR VALUE
AWARDED PROJECT LOCATION (’000)
1994 Rueters Singapore Singapore S$321
1995 Rueters Singapore Singapore S$328
1996 Ulu Pandan Incineration Plant Singapore S$300
Other activities, which include the provision of IT services and distribution of electrical products,accounted for less than 5% of our total turnover for the past three financial years.
We supply electrical products such as cable glands, flame proof adaptors and reducers, explosionproof junction boxes, control stations, panel-boards, electrical grounding systems, EEXD lightingsand control stations. As these products are sold to the oil and gas industry, chemical plants, sewerageplants and shipbuilding, offshore platforms and other industries, international standards such asUnderwriters Laboratories, DNV, Standard (Madras) Laboratories and Baseefa are applicable.
47
Principals
Currently, we hold the following product agencies:
Exclusive/Non- Relationship
Name of Principal Appointed Territor y Major Pr oducts Renewal Clause exclusive Since
Flameproof Electrical Singapore, Malaysia, Conduit fittings Annual automatic Exclusive 1992Enclosures Ltd Brunei Darussalam, renewal(FEEL) Thailand and
Philippines
Curlee Manufacturing Singapore, Indonesia, Ex-proof junction Not mentioned Not 1986Co Inc Malaysia, Brunei boxes mentioned
Darussalam, Thailandand India
Fercable S.A. Singapore, Malaysia, Marine and offshore Annual automatic Exclusive 1993Brunei Darussalam, cables renewalThailand and PRC
FEAM Project by project EEXD lightings and Upon completion Exclusive 1998basis controls stations of project
Peppers Cable Singapore, Malaysia, Cable glands 2 years w.e.f. Exclusive 1987Glands Ltd Thailand, Philippines, 15 Jul 1987 and
Indonesia and Brunei thereafter automaticDarussalam renewal
Major projects
The following are some of the major projects which involve the distribution of the electrical products:
CONTRACTYEAR VALUE
AWARDED PROJECT LOCATION (’000)
1996 Thai Power Station Singapore S$83
1996 Saga Vessel Singapore S$519
1997 Tunu North Indonesia S$171
1997 Vicor Plant Singapore S$96
1998 Merck Plant Singapore S$99
1998 Badak Project Indonesia S$181
In 1998, we have expanded our business to include the provision of information systems solutions.Our services include installation, configuration, diagnosis, monitoring and maintenance of the networksystems. We also undertake turnkey projects which include data network integration projects, structuredcable work as well as relocation, migration and construction of data centres. In addition, we assistour clients to establish their e-commerce platforms, internet and intranet facilities, together with datasecurity measures and firewalls to manage the integrity of their network. In addition to these services,we also undertake trading of network equipment, peripheral, servers and modems.
Major projects
To-date, we have undertaken the following 2 projects:
CONTRACTYEAR VALUE
AWARDED PROJECT LOCATION (’000)
1998 Pusdata I Indonesia US$491
1999 Pusdata II Indonesia US$431
48
SECURING NEW DISTRIBUTORSHIP
We actively seek new principals to complement the existing range of products that we service. Overthe last few years, our Group has managed to secure the distribution rights from multinationals suchas W. Maass (UK) Ltd and SW International Co Ltd. W. Maass (UK) Ltd, a company incorporated inU.K., manufactures pipes, fitting, flanges and other flowline control products whereas SW InternationalCo Ltd, a company incorporated in Korea, manufactures gate, globe and check valves.
TERMINATION OF DISTRIBUTORSHIP AGREEMENTS
It is our strategy to build as wide a distributorship base as possible to complement our existingrange of products carried and the principals served as well as to be able to reach out to the varioussectors of the oil and gas industry. While we endeavour to develop the various distributorship rightscarried, the success of the principals’ products would also depend very much on factors such astheir cost competitiveness, quality and durability of their products. Out of the broad base ofdistributorship rights our Group carried, it is inevitable, over the years, that certain product lines maynot perform as well as expected. In such cases, the distributorship rights may be lost should theprincipals decide not to renew the distributorship agreements.
In the last three financial years and the seven months ended 31 July 2000, the number of newdistributorship agreements secured and the number of distributorship agreements terminated wereas follows:
Seven monthsFY1997 FY1998 FY1999 ended 31 J uly 2000
No of new principals secured 8 10 6 2
No of principals terminated 3 1 — 1
The termination of the distributorship agreements were due to reasons such as unsuccessful tenderfor projects and principal’s decision to have a presence in the local market. Some of our distributorshipswere given specifically for certain projects. Since our bid for these projects had been unsuccessful,the distributorships concerned were automatically terminated. The effect of these terminations on ourturnover has been insignificant. Notwithstanding this, we continue to search for suitable manufacturersto add on to our list of principals to replace those terminated as well as to increase and enlarge ourbase so as to cater to the customers’ needs.
INVENTORY MANAGEMENT
Our warehousing facilities are located at the following addresses:
Build in areaAddress Uses (sq. m.)
47 Genting Road Singapore 349489 Office cum warehouse 656.6
49 Genting Road Singapore 349490 Office cum warehouse 852.2
11 Tuas Avenue 1 Singapore 639496 Office and service centre cumwarehouse 1,975.0
We use the first-in-first-out (“FIFO”) method of stock control which essentially means that goodsreceived into the warehouse first, will be the first to be delivered to customers. This helps to minimisecarrying older stocks, as the FIFO flow of goods ensures that only the most current goods receivedfrom the principals form the bulk of stocks.
49
Currently, we are the appointed distributor for more than 42 principals and manufacturers carryingmore than 4,000 product items. Except for our fire protection and detection inventories which aremanageable manually, we have a computerised system to manage our inventory as well as to assistus in making timely decisions. The computer system consists of integrated sales, purchases, inventoryand accounting systems for accurate tracking and processing of information. Our management usesthese information to keep track of the inventory movement, sales and purchase order capturing andchanges, billings and receivables and use these information in making decisions such as re-orderquantities. The management also considers factors such as (a) average demand for the past fewmonths; (b) feedback from sales personnel on prospective orders and demand; (c) lead time betweenorders and delivery; (d) freight charges; (e) discounts on bulk purchases and (f) general marketconditions of the related industries.
To keep an accurate count of the stocks as well as to check on the accuracy of the stock movements,an annual year end stock count and numerous surprise stock-takes are conducted on selected itemson rotational basis as part of the internal control procedures. Our provision for stock obsolescenceexpense and stock loss expense for the past three financial years are:
$’000 FY1997 FY1998 FY1999
Provision for stock obsolescence — — 200
Stock loss 4 — —
FOREIGN EXCHANGE EXPOSURE
We are exposed to fluctuations in foreign exchange rates particularly as our investment, sales andpurchases are denominated in various currencies, mainly US Dollar, RMB, and Sterling Pound. Ourpurchases are obtained from countries such as United Kingdom, United States, Italy, Japan, China,Korea, Taiwan, Holland and India. For FY1999, approximately 69.2% of our total purchases weremade in US Dollar, 9.0% were made in Sterling Pound and 4.4% in other foreign currencies. Oursales are mainly denominated in US Dollar, S$ or the local currency of the respective country ofdomicile of the company making the sales. In FY1999, approximately 69.1% of our sales weredenominated in US Dollar, 29.4% were denominated in S$ and the rest in other currencies such asSterling Pound and French Franc. Currently, we only hedge our foreign currency exposure by forwardcontract on sales and purchases.
Foreign currency monetary assets and liabilities are reported in the reporting currency of the Companyat the exchange rates as at the balance sheet date. All exchange adjustments are accounted for inthe profit and loss statement. Depending on the amount of monetary assets and liabilities denominatedin foreign currencies, significant fluctuations of Singapore Dollar against foreign currencies will resultin unrealised exchange gains and losses. Our exchange gain for the last three years are as follows:
$’000 FY1997 FY1998 FY1999
Exchange gain 1,385 729 595
For our operations, foreign exchange gain or loss may arise when our overseas associated companies’accounts are consolidated with our Group’s accounts at the end of each financial year. The foreignexchange adjustments arising from translation as a result of the consolidation of our accounts aretaken directly to exchange translation reserve and included as a separate component of shareholders’funds. The translation gains/losses for the past three financial years are set out below:
$’000 FY1997 FY1998 FY1999
Translation gain/(loss) 212 (139) 76
50
MARKETING AND DISTRIB UTION
We sell our products and services through distributors, agents and sub-agents. The marketing effortfor products is further supported by our sales and technical personnel.
As at 31 July 2000, we have 55 sales and marketing staff to handle local and overseas customers’sales inquiries, the majority of whom have more than 5 years of experience. Our outdoor sales team,which comprises the sales engineers and sales executives, is supported by the indoor sales team,the technical department and the procurement department. They answer daily incoming sales inquiriesfrom local and overseas customers and hardware contractors, actively follow up on existing andpotential customers’ projects as well as actively look out for new product agencies. In addition, theyalso prepare project contracts through tenders submitted to potential customers, mainly engineeringcontractors, who undertake large projects directly from major oil companies.
Our sales network includes local and overseas Subsidiaries, associated companies, agents and sub-agents. Our Subsidiaries, associated companies, joint-venture companies and distributors areresponsible for their own respective marketing functions. Our role is to provide customer service,after-sales-service and technical support.
Our primary customers include major and independent oil and gas explorations, production companies,foreign national oil and gas companies, pipeline companies, refining companies and a wide range ofindustrial, marine, petrochemical and processing industry companies. Our IT business, however,focuses on the commercial markets. The commercial markets are made up of two groups of companiesnamely small to medium-sized companies (SMEs) and multi-national companies (MNCs).
CREDIT POLICIES
For new customers other than multi-national companies or established local enterprises, transactionsare done on a cash-on-delivery (“COD”) basis, or via advance telegraphic transfers or via depositduring the placement of order with the outstanding balance payable in full prior to delivery. However,after a few transactions, such customers may put forth their request for credit terms by submitting ona prescribed form to us detailing such a request. Upon receipt of such a customer’s credit applicationform, we carry out a company search on the said customer with the Registrar of Companies andwith our business contacts. Based on such information obtained, some of the new customers may berequired to furnish a guarantee, if necessary. We also use our sales and distributors network toupdate our database on customers’ financial position constantly.
There is a credit limit assigned to each existing customer. If an existing customer has reached itsauthorised credit limit or its allowed grace period for payment which is usually 30 days, payment forsubsequent orders placed with us is strictly on a COD basis if the order amounts to less than$50,000. For orders of value $50,000 and above, letters of credit have to be produced. However, thispolicy does not apply to our long-established and major customers. At the request of such customers,we will usually increase their credit limits and extend their credit terms on a temporary basis.Concurrently, we actively pursue payment from them. We have not had any difficulty in obtainingpayment eventually in such situations in the past three financial years.
Upon receipt of a customer’s purchase order, our sales personnel will immediately check on thecustomer’s current credit standing from the main computer system before arranging for any delivery.In addition, we have installed a “stop delivery” function in our computer system whereby a salespersonnel would not be able to print out a delivery order if a customer is on “hold” status due toeither its authorised credit limit or the grace period being exhausted.
51
For the past three years, our provision for doubtful debts and bad debts written off are as follows:
Provision f or doubtful debts As a per centa ge of ourand bad debts written off Group’ s turno ver
($’000) (%)
FY1997 48.6 0.07
FY1998 101.5 0.21
FY1999 — —
QUALITY CONTROL
We are committed to the provision of quality products and services to ensure total customersatisfaction. We maintain a strict quality control system to ensure that the quality of our productsprior to delivery or shipment to customers conform to the ISO 9002 standard.
As a testimony to this maintenance of high quality standards, Federal Hardware was awarded theISO 9002 Certification on 29 June 1999. The certification was given for the scope of Stockist andSales Order Processing of Flow Control Equipment and Parts (including our warehousing activitiesat 11 Tuas Ave 1) and also includes specification for quality assurance in servicing. Based on ourinternal record with respect to customers’ complaints, we believe that our rejection rate for FY1999is insignificant.
STAFF TRAINING
We conduct both in-house and external training programmes and seminars to upgrade our employees’skills. In-house on-the-job training is usually conducted by the departmental managers and supervisorswho are duly responsible to ensure that the new employees are able to perform their tasks effectively.External training is conducted through courses organised by recognised commercial and managementschools. Employees are sponsored to pursue the courses.
For both in-house conducted workshops or external courses, the management monitors employees’training by maintaining an annual training record book. Both in-house and external trainings aredocumented in compliance with the ISO 9002 requirements.
For the past three financial years, the amount of expenditure incurred on staff training had been lessthan 1% of our employees’ payroll. However, we have set aside 1% of employees’ payroll for trainingbudgets in FY2000.
52
REVIEW OF PAST PERFORMANCE
REVENUE AND COST ANALYSIS
We generate revenues from the distribution and provision of flowline control products and services,oilfield drilling equipment, fire protection and detection systems as well as other activities. Otheractivities include the distribution of electrical products and the provision of IT services. Our flowlinecontrol products and services and oilfield drilling equipment are supplied to the oil and gas, refiningand petrochemical industries which in aggregate accounted for 90.0%, 85.3% and 89.7% of our totalturnover for FY1997, FY1998 and FY1999 respectively.
Given that we mainly supply to companies in the oil and gas, refining and petrochemical industries,an increase in activities in these industries will create demand for the products that we carry. Theincreased activities, (in terms of number as well as the size of projects in the industries) generallyhappen when there is high demand for oil and gas. When this happens, more drilling equipment andspares will be needed for exploration activities or repair and maintenance of the existing equipment.Our revenues are therefore subject to the cyclical nature of the oil and gas, refining and petrochemicalindustries as mentioned on page 17 of this Prospectus.
In addition, our revenues are affected when our overseas principals decide to have their local presenceby setting up their local representative offices. Similarly, our local suppliers and competitors mayreduce the price of their products. These situations result in increased competition for our productsand consequently reduce our sales and erode our profit margin. Please refer to page 67 of thisProspectus for details on our competitors.
Aside from the above, our revenue will also be affected by the general economic, political, legal,administrative and social conditions of the countries in which we operate as mentioned on page 18of this Prospectus.
Our cost components include cost of sales and total operating expenses. Our cost of sales was84.4%, 77.3% and 78.7% of total sales in FY1997, FY1998 and FY1999 respectively.
Our cost of sales is affected by the demand and supply situation of our products. Shortages in theseproducts will result in an upward adjustment of price. This will increase the cost of our inventoriesand consequently our cost of sales. In addition, as we obtain our products from both local andoverseas suppliers, an appreciation in the currency of our overseas purchase will result in a highercost of sales.
Total operating expenses were 13.5%, 20.1% and 12.5% of total sales made in FY1997, FY1998and FY1999 respectively. Operating expenses consist of primarily payroll expenses (which includesdirectors’ remuneration), general and administrative expenses (which includes freight charges, agencycommission, depreciation of fixed assets, travelling expenses, promotion and entertainment expensesand other miscellaneous expenses) and finance costs. Payroll is our major expense and it accountsfor 51.0%, 46.8% and 48.7% of our total operating expenses in FY1997, FY1998 and FY1999respectively. Generally, payroll expenses are affected by the supply and demand conditions of thelabour market and our business expansion plan. Our general and administrative expenses aredependent on the volume of our business and our finance costs are dependent on our liquidity andthe regional financial market condition.
53
ANALYSIS OF TURNOVER AND PROFIT BEFORE TAX
This analysis should be read in conjunction with the Accountant’s Report.
Classification b y Activities
A breakdown of the turnover and net profit before tax (in dollar and percentage terms) by activitiesof the Proforma Group for the last three financial years ended 31 December and five months ended31 May 1999 and 2000 are as follows:
Turno ver
Financial y ear ended 31 December Five months ended 31 Ma y1997 1998 1999 1999 2000
A breakdown of the turnover and net profit before tax (in dollar and percentage terms) by geographicalmarket of the Proforma Group for the last three financial years ended 31 December and five monthsended 31 May 1999 and 2000 are shown below:
Turno ver
Financial y ear ended 31 December Five months ended 31 Ma y1997 1998 1999 1999 2000
The following is a year-on-year review of our financial performance:
FY1997 to FY1998
Our turnover decreased by $17.2 million, or approximately 26.4%, from $65.2 million in FY1997 to$48.0 million in FY1998. This decline was mainly due to lower sales from flowline control productsand services, which decreased by $17.1 million, or approximately 34.5%, from $49.6 million in FY1997to $32.5 million in FY1998.
Flowline control products and services accounted for 67.8% of our total turnover in FY1998. Thisactivity was adversely affected by the economic turmoil in Indonesia during the Asian currency andeconomic crisis. Our sales in Indonesia decreased by $20.8 million, or approximately 60.5%, from$34.4 million in FY1997 to $13.6 million in FY1998. The substantially lower sales was due to theabsence of new major projects for FY1998 and the delay of completion date on some existingprojects namely a project to install gas pipelines in Subang, Indonesia, the Dongfang OilfieldDevelopment Project in China and the TPI Petrochemical Complex project in Indonesia. In addition,the contributions from existing major projects were small as these contracts were substantiallycompleted in FY1997. Our sales in other countries, such as Malaysia and India, were also lower dueto the Asian currency and economic crisis.
However, in China and Singapore, we experienced higher sales despite the economic crisis. Turnoverfrom China increased by more than 4 times from $1.3 million in FY1997 to $7.1 million in FY1998due to higher sales of flowline control products to our existing customers as well as new customers.We achieved higher sales from our supply of valves, pipes, fittings and other flowline control productsto our existing customers for their projects namely a 13,600 DWT Chemical Tanker project and “ZhiQiang Hao” offshore platform. New customers accounted for 70% of our sales in China. Our sales inSingapore increased by $1.4 million, or approximately 7.9%, from $17.8 million in FY1997 to $19.2million in FY1998 mainly due to projects such as the construction of new oil rigs, repairing andupgrading of oil rigs, repair and maintenance of refinery.
Despite the decrease in our turnover by 26.4%, our gross profit increased by 7.4% and our grossprofit margin increased by 45.5%. The increase in gross profit margin was mainly due to flowlinecontrol products and services which experienced a higher gross profit by 10.3% and a higher grossprofit margin by 68.6%. The main reason for this increase in the gross profit margin for our flowlinecontrol products was due to less engineering, procurement and construction projects undertakenwhich are usually large in terms of contract value but low in gross profit margin for the followingreasons: (a) the supply of materials is on an indent basis such that the materials are delivered fromour manufacturers or principals direct to the project site; and (b) generally lower bids for the projectas the size of such project invites intense competition from global competitors. In addition, sales tocustomers requiring maintenance services or other services, which require a short turnaround time,increased and these sales usually fetch a higher gross profit margin due to the urgency and natureof the tasks involved.
In FY1998, our operating expenses increased by $857,000, or approximately 9.8%, during the Asiancurrency and economic crisis. The increase in our operating expenses was mainly due to higherinterest expense of $150,000 as a result of the rise in interest rate during the Asian economic crisis,higher promotion expense of $142,000, higher entertainment expense of $54,000, higher doubtfuland bad debt expense of $53,000 and higher motor vehicles maintenance expense of $275,000including its depreciation expenses. In addition, our other income decreased by $356,000, orapproximately 18.0%, mainly due to the decrease in our foreign exchange gain. The increase in ouroperating expenses and the decrease in our other income offset the increase in our gross profitresulting in a decline in our net profit before tax by $0.4 million, or approximately 12.1%, from $3.3million in FY1997 to $2.9 million in FY1998. However, as the increase in our operating expenses of9.8% was offset by the increase in our gross profit (7.4%), our net profit before tax decreased at alower proportion as compared to the decrease in our turnover.
56
FY1998 to FY1999
Our turnover increased by $32.3 million, or approximately 67.3%, from $48.0 million in FY1998 to$80.3 million in FY1999. The increase in turnover was mainly due to higher turnover from flowlinecontrol products and services, which increased by $32.8 million, or approximately 100.9%, from$32.5 million in FY1998 to $65.3 million in FY1999.
Flowline control products and services accounted for 81.3% of our total turnover in FY1999. Thehigher turnover was attributable to the recovery from the Asian economic and currency crisis. Wewere able to secure some large projects in Indonesia, Malaysia and Singapore. Some of the projectsundertaken during the year were “TOTAL Tunu Phase 7” in Indonesia (contract value of US$16.0million), “TOTAL PECIKO” in Indonesia (contract value of $13.0 million) and “ANGSI Host Tie-in” inMalaysia (value of $4.1 million). Correspondingly, turnover in the Indonesia, Malaysia and Singaporemarket experienced an increase in FY1999 compared to FY1998.
In line with the increase in our turnover for the year, our gross profit increased by 56.6%. For theyear, our operating expenses increased by $421,000, or approximately 4.4%, as compared to ouroperating expenses in FY1998. Increase in operating expense was proportionately lower comparedto the increase in turnover as some of our operating expenses, e.g. personnel costs, are generallyinelastic in nature in relation to sales. In addition, our interest expense decreased by $0.4 millionmainly due to the lower interest rate compared to FY1998 and the lower balance in our bankborrowings as we used the downpayment collected from our new projects to repay these borrowings.In line with our higher turnover and gross profit, our net profit before tax increased by $5.4 million,or approximately 186.2%, from $2.9 million in FY1998 to $8.3 million in FY1999. However, as theincrease in our operating expenses of 4.4% was much less compared to the increase in our turnover(67.3%) and our gross profit (56.6%), our net profit before tax increased at a higher proportion ascompared to the increase in our turnover.
Five Months Ended 31 Ma y 1999 to Five Months Ended 31 Ma y 2000
Our turnover decreased by $10.1 million, or approximately 27.5%, from $36.7 million for the fivemonths ended 31 May 1999 to $26.6 million for the five months ended 31 May 2000. This declinewas mainly due to lower sales from flowline control products and services, which decreased by$11.3 million, or approximately 36.2%, from $31.2 million for the five months ended 31 May 1999 to$19.9 million for the five months ended 31 May 2000.
Flowline control products and services accounted for 74.8% of our total turnover for the five monthsended 31 May 2000. The lower sales were due to delay in commencement of new major projects inPRC, Indonesia and Singapore. In addition, in comparison, we did not secure many major projectsin Indonesia in FY2000. In PRC, we have been qualified to participate in three major pipeline projects:(a) Qing Hai to Lanzhou (950 km natural gas pipeline); (b) Zhong County to Wuhan City (700 kmnatural gas pipeline); and (c) Lanzhou to Chendu to Chongqing (950 km finished product). Althoughwe have been qualified, we were unable to proceed with the procurement exercise as our customersare waiting for the PRC State Council’s approval on the budget. In Indonesia, one of our majorprojects, Pertamina CO2 Removal Project, which was worth $5 million was delayed. In Singapore,the decreased sales was due mainly to the completion of a major project in FY1999.
While turnover from flowline control products and services decreased, sales from our other coreactivities increased by $1.3 million in aggregate or approximately 22.9%. We had higher recurringsales of oilfield drilling equipment to our existing customers. As for our fire protection and detectionsystems, sales increased as we were able to expand our sales and marketing activities with thehiring of new sales staff. Sales of electrical products was also higher as we had managed to penetrateinto the Indonesia market for this activity while prior to this, majority of our sales were from Singapore.
Our net profit before tax decreased by $1.2 million, or approximately 35.3%, from $3.4 million for thefive months ended 31 May 1999 to $2.2 million for the five months ended 31 May 2000. Net profitbefore tax from our flowline control products and services decreased by $1.8 million in line with thedecrease in our turnover while net profit before tax from our other core activities showed improvement.
57
PROFIT FORECAST
Barring any unforeseen circumstances, we estimate that our profit before tax and profit after tax willbe approximately $6.8 million and $4.5 million respectively on consolidated turnover of approximately$79.9 million for the financial year ending 31 December 2000. Based on our management report, forthe seven months ended 31 July 2000, we achieved a turnover of $36.2 million and as at 31 July2000, confirmed orders, which will be delivered by 31 December 2000, was $17.1 million. Theserepresent 67.0% of our forecast turnover.
We expect our turnover to decrease by $0.4 million, or approximately 0.5%, from $80.3 million inFY1999 to $79.9 million in FY2000 mainly due to the decrease in the sales of flowline controlproducts and services by $3.7 million to $61.6 million. However, the decrease will be partially offsetby an increase in the sales of oilfield drilling equipment by $2.8 million from $6.8 million in FY1999to $9.6 million in FY2000.
Flowline control products and services are estimated to account for approximately 77.1% of our totalturnover for FY2000. We project a decrease in turnover from this activity mainly due to the politicaluncertainty in Indonesia, which is one of our major markets. Based on our management report,turnover from flowline control products and services for seven months ended 31 July 2000 and theconfirmed orders from our existing customers as at 31 July 2000 accounted for approximately 66.8%of the turnover for this activity while orders under negotiations account for 27.9%. In addition to theabove confirmed orders or orders under negotiation, we expect the balance to comprise of additionalsales to existing customers or new markets.
Turnover from the oilfield drilling equipment is estimated to account for approximately 12.0% of ourtotal turnover for FY2000. Based on our management report, turnover from oilfield drilling equipmentfor seven months ended 31 July 2000 and the confirmed orders from our existing customers as at31 July 2000 accounted for 56.7% of the turnover for this activity while orders under negotiationsaccount for 5.0%. The balance comprises additional sales to existing customers or new markets. Inview of the past three financial years, turnover from our oilfield drilling equipment had declined from$9.1 million in FY1997 to $8.4 million in FY1998 to $6.8 million in FY1999 mainly due to the Asianeconomic crisis which resulted in a decrease and slow down in oil drilling, exploration and productionactivities and hence, low utilisation of oil rigs. At the same time, drilling contractors who own the oilrigs cut back on the maintenance expenditure of their rigs. However, in FY2000, there is animprovement in the economy and an increase in the price of crude oil and these resulted in increasedactivities by the oil majors and drilling contractors. In comparison, we experienced a higher turnoverby $0.7 million, or 29.2%, from $2.4 million for the five months ended 31 May 1999 to $3.1 millionfor the five months ended 31 May 2000. Recently, we have secured a contract to supply some of ourexclusive products to one of the largest offshore drilling contractors, Transocean Sedco Forex Inc. Inaddition, we expect business from some oil majors in Malaysia, Brunei Darussalam and Indonesiaas some of our exclusive products are listed with them. Further, in June 2000, we have incorporatedanother associated company, Alton International (Thailand) Ltd, to expand into the Thailand market.
We expect our net profit before tax to decrease by $1.5 million to $6.8 million in FY2000 due to thelower turnover and an increase in operating expenses of $0.9 million. The higher operating expenseswere mainly attributable to directors and staff remuneration which are expected to increase by $274,000and $674,000 respectively, and depreciation expense which is expected to increase by $72,000.
58
BASES AND ASSUMPTIONS UNDERL YING THE PROFIT FORECAST
The profit forecast, for which the Directors are solely responsible, have been prepared on basesconsistent with the accounting policies normally adopted by the Company in the preparation of theCompany’s audited financial statements and the principal assumptions underlying the profit forecastare set out below:
(a) There will be no material changes in the prevailing local, regional and global political andeconomic conditions that would directly or indirectly have a material effect on our Group’sperformance.
(b) There will be no material changes in the present government regulations and legislation thatwould adversely affect the operations of our Group or the markets in which our Group operates.
(c) There will be no major industrial disputes or any abnormal circumstances that would adverselyaffect the operations of our Group or impact its trade commitments.
(d) There will be no material changes in prevailing prime interest rates and our Group will continueto enjoy its existing financing facilities insofar as there is a need during the forecast period.
(e) There will be no material changes in the bases or rates of taxation, provident fund contributions,tariffs and duties.
(f) The exchange rates will not fluctuate materially from those used in compiling the forecastsbased on closing exchange rates as at 31 December 1999 (the date of last audited accounts).As such for the purposes of this Prospectus, it has been assumed that during the forecastperiod, the following exchange rate will prevail:
US$1 to $1.6675
(g) There will be no significant changes in the prevailing inflation rate of 2%.
59
FINANCE AND TAX
Our growth has been financed through a combination of shareholders’ equity, retained earnings andexternal borrowings from financial institutions. Our cash requirements are primarily funded throughinternal cash resources, trade finance facilities and bank overdraft. As at 31 May 2000, our principalsources of liquidity included $27.3 million of unutilised banking and credit facilities consisting of bankoverdraft facilities, trust receipts facilities and bankers guarantees.
We have secured adequate bank facilities to finance our continuing operations. As at 31 May 2000,the total borrowings of our Group amounted to approximately $15.4 million, out of which, bankoverdraft amounted to approximately $6.8 million and trust receipts accounted for the remainingapproximately $8.6 million. The bank borrowings of our Group are secured by way of legal mortgageon one of our Subsidiaries’ properties and personal guarantees given by certain of the Directors. Asat the same date, we have contingent liabilities that amounted to approximately $3.9 million in theform of bankers guarantee, performance bonds and corporate guarantees and approximately $2.0million in the form of letter of credit. Corporate guarantees were given to a bank in favour of anassociated company and a supplier (as disclosed on page 41 of this Prospectus). In addition, as at31 May 2000, we have outstanding forward foreign exchange contracts amounting to approximately$0.8 million.
Based on our present anticipated operating plan, we believe that our current cash revenues and thenet proceeds from the Invitation will be sufficient to fund our future capital requirements. We set outbelow a commentary on the material changes in our proforma Group’s balance sheet for the pastthree financial years.
Shareholder s’ Fund
Our shareholders’ funds comprise paid-up capital, unappropriated profits, share premium and capitalreserves. Our shareholders’ fund grew from $17.4 million as at 31 December 1997 to $28.6 millionas at 31 December 1999 and $30.0 million as at 31 May 2000. The growth was a result of the profitsgenerated and accumulated over the years.
Fixed Assets
Our fixed assets comprise mainly 2 units of freehold land and building, 1 unit of leasehold industrialproperty, plant and machinery, motor vehicles, air-conditioners and warehouse equipment. Our fixedassets increased by $0.2 million from $6.3 million in FY1997 to $6.5 million in FY1998 due mainly tothe purchase of ten cars for use by our key personnel. Fixed assets increased by $4.8 million to$11.3 million as at 31 December 1999 due mainly to the revaluation surplus on the land and buildingas set out on page 87 of the Prospectus. Subsequently, our fixed assets decreased to $11.1 millionas at 31 May 2000 due to depreciation charged.
Interest in Associated Companies
The interest in our associated companies decreased by $0.4 million from $1.1 million as at 31December 1997 to $0.7 million as at 31 December 1998 due mainly to our share of losses from ourinvestment in Shanghai KVC and the foreign exchange losses arising out of the conversion of RMBto Singapore dollar. Our interest in associated companies increased by $0.3 million to $1.0 million asat 31 December 1999 mainly due to our investments in Federal Phil-Nippon, Syntellect and EasternJason. Share of losses of associated companies for the five months period ended 31 May 2000caused our interest in associated companies to decrease to $0.9 million as at 31 May 2000.
Other In vestments
Our other investments mainly relate to our interests in Gunanusa which remained relatively stable atapproximately $0.4 million for the past three years.
60
Current Assets
Our current assets consist mainly of stocks, trade debtors, other debtors, loan to a related party andACU deposits. Current assets decreased by $5.8 million from $41.8 million as at 31 December 1997to $36.0 million as at 31 December 1998 due to a decrease in our trade debtors, which was in linewith the lower turnover as a result of the Asian economic crisis. Consequently, our debtors’ turnoverincreased from 115 days in FY1997 to 141 days in FY1998 mainly due to the slower paymentreceived from our trade debtors. However, the decrease in our trade debtors was partially offset byan increase in our inventories as we stocked up in anticipation of higher business volume. Ourinventory turnover increased from 108 days in FY1997 to 180 days in FY1998 as we expand ourrange of stock items to support the projects of Sembawang Group and blanket orders from FedsinOilfield.
Current assets increased by $4.4 million to $40.4 million as at 31 December 1999 mainly due to anincrease in trade debtors, which was in line with our higher turnover. Bearing the Asian economiccrisis in mind, we tightened our credit control which led to an improvement in our debtors’ turnoverby 68 days to 73 days in FY1999. Our inventory turnover days decreased to 114 days in FY1999 asthe inventories we held in FY1998 had been delivered. In addition, we intend to maintain a lowerlevel of inventory. Subsequently, as at 31 May 2000, current assets increased by $4.1 million to$44.5 million mainly due to an increase in trade debtors which was a result of our slower collectionnear the end of project. Slower collection is typical near the end of a project as our customers keep10% of the contract value in the form of retention moneys.
Current Liabilities
Our current liabilities comprise mainly of trade creditors, bank overdraft, trade bills financing, amountdue to the Directors and provision for taxation. Our current liabilities decreased from $31.8 million asat 31 December 1997 to $24.5 million as at 31 December 1998 and $23.9 million as at 31 December1999.
The decrease in our current liabilities in FY1998 was mainly due to the decrease in trade creditorsas we experienced lower trade activities due to the economic crisis. At the same time, we reducedour bank borrowings in anticipation of the lower business volume. In FY1999, we experienced aslight decrease in our current liabilities as we had less trade creditors as a result of a reduction inour purchases and repayment to our trade creditors using the downpayment received from newproject. This reduction was due to our higher inventory which we built up during the economic crisisin FY1998.
As at 31 May 2000, current liabilities increased by $2.5 million to $26.4 million mainly a result of anincrease in trade creditors and amount due to bankers due to the slow down in collection towardsthe end of project.
Working Capital
Our working capital, which is represented by net current assets, increased from $10.0 million as at31 December 1997 to $11.5 million as at 31 December 1998 and $16.5 million as at 31 December1999. The increase over the last three years was mainly due to our higher stock level which we heldto expand our range of products, an increase in our trade debtors which was in line with the higherturnover as well as a decrease in bank borrowings as we repaid our bank overdrafts and loans. Asat 31 May 2000, our working capital was $18.1 million.
Long term Liabilities
Long term liabilities comprise long-term loans, deferred taxation and the long term portion of hirepurchase creditors. This amount has remained relatively stable over the years. Our hire purchasecreditors arose from the purchase of computer network system and motor vehicles.
61
PROSPECTS AND FUTURE PLANS
PROSPECTS
The economic situation in Asia has been picking up gradually since the last quarter of 1999. Duringthe World Economic Outlook Conference held at United Nations Head Quarters last year, it wasassessed that the world economic growth is expected to be modest for 1999, but this upward climbwill continue to strengthen into this year and the new century. In fact, Asia-Pacific countries, namelyJapan and Korea, have already shown signs of recovery and that is projected to bring the world’s oilconsumption higher. The higher consumption would, thus, lead to an upturn in the world’s petrochemicalindustry generally (Source: Alexanders’ Gas & Oil Connections Reports).
In China, the oil and gas and petrochemical sectors are expected to be vibrant next year. Accordingto the State Petroleum and Chemical Industry Bureau, China’s consumption of natural gas is expectedto quadruple in about a decade. Hence, long-distance pipelines are to be laid from China’s gas-richwestern areas to the energy-deficient eastern and southern areas. The report also stated that foreigninvestors are encouraged to participate in the pipeline construction. China is currently formulating itsninth five-year plan, i.e. from 2000 to 2005, which sets their GDP growth rate at 6.5% to 7%. Theeconomic growth and the social development will give rise to a strong demand for petrochemicalproducts, thus setting favourable conditions to expedite the development of the petrochemical industry.At present, Sinopec Engineering Corp and China National Petroleum Corp are devoting major effortsto developing and promoting the petrochemical industry in China which would lead to the developmentof the related industries (Source: China Oil & Gas).
South East Asian countries have also experienced similar improvements in their economic outlook.Specifically in the gas and oil industry, the Thai state-run Petroleum Authority of Thailand (“PTT”)has proposed a US$1.03 billion Trans Thailand-Malaysia Pipeline and Natural Gas Separation PlantJoint Venture Project. The project will be undertaken by a 50-50 joint venture between PTT andPetronas Carigali Sdn Bhd, Malaysia’s national oil company. This proposed project would also helppromote downstream industries, including electricity plants and the petrochemical industry in Thailand’sfive southern provinces (Source: Straits Times, 31 October 1999 and 1 November 1999).
In January 1999, Singapore entered into a 22-year US$8 billion natural gas purchase agreementwith Indonesia. Under the pact, Singapore will import 325 million standard cubic feet of natural gasdaily for 22 years through a 650-km pipeline to the Jurong Island from West Natuna gas fields. Thegas will be fed into power stations and petrochemical complexes and the first delivery is expected tobe performed by 15 June 2001. To handle this large project, an international consortium of threeenergy heavyweights - Premier Oil (UK), Conoco (USA) and Gulf Resources (Canada) - will investUS$2.5 billion in total to develop the West Natuna gas fields and construct the pipeline. These threecontractors will also invest in the development of gas plants and transportation facilities, including asub-marine pipeline. A Singapore consortium, comprising SembCorp Engineering Pte Ltd, TemasekHoldings Pte Ltd and a Belgian firm, Tractebel SA, will invest US$1.2 billion in total in the Singaporeportion of the pipeline, power plants and transmission infrastructure (Source: Business Times, 22December 1999 and Straits Times, 16 January 1999).
On top of the above US$8 billion natural gas agreement with Indonesia, SembCorp Engineering PteLtd plans to add another 100 million cubic feet of natural gas purchase a day in the next five yearsfrom Indonesia’s West Natuna fields. This is to meet projected rising domestic demand. The additionalgas will cost an estimated US$100 million a year and will be transported via the same 650-kmundersea pipeline under construction (Source: Business Times, 22 December 1999).
In September 1999, Singapore Power Ltd, the island’s main power provider, signed a gas salesagreement worth US$7 billion with Indonesia’s state-owned oil company Perusahaan PertambanganMinyak Dan Gas Bumi Negara (“Pertamina”) to purchase 2.27 trillion cubic feet of natural gas over20 years starting from mid-2002. The source of the natural gas would come from gas fields inSumatra (Source: Business Times, 22 December 1999).
62
In addition to the Natuna project, Indonesian state-owned Pertamina has raised its budget for oil andgas exploration and production expenditures to US$5.3 billion for 1999. Such outlays are expected tocontinue for the next four to five years (Source: Indonesian newspapers, 8 January 1999).
To capitalise on the growth in the industry, the Singapore government has set the objective to createa world-class petrochemical and chemical hub. JTC has been tasked as the agency to link and toreclaim a cluster of seven islands off the southern coast of Singapore to form the Jurong Island bythe year 2003. This $7 billion project reflects JTC’s effort to meet the growing needs for industrialland for the petrochemical industry. Companies already operating on the islands include Esso, Mobil,Petrochemical Corporation of Singapore, Singapore Refining Company, Seraya Chemical (S) PteLtd, Dupont Singapore Pte Ltd, Denka Singapore Pte Ltd, Oiltanking (S) Pte Ltd and Van OmmerenTank Terminal (S) Pte Ltd.
In addition to the above, Exxon Chemical (S) Pte Ltd has invested US$2 billion last year to build thelargest petrochemical complex in Singapore as well as the Asia Pacific region. The complex is thefirst steam cracker in Singapore to be fully integrated with an oil refinery, which is run by its localpetroleum affiliate Esso Singapore (Source: Business Times, 13 October 1999).
In addition, Mobil Oil Corp and EDB have formed a joint venture to construct an 800,000 ton-per-year naphtha-based ethylene cracker, contingent on the completion of definitive sales agreementswith downstream customers. This project will create a long-term business potential and prospects forparticipants in this industry in Singapore and the Asia Pacific region. However, owing to the after-effects of the severe economic slowdown in Asia, the start up is not expected before 2003.
In view of the current favourable regional outlook in the oil and gas and petrochemical industries, weare optimistic of our growth prospects. We will continue to actively explore business opportunities inthe region. At present, we have succeeded in clinching a deal worth approximately $4 million fromone of the three joint venture partners who formed the Singapore consortium in the West NatunaGas Pipeline project. As we have been given additional orders, we expect to complete our obligationsunder this project by end of 2000.
FUTURE PLANS
Over the past 25 years, we have an established track record with oil majors, drilling contractors,marine contractors and electrical contractors. For the past three financial years, more than 50% ofour sales were from our repeat customers. Our business plans and strategies are summarised asfollows:
1. Despite the capital control policy implemented by the Malaysian government in September 1998,we believe in the potential of the Malaysian market. At present, we work closely with our businessassociates in Malaysia on new projects or those that are in the pipeline by providing themtechnical clarifications, assistance and support. We will continue to provide technical back-upand after-sales services to their end users of our products.
2. We intend to expand our operations to regions such as USA, Europe, Thailand and Vietnam bysetting up representative offices or appointing agents in these countries to distribute our productsand components. Where feasible, our Group intends to enter into joint venture arrangementswith our principals by acquiring manufacturing plant to manufacture valves and its related productsin Europe and South East Asia.
3. We will continue to look out for additional distributorship agreements with the ultimate aim ofenlarging our product base. An enlarged product base will allow us to promote a broaderspectrum of products to our clients.
63
4. We intend to expand our distribution of oilfield drilling equipment in view of the abundantopportunities in Asia and Latin America. Numerous oil and gas companies are forming jointventures with the respective governments to explore oil and gas resources in Vietnam, Philippinesand Bangladesh. These countries have adopted open-door policies to attract foreign investments.In addition, with the increase in oil prices, oil companies in the Gulf of Mexico and Latin Americaare also expected to increase their oil drilling and processing activities.
5. We intend to incorporate e-commerce into our business model and explore the possibility ofcyber-trade business. Currently, we have a local area network system which enables us totrade with one of our key customers through electronic data interface. By the end of 2000, weexpect to have e-commerce capabilities through Global Trade Network.
6. We plan to consolidate our Singapore operations to improve our productivity. We are currentlyin the process of locating suitable premises for this purpose.
DIVIDENDS
The Company has not declared dividends since the date of incorporation. The Company currentlydoes not have a dividend policy. Any payment of dividends in the future will be at the discretion ofthe Directors and will depend upon our earnings and financial position, results of operations, capitalneeds including plans for expansion to which we may be subject and such other factors as theDirectors may deem appropriate.
64
MAJOR CUSTOMERS
Over the years, we have dealt with more than 700 customers covering various geographical markets.Our customers are mainly large fabrication or engineering companies that have been appointed asmain contractors to undertake projects or turnkey projects of considerable size.
The major customers who contributed more than 5% of our turnover in each of the last three financialyears ended 31 December are listed below. Customers who are related to one another have beengrouped together and treated as a single customer.
Geographical FY1997 FY1998 FY1999Name of Customer Market % % %
China National Petroleum Corp China — 6.5 4.2
Nippon Steel Group Singapore/ 0.5 7.6 0.9Indonesia/Thailand
PT Gunanusa Utama Fabricators Indonesia 23.7 6.6 33.6
PT Moeladi Indonesia 11.9 4.4 1.9
Fedsin Oilfield Supplies (M) Sdn Bhd Malaysia 1.7 1.8 5.2
Due to the nature of projects in the oil and gas industry, the projects and tenders secured by our oiland gas customers can vary in terms of size and tenure. When customers secure large projects, oursale of flowline control products and services to them will be correspondingly high.
We experienced higher sales to China National Petroleum Corp and Nippon Steel Group in FY1998as we supplied the flowline control products for the major projects undertaken by them.
Our sales to Gunanusa and PT Moeladi had been constant until FY1998 when the Asian currencyand economic crisis weakened the Indonesia economy. During the crisis, most of the projects werehalted, disrupted or delayed and new projects were minimal. In FY1999, Gunanusa managed tosecure a large project named “TOTAL Indonesie – TUNU 7 EPSC I Project”. As we were appointedas the procurement agent, sales to Gunanusa increased.
The contributions by Gunanusa for the past three years expressed as a percentage of our net profitbefore tax are set out below:
FY1997 FY1998 FY1999% % %
PT Gunanusa Utama Fabricators 9.0 n.m. 27.4
n.m.: not meaningful as we had made a net loss from our sales to Gunanusa.
Sales to Sembcorp Industries Ltd had been relatively stable even though there was a slight drop inFY1998 due to the Asian currency and economic crisis. Sales improved in FY1999 when SembcorpIndustries Ltd managed to secure new projects.
65
Our Group had a 30% interests in Fedsin Oilfield Supplies (M) Sdn Bhd prior to FY1998. Our interestshad been fully disposed of in FY1998 to the management of Fedsin Oilfield Supplies (M) Sdn Bhd.Currently, we offer management and advisory services to Fedsin Oilfield Supplies (M) Sdn Bhd inrelation to technical and sales issues. For such services, we have entered into a technical assistanceand consultancy agreement dated 21 August 2000 which stipulates that Fedsin Oilfield Supplies (M)Sdn Bhd is bound to pay our Group:
(a) by way of reimbursement the total amount of the costs and expenses of providing the services;and
(b) such charges based on time spent by our personnel in performing the services in accordancewith the following rates:
(i) Personnel at director level S$500 per hour;
(ii) Personnel at manager level S$300 per hour; and
(iii) Personnel at staff level S$100 per hour.
Save as disclosed above and for personal investments in Gunanusa by Mr Iman Taufik, one of theCompany’s shareholders and Directors as disclosed in “Interested Person Transactions” on pages 70and 71 of this Prospectus, and shares held in publicly traded corporations, none of the Company’sDirectors or substantial shareholders have any interest, direct or indirect, in any of the abovecustomers.
66
MAJOR SUPPLIERS
The suppliers who accounted for 5% or more of our total purchases for each of the past threefinancial years ended 31 December are as follows:
Product FY1997 FY1998 FY1999Name of Supplier Categor y % % %
Indoturbine Ltd Flowlines Control 7.6 — —
YL Machinery Co Ltd Flowlines Control 2.6 10.0 1.4
Goodwin International Ltd Flowlines Control 1.6 5.1 2.0
Kidde-Fenwal, Inc. Fire Protection 6.2 5.6 4.9
OMS Saleri Spa Flowlines Control — 1.3 15.5
Sumitomo Corporation (S) Pte Ltd Flowlines Control — — 7.9
We have established long-standing and good working relationships with our suppliers and the Directorsare not aware of any circumstances which would adversely affect these relationships. Our suppliersinclude various manufacturers, stockists/suppliers and distributors of flowline control products, oilfielddrilling equipment, fire protection and detection systems.
Due to the nature of our business, our purchases are dependent upon the projects and tenderssecured by our customers. The nature, size and tenure of their projects affect the type of productsand the volume we purchase from our suppliers. We increased our purchases in FY1999 from OMSSaleri Spa and Sumitomo Corporation (S) Pte Ltd for our Indonesia projects, namely “TOTAL Indonesie– Peciko” and “TOTAL Indonesie – TUNU 7 EPSC 1” respectively.
We had a single purchase of a “Solar” gas turbine compressor from Indoturbine Ltd which accountedfor 7.6% of our total purchase in FY1997. Our purchase from YL Machinery Co Ltd rose in FY1998as we stocked up our inventory in advance for projects which we undertook in FY1999.
For our distribution of fire protection and detection systems, we hold exclusive distributorship ofKidde-Fenwal, Inc.. Kidde-Fenwal, Inc. supplies fire suppression systems (FM-200), carbon dioxideand wet and dry chemical systems complete with electrical detection and control systems. Currently,Firematic is the first refill station exclusively authorised by Kidde-Fenwal, Inc. for FM-200 suppressionagents in South East Asian region.
Save as disclosed above, no other supplier individually accounted for more than 5% of our totalpurchases for each of the past three financial years ended 31 December.
None of the Directors or substantial shareholders has any interest, direct or indirect, in any of theabove major suppliers.
67
COMPETITION
Our business environment has become increasingly competitive, with the entrance of more overseascompetitors expanding into the Far East and the South East Asian regions. Furthermore, we alsoface competition from local companies who are in a similar field of business.
The following companies are our competitors in the markets that we operate in:
Distrib ution and pr ovision of flo wline contr ol pr oducts and ser vices
Grove Valve & Regulator CoStockham Valve & FittingVelan Engineering Co LtdBonney Forge ItaliaShoritsu Seisakusho Co LtdNippon Benkan Kogyo Co LtdTriangle Valve Co LtdKorea Flange Co
Distrib ution of oilfield drilling equipment and its related pr oducts
Aqua-Terra Supply Co LtdMid-Continent Equipment LtdOilwell Supply Pte Ltd
Distrib ution of fire pr otection and detection systems
Fike South East Asia Pte LtdChemetron IncHygoods Ltd
Other activities
Asian Computer Systems Pte LtdUIC Computer Systems Pte LtdInfonet Engineering Pte LtdTeleScience Pte Ltd
We believe our competitive strengths are as follows:
1. Estab lished trac k recor d
We have been in the industry for more than 25 years and have built an established trackrecord. With more than 4,000 product items in our inventory, we have been able to deliver ourproducts and services to our clients within their time expectations. Also, the quality of ourproducts and services is evidenced from the insignificant rejection rates of our products as setout on page 51 of this Prospectus. As mentioned on page 64 of this Prospectus, we have dealtwith more than 700 customers in various geographical markets through the years. In addition,the number of new principals we secured outweighed the number of principals terminated asset out on page 48 of this Prospectus.
68
2. Comprehensive rang e of in ventor y
At present, we are the appointed distributor for more than 42 principals and manufacturerswhich carry more than 4,000 product items. With this range of products, we are able to meetour customers’ varied, vast and urgent day-to-day requirements. We carry this wide range ofproducts to meet the short delivery period expected by our customers, which is typically betweenone to three days. These products are sold to oil majors, drilling contractors and refinerieseither as maintenance replacements or for re-configuration purposes. In addition, our productrange also serves our existing blanket orders from Singapore Refining Co., Virginia IndonesiaCompany, Esso Production Malaysia Inc and Petronas Carigali Sdn Bhd.
3. Good w orking relationships with principals
Over the years, we have established good relationships with our principals. More than 50% ofthese principals have been with us for more than five years. These relationships benefit usthrough more flexibility in the commercial transactions with our principals in the form of betterdiscounts. As a result, we are able to pass these cost savings on to our customers. This givesus a competitive advantage over our competitors.
4. Product speciality
Our fire suppression systems are specialised products to detect fire hazards and protect highvalue and sensitive assets which cannot afford any disruption or downtime to their operations.Such sensitive assets are usually found in data centres, telecommunication rooms, hightechnology electronics manufacturing plants, banking and IT industries, right down to commonindustrial protection for engine rooms, kitchen cooking hoods, storage for chemicals and paintstores.
The main component of this fire suppression system is a gas commonly known as FM-200.This suppressant product is environmentally friendly and does not harm or deplete the earth’sozone layer. Its ozone depletion potential is zero and this product is safe for use in areas ofhuman occupancy.
Currently, we are the first refill station exclusively authorised by Kidde-Fenwal, Inc. for FM-200suppression agents in Singapore.
5. Quality ser vice
We have a team of sales-driven personnel that ensures product quality and conformity to ourclients’ specifications. Our attainment of ISO 9002 in June 1999 for Federal Hardware andinsignificant rejection rate (as mentioned on page 51 of this Prospectus) are testaments of ourcommitment towards providing quality services.
6. One-stop ser vice pr ovider
With the establishment of our service and testing centre in Singapore, we became a one-stopprovider where customers can send their valves for repairs and servicing as well as for pre-delivery tests prior to shipment. We are able to work jointly with our customers’ third partyinspectors to conduct such tests. These value-added services save our customers time andmoney through better turn-around time and overall throughput.
69
INTERESTED PERSON TRANSACTIONS
1. Transactions with Indoener gi
Indoenergi, one of our associated companies, is principally engaged in the sale and distributionof “Ingersoll Rand” air compressors in Indonesia. Indoenergi is one of the appointed agents of“Ingersoll Rand” air compressors and their related accessories and services. At present, weown 40% of Indoenergi through our 99% shareholding in Pratama, who in turn holds 40% ofthe issued and paid-up capital of Indoenergi. The other shareholders are PT InticahayaPurnamandiri (30% shareholding), Mr Didi Achmad Rosidi (16% shareholding) and Mr BambangA. Subagio (14% shareholding). Mr Didi Achmad Rosidi is the husband of the niece of Mr ImanTaufik, a Director cum shareholder. PT Inticahaya Purnamandiri is, in turn, owned by Mr ImanTaufik (98.33% shareholding) and his daughter, Mrs Reni A. Nugsaha (1.67% shareholding). MrIman Taufik is also the Commissioner of PT Inticahaya Purnamandiri. There are no businesstransactions between our Group and PT Inticahaya Purnamandiri as the latter company is inthe hotel and resort, shrimp farming and agriculture businesses.
In FY1997, we made an one-off transaction with Indoenergi for the sales of “Ingersoll Rand” aircompressors in Indonesia. We paid Indoenergi a commission for work performed oncommissioning the air compressors and the follow up work on the custom clearance in Indonesia.
We also derived miscellaneous income from the lump sum charges for arranging a banker’sguarantee of US$350,000 in favour of Ingersoll-Rand International Sales, Switzerland, on behalfof Indoenergi. This was for a revolving credit line of US$350,000 to secure open credit purchasesfrom Ingersoll-Rand International Sales, Switzerland. The banker’s guarantee expired on 31December 1998.
We have also extended a loan to Indoenergi for working capital. The loan was interest-bearingat an interest rate of 1% per month on the outstanding balance as at the date of change in theoutstanding loan balance. The loan was not secured and had no fixed term of repayment. Theloan had been fully repaid on 15 March 2000.
From time to time, we may make advances to suppliers on behalf of Indoenergi. Such advancesare treated as loans to Indoenergi. These loans are interest-bearing at an interest rate of 1%per month on the amount outstanding. These loans are not secured and have no fixed term ofrepayment. However, we control Indoenergi’s cash flow through a standing instruction toIndoenergi that any collection exceeding US$5,000 per payment from customer shall be depositeddirectly via telegraphic transfers to our bank account in Singapore as part payment of suchloan.
The above transactions are further illustrated below:
FY1997 FY1998 FY1999$’000 $’000 $’000
Miscellaneous income 40 — 3
(as percentage of proforma Group’s NPBT, 1.2% — 0.04%MI and EI)
Commission 63 — —
Loan (working capital) 546 491 453
Interest received 13 20 13
Save as disclosed above, there are no transactions between Indoenergi and our Group.
70
2. Product and equipment sales to Gunan usa
As set out on page 34 of the Prospectus, Gunanusa is currently 10% indirectly owned by us.The other shareholders of Gunanusa are Mr Iman Taufik (77% shareholding), Mr Darpin Manggus(10% shareholding) and Mr Agus Gurlaya Kartasasmita (3% shareholding). Mr Iman Taufik isalso one of the non-executive Directors.
Gunanusa is mainly involved in executing large turnkey projects in offshore platform projects,container cranes, boilers and pressure vessels. In summary, the projects involve engineering,construction and procurement activities. Gunanusa purchases flowline products, structural andspecialised equipment from us.
Transactions between ourselves and Gunanusa for the past three years were:
Year ValueAwarded Description of transaction (US$’million)
1997 We entered into a contract for Project TOTAL NPU for the 9.200supplying of flow control, structural and electrical products(CAA/95129/01/X/97).
1997 We entered into a contract for Project TOTAL Indonesia GTSJ 0.700for the supply of flow control products, pipes, fittings andelectrical products.
1997 We entered into a sale and purchase agreement dated 15 1.730February 1997 relating to the sale of an American HoistCrawler inclusive of the towing charges, 3 years insuranceand incidental expenses. Payment is done via 40 monthlyinstalments of US$43,250 with effect from April 1997. Theownership of the equipment remains with us until theconsideration is fully satisfied in July 2000.
1997 We entered into a co-operation agreement dated 23 0.200September 1997 (C/97062/01/IX/97) for the supply of verticalseparator Caltex SBU DURI.
1997 We entered into a co-operation agreement dated 26 May 1997 0.045(C/97006/01/V/97) for the supply of Caltex Gas KO DrumFabrication.
1997 We entered into a co-operation agreement dated 15 June 1997 0.170(C/97009/01/VI/97) for the supply of F.W.K.O. Drum Fabrication.
1998 We entered into a co-operation agreement on 13 August 0.3001998 (C/98018/01/VIII/98) for Project RII Daerator Package,which stipulated the provision of flowline control products andto appoint Federal Hardware as the procurement agent.
1998 We entered into another co-operation agreement on 13 August 0.0501998 (C/97091/02/VIII/98) which stipulated the supply of slugcatcher for Project Slug Catcher PV-2900.
1998 We entered into a co-operation agreement on 9 April 1998 0.045(C/98031/03/IX/98) for the supply of materials for 3 units TestSeparators PV 1150/1160/1170.
71
Year ValueAwarded Description of transaction (US$’million)
1999 We entered into a contract which specified the supply of 16.000flowline control products and procurement service. Anamendment of the contract was done on 24 Feb 1999,amending the amount to US$16 million due to a decrease inthe cost of raw materials (98014).
In addition to the above, we extended a short-term loan to Gunanusa. The loan was subject toan interest of 1% per month and was repayable within 12 months. The amount outstanding asat 30 April 2000 was US$241,812. This loan was fully repaid as of 30 June 2000.
Our sales to Gunanusa for the past three years are shown below:
FY1997 FY1998 FY1999$’000 % $’000 % $’000 %
Sales 15,421 23.7 3,180 6.6 27,016 33.6
The contributions by Gunanusa for the past three years expressed as a percentage of our netprofit before tax are set out below:
FY1997 FY1998 FY1999% % %
Percentage of our net profit before tax 9.0 n.m. 27.4
n.m.: not meaningful as we had made a net loss from our sales to Gunanusa.
3. Professional f ees paid to Heng Lee Seng
Mr Heng Lee Seng, one of the Independent Directors, is one of the partners in Heng Lee Seng& Co, a firm of Certified Public Accountants which was the auditors of some of the companiesin the Group. Other than audit, Heng Lee Seng & Co was also the tax agent for our Group. MrHeng Lee Seng is also a Director of HLS Corporate Services Pte Ltd which provides corporatesecretarial service to our Group. The following table sets out the professional fees paid to bothfirms for the various services:
FY1997 FY1998 FY1999$ $ $
Heng Lee Seng & Co
Audit fee 25,500 25,500 5,000
Professional fee 6,800 7,000 1,300
HLS Corporate Services Pte Ltd
Secretarial fee 2,880 2,880 2,880
HLS Corporate Services Pte Ltd will continue to provide corporate secretarial services to certaincompanies in our Group after the Invitation. Notwithstanding the continuing relationship betweenMr Heng Lee Seng and the Group set out above, it is the opinion of the Board that suchrelationship would not interfere with Mr Heng Lee Seng’s exercise of independent judgement incarrying out his functions as a member of the Audit Committee.
72
4. Purchase of car fr om an interested per son
On 31 December 1999, Federal Hardware purchased a car from Ms Lim Ah Guan, wife of aDirector and substantial shareholder, Mr Tan Kah Imm, at a consideration of $100,000 basedon the market price obtained from car dealers. The consideration was satisfied by a cashpayment of $30,000 with the balance of $70,000 taken as a loan from a finance company.Details of the car are set out below:
MonthsCar remaining of Open
registration Description Date of COE as at 1 Market Purchaseno. of car registration January 2000 Value COE Price
$ $ $
SCF 9515 E Mercedes – E220 3 Oct 1994 58 54,450 72,992 100,000
5. Sales to Fedsin Oilfield Equipment Co Ltd (“Fedsin Equipment”)
Mr Yeo Teck Soon, John, Mr Koh Kian Kiong and Mr Chew Keng Keong established FedsinEquipment in 1977 and the shareholding was registered under the name of Mr Yeo Teck Soon,John. Subsequently, Mr Yeo Teck Soon, John sold the entire shareholding interests in 1993 toMr Tony Lim, the Technical Manager of Fedsin Equipment at that time. Mr Koh Kian Kiongprovided a personal guarantee of US$415,000 in favour of Mr Tony Lim which was dischargedon 3 April 2000.
Fedsin Equipment is mainly involved in the supply of flowline products, oilfield equipment andother miscellaneous oil-related products to the oil and gas, refinery, petrochemical industries inUAE and its neighbouring countries. We supply valves (gate/globe/check/butterfly/ball) and othermiscellaneous oilfield equipment to Fedsin Equipment because of our long and trusting businessrelationships with Fedsin Equipment.
The value of the sales transactions between ourselves and Fedsin Equipment for the last threefinancial years are as follows:
FY1997 FY1998 FY1999$’000 % $’000 % $’000 %
Sales 297 0.5 1,040 2.2 296 0.4
Save as disclosed above and in “Restructuring Exercise” and “Potential Conflict of Interests” as setout on pages 32 and 73 of this Prospectus respectively, during the last three financial years ended31 December 1997 to 1999:
(a) none of the Directors, Executive Officers or substantial shareholders has had any interest,direct or indirect, in any material transactions to which we were or are to be a party;
(b) none of the Directors, Executive Officers or substantial shareholders has any interest, direct orindirect, in any company carrying on the same business or carrying on a similar trade as us;and
(c) none of the Directors, Executive Officers or substantial shareholders has any interest, direct orindirect, in any enterprise or company that is our customer or supplier of goods or services.
73
FUTURE TRANSACTIONS
Review Procedures f or Interested P arty Transactions
All Interested Person Transactions (as defined under Chapter 9A of the Listing Manual) will be subjectto regular periodic reviews by the Audit Committee. In addition, we are subject to the relevantmandatory provisions in the Act and the rules prescribed in the Listing Manual. Our internal controlprocedures will ensure that the transactions between ourselves and Interested Persons (as definedunder Chapter 9A of the Listing Manual) are conducted at arm’s length and on normal commercialterms. Such internal controls include a regular and periodic review of all Interested Person Transactions,which shall be summarised and submitted to the Audit Committee. Should the transactions exceedthe thresholds set out in the Listing Manual, the stipulated requirements shall be complied with.
The Audit Committee (comprising Mr Koh Kian Kiong, Mr Heng Lee Seng and Mr Hoon Tai Meng)will review the adequacy of our internal control procedures for all Interested Person Transactions toensure that they are carried out on an arm’s length basis and on normal commercial terms and arenot prejudicial to the shareholders of the Company. Such review will be conducted periodically andwill include the examination of the transaction and its supporting documents or such other datadeemed necessary by the Audit Committee.
We will comply with the provisions of Chapter 9A of the Listing Manual in respect of all futureInterested Person Transactions and, if required under the Listing Manual or the Act, we will seekshareholders’ approval for such transactions. If a member of the Audit Committee has an interest ina transaction, he will abstain from participating in the review and approval process in relation to thattransaction.
POTENTIAL CONFLICT OF INTERESTS
Dousetec h Enginering Pte Ltd
Dousetech Engineering Pte Ltd (“Dousetech”) is a company incorporated on 26 June 1999 whoseprincipal business is that of the installation of fire protection and security alarm systems and whichmay compete with the business of Firematic, one of the Subsidiaries. Ms Lee Kwee Lian, Grace(who is the wife of Lim Tek Hua, Anthony, one of our Executive Officers) and Ms Lam Kit Ping (whois the wife of Teo Yew Teck, one of our Executive Officers) are both directors and shareholders ofDousetech. Currently, Dousetech does not compete with Firematic as its principal activity does notinvolve the design and supply of fire detection and protection systems while Firematic does notprovide installation services. In FY1999, the fire detection and protection systems that Firematic soldto Dousetech amounted to $13,570.
To address any potential conflict of interests that may arise, Dousetech and its directors haveundertaken to the Company and Firematic that Dousetech will not, for a duration of five years or forso long as Firematic remains as a Subsidiary whichever is the later, carry on any business whichmay compete with the existing or future business of Firematic.
74
SHAREHOLDERS’ MANDATE
We anticipate that the Company would, in the ordinary course of its business, enter into transactions,including but not limited to the transactions described in “Interested Person Transactions” set out onpages 69 to 72 of this Prospectus, with persons which are considered “interested persons” as definedin Chapter 9A of the Listing Manual. It is likely that such transactions will occur with some degree offrequency and could arise at any time and from time to time.
Under Chapter 9A of the Listing Manual, a listed company may seek a shareholders’ mandate forrecurrent transactions of a revenue or trading nature or those necessary for its day to day operationssuch as supplies and materials, which may be carried out with the listed company’s interested persons,but not for the purchase or sale of assets, undertakings or businesses.
Due to the time-sensitive nature of commercial transactions, the Shareholders Mandate will enablethe Company, in its normal course of business, to enter into the categories of Interested PersonTransactions set out below with certain classes of Interested Persons (as defined below), providedsuch interested person transactions are made at arm’s length and on normal commercial terms.
The Shareholders Mandate took effect from 21 August 2000 and will be effective until our nextAnnual General Meeting. Thereafter, approval from the shareholders of the Company for a subsequentrenewal of the Shareholders Mandate will be sought at each subsequent renewal of the ShareholdersMandate will be sought at each subsequent Annual General Meeting.
Classes of Interested Persons
The Shareholders Mandate will apply to the Interested Person Transactions which are carried outwith the Directors, Chief Executive Officer (“CEO”) and substantial shareholders of the Company andtheir respective associates (the “Interested Persons” and each an “Interested Person”).
Transactions with Interested Persons which do not fall within the ambit of the proposed ShareholdersMandate shall be subject to the relevant provisions of Chapter 9A of the Listing Manual.
Interested Person Transactions
The Interested Person Transactions with the Interested Persons which will be covered by theShareholders Mandate and the benefits to be derived therefrom are set out below:-
(a) General Transactions
This category relates to general transactions (“General Transactions”) by us relating to theprovision to, or the obtaining from, Interested Persons of products and services in the normalcourse of our business comprising the provision of the following:-
(i) flowline control products and services;
(ii) oilfield equipment, fire protection and detection systems and electrical products;
(iii) information systems services;
(iv) procurement agency; and
(v) any other business which is related or ancillary to the core business of the Group.
We can benefit from having access to competitive quotes from the different companies in similarand different industries which are associated with the Directors, CEO and substantial shareholdersof the Company in addition to obtaining quotes from, or transacting with, non-Interested Persons.
(i) the placement of funds with any Interested Person on a short-term and medium-term basis;
(ii) the borrowing of funds from any Interested Person on a short-term and medium-term basis;
(iii) the entry into with any Interested Person of forex, swap and option transactions for hedgingpurposes; and
(iv) the subscription of debt securities issued by any Interested Person and the issue of debtsecurities to any Interested Person and the buying from, or the selling to, any InterestedPerson of debt securities.
We can benefit from competitive rates and quotes in an expedient manner on the placement offunds with, borrowings from, the entry into forex, swap and option transactions with, and thesubscription and purchase of debt securities issued by, or the issue of debt securities to, anyInterested Person.
(c) Management and Support Services
We may, from time to time, seek from, or provide to, our Interested Persons, management andsupport services in the areas of finance, treasury, investment risk review, governmental relations,business development, management information systems, human resources management anddevelopment, legal and corporate secretarial matters and tax advisory services (“Managementand Support Services”). Such Management and Support Services will allow us to deriveoperational and financial leverage in our dealings with third parties as well as benefit from theglobal network of the Interested Persons.
Review Procedures for Mandated Interested Person Transactions
We have implemented the following procedures to ensure that mandated Interested PersonTransactions are undertaken on an arm’s length basis and on normal commercial terms:-
(a) General Transactions
In general, there are procedures established by us to ensure that general mandated InterestedPersons Transactions with Interested Persons are undertaken on an arm’s length basis and onnormal commercial terms consistent with our usual business practices and policies, which aregenerally no more favourable to the Interested Persons than those extended to unrelated thirdparties.
The following review and approval procedures have been established to supplement existinginternal control procedures to monitor such general transactions:-
(i) transactions in value less than 3% of the Company’s latest audited net tangible asset valuewill be reviewed and approved by a senior member of the Company’s management teamdesignated for such purpose by the CEO;
(ii) transactions in value equal to or exceeding 3% but less than 5% of the Company’s latestaudited net tangible asset value will be reviewed and approved by the CEO;
(iii) transactions in value equal to or exceeding 5% of the Company’s latest audited net tangibleasset value shall be reviewed and approved by the Audit Committee; and
(iv) where the aggregate value of all transactions with the same Interested Person in the currentfinancial year is equal to or exceeds 5% of the Company’s latest audited net tangible assetvalue, the latest and all future transactions will be reviewed and approved by the AuditCommittee.
76
(b) Treasury Transactions
Placements
In relation to the placement with any Interested Person of our funds, the Company will requirethat quotations shall be obtained from such Interested Person and at least two of our principalbankers for rates for deposits with such bankers of an equivalent amount, and for the equivalentperiod, of the funds to be placed by it. We will only place our funds with such InterestedPerson, provided that the interest rate quoted is not less than the highest of the rates quotedby such principal bankers.
Borrowings
In relation to the borrowing of funds from any Interested Person by us, the Company willrequire that quotations shall be obtained from such Interested Person and at least two of ourprincipal bankers for rates for loans from such bankers of an equivalent amount, and for theequivalent period, of the funds to be borrowed. We will only borrow funds from such InterestedPerson, provided that the interest rate quoted is not more than the lowest of the rates quotedby such principal bankers.
Forex, Swaps and Options
In relation to forex, swap and option transactions with any Interested Person, the Company willrequire that rate quotations shall be obtained from such Interested Person and at least two ofour principal bankers. We will only enter into such forex, swap or option transactions with suchInterested Person provided that such rates quoted are no less favourable than the rates quotedby such bankers.
Debt Securities
In relation to the subscription of debt securities issued by, or the purchase of debt securitiesfrom, Interested Persons, we will only enter into the subscription or purchase of such debtsecurities issued provided that the price(s) at which we subscribe for or purchase such debtsecurities will not be higher than the price(s) at which such debt securities are subscribed foror purchased by third parties.
In relation to the issue or sale to Interested Persons of debt securities, we will only issue orsell such debt securities to Interested Persons provided that the price(s) at which we issue orsell such debt securities will not be lower than the price(s) at which such debt securities areissued or sold to third parties.
In addition, we will monitor the Treasury Transactions entered into by us as follows:-
Placements and Debt Securities
Where the aggregate value of funds placed with, and debt securities subscribed which areissued by, and debt securities which are purchased from, or are issued or sold to, the sameInterested Person (as such term is construed under Chapter 9A of the Listing Manual) shall atany time exceed an amount equivalent to our consolidated shareholders’ funds (based on ourlatest consolidated audited accounts), each subsequent placement of funds with, or subscriptionof debt securities issued by, purchase of debt securities from, and issue or sale of debt securitiesto, the same Interested Person shall require the prior approval of the Audit Committee.
Placements of funds with, subscription of debt securities issued by, purchase of debt securitiesfrom, and issue or sale of debt securities to, the same Interested Person which do not in theaggregate exceed the limit set out above will not require the prior approval of the Audit Committeebut shall be reviewed on a half-yearly basis by the Audit Committee.
77
Forex, Swaps and Options
Where the aggregate of the principal amount of all forex, swap and option transactions enteredinto with the same Interested Person exceeds at any one time the equivalent of our consolidatedshareholders’ funds (based on our latest consolidated audited accounts), each subsequent forex,swap and option transaction entered into with the same Interested Person shall require theprior approval of the Audit Committee.
Entry into of forex, swap and option transactions with the same Interested Person where theprincipal amount thereof does not in the aggregate exceed the limit set out above will notrequire the prior approval of the Audit Committee but shall be reviewed on a half-yearly basisby the Audit Committee.
(c) Management and Support Services
The Audit Committee will satisfy itself that the costs for any Management and Support Servicesprovided by any Interested Person shall be on an arm’s length and normal commercial basisand in accordance with any formula for such cost recovery agreed with such Interested Person.
We will maintain a register to record all Interested Person Transactions (and the basis includingthe quotations obtained to support such basis, on which they are entered into) which are enteredinto pursuant to the Shareholders Mandate. The annual internal audit plan shall incorporate areview of all Interested Person Transactions entered into pursuant to the Shareholders Mandate.
The Directors and Audit Committee shall review the internal audit reports to ascertain that theguidelines and procedures established to monitor Interested Person Transactions have beencomplied with. In addition, the Audit Committee shall also review from time to time such guidelinesand procedures to determine if they are adequate and/or commercially practicable in ensuringthat transactions between us and our Interested Persons are conducted at arm’s length and onnormal commercial terms. Further, if during these periodic reviews by the Audit Committee, theAudit Committee is of the view that the guidelines and procedures as stated above are notsufficient to ensure that these Interested Person Transactions will be on our normal commercialterms and will not be prejudicial to our shareholders, we will revert to our shareholders for afresh mandate based on new guidelines and procedures for transactions with Interested Persons.
The Directors and the Audit Committee shall have overall responsibility for the determination ofthe review procedures with the authority to sub-delegate to individuals or committees within theCompany as they deem appropriate. If a Director or the Audit Committee has an interest in thetransaction to be reviewed by the Directors or the Audit Committee as the case may be, he willabstain from any decision making by the Directors or the Audit Committee in respect of thattransaction.
Benefit to Shareholders
The Shareholders Mandate and the renewal of the Shareholders Mandate on an annual basiseliminated the need to convene separate general meetings from time to time to seek shareholders’approval as and when potential Interested Person Transactions with a specific class of InterestedPersons arise, thereby reducing substantially administrative time and expenses in conveningsuch meetings, without compromising the corporate objectives and adversely affecting thebusiness opportunities available to us.
The Shareholders Mandate is intended to facilitate transactions in our normal course of businesswhich are transacted from time to time with the specified classes of Interested Persons, providedthat they are carried out at arm’s length and on our normal commercial terms and are notprejudicial to its shareholders.
Disclosure will be made in the Company’s annual report of the aggregate value of InterestedPerson Transactions conducted pursuant to the Shareholders Mandate during the current financialyear, and in the annual reports for the subsequent financial years during which a ShareholdersMandate is in force.
78
DIRECTORS, MANAGEMENT AND STAFF
Director s
The Directors are entrusted with the responsibility for the overall management of the Company. Theparticulars of the Directors are listed below:
Iman Taufik 58 Jln H. Abdulgani No. 155 Indonesia Non-ExecutiveRempoa Ciputat DirectorTangerangWest Java
Heng Lee Seng 54 35 Greenmead Avenue Singapore Independent DirectorSingapore 289427
Hoon Tai Meng 48 41 Elias Road #04-01 Singapore Independent DirectorPasir Ris GardensSingapore 519882
Mr Heng Lee Seng and Mr Hoon Tai Meng are the Independent Directors of the Company.
Saved as disclosed on page 71 of this Prospectus, none of the Independent Directors has a businessor professional relationship with the Group and/or its other Directors and substantial shareholders.
The business and working experience of the Directors are set out below:
Mr Koh Kian Kiong is the Executive Chairman and Chief Executive Officer of the Group. He is alsoone of the three founders of the Group. He has been in the industry for more than 30 years and iscurrently responsible for the business operations of the Group. He is involved in the businessdevelopment, providing management consultancy to our joint ventures, associated companies andSubsidiaries. Being the backbone of the financial arrangement of the Group, he is responsible fordeveloping financial plans in support of the Group’s business objectives.
79
Mr Chew Keng K eong , who is the Executive Director of the Group as well as the Managing Directorof Federal Hardware, is also one of the three founders of the Group. Equipped with over 30 years ofexperience in this field, he is primarily responsible for the expansion of the Group’s business andensuring the overall smooth running of the various business units including the electrical division. Heassists the Executive Chairman and Chief Executive Officer in the overall strategic direction of theGroup and supervises the various divisional heads whenever appropriate.
Mr Yeo Teck Soon, John is the Executive Director and one of the three founders of the Group. Hehas built up extensive experience when he was the Managing Director of Fedsin Oilfield EquipmentCo Ltd, Dubai, UAE, from 1977 to 1985 and from 1989 to 1993. During his tenure in UAE, hesuccessfully lead-managed the business operations in the Middle East, promoting strategic sales,operations and maintenance of products and relation building with customers. Currently, he is holdingthe operational responsibilities for sales in Indonesia and Philippines. Additionally, he is in charge ofthe Group’s warehouse operation, QA/QC Department and service and testing centre. Mr Yeo hasmore than 30 years of experience in this field.
Mr Tan Kah Imm is an Executive Director of the Group. He joined the Group in 1986. Currently, withmore than 15 years of business and operational experience in the oil and gas industry, he isresponsible for the Group’s overall sales in Brunei Darussalam, Thailand and Vietnam. He concurrentlyassists the Managing Director in the routine management of a very active group of sales engineersand a highly tuned team of professional sales executives responsible ultimately for the overall successof the Group.
Ms Koh Maggie is one of the Executive Directors of the Group. A holder of a Masters of BusinessAdministration degree, she has served the Group for five years. Prior to joining the Group in 1993,she had a year of working experience in KVC International (S) Ptd Ltd as sales coordinator. She is,at present, in charge of the indoor sales department and the marine division. The indoor salesteam’s contribution to the Group’s overall sales is fairly substantial. It primarily targets and servesboth existing and new accounts, whether big or small, which are not previously allocated or cultivatedby either the professional sales executives or the sales engineers. Also, she closely nurtures andsets the aggressive and successful business and sales traits of the Group’s small but growing marinedivision.
Mr Iman Taufik joined the Group as a Non-Executive Director in 1996 and has more than 30 yearsof experience in the oil and gas industry. He has been the Chairman and is presently the HonoraryChairman of the KADIN (Indonesian Chambers of Commerce and Industry). Since 1990, he hasbeen sitting on the Board of Trustee of Indonesian Engineers Associations (PII). In 1996, he was andstill is the Chairman of ASEAN committee, Indonesian Chambers of Commerce and Industry. In1999, he was made a member of APEC Business Advisory Council (ABAC). In addition, he is theappointed Special Envoy of the President of the Republic of Indonesia for ASEAN region since 1998.He was a recipient of the Presidential Award for Development of Offshore Technology in Indonesia.
Mr Heng Lee Seng was appointed as one of the two Independent Directors of the Group on 22August 2000. He is currently a Partner with Heng Lee Seng & Co Certified Public Accountants(“CPA”) and a director of HLS Corporate Services Pte Ltd, Heshe Holdings Ltd, Safe & Sound PteLtd and Minimax Corporate Service Pte Ltd. He has been a practising CPA for more than 25 years.Mr Heng is also a fellow member of the CPA Australia, associate member of The Chartered Instituteof Management Accountants and The Chartered Institute of Secretaries and Administrators.
Mr Hoon Tai Meng is an Independent Director of the Company appointed on 22 August 2000. He isan Advocate and Solicitor and is currently practising as a Partner in T M Hoon & Co. Besides havingmore than four years experience in law practice, he also has 19 years of experience in financialplanning and management, audit, tax and corporate secretarial functions. He was with Menard HoldingsPte Ltd for six years and Pacific Can Investment Holding Ltd for two years, both as the GroupFinancial Controller before he joined Goh Ngiap Suan & Co CPA as an Audit Principal in 1992. Heleft Goh Ngiap Suan & Co CPA in 1993 to set up Hoon Tai Meng & Co CPA as the sole practitioner.In 1996, he joined Arthur Loke & Partners Advocates & Solicitors as a partner. In 1997, he set up TM Hoon & Co Advocates & Solicitors.
80
Mr Hoon holds a Bachelor of Commerce degree in Accountancy from Nanyang University and a LLB(Hons) from the University of London. He is a Fellow of the Chartered Institute of ManagementAccountants (UK), a Certified Public Accountant of the Institute of Certified Public Accountants ofSingapore and a Barrister-at-Law (Middle Temple).
Audit Committee
The Audit Committee comprises Mr Koh Kian Kiong and the Independent Directors. Mr Heng LeeSeng will be the chairman of the Audit Committee.
Management
The day-to-day operations of the Group are entrusted to the Executive Directors of the Companywho are assisted by a management team of experienced key executive officers (“Executive Officers”).The particulars of the Executive Officers are set out below:
Information on the working experience and areas of responsibility of the Executive Officers of theGroup is set out below:
Ms Chng Geok , who is the Chief Financial Officer for the Group, is a member of the Institute ofCertified Public Accountants of Singapore and the Association of Chartered Certified Accountants.She also holds a Bachelor degree in Business Administration. She joined the Group four years agoand is currently responsible for the overall financial management and accounting requirements of theorganisation’s business in the region. She advises the management on key financial issues thataffect operations and profitability and ensures the protection of the Group’s financial assets throughestablishment of adequate financial controls. She plans and directs electronic data processing andaudit operations, liases with bankers, auditors, tax consultants, government bodies and others. Sheis also responsible for credit control and the management of cash flow. Prior to joining the Group,she has had more than 12 years of experience in the financial accounting arena from her previousemployment. She was an accountant with AZO International Pte Ltd from 1986 to 1989. In 1989, shejoined The Hour Glass Ltd as the group accountant for four and a half years and thereafter, shejoined HL Technology Systems Pte Ltd (formerly a subsidiary of Hong Leong Corporation Ltd) as itsfinance and administration manager for one and a half years.
81
Mr Chua Thiam Yong is the Technical/Project Manager for the Group and his main responsibility isto provide technical advice on products and services through our sales team, Subsidiaries, associatedcompanies, agents and distributors. He holds a Diploma in Mechanical Engineering. Mr Chua broughtwith him eight years of process instrumentation and control valves working experience when hejoined us in 1991. He was the assistant manager for process instrumentation until he was promotedto Technical Manager in 1996.
Mr Ewe Soon Ee serves as the Managing Director of Alton. His main responsibility is to oversee thebusiness operations of Alton and ensuring its profitability. His roles include the exploring of newbusiness opportunities and to expand the customers’ base. Prior to joining the Group in 1992, MrEwe has had 24 years of working experience in the oil and gas industry. He has served as GeneralManager for Mid-Continent Equipment Ltd for four and a half years from 1987 to 1992 as well as forFederal Hardware for the next two and a half years. His experience in serving in senior positions inboth sales and purchasing among major players in the industry has equipped him with establishedcontacts in the Asia Pacific region.
Mr Lim Tek Hua, Anthon y is the Managing Director and one of the founders of Firematic. He isresponsible for the business operations of Firematic and is involved in strategic planning and ensuringthe profitability of the business. Mr Lim holds a Diploma in Production Engineering and has extensiveexperience through the 15 years he spent in the fire protection industry. In 1984, he joined HartEngineering Pte Ltd (“Hart”), which was in the fire protection field as a site engineer. He left Hart twoyears later for a project engineer position in Thorn Security (S) Pte Ltd, which was also in the sameline of business. Subsequently, he was promoted to the position of project manager, followed bycontract manager. In 1992, he joined W.H. Brennan & Co Pte Ltd (“WHB”) as the division managerfor the fire division. Mr Lim left WHB to establish Firematic with Mr Teo Yew Teck and FederalHardware in 1993.
Mr Teo Yew Teck is the Marketing Director and one of the founders of Firematic. He manages theday to day operations of Firematic especially in areas of sales, engineering and procurement. Mr Teoholds a Diploma in Electrical Engineering. He had been with Thorn Security (S) Pte Ltd for 12 yearssince 1981 where he rose from project engineer to sales engineer to marine and offshore divisionmanager. He left Thorn Security (S) Pte Ltd in 1992 to join Kidde International Singapore as theapplication and sales manager. In 1993, he left Kidde International Singapore to set up Firematicwith Mr Lim Tek Hua, Anthony and Federal Hardware.
Mr Lee Sek Kheong was involved in the start-up of Syntellect and currently serves as the ManagingDirector of Syntellect. He oversees the running of the company and at the same time is responsiblefor steering the company towards being a premier IT solution provider in Singapore. He is responsiblefor the company’s performance, providing strategies for the business operation, as well as for settingup the sales and marketing structure. One of the pressing tasks for him at the present moment is toestablish the business flow and the management committee. He holds a Bachelor Degree in ElectricalEngineering. Before joining the Group in 1999, he was the account manager with Infonet EngineeringPte Ltd for two years and the senior account manager with Chartered Systems & Networks Pte Ltdfor three years.
Further information on the Directors and the Executive Officers are contained in the section “Informationon Directors and Executive Officers” on pages 118 to 121 of this Prospectus.
82
Man
ag
emen
t st
ruct
ure
cha
rt
Our
man
agem
ent
orga
nisa
tion
char
t is
as
follo
ws:
-
Fed
era
l In
tern
ati
on
al (2
000)
Ltd
Bo
ard
of
Dir
ecto
rsK
oh
Kia
n K
ion
gC
he
w K
en
g K
eo
ng
Ye
o T
eck
So
on
, Jo
hn
Ta
n K
ah
Im
mK
oh
Ma
gg
ieIm
an
Ta
ufik
He
ng
Le
e S
en
gH
oo
n T
ai M
en
g
Exe
cuti
ve C
hai
rman
/CE
OK
oh
Kia
n K
ion
gC
hie
f F
inan
cial
Off
icer
Ch
ng
Ge
ok
Au
dit
Co
mm
itte
eH
en
g L
ee
Se
ng
Ho
on
Ta
i Me
ng
Ko
h K
ian
Kio
ng
Inte
rnal
Au
dit
Exe
cuti
ve D
irec
tor
Ye
o T
eck
So
on
, Jo
hn
Ind
on
esia
an
d P
hili
pp
ines
O
per
atio
ns
Exe
cuti
ve D
irec
tor
Ta
n K
ah
Im
m
War
eho
use
O
per
atio
ns
Qu
alit
y A
ssu
ran
ce/
Qu
alit
y C
on
tro
l Div
isio
n
Ser
vice
/Tes
tin
gC
entr
e
Bru
nei
, Th
aila
nd
an
dV
ietn
am O
per
atio
ns
Exe
cuti
ve D
irec
tor
Ko
h M
ag
gie
Syn
telle
ctT
eles
yste
ms
Pte
Ltd
Alt
on
Inte
rnat
ion
al (
S)
Pte
Ltd
Ind
oo
r S
ales
D
ivis
ion
Mar
ine
Div
isio
n
Man
agin
g D
irec
tor
Ew
e S
oo
n E
e
Man
agin
g D
irec
tor
Lim
Te
k H
ua
, A
nth
on
yM
arke
tin
g D
irec
tor
Te
o Y
ew
Te
ck
Man
agin
g D
irec
tor
Le
e S
ek
Ke
on
g
Fir
emat
icE
ng
inee
rin
g P
teL
td
Man
agin
g D
irec
tor
Ch
ew
K
en
g K
eo
ng
Fed
eral
Har
dw
are
En
gin
eeri
ng
Co
Pte
Ltd
Ch
ina
Op
erat
ion
s
Ele
ctri
cal
Div
isio
n
Ou
tdo
or
Sal
es
Div
isio
n
Tec
hn
ical
/Pro
ject
Man
ager
Ch
ua
Th
iam
Yo
ng
83
Corporate Go vernance
The Directors recognise the importance of corporate governance and the need to offer the higheststandards of accountability to the shareholders. Accordingly, the Audit Committee will meet periodicallyto perform the following functions:
1. review the audit plans of the Company’s external auditors;
2. review the external auditors’ evaluation of the system of internal controls;
3. review the external auditors’ reports;
4. review the co-operation given by the Company’s officers to the external auditors;
5. review the financial statements of the Company and the Group before their submission to theBoard of Directors;
6. nominate external auditors for re-appointment; and
7. review interested person transactions.
Apart from the duties listed above, the Audit Committee shall commission and review the findings ofinternal investigations into matters where there is any suspected fraud or irregularity, or failure ofinternal controls or infringement of any Singapore law, rule or regulation which has or is likely tohave a material impact of our operating results and/or financial position.
Staff
As at 31 July 2000, we have a total of 104 employees who are on full-time employment. Thiscomprised 32 managers, 30 executive officers and 42 non-executive staff. The employees are notunionised. The relationship and co-operation between the management and staff have been goodand are expected to continue into the future. There has not been any industrial dispute within theGroup in the past three years. The average level of employee turnover in the past three financialyears ended 31 December 1999 for its managerial, executive and non-executive staff is 9%.
Remuneration Of Emplo yees Related To Substantial Shareholder s
Apart from the Chairman and one of the Executive Directors, there is an employee who is related toa substantial shareholder. The employee commenced work during FY1999. The remuneration of thisemployee in FY1999 was approximately $3,000.
The aggregate remuneration (the “Remuneration”) of the Chairman, the Executive Director and theaforesaid employee of the Group, all of whom are our substantial shareholders in FY1998 andFY1999 was approximately $470,000 (or approximately 15.5% of the profit before taxation and suchRemuneration but after share of associated companies’ profit or loss) and $596,000 (or approximately6.8% of the profit before tax and such Remuneration but after share of associated companies’ profitor loss) respectively.
The remuneration of the employees who are related to the substantial shareholders shall be subjectto the annual review and majority approval of the Audit Committee. Mr Koh Kian Kiong, a member ofthe Audit Committee, will abstain from participating in the review and approval process in relation tothe remuneration of any Director to whom he is related. The total remuneration paid to the employeewho is related to the substantial shareholders will be disclosed in our annual report.
84
SERVICE AGREEMENTS
On 11 August 2000, we entered into service contracts with each of Mr Koh Kian Kiong, Mr ChewKeng Keong, Mr Yeo Teck Soon, John, Mr Tan Kah Imm, Ms Koh Maggie, Mr Ewe Soon Ee, Mr LimTek Hua, Anthony and Mr Teo Yew Teck (the “Appointees”). The service contracts were effective from1 January 2000, except for Mr Ewe Soon Ee whose service contract was effective from 1 March2000.
The service contracts are entered into by the executives with our following Group companies:
Executive Group compan y
Koh Kian Kiong Federal International
Chew Keng Keong Federal International
Yeo Teck Soon, John Federal International
Tan Kah Imm Federal International
Koh Maggie Federal International
Ewe Soon Ee Alton
Lim Tek Hua, Anthony Firematic
Teo Yew Teck Firematic
The principal terms of the service contracts are as follows:
(i) Employment of the Appointees will be for an initial period of one (1) year from the effectivedate and thereafter shall be automatically renewed unless terminated in accordance with therespective service contracts. The service contracts may be terminated by either party giving theother party not less than three (3) months’ notice in writing or salary in lieu of notice.
(ii) The Appointees will be entitled to a basic monthly salary as follows:
Executive Basic salar y$
Koh Kian Kiong 23,338
Chew Keng Keong 14,584
Yeo Teck Soon, John 13,126
Tan Kah Imm 11,813
Koh Maggie 8,269
Ewe Soon Ee 7,000
Lim Tek Hua, Anthony 9,210
Teo Yew Teck 9,210
85
(iii) Each of the Executive Directors shall, in respect of each financial year, be entitled to a profitsharing incentive based on the following formula:
Group’ s consolidated net pr ofitbefore tax and pr ofit sharing (after
share of pr ofit or loss of associatedcompanies b ut bef ore extraor dinar y
Director items) (“Pr ofit”) Profit Sharing Entitlement
Koh Kian Kiong Profit < $4 million Nil$4 million ≤ Profit ≤ $10 million 2.0% of ProfitProfit > $10 million $200,000 plus 4.0% of Profit
in excess of $10 million
Other Executive Profit < $4 million NilDirectors $4 million ≤ Profit ≤ $10 million 1.0% of Profit
Profit > $10 million $100,000 plus 2.0% of Profitin excess of $10 million
(iv) Each of the Executive Officers below shall, in respect of each financial year, be entitled to aprofit sharing incentive which is calculated based on the audited accounts of the relevant Groupcompany for the year as follows:
Net pr ofit bef ore tax and bef oreprofit sharing (after minority
Executive interest and bef ore extraor dinar yOfficer items) of the rele vant Gr oup
compan y (“NPBT”) Profit Sharing Entitlement
Ewe Soon Ee NPBT of Alton ≤ $300,000 Nil$300,000 < NPBT of Alton ≤ $700,000 3.5% in excess of $300,000$700,000 < NPBT of Alton ≤ $1 million $14,000 plus 12% in excess
of $700,000NPBT of Alton > $1 million $50,000 plus 3.5% in excess
of $1 million
Lim Tek Hua, NPBT of Firematic ≤ $300,000 NilAnthony and S$300,000 < NPBT of Firematic 3.5% in excess of $300,000Teo Yew Teck ≤ $700,000
$700,000 < NPBT of Firematic $14,000 plus 12% in excess≤ $1 million of $700,000
NPBT of Firematic > $1 million $50,000 plus 3.5% in excessof $1 million
(v) In addition, Mr Ewe Soon Ee shall receive a lump sum bonus of $24,000 if Alton’s NPBT afterhis profit sharing entitlement equals to or exceeds $1 million.
(vi) Currently, each of Mr Koh Kian Kiong, Mr Chew Keng Keong, Mr Yeo Teck Soon, John, Mr TanKah Imm, Ms Koh Maggie, Mr Lim Tek Hua, Anthony and Mr Teo Yew Teck are provided withthe use of a motor car and they will continue to be entitled to the use of the motor car. Further,Mr Koh Kian Kiong is also provided with the use of a chauffeur.
(vii) Upon the expiry of each respective motor car’s 10-year COE, only Mr Koh Kian Kiong andMr Chew Keng Keong shall continue to be entitled to the use of a motor car each. Mr Yeo TeckSoon, John, Mr Tan Kah Imm, Ms Koh Maggie, Mr Lim Tek Hua, Anthony and Mr Teo Yew Teckshall instead be entitled to a monthly transport allowance of $4,000. Mr Ewe Soon Ee is alsoentitled to a monthly transport allowance of $4,000.
86
(viii) The rate of each of the Appointee’s salary may be reviewed from time to time as may bedetermined by the relevant board of directors in its absolute discretion (with the Appointee inquestion abstaining from voting on any such resolution).
(ix) During the term of the each service contract, each Appointee shall also, inter alia, be under anobligation not to compete directly or indirectly with our business.
Save as disclosed above, there are no other existing or proposed service agreements between theCompany or its Subsidiaries and any Director of the Company.
Had the proposed Service Agreements been in force for the last financial year ended 31 December1999, the total remuneration payable (comprising Directors’ fees, salaries, annual bonuses, incentivebonuses and CPF thereon) to the Appointees would have been $1.94 million (approximately 19.8%of profit before tax and the Appointees’ remuneration but after share of associated companies’ losses)instead of $1.68 million (approximately 17.1% of profit before tax and the Appointees’ remunerationbut after share of associated companies’ losses). The profit before tax but after share of losses ofassociated companies for the Group would have decreased from approximately $8.13 million to$7.87 million, an effective decrease of approximately 3.2%.
Director s’ Remuneration
The remuneration of the Directors on an aggregate basis and in remuneration bands for FY1998 andFY1999 are as follows:
1. Aggregate directors’ remuneration by category
FY1998 FY1999
Non- Non-Executive Executive Executive ExecutiveDirector s Director s Total Director s Director s Total
($’000) ($’000) ($’000) ($’000) ($’000) ($’000)
1,018 — 1,018 1,210 — 1,210
(b) Number of directors in remuneration bands
FY1998 FY1999
Non- Non-Executive Executive Executive ExecutiveDirector Director Total Director Director Total($’000) ($’000) ($’000) ($’000) ($’000) ($’000)
$500,000 and above — — — — — —
$250,000 to $499,999 1 — 1 1 — 1
below $250,000 4 — 4 4 — 4
5 — 5 5 — 5
87
PROPERTIES AND FIXED ASSETS
The following are details of our major properties:
Description/Location, Area, Tenure ,Unexpired term and Ann ual rental if Date of Date ofleasehold transf er Cost Valuation Valuation Valuer
($) ($)
1. Description2-storey intermediate terrace 18 December 2,278,365 4,200,000(1) 1 March Colliers Jardinefactory with mezzanine floor 1984 2000 Consultancy &serving as office cum warehouse Valuation (Singapore)at 47 Genting Road Pte LtdSingapore 349489
Land area/Build-in area405.6 sq. m / 656.6 sq. m
TenureFreehold
Ann ual rentalNot applicable
2. Description3-storey intermediate terrace 1 December 2,433,569 4,600,000(1) 1 March Colliers Jardinefactory serving as office cum 1983 2000 Consultancy &warehouse at 49 Genting Road Valuation (Singapore)Singapore 349490 (Singapore)
Land area/Build-in area405.3 sq. m/852.2 sq. m
TenureFreehold
Ann ual rentalNot applicable
3. DescriptionJTC detached factory serving as 11 September 2,245,505 1,700,000 1 March Colliers Jardineoffice, Service Center cum 1991 2000 Consultancy &warehouse at 11 Tuas Avenue 1 Valuation (Singapore)Singapore 639496 Pte Ltd
Land area/Build-in area4,701 sq. m/1,975 sq. m
Tenure30 years lease w.e.f. 16/11/82
Ann ual rental$82,462.56
Note:
(1) The valuations of the above 2 properties resulted in a revaluation surplus of $4,797,067, out of which $2,398,533 wascapitalised in conjunction with the “Restructuring Exercise” as set out on page 32 of this Prospectus.
All the properties described above are not intended for redevelopment.
Our fixed assets, comprising properties, plant and machinery, motor vehicles, furniture, fittings andoffice equipment and renovation, had a net book value of approximately $11.3 million as at 31December 1999.
88
DIRECTORS’ REPORT
29 August 2000
The ShareholdersFederal International (2000) Ltd47 Genting RoadSingapore 349489
Dear Sirs
This report has been prepared for inclusion in the prospectus (the “Prospectus”) of Federal International(2000) Ltd (the “Company”) to be dated 29 August 2000 in connection with the Invitation in respectof 44,000,000 new ordinary Shares of $0.20 each in the capital of the Company.
On behalf of the Directors of the Company, I report that, having made due inquiry in relation to theperiod between 31 December 1999, the date to which the last audited consolidated proforma accountsof the Company and its subsidiaries were made up, and the date hereof:-
(a) the businesses of the Company and its subsidiaries have, in the opinion of the Directors, beensatisfactorily maintained;
(b) in the opinion of the Directors, since the date of incorporation of the Company, no circumstanceshave arisen which would adversely affect the business or the value of the assets of the Companyor any of its subsidiaries;
(c) the current assets of the Company and its subsidiaries appear in the books at values which arebelieved to be realisable in the ordinary course of business;
(d) save as disclosed on pages 59 and 109 of this Prospectus, no contingent liabilities have arisenby reason of any guarantees given by the Company or any of its subsidiaries; and
(e) save as disclosed on pages 17 to 19, 25, 110 and 111 of this Prospectus, there have been nochanges in the published reserves nor any unusual factors affecting the profit of the Companyand its subsidiaries since the last audited consolidated proforma accounts.
Yours faithfullyFor and on behalf of the Board of Directors
UNAUDITED CONSOLIDATED PROFORMA FINANCIAL STATEMENTS FOR THEFIVE MONTHS ENDED 31 MAY 2000
The Directors confirm that the unaudited consolidated profit and loss account and balance sheet ofthe Group for the five months ended 31 May 2000 set out below has been prepared on the basis ofaccounting policies consistent with those appearing in the Accountants’ Report as set out on pages92 to 112 of this Prospectus.
Results of the Pr oforma Gr oup’ s operations
$’000
Sales 26,634
Profit before taxation 2,212
Share of current period losses of associated companies (147)
Taxation (610)
Profit attributable to the Group 1,455
Financial position of the Pr oforma Gr oup
Fixed assets 11,076
Interest in associated companies 862
Other investments 406
Current assets 44,520
Current liabilities 26,420
Net current assets 18,100
Non-current liabilities:
Hire purchase creditors (318)
Deferred taxation (139)
29,987
Representing:
Share capital and reserves 29,985
Minority interests 2
29,987
90
LETTER FROM THE AUDITORS AND REPORTING ACCOUNTANTS INRELATION TO THE UNAUDITED CONSOLIDATED PROFORMA
FINANCIAL STATEMENTS FOR THE PERIOD FROM 1 JANUARY 2000TO 31 MAY 2000
29 August 2000
The Board of DirectorsFederal International (2000) Ltd47 Genting RoadSingapore 349489
Dear Sirs,
This letter has been prepared for inclusion in the prospectus to be dated 29 August 2000 (the“Prospectus”) in connection with the Invitation in respect of 44,000,000 new ordinary shares of S$0.20each in the capital of Federal International (2000) Ltd (the “Company”).
We have made a review of the unaudited consolidated proforma financial statements of the Companyand its subsidiaries (the “Group”) as of and for the 5 months ended 31 May 2000, set out on page89 of the Prospectus. These financial statements are the responsibility of the Company’s management.Our responsibility is to issue a report on these financial statements based on our review.
We conducted our review in accordance with Singapore Standards on Auditing applicable to reviewengagements. This standard requires that we plan and perform the review to obtain moderateassurance as to whether the financial statements are free of material misstatement. A review islimited primarily to inquiries of company personnel and analytical procedures applied to financialdata and thus provides less assurance than an audit. We have not performed an audit and, accordingly,we do not express an audit opinion.
Based on our review, we are not aware of any material modifications that should be made to theunaudited consolidated proforma financial statements set out on page 89 of the Prospectus for it tobe in conformity with the accounting policies normally adopted by the Group.
Yours faithfully,
ERNST & YOUNGCertified Public AccountantsPartner - Tan Chian Khong
Singapore
91
LETTER FROM THE REPORTING ACCOUNTANTS IN RELATION TO THEPROFIT FORECAST FOR THE YEAR ENDING 31 DECEMBER 2000
29 August 2000
The Board of DirectorsFederal International (2000) Ltd47 Genting RoadSingapore 349489
Dear Sirs:
This letter has been prepared for inclusion in the Prospectus to be dated 29 August 2000 (the“Prospectus”) in connection with the Invitation by Federal International (2000) Ltd (the “Company”) inrespect of 44,000,000 new ordinary shares of $0.20 each in the capital of the Company.
We have examined the forecast of the Company and its subsidiaries (the “Group”) for the financialyear ending 31 December 2000 in accordance with the Singapore Standards on Auditing applicableto the examination of the prospective financial information. The Directors are solely responsible forthe forecast including the assumptions set out on pages 57 and 58 of the Prospectus on which theforecast is based.
The forecast includes results shown by unaudited consolidated proforma financial statements for the5 months period ended 31 May 2000.
Based on our examination of the evidence supporting the assumptions, nothing has come to ourattention to cause us to believe that these assumptions do not provide a reasonable basis for theforecast. Further, in our opinion, the forecast, so far as the accounting policies and calculations areconcerned, is properly prepared on the basis of the assumptions, is consistent with the accountingpolicies normally adopted by the Group, and has been presented in accordance with Statements ofAccounting Standard.
Yours faithfully,
ERNST & YOUNGCertified Public AccountantsPartner - Tan Chian Khong
Singapore
92
ACCOUNTANTS’ REPORT
29 August 2000
The Board of DirectorsFederal International (2000) Ltd47 Genting RoadSingapore 349489
Dear Sirs,
A. INTRODUCTION
This report has been prepared for inclusion in the Prospectus of Federal International (2000)Ltd (the “Company”) to be dated 29 August 2000 in connection with the invitation (“the Invitation”)in respect of 44,000,000 new ordinary shares (“New Shares”) of S$0.20 each as follows:
(a) 4,400,000 Offer Shares at S$0.30 by way of public offer; and
(b) 39,600,000 Placement Shares at by way of placement, comprising:
(i) 35,200,000 Placement Shares at S$0.30 for each Placement Share; and
(ii) 4,400,000 Reserved Shares at S$0.29 for each Share reserved for the IndependentDirectors, management and staff of the Group,
payable in full on application.
(1) The Company
The Company, an investment holding company, was incorporated in the Republic of Singaporeon 13 November 1999 under the Companies Act, Chapter 50 as a private limited companyunder the name of Federal International (2000) Pte Ltd.
At the date of incorporation, the authorised share capital of the Company was S$100,000divided into 100,000 ordinary shares of S$1.00 each. 2 ordinary shares of S$1.00 each fullypaid were issued at par for cash to the subscribers upon incorporation.
At an Extraordinary General Meeting held on 19 June 2000, the shareholders of the Companyapproved, inter alia, the following:
(a) the increase in the authorised share capital of the Company from S$100,000 toS$55,000,000 comprising 55,000,000 ordinary shares of S$1.00 each; and
(b) the issue of 26,248,773 ordinary shares of S$1.00 each in the capital of the Companypursuant to the restructuring exercise detailed in paragraph (2) below, which when fullypaid, allotted and issued, will rank pari passu in all respects with the existing issued sharesof the Company.
Subsequently, at an Extraordinary General Meeting held on 21 August 2000, the shareholdersapproved, inter alia, the following:
93
(a) the sub-division of each ordinary share of S$1.00 in the existing authorised and issuedand paid-up share capital of the Company into 5 ordinary shares of S$0.20 each;
(b) the conversion of the Company into a public limited company and the change of its nameto Federal International (2000) Ltd;
(c) the adoption of a new set of Articles of Association;
(d) the issue of 44,000,000 New Shares which are the subject of the Invitation. The NewShares, when issued, fully paid and registered in the name of CDP or its nominee, shallrank pari passu in all respects with the existing Shares of the Company;
(e) that the Directors be authorised, pursuant to Section 161 of the Act, and subject to theArticles of Association of the Company and the admission of the Company to the OfficialList of the SGX-ST, to issue Shares (whether by way of rights, bonus or otherwise) at anytime and from time to time and upon such terms and conditions and for such purposesand to such persons as the Directors may in their absolute discretion deem fit providedthat the aggregate number of Shares issued pursuant to such authority shall not exceed50% of the issued share capital of the Company for the time being, of which the aggregatenumber of such Shares issued other than on a pro rata basis to the shareholders of theCompany shall not exceed 20% of the issued share capital of the Company for the timebeing, and, unless revoked or varied by the Company in general meeting, such authorityshall continue in force until the conclusion of the next Annual General Meeting of theCompany or the date by which the next Annual General Meeting of the Company is requiredby law to be held, whichever is the earlier; and
(f) the adoption of the Shareholders’ Mandate (the details of which are set out in pages 74 to77 of this Prospectus).
The authorised share capital of the Company as at the date of this Report is $55,000,000divided into 275,000,000 ordinary shares of S$0.20 each. Upon completion of the allotment ofthe New Shares, the resultant issued and paid-up capital of the Company will be S$35,048,775comprising 175,243,875 ordinary shares of S$0.20 each.
(2) The Restructuring Exercise
At an Extraordinary General Meeting held on 19 June 2000, the shareholders of the Companyapproved, inter alia, the following:
(a) The Company acquired 45% of the issued and paid-up share capital of SyntellectTelesystems Pte Ltd (“Syntellect”) comprising 135,000 ordinary shares of S$1.00 each fromFederal Hardware Engineering Co. Pte Ltd (“Federal Hardware”). The purchase considerationwas S$147,414, based on the unaudited net tangible assets (“NTA”) of Syntellect as at 31December 1999 of S$327,586.
The purchase consideration is represented by way of an inter-company loan between theCompany and Federal Hardware, which is interest free and payable upon 14 days of noticein writing.
(b) The Company acquired the entire issued and paid-up share capital of Alton International(S) Pte Ltd (“Alton”), comprising 280,000 ordinary shares of S$1.00 each from FederalHardware. The purchase consideration was S$209,496, based on the audited NTA of Altonas at 31 December 1999 of S$209,496.
A. INTRODUCTION (cont’d)
94
The purchase consideration is represented by way of an inter-company loan between theCompany and Federal Hardware, which is interest free and payable upon 14 days of noticein writing.
(c) The Company acquired the entire issued and paid-up share capital of Firematic EngineeringPte Ltd (“Firematic”), comprising 300,000 ordinary shares of S$1.00 each from itsshareholders namely Federal Hardware, Mr Teo Yew Teck and Mr Lim Tek Hua, Anthony.The purchase consideration was S$1,427,928, based on the audited NTA of Firematic asat 31 December 1999 of S$1,427,928.
The purchase consideration of S$713,964 in respect of the acquisition from FederalHardware is represented by way of an inter-company loan between the Company andFederal Hardware, which is interest free and payable upon 14 days of notice in writing.
The purchase consideration of S$713,964 in respect of the acquisition from the remainingshareholders, namely Mr Teo Yew Teck and Mr Lim Tek Hua, Anthony, was satisfied by theallotment and issue of 713,964 new ordinary shares of S$1.00 each in the capital of theCompany by way of share swap.
(d) Upon completion of steps (a) to (c) above, the Company acquired the entire issued andpaid-up share capital of Federal Hardware, comprising 8,000,000 ordinary shares of S$1.00each.
The proforma consolidated NTA of Federal Hardware, its 3 associated companies (namelyFederal Phil-Nippon Flow-controls Inc., Eastern Jason Fabrication Services Pte Ltd andShanghai KVC Valve Co Ltd) and 1 Subsidiary (namely PT Fedsin Rekayasa Pratama)was $27,933,342 as at 31 December 1999. The purchase consideration was $25,534,809,based on the audited NTA of Federal Hardware adjusted for the capitalisation of 50% ofthe revaluation surplus. The revaluation surplus of $4,797,067 arose from the valuations ofthe freehold factory buildings at 47 and 49 Genting Road, of which $2,398,533 wascapitalised.
The acquisition was completed and the purchase consideration was satisfied on 18 August2000 by the allotment and issue of 25,534,809 shares in the capital of the Company to theshareholders.
Upon the completion of the Restructuring Exercise referred to above, the Company will havewholly-owned subsidiaries (collectively known as the “Group”) as detailed in Section B.
A. INTRODUCTION (cont’d)
95
B. GROUP
The Company and its subsidiary companies are collectively referred to as the “Group”. Thesubsidiary companies as at the date of this report are as follows:
Date and Percentagecountry of Issued and of equity
incorporation/ paid-up held b yName of compan y Place of b usiness share capital the Gr oup Principal activities
Subsidiary companiesHeld by the Company
Alton International (S) 13 December 1978 S$280,000 100 Dealer in hardware andPte Ltd Singapore oilfield engineering
materials
Federal Hardware 23 May 1980 S$8,000,000 100 Dealer in flowlineEngineering Co Singapore control material andPte Ltd services, and investment
holding
Firematic 30 December 1993 S$300,000 100 Design and supply of fireEngineering Singapore detection and protectionPte Ltd systems
Held b y subsidiar y compan y
PT Fedsin Rekayasa 6 March 2000 US$100,000 99 Hardware merchant andPratama Indonesia investment holding
The Associated companies held by the Group as at the date of this report are as follows:
Associated companiesHeld by the Company
Syntellect Telesystems 23 June 1999 S$300,000 45 An information systemsPte Ltd Singapore solution provider and
supply of relatedinformation technologyequipment
Held by subsidiary companies
Alton International 30 June 2000 Baht 5,000,000 49 Dealer in hardware and(Thailand) Limited Thailand oilfield engineering
materials
Shanghai KVC Valve 3 January 1993 US$3,000,000 50 Manufacturer andCo Ltd People’s Republic exporter of valves under
of China OEM arrangement
Federal Phil-Nippon 31 August 1999 Peso 2,340,000 30 Supply of FederalFlow-Controls Inc Philippines Hardware’s distributorship
products in thePhilippines
Eastern Jason 4 December 1999 S$450,000 50 Engineering, fabricationFabrication Services Singapore and sand blastingPte Ltd services
96
Date and Percenta gecountr y of Issued and of equity
incorporation/ paid-up held b yName of compan y Place of b usiness share capital the Gr oup Principal activities
PT Indoenergi Perkasa 11 May 1996 Rp 400,000,000 40 Selling and distribution ofIndonesia Ingersoll Rand air
compressor and aftersales services
The Subsidiar y Companies
The principal subsidiary, Federal Hardware Engineering Co. Pte. Ltd., was incorporated in theRepublic of Singapore on 23 May 1980 under the Companies Act, Chapter 50, as a privatelimited company.
At the date of incorporation , the authorised share capital of Federal Hardware was S$3,000,000divided into 3,000,000 ordinary shares at S$1 each. Three ordinary shares of S$1 each wereissued to the subscribers upon incorporation.
From 1981 to 1987, the issued and paid up capital of Federal Hardware was increased toS$2,130,000 divided into 2,130,000 ordinary shares of S$1 each. 2,129,997 ordinary shares ofS$1 each were issued at par for cash.
On 6 June 1987, the issued and paid up capital of Federal Hardware was increased toS$2,216,000 divided into 2,216,000 ordinary shares of S$1 each. 86,000 ordinary shares ofS$1 each were issued at a premium of S$0.80 each for cash.
On 6 June 1987, the issued and paid up capital of Federal Hardware was increased toS$2,256,000 divided into 2,256,000 ordinary shares of S$1 each. 40,000 ordinary shares ofS$1 each were issued at a premium of S$1.40 each for cash.
On 28 April 1989, the issued and paid up capital of Federal Hardware was increased toS$2,706,000 divided into 2,706,000 ordinary shares of S$1 each. 450,000 ordinary shares ofS$1 each were issued at a premium of S$0.30 each for cash.
On 1 February 1990, the authorised share capital of Federal Hardware was increased toS$6,000,000 divided into 6,000,000 ordinary shares of S$1 each.
From 1990 to 1991, the issued and paid up capital of Federal Hardware was increased toS$6,000,000 divided into 6,000,000 ordinary shares of S$1 each. 3,294,000 ordinary shares ofS$1 each were issued at par for cash.
On 5 August 1996, the authorised share capital of Federal Hardware was increased toS$12,000,000 divided into 12,000,000 ordinary shares of S$1 each.
On 8 August 1996, the issued and paid up capital of Federal Hardware was increased toS$7,700,000 divided into 7,700,000 ordinary shares of S$1 each. 1,700,000 ordinary shares ofS$1 each were issued at par for cash.
On 21 August 1996, the issued and paid up capital of Federal Hardware was increased toS$7,960,000 divided into 7,960,000 ordinary shares of S$1 each. 260,000 ordinary shares ofS$1 each were issued at a premium of S$2.50 each for cash.
On 23 September 1996, the issued and paid up capital of Federal Hardware was increased toS$8,000,000 divided into 8,000,000 ordinary shares of S$1 each. 40,000 ordinary shares ofS$1 each were issued at a premium of S$2.50 each for cash.
B. GROUP (cont’d)
97
On 16 April 1987, Federal Hardware acquired 180,000 ordinary shares of S$1 each of Alton,representing a 64% interest, for a consideration of S$385,740.
From 1988 to 1993, Federal Hardware further acquired 93,000 ordinary shares of S$1 each ofAlton for a total of consideration of S$188,760. Federal Hardware equity interest increasedfrom 64% to 97.5%.
Federal Hardware disposed 1 ordinary share of Alton on 21 April 1994 at par.
Federal Hardware further disposed 56,000 ordinary shares of Alton on 24 April 1995 and 55,999on 26 December 1996, for a total consideration of S$279,998. Federal Hardware equity interestdecreased from 97.5% to 77.5% and 57.5% respectively.
Firematic was incorporated on 30 December 1993, with the issue of 2 subscriber shares.
From 1994 to 1995, Federal Hardware increased its shareholding in Firematic to 150,000 ordinaryshares of S$1 each, representing a 50% interest. The authorised share capital of Firematic isS$1,000,000 divided into 1,000,000 ordinary shares of S$1 each.
C. PROFORMA FINANCIAL INFORMA TION
The proforma financial information set out in this report is expressed in Singapore dollars andshows the Proforma Group Results for the five years ended 31 December 1999, the SummarisedBalance Sheets of the Group as at the end of each of the five financial years ended 31December 1995 to 31 December 1999, and the Net assets as at 31 December 1999 of theGroup and the Company. The Proforma Group Results, Summarised Proforma Balance Sheetsand Proforma Net Assets have been prepared as if the group structure as at the date of thisreport as outlined in Section B above had been in existence throughout the period covered bythis report or since the dates of incorporation of the companies in the Group. The proformafinancial information is based on the audited financial statements of the Company and thesubsidiary companies, after making such adjustments which we considered appropriate in orderto present the financial statements on a consistent and comparable basis.
All material inter-group transactions and balances have been eliminated in the preparation ofthe Proforma Group Results, Summarised Proforma Balance Sheets and Proforma Net Assets.
The objective of the proforma financial information of the Group is to show what the historicalinformation might have been, had the Group as described above existed at an earlier date.However, the proforma financial information of the Group is not necessarily indicative of theresults of the operations or the related effects on the financial position that would have beenattained if the Group, as described above, had actually existed earlier.
Ernst & Young were appointed as auditors for the financial year ended 31 December 1999 forthe subsidiary companies Federal Hardware Engineering Co Pte Ltd and Firematic EngineeringPte Ltd. The auditors of Alton International (S) Pte Ltd for year ended 31 December 1999 wasHeng Lee Seng & Co. Prior to 1 January 1999, the Singapore subsidiaries were audited byHeng Lee Seng & Co. The auditors’ reports of all companies for the periods under review werenot qualified. No audited financial statements of the Company and subsidiary PT FedsinRekayasa Pratama has been prepared since each of their respective date of incorporation.
For those subsidiaries not audited by us during the accounting periods covered by this report,we have performed a review and carried out such work as we considered necessary on thosefinancial statements. We are satisfied that the financial statements are appropriate and properfor inclusion in the report.
B. GROUP (cont’d)
98
D. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies which have been consistently applied in preparing the proforma financialinformation set out in this report are as follows:
(a) Basis of accounting
The accounts of the Company and of the Group, which are expressed in Singapore dollars,are prepared under the historical cost convention modified by the revaluation of freeholdland and buildings and are in accordance with Singapore Statements of Accounting Standard.
(b) Basis of consolidation
The accounting year of the Company and all its subsidiaries in the Group ends on 31December.
Any excess of consideration paid over the fair values of the net assets of businessesacquired is included in goodwill and is written off in the year of acquisition. Conversely, anyexcess of fair values of the net assets of business acquired over consideration paid isincluded in capital reserves.
Assets, liabilities and results of overseas subsidiaries are translated into Singapore dollarson the basis outlined in paragraph (l) below.
(c) Subsidiary companies
Shares in subsidiary companies are stated at cost unless, in the opinion of the directors,there has been permanent diminution in value, in which case they are written down to avaluation fixed by the directors.
(d) Associated companies
An associate is a company, not being a subsidiary, in which the Group has a long-termsubstantial equity voting interest and in whose commercial and financial policy decisionsthe Group actively participates.
The Group’s share of the results of the associates is included in the consolidated profitand loss account. The Group’s share of the post-acquisition reserves of associates isincluded in the investments in the consolidated balances sheet. Where the audited accountsare not co-terminous with those of the Group, the share of profits is arrived at from thelatest audited accounts available.
Shares in associates are stated in the Company’s balances sheet at cost. Provision ismade for permanent diminution in values.
When associates are acquired, any excess of the consideration over the net assets at thedate of acquisition is dealt with as goodwill on consolidation. Such goodwill is written-offagainst Group’s reserves in the year of acquisition.
(e) Revenue recognition
Revenue from the sale of goods is recognised upon the passage of title to the customerwhich generally coincides with their delivery and acceptance.
Contract revenue is recognised on the completed contract method and losses are providedfor as they become known. Claims for additional contract compensation are not recogniseduntil resolved.
99
Dividend income from subsidiaries is recognised on the basis of dividend declared. Incomefrom other investments is recognised upon receipt. Interest income is accrued on the day-to-day basis.
(f) Fixed assets
Fixed assets are stated at cost or valuation less accumulated depreciation. The cost of anasset comprises its purchase price and any directly attributable costs of bringing the assetto working condition for its intended use. Expenditure for additions, improvements andrenewals are capitalised and expenditure for maintenance and repairs are charged to theprofit and loss account. When assets are sold or retired, their cost and accumulateddepreciation are removed from the accounts and any gain or loss resulting from theirdisposal is included in the profit and loss account.
Where fixed assets are revalued, any surplus on revaluation is credited to capital reserve.A decrease in net carrying amount arising on revaluation of fixed assets is charged to theprofit and loss account to the extent that it exceeds any surplus held in capital reserverelating to previous revaluation of the same class of assets.
(g) Leased assets
Where assets are financed by lease agreements that give rights approximating to ownership(finance leases), the assets are capitalised under fixed assets as if they had been purchasedoutright at the values equivalent to the present values of total rental payable during theperiods of the leases and the corresponding lease commitments are included under liabilities.Lease payments are treated as consisting of capital and interest elements and the interestis charged to profit and loss account. Depreciation on the relevant assets is charged toprofit and loss account on the basis outlined in paragraph (k) below.
(h) Investments
Investments held on a long term basis are stated at cost. Provision is made for anydiminution in value which is considered to be other than temporary.
(i) Deferred taxation
Deferred taxation is accounted for under the liability method whereby the tax charge forthe year is based on the disclosed book profit after adjusting for all permanent differences.The amount of taxation deferred on account of all timing differences is reflected in thedeferred taxation account. Deferred tax benefits are not recognised unless there isreasonable expectation of their realisation.
(j) Stocks and work-in-progress
Stocks and work-in-progress comprise of material costs. Stocks are stated at the lower ofcost and net realisable value. Work-in-progress is stated at cost less any foreseeable losses.Cost is determined on the weighted-average costs basis. Net realisable value representsthe estimated selling price less anticipated costs of disposal and after making allowancefor damaged, obsolete and slow-moving items.
D. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
100
(k) Depreciation
Depreciation is calculated on the straight line method to write off the cost of fixed assetsover their estimated useful lives. The estimated useful lives of fixed assets are as follows:
Leasehold buildings — Remaining period of lease
Freehold buildings — 50 years
Other fixed assets — 3 - 5 years
No depreciation is provided on freehold land.
Fully depreciated assets are retained in the accounts until they are no longer in use andno further charge for depreciation is made in respect of these assets.
(l) Foreign currencies transactions
Foreign currency transactions are translated into Singapore dollars at rates of exchangeapproximating those ruling at transaction dates. Foreign currency monetary assets andliabilities at the balance sheet dates are translated at the rates ruling at that date. Exchangeadjustments arising from conversion of current assets and liabilities are dealt with in theprofit and loss account.
For inclusion in the consolidated accounts, all assets and liabilities of foreign subsidiariesand associates are translated into Singapore dollars at rates of exchange ruling at thebalance sheet date and the results of foreign subsidiaries and associated companies aretranslated into Singapore dollars at the weighted average exchange rates. Exchangeadjustments are taken directly to exchange translation reserve and included as a separatecomponent of shareholders’ funds.
D. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
101
E. STATEMENT OF PROFORMA GROUP RESULTS
The Statement of Proforma Group Results sets out the Group proforma results for the fivefinancial years ended 31 December 1999, after making such adjustments as we consideredappropriate.
Profit before tax and share ofassociated companies’ results F2 1,107 1,354 3,341 2,882 8,256
Share of losses of associatedcompanies (82) (256) (153) (324) (122)
Profit before taxation and aftershare of associated companies’results 1,025 1,098 3,188 2,558 8,134
Taxation F3 (354) (547) (819) (779) (2,467)
Profit after taxation beforeextraordinary item 671 551 2,369 1,779 5,667
Extraordinary item F4 16 (161) — — —
Profit after taxation and afterextraordinary item 687 390 2,369 1,779 5,667
Minority Interests 2 10 (12) (6) —
Dividends K (121) (218) (307) (318) (313)
Retained profit attributableto shareholders of the Company 568 182 2,050 1,455 5,354
102
F. NOTES TO STATEMENT OF PROFORMA GROUP RESULTS
1. Turno ver
Turnover represents revenue from trading sales. It excludes dividends, interest income andintra-group transactions. It is analysed by sales division as follows:
Under/(over) provision in prior years: 20 — (18) (37) 1
354 547 819 779 2,467
For the financial year 1995, 1996, 1998 and 1999, the taxation charge for the Group is higherthan the amount determined by applying the applicable Singapore income tax rate to the pre-tax profits of the Group mainly due to:
• certain non-deductible expenses for tax purposes; and
• losses incurred by certain subsidiaries in 1995 cannot be offset against the profit of othercompanies in the Group.
4. Extraordinary item
Gain on partial disposal of subsidiary 129 140 — — —
Other investments written-off (113) (301) — — —
16 (161) — — —
5. Significant related party transactions
The Group had the following significant related party transactions and the effect of thetransactions on the basis determined between the parties are reflected in the accounts:
Associated Companies
Purchases — — — — 375
Management fee received (119) (70) (126) (142) (11)
Related Parties
Sales (1,507) (17,115) (16,869) (3,481) (27,260)
Related parties refers to corporations in which certain directors or the companies in the Grouphave substantial financial interest or influence.
F. NOTES TO STATEMENT OF PROFORMA GROUP RESULTS (cont’d)
104
G. SUMMARISED PROFORMA BALANCE SHEETS OF THE GROUP
The Summarised Balance Sheets of the Group set out the Group balance sheets as at the endof each of the five financial years ended 31 December 1995 to 31 December 1999.
At beginning of year 2,562 2,150 2,245 377 1,982 504 1,452 11,272
Additions — — — — 193 17 311 521
Disposals — — — — (10) — — (10)
Written-off — — — — (117) — (61) (178)
Revaluation 4,788 (700) — — — — — 4,088
At end of the year 7,350 1,450 2,245 377 2,048 521 1,702 15,693
Representing:
Cost — — 2,245 377 2,048 521 1,702 6,893
Valuation 7,350 1,450 — — — — — 8,800
At end of the year 7,350 1,450 2,245 377 2,048 521 1,702 15,693
Accumulated depreciation
At beginning of year — 666 793 328 1,760 498 689 4,734
Charge for the year — 43 104 23 138 8 267 583
Disposals — — — — (10) — — (10)
Written-off — — — — (110) — (61) (171)
Revaluation — (709) — — — — — (709)
At end of the year — — 897 351 1,778 506 895 4,427
Charge for 1998 — 43 104 51 219 28 239 684
Net book value
At end of the year 7,350 1,450 1,348 26 270 15 807 11,266
At beginning of year 2,562 1,484 1,452 49 222 6 763 6,538
Freehold land and building relates to 2-storey terrace factories situated at 47 and 49 GentingRoad on freehold land of 810.9 square metre.
Leasehold building relates to a single storey factory situated at 11 Tuas Avenue 1 on a leaseholdland area of 4701 square metre. The lease tenure of the leasehold land is 30 years with effectfrom 16 November 1982.
The valuation has been made by the Directors and is based on professional appraisals byColliers Jardin Consultancy & Valuation (Singapore) Pte Ltd on 1 March 2000. The valuationwas made on the basis of market value for existing use.
The net book value of fixed assets under hire-purchase agreements for the Group are asfollows:
S$’000
Motor vehicles 528
Office equipment 48
576
107
2. Subsidiary companies
CompanyS$’000
Unquoted shares, at cost 27,173
The details of the subsidiary companies are set out in Section B of this Report.
3. Associated companies
Group CompanyS$’000 S$’000
Unquoted shares, at cost 2,780 147
Share of post-acquisition losses (907) —
Translation difference (909) —
964 147
The details of the associated companies are set out in Section B of this Report.
4. Other investments
GroupS$’000
Unquoted shares, at cost 406
5. Stocks
GroupS$’000
Stocks 19,052
Work in progress,
Being costs in excess of progress billings 24
19,076
Work in progress can be analysed as follows:
Costs incurred 114
Less : Progress billings (90)
24
Stocks are stated after provision for stock obsolescence: 200
I. NOTES TO PROFORMA STATEMENT OF NET ASSETS (cont’d)
108
6. Trade debtor s
GroupS$’000
Trade debtors are stated after deducting provision for doubtful debts of: 175
7. Other debtors
GroupS$’000
Other recoverable 109
Utilities & sundry deposits 243
Staff loan 33
Prepayment 21
406
8. Amounts due from/(to) related parties
GroupS$’000
Due from related parties:
— trade 6,831
— loan 1,760
8,591
Due to related parties - trade (153)
Loan given to a related party is unsecured, bears interest at 12% per annum and is due withinthe next 12 months.
9. Amounts due to bankers
GroupS$’000
Bank overdraft, secured 3,195
Bank overdraft, unsecured 1,534
Trust receipts and bills payable 8,132
12,861
Amounts due to bankers bear interest of 3.5% - 9.3% per annum and the amounts are securedby way on legal mortgage on one of the subsidiary’s properties with net book value ofapproximately S$10.1m.
I. NOTES TO PROFORMA STATEMENT OF NET ASSETS (cont’d)
109
10. Amounts due to shareholders/directors
The amounts due to shareholders and directors are non-trade in nature, unsecured and duewithin the next 12 months.
The amounts due to shareholders bear interest at 5% per annum and amounts due to directorsare interest free.
11. Amount due to subsidiary company
Amount due to subsidiary company are non-trade in nature, unsecured, interest free and duewithin the next 12 months.
12. Hire purchase creditors
GroupS$’000
Minimum lease payments 657
Less : Amounts representing interest (124)
533
Principal repayable within 1 year (199)
Principal repayable after 1 year 334
13. Deferred taxation
The balance comprises mainly net timing differences of net book value over tax written downvalue of qualifying fixed assets.
14. Asset revaluation reserve
GroupS$’000
Surplus on revaluation of freehold land and buildings 2,398
15. Contingent liabilities
GroupS$’000
Corporate guarantees, given by a subsidiary company, to banks in favour of:
– an associated company 600
– a third party 327
Bankers guarantee and performance bonds 3,153
4,080
16. Future commitments
As at 31.12.1999, the Group has outstanding forward foreign exchange contracts amounting toapproximately S$1,094,000.
I. NOTES TO PROFORMA STATEMENT OF NET ASSETS (cont’d)
110
17. Subsequent events
At an Extraordinary General Meeting held on 19 June 2000, the shareholders of the Companyapproved, the increase in the authorised share capital of the Company and the issue of ordinaryshares pursuant to the restructuring exercise, as detailed in section A1 of this report.
Subsequently, at an Extraordinary General Meeting held on 21 August 2000, the shareholdersapproved the sub-division of the ordinary shares of S$1.00 each in the existing authorisedcapital of the Company into 5 shares of S$0.20 each, the conversion of the Company into apublic limited company and the change of its name to Federal International (2000) Ltd, theissue of 44,000,000 New Shares which are the subject of this Invitation, as detailed in sectionA1 of this report.
J. NET TANGIBLE ASSETS B ACKING
The net tangible assets backing of the Group for each ordinary share of S$0.20 each is basedon the Proforma Statement of Net Assets of the Group as at 31 December 1999 after takinginto account the proceeds and estimated expenses from the issue of the New Shares, thesubject of this Invitation.
GroupS$’000
Net tangible assets as at 31 December 1999 28,647
Add:
Estimated net proceeds from the issue of 44,000,000 New Shares ofS$0.20 each, which are the subject of this Invitation, as follows:
(a) 4,400,000 Offer Shares at $0.30 for each Offer Share 1,320
(b) 39,600,000 Placement Shares by way of placement comprising:
(i) 35,200,000 Placement Shares at $0.30 for each PlacementShares; and 10,560
(ii) 4,400,000 Reserved Shares at $0.29 for each Share reserved 1,276
Less:
Estimated expenses of the issue of the New Shares (1,000)
Net tangible assets after the issue of the New Shares 40,803
Issued Share Capital Number ofshares
Pre-invitation - before sub division of shares
No. of shares of S$1.00 each issued on incorporation 2
Issue of 26,248,773 shares of S$1.00 each pursuant to theRestructuring exercise as set out in pages 32 to 33 ofthe Prospectus 26,248,773
26,248,775
I. NOTES TO PROFORMA STATEMENT OF NET ASSETS (cont’d)
111
Issued Share Capital Number ofshares
Pre-invitation - after sub division of shares of S$1.00 eachinto ordinary shares of S$0.20 each:
Sub-division of 26,248,775 ordinary shares of S$1.00 each into131,243,875 ordinary shares of S$0.20 each 131,243,875
Issue of 44,000,000 New Shares of S$0.20 each in pursuant tothis invitation 44,000,000
Post-invitation 175,243,875
Net tangib le assets bac king f or eac h or dinar y share of S$0.20 eac h:
after restructuring but before issue of the New Shares 21.83 cents
after restructuring and issue of the New Shares 23.28 cents
K. DIVIDENDS
No dividend has been declared by the Company and its subsidiaries for the accounting periodscovered by this report except for the following:
Year ended Gross dividend per ordinary share Net dividendS$’000
Federal Hardware Engineering Co. Pte Ltd
31 December 1995 2.5% 110
31 December 1996 3.5% 207
31 December 1997 5% 296
31 December 1998 5% 296
31 December 1999 5% 296
Firematic Engineering Pte Ltd
31 December 1995 10% 22
31 December 1996 10% 22
31 December 1997 10% 22
31 December 1998 20% 44
31 December 1999 15% 33
L. AUDITED ACCOUNTS
No audited accounts of the Company and the Group have been prepared for any periodsubsequent to 31 December 1999.
J. NET TANGIBLE ASSETS B ACKING (cont’d)
112
M. STATEMENT OF ADJUSTMENTS
The following adjustments have been made to the audited financial statements of the Group forthe accounting periods covered by this report:
These valuation certificates have been prepared for the purpose of inclusion in the Prospectus to beissued in relation to the Invitation by Federal International (2000) Ltd.
We confirm that we have inspected the subject properties, conducted relevant inquiries andinvestigations as we consider necessary for the purposes of providing you with our opinion of theOpen Market Value of these properties as at 1 March 2000.
Our valuation is our opinion of the open market value of the properties which we would define asintended to mean “the best price at which the sale of an interest in a property might reasonably beexpected to have been completed unconditionally for cash consideration on the date of valuationassuming:
(a) a willing seller;
(b) that, prior to the date of valuation, there had been a reasonable period (having regard to thenature of the property and the state of the market) for the proper marketing of the interest, forthe agreement of price and terms and for the completion of the sale;
(c) that the state of the market, level of values and other circumstances were, on any earlierassumed date of exchange of contracts, the same as on the date of valuation;
(d) that no account had been taken of any additional bid by a purchaser with a special interest;and
(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.
Our valuation has been made on the assumption that the owner sells the properties on the openmarket without the benefit of a deferred term contract, lease back, joint venture or any similararrangement which could serve to affect the value of the property.
We have relied to a considerable extent on information provided by your company on such mattersas tenure, site area, floor area, age of building, lease terms, etc.
No allowance has been made in our valuation for any charges, mortgages or amounts owing on tothe properties, nor for any expenses or taxation which may be incurred in effecting a sale. It isassumed that the properties are free from encumbrances, restrictions and outgoings of an onerousnature which could affect their values.
114
We were not instructed to carry out structural survey of the buildings, or to test any of the services,but we have reflected in our valuation, where necessary, any items of disrepair which we noticedduring the course of our inspection. We are not, however, able to report that the buildings are freeof rot, infestation or any other defects.
In our valuation of the subject property, we have taken into account sales of comparable propertiesand made the necessary comparisons and adjustments. The Investment Method was also used as across check where appropriate.
Our valuation certificate for the respective properties are attached.
These valuation certificates are for the use of the Board of Directors of Federal International (2000)Ltd only and no responsibility is accepted to any third party for the whole or any part of its contents.
Address of Property : 47 Genting RoadSingapore 349489
Legal Description : Lot 5613V, Mukim 24
Tenure : Estate in fee simple
Site Area : 405.6 sq metres
Brief Description : The subject property comprises a 2-storey intermediate terracefactory with mezzanine floor.
It is located along Genting Road, off MacPherson Road and withinan established light industrial area.
The subject building, completed circa 1980s, has a gross floor areaof approximately 657 sq metres based on floor plans provided.
According to Master Plan (1998 Edition), the subject site is zoned‘Light Industry’ with a maximum permissible plot ratio of 2.5.
Open Market Value as at : S$4,200,000/-1 March 2000 (Singapore Dollars Four Million and Two Hundred Thousand Only)
116
VALUATION CERTIFICATE
Address of Property : 49 Genting RoadSingapore 349490
Legal Description : Lot 5614P, Mukim 24
Tenure : Estate in fee simple
Site Area : 405.3 sq metres
Brief Description : The subject property comprises a 3-storey intermediate terracefactory.
It is located along Genting Road, off MacPherson Road and withinan established light industrial area.
The subject building, completed circa 1980s, has a gross floor areaof approximately 852 sq metres based on floor plans provided.
According to Master Plan (1998 Edition), the subject site is zoned‘Light Industry’ with a maximum permissible plot ratio of 2.5.
Open Market Value as at : S$4,600,000/-1 March 2000 (Singapore Dollars Four Million and Six Hundred Thousand Only)
117
VALUATION CERTIFICATE
Address of Property : 11 Tuas Avenue 1Singapore 639496
Legal Description : Lot 1383C, Mukim 7
Tenure : 30-year JTC lease commencing 16 November 1982
Site Area : 4,701.4 sq metres
Brief Description : The subject property is a single-storey detached factory withmezzanine office and a rear single-storey extension.
It is located along Tuas Avenue 1, within Jurong Industrial Estateand some 22 km from the city centre.
The property occupies a rectangular shaped land plot which isgenerally flat and at access road level.
According to the floor plan provided, the subject buildings have atotal built-up area of approximately 1,975 sq metres
The subject site is zoned ‘General Industry’ under the 1998 MasterPlan.
Open Market Value as at : S$1,700,000/-1 March 2000 (Singapore Dollars One Million and Seven Hundred Thousand Only)
118
GENERAL AND STATUTORY INFORMATION
1. SHARE CAPITAL
(a) As at the date of this Prospectus, there is only one class of shares in the capital of theCompany. Accordingly, the substantial shareholders of the Company do not have differentvoting rights. There are no founder, management or deferred shares. The rights of andprivileges attached to the Shares are stated in the Articles of Association of the Company.
(b) The Company was incorporated on 13 November 1999. It presently has an authorisedshare capital of $55,000,000 divided into 275,000,000 Shares.
(c) Upon completion of the Invitation, the issued and paid-up share capital of the Companywill be increased to $35,048,775 divided into 175,243,875 Shares.
(d) Save as disclosed below, there were no changes in the issued and paid-up share capital ofthe Company or its Subsidiaries within the three years preceding the date of this Prospectus:
No. of ResultantCompan y Date shares issued capital Event
Federal 13 November 1999 2 ordinary $2 IncorporationInternational shares of(2000) Ltd $1.00 each
18 August 2000 26,248,773 $26,248,775 Issue of new sharesordinary shares pursuant to theof $1.00 each Restructuring Exercise as
set out on page 32 ofthis Prospectus
21 August 2000 131,243,875 $26,248,775 Sub-division of theordinary Shares ordinary sharesof $0.20 each
(e) Save as disclosed above, no shares in or debentures of the Company or any of itsSubsidiaries have been issued, or is proposed to be issued, as fully or partly paid-up forcash, or for a consideration other than cash, within the two years preceding the date ofthis Prospectus.
(f) No person has been granted or is entitled to be granted an option to subscribe for sharesin, or debentures of, the Company or any of its Subsidiaries.
2. INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS
(a) The list of present directorships and past directorships, other than those held in the Companyand its Subsidiaries, of each Director as at the date of this Prospectus and over the fiveyears preceding the date of this Prospectus is set out as follows:
Name Present Director ships Past Director ships
Koh Kian Kiong Alton International (Thailand) Limited Energy Product & Engineering ServicesEastern Jason Fabrication Services Pte Ltd
Pte Ltd Federal Fash Corp Pte LtdFederal Phil-Nippon Flow-Controls Inc Fedsin Oilfield Supplies (M) Sdn BhdShanghai KVC Valve Co Ltd FHEC (HK) Holdings LimitedSyntellect Telesystems Pte Ltd Jinan Investment Co Ltd
Sitindustrie S.E. Asia Pte LtdThai-Federal Co Ltd
119
Name Present Directorships Past Directorships
Chew Keng Keong Eastern Jason Fabrication Services Energy Product & Engineering ServicesPte Ltd Pte Ltd
Shanghai KVC Valve Co Ltd Federal Fash Corp Pte LtdSyntellect Telesystems Pte Ltd Fedsin Oilfield Supplies (M) Sdn Bhd
FHEC (HK) Holdings LimitedJinan Investment Co Pte LtdSitindustrie S.E. Asia Pte LtdThai-Federal Co Ltd
Yeo Teck Soon, Federal Phil-Nippon Flow-Controls Inc Federal Fash Corp Pte LtdJohn FHEC (HK) Holdings Limited
Tan Kah Imm Alton International (Thailand) Limited FHEC (HK) Holdings LimitedShanghai KVC Valve Co Ltd Thai-Federal Co Ltd
Koh Maggie Nil Nil
Iman Taufik PT Gunanusa Utama Fabricators P.T. Tripatra EngineeringPT Inticahaya Purnamandiri R.J. Brown & Associates
(Commissioner)
Heng Lee Seng HLS Corporate Services Pte Ltd CYZ Construction Pte LtdHeshe Holdings LimitedMinimax Corporate Service Pte LtdSafe & Sound Private Limited
Hoon Tai Meng Brandedmall.com Pte Ltd Asia M & R Holdings Pte LtdChip Eng Seng Corporation Ltd Beaver Confectionery & Bakery Pte LtdEducationguide.com.sg Pte Ltd Country Art International Pte LtdHeshe Holdings Limited Form Holdings LtdHTM Licensing Network Pte Ltd Kefa International Trade Pte LtdMr Mums International Pte Ltd Ncho Engineering & Services Pte LtdMSM Holdings Pte Ltd Singapore Gateway Pte LtdMSM (Shanghai) International Trade Solar Vision Electrical Pte Ltd
Ltd (Incorporated in PRC)North Light Resources Development
(b) Save as disclosed below, none of the Executive Officers hold directorships in companies,other than those held in the Company and its Subsidiaries, as at the date of this Prospectus,or over the five years preceding the date of this Prospectus:
Name Present Director ships Past Director ships
Chng Geok Nil Nil
Chua Thiam Yong Nil Nil
Ewe Soon Ee Alton International (Thailand) Limited Nil
Lim Tek Hua, Anthony Nil Nil
Teo Yew Teck Nil Nil
Lee Sek Kheong Syntellect Telesystems Pte Ltd Nil
120
(c) Save as disclosed below, none of the Directors and Executive Officers is related to oneanother or to any substantial shareholder of the Company:
i) Ms Koh Maggie is the daughter of Mr Koh Kian Kiong. Mr Don Koh Beng Guan, sonof Mr Koh Kian Kiong, is currently working in Federal Hardware as a sales engineer.
ii) Mr Chew Keng Keong is the brother of both Mr Chew Keng Chuan, Danny and MsChew Lay Peng, Janice.
iii) Ms Wong Kwee Ying is the sister-in-law of Mr Yeo Teck Soon, John.
(d) The interests of the Directors and substantial shareholders in the Shares as at the date ofthis Prospectus and as recorded in the Register of Shareholdings maintained under theprovisions of the Act are as follows:
Shares in whic h theShares registered in the Director s and substantialnames of Director s and shareholder s are deemedsubstantial shareholder s to ha ve an interest
No. of Shares % No. of Shares %
Directors
Koh Kian Kiong 46,588,270 35.50 Nil Nil
Chew Keng Keong 37,038,250 28.22 Nil Nil
Yeo Teck Soon, John 18,857,455 14.37 Nil Nil
Tan Kah Imm 9,715,995 7.40 Nil Nil
Koh Maggie 242,580 0.18 Nil Nil
Iman Taufik 4,149,405 3.16 Nil Nil
Heng Lee Seng Nil Nil Nil Nil
Hoon Tai Meng Nil Nil Nil Nil
Substantial Shareholders
Koh Kian Kiong 46,588,270 35.50 Nil Nil
Chew Keng Keong 37,038,250 28.22 Nil Nil
Yeo Teck Soon, John 18,857,455 14.37 Nil Nil
Tan Kah Imm 9,715,995 7.40 Nil Nil
(e) There is no shareholding qualification for Directors in the Articles of Association of theCompany.
(f) None of the Directors or Executive Officers is or was involved in any of the followingevents:
(i) a petition in the last 10 years under any bankruptcy laws filed in any jurisdiction againsthim or any partnership in which he was a partner or any corporation of which he wasa director or an executive officer;
(ii) unsatisfied judgements outstanding against him;
(iii) a conviction of any offence, in Singapore or elsewhere, involving fraud or dishonestypunishable with imprisonment for three months or more, or charged for violation of anysecurities laws or any such pending criminal proceeding against him;
(iv) a conviction of any offence, in Singapore or elsewhere, involving a breach of anysecurities or financial market laws, rules or regulations;
121
(v) the subject of judgement in any civil proceeding in Singapore or elsewhere in the last10 years involving fraud, misrepresentation or dishonesty or any such pending civilproceeding against him;
(vi) a conviction in Singapore or elsewhere of any offence in connection with the formationor management of any corporation;
(vii) disqualification from acting as a director of any company, or from taking part in anyway directly or indirectly in the management of any company;
(viii) the subject of any order, judgement or ruling of any court of competent jurisdiction,tribunal or governmental body permanently or temporarily enjoining him from engagingin any type of business practice or activity; and
(ix) the management or conduct of affairs of any company or partnership which has beeninvestigated by an inspector appointed under the provisions of the Companies Act, orother securities enactment or by any other regulatory body in connection with anymatter involving the company or partnership occurring or arising during the periodwhen he was so concerned with the company or partnership.
(g) Save as disclosed on page 84 of this Prospectus, there are no existing or proposed servicecontracts between the Directors and the Company or any of its Subsidiaries.
(h) The aggregate fees and remuneration (including CPF thereon) paid or distributed by theGroup to the Directors for services rendered in all capacities to the Company and itsSubsidiaries for FY1999 amounted to $1.21 million. For the FY2000, the aggregate feesand remuneration payable to the Directors under the arrangements with the Group in forceas at the date of this Prospectus, including the service agreements referred to on page 84of this Prospectus, are estimated to be approximately $1.26 million (including profit sharingand CPF thereon).
(i) No option to subscribe for securities of the Company or any of its Subsidiaries has beengranted to, or was exercised by, any Director or Executive Officer within the two yearspreceding the date of this Prospectus.
(j) Save as disclosed below, none of the Directors or substantial shareholders of the Companyis interested, directly or indirectly, in the promotion of, or in any assets acquired or disposedof by, or leased to, the Company or any of its Subsidiaries within the two years precedingthe date of this Prospectus, or in any proposal for such acquisition or disposal or lease asaforesaid.
HLS Corporate Services Pte Ltd, a corporate secretarial services company in which ourIndependent Director, Mr Heng Lee Seng, is also a director, assisted in the incorporationof the Company and was paid $1,500 for its professional services.
(k) Save as disclosed on pages 69 to 72 and 73 of this Prospectus, none of the Directors,Executive Officers or substantial shareholders of the Company has any interest, direct orindirect, in any company carrying on the same trade as the Company or any of itsSubsidiaries.
(l) Save as disclosed on pages 69 to 72 of this Prospectus, none of the Directors is materiallyinterested in any existing contract or arrangement subsisting at the date of this Prospectuswhich is significant in relation to the business of the Company and its Subsidiaries.
(m) Save as disclosed in paragraph 2(j), no sum or benefit has been paid or has been agreedto be paid to any Director or to any firm in which a Director is a partner or corporation inwhich such Director holds shares or debentures in cash or in shares or otherwise by anyperson to induce him to become, or to qualify him as, a Director or otherwise for servicesrendered by him or such firm or corporation in connection with the promotion or formationof the Company.
122
3. ARTICLES OF ASSOCIATION
(a) The following provision in the Articles of Association of the Company relates to restrictionson the transferability of shares and the voting rights of members of the Company:-
Article 38
A. There shall be no restriction on the transfer of fully paid up shares (except whererequired by law, the listing rules of any Stock Exchange upon which the shares of theCompany may be listed or the rules and/or bye-laws governing any Stock Exchangeupon which the shares of the Company may be listed) but the Directors may in theirdiscretion decline to register any transfer of shares upon which the Company has alien and in the case of shares not fully paid up, may refuse to register a transfer to atransferee of whom they do not approve Provided always that in the event of theDirectors refusing to register a transfer of shares, they shall within one month beginningwith the day on which the application for a transfer of shares was made, serve anotice in writing to the applicant stating the facts which are considered to justify therefusal as required by the Statutes.
B. The Directors may in their sole discretion refuse to register any instrument of transferof shares unless:
(a) all or any part of the stamp duty (if any) payable on each share certificate andsuch fee not exceeding $2 as the Directors may from time to time require pursuantto Article 41, is paid to the Company in respect thereof;
(b) the instrument of transfer is deposited at the Office or at such other place (if any)as the Directors may appoint accompanied by the certificates of the shares towhich it relates, and such other evidence as the Directors may reasonably requireto show the right of the transferor to make the transfer and, if the instrument oftransfer is executed by some other person on his behalf, the authority of the personso to do;
(c) the instrument of transfer is in respect of only one class of shares; and
(d) the amount of the proper duty with which each share certificate to be issued inconsequence of the registration of such transfer is chargeable under any law forthe time being in force relating to stamps is tendered.
Article 61
At any General Meeting, a resolution put to the vote of the meeting shall be decided on ashow of hands unless a poll is (before or on the declaration of the result of the show ofhands) demanded by:
(a) the chairman of the meeting; or
(b) not less than two members present in person or by proxy and entitled to vote; or
(c) a member present in person or by proxy and representing not less than one-tenth ofthe total voting rights of all the members having the right to vote at the meeting; or
(d) a member present in person or by proxy and holding shares in the Company conferringa right to vote at the meeting and being shares on which an aggregate sum has beenpaid up equal to not less than one-tenth of the total sum paid on all the shares conferringthat right,
Provided always that no poll shall be demanded on the choice of a chairman or on aquestion of adjournment.
123
Article 63
In the case of an equality of votes, whether on a show of hands or on a poll, the chairmanof the meeting at which the show of hands takes place or at which the poll is demandedshall be entitled to a casting vote.
Article 65
Subject and without prejudice to any special privileges or restrictions as to voting for thetime being attached to any special class of shares for the time being forming part of thecapital of the company, each member entitled to vote may vote in person or by proxy. Ona show of hands, every member who is present in person or by proxy shall have one voteand on a poll, every member who is present in person or by proxy shall have one vote forevery share which he holds or represents. For the purpose of determining the number ofvotes which a member, being a Depositor, or his proxy may cast at any General Meetingon a poll, the reference to shares held or represented shall, in relation to shares of thatDepositor, be the number of shares entered against his name in the Depository Registeras at forty-eight hours before the time of the relevant General Meeting as certified by theDepository to the Company.
Article 66
In the case of joint holders of a share, the vote of the senior who tenders a vote, whetherin person or by proxy, shall be accepted to the exclusion of the votes of the other jointholders and for this purpose, seniority shall be determined by the order in which the namesstand in the Register of Members or (as the case may be) the Depository Register inrespect of the share.
Article 67
Where in Singapore or elsewhere, a receiver or other person (by whatever name called)has been appointed by any court claiming jurisdiction in that behalf to exercise powers withrespect to the property or affairs of any member on the ground (however formulated) ofmental disorder, the Directors may in their absolute discretion, upon or subject to productionof such evidence of the appointment as the Directors may require, permit such receiver orother person on behalf of such member to vote in person or by proxy at any GeneralMeeting or to exercise any other right conferred by membership in relation to meetings ofthe Company.
Article 68
No member shall, unless the Directors otherwise determine, be entitled in respect of sharesheld by him to vote at a General Meeting either personally or by proxy or to exercise anyother right conferred by membership in relation to meetings of the Company if any call orother sum presently payable by him to the Company in respect of such shares remainsunpaid.
Article 69
No objection shall be raised as to the admissibility of any vote except at the meeting oradjourned meeting at which the vote objected to is or may be given or tendered and everyvote not disallowed at such meeting shall be valid for all purposes. Any such objectionshall be referred to the chairman of the meeting whose decision shall be final and conclusive.
Article 70
On a poll, votes may be given personally or by proxy and a person entitled to more thanone vote need not use all his votes or cast all the votes he uses in the same way.
124
Article 71
(A) A member may appoint not more than two proxies to attend and vote at the sameGeneral Meeting Provided that if the member is a Depositor, the Company shall beentitled and bound:
(a) to reject any instrument of proxy lodged if the Depositor is not shown to have anyshares entered against his name in the Depository Register as at forty-eight hoursbefore the time of the relevant General Meeting as certified by the Depository tothe Company; and
(b) to accept as the maximum number of votes which in aggregate the proxy or proxiesappointed by the Depositor is or are able to cast on a poll a number which is thenumber of shares entered against the name of that Depositor in the DepositoryRegister as at forty-eight hours before the time of the relevant General Meeting ascertified by the Depository to the Company, whether that number is greater orsmaller than the number specified in any instrument of proxy executed by or onbehalf of that Depositor.
(B) The Company shall be entitled and bound, in determining rights to vote and othermatters in respect of a completed instrument of proxy submitted to it, to have regardto the instructions (if any) given by and the notes (if any) set out in the instrument ofproxy.
(C) In any case where a form of proxy appoints more than one proxy, the proportion of theshareholding concerned to be represented by each proxy shall be specified in theform of proxy.
(D) A proxy need not be a member of the Company.
Article 72
(A) An instrument appointing a proxy shall be in writing in any usual or common form orin any other form which the Directors may approve and:
(a) in the case of an individual, shall be signed by the appointor or his attorney; and
(b) in the case of a corporation, shall be either given under its common seal or signedon its behalf by an attorney or a duly authorised officer of the corporation.
(B) The signature on such instrument need not be witnessed. Where an instrumentappointing a proxy is signed on behalf of the appointor by an attorney, the letter orpower of attorney or a duly certified copy thereof must (failing previous registrationwith the Company) be lodged with the instrument of proxy pursuant to Article 73,failing which the instrument may be treated as invalid.
Article 73
An instrument appointing a proxy must be left at such place or one of such places (if any)as may be specified for that purpose in or by way of note to or in any documentaccompanying the notice convening the meeting (or, if no place is so specified, at theOffice) not less than forty-eight hours before the time appointed for the holding of themeeting or adjourned meeting or (in the case of a poll taken otherwise than at or on thesame day as the meeting or adjourned meeting) for the taking of the poll at which it is tobe used, and in default shall not be treated as valid. The instrument shall, unless thecontrary is stated thereon, be valid as well for any adjournment of the meeting as for themeeting to which it relates; Provided that an instrument of proxy relating to more than onemeeting (including any adjournment thereof) having once been so delivered for the purposesof any meeting shall not be required again to be delivered for the purposes of anysubsequent meeting to which it relates.
125
Article 74
An instrument appointing a proxy shall be deemed to include the right to demand or join indemanding a poll, to move any resolution or amendment thereto and to speak at themeeting.
Article 75
A vote cast by proxy shall not be invalidated by the previous death or insanity of theprincipal or by the revocation of the appointment of the proxy or of the authority underwhich the appointment was made Provided that no intimation in writing of such death,insanity or revocation shall have been received by the Company at the Office at least onehour before the commencement of the meeting or adjourned meeting or (in the case of apoll taken otherwise than at or on the same day as the meeting or adjourned meeting) thetime appointed for the taking of the poll at which the vote is cast.
Article 76
Any corporation which is a member of the Company may by resolution of its directors orother governing body authorise such person as it thinks fit to act as its representative atany meeting of the Company or of any class of members of the Company. The person soauthorised shall be entitled to exercise the same powers on behalf of such corporation asthe corporation could exercise if it were an individual member of the Company and suchcorporation shall for the purposes of these presents be deemed to be present in person atany such meeting if a person so authorised is present thereat.
(b) The following provisions in the Articles of Association of the Company relate to theremuneration, voting rights on proposals, arrangements or contracts in which Directors areinterested and the borrowing powers of Directors:-
Article 79
The ordinary remuneration of the Directors shall from time to time be determined by anOrdinary Resolution of the Company and shall not be increased except pursuant to anOrdinary Resolution passed at a General Meeting where notice of the proposed increaseshall have been given in the notice convening the General Meeting and shall (unless suchresolution otherwise provides) be divisible among the Directors as they may agree, orfailing agreement, equally, except that any Director who shall hold office for part only of theperiod in respect of which such remuneration is payable shall be entitled only to rank insuch division for a proportion of fees related to the period during which he has held office.
Article 80
(A) Any Director who holds any executive office, or who serves on any committee of theDirectors, or who otherwise performs services which in the opinion of the Directors areoutside the scope of ordinary duties of a Director, may be paid such extra remunerationby way of salary, commission or otherwise as the Directors may determine.
(B) The fees (including any remuneration under Article 80(A) above) in the case of aDirector other than an Executive Director shall be payable by a fixed sum and shall notat any time be by commission on or percentage of the profits or turnover, and noDirector whether an Executive Director or otherwise shall be remunerated by acommission on or percentage of turnover.
Article 81
The Directors may repay to any Director all such reasonable expenses as he may incur inattending and returning from meetings of the Directors or of any committee of the Directorsor General Meetings or otherwise in or about the business of the Company.
126
Article 82
The Directors shall have power to pay and agree to pay pensions or other retirement,superannuation, death or disability benefits to (or to any person in respect of) any Directorfor the time being holding any executive office and for the purpose of providing any suchpensions or other benefits to contribute to any scheme or fund or to pay premiums.
Article 83
A Director may be party to or in any way interested in any contract or arrangement ortransaction to which the Company is a party or in which the Company is in any wayinterested and he may hold and be remunerated in respect of any office or place of profitother than the office of Auditor of the Company or any subsidiary thereof) under the Companyor any other company in which the Company is in any way interested and he (or any firmof which he is a member) may act in a professional capacity for the Company or any suchother company and be remunerated therefor and in any such case as aforesaid (save asotherwise agreed) he may retain for his own absolute use and benefit all profits andadvantages accruing to him thereunder or in consequence thereof.
Article 88
The remuneration of a Managing Director shall from time to time be fixed by the Directorsand may, subject to these presents, be by way of salary or commission or participation inprofits or by any or all these modes but he shall not under any circumstances be remuneratedby a commission on or a percentage of turnover.
Article 98
(A) Any Director may at any time by writing under his hand and deposited at the Office, ordelivered at a meeting of the Directors, appoint any person approved by a majority ofhis co-Directors (other than another Director) to be his alternate Director and may inlike manner at any time terminate such appointment. Such appointment, unlesspreviously approved by the majority of the Directors, shall have effect only upon andsubject to being so approved. A person shall not act as alternate Director to more thanone Director at the same time.
(B) The appointment of an alternate Director shall determine on the happening of anyevent which if he were a Director would cause him to vacate such office or if theDirector concerned (below called “his principal”) ceases to be a Director.
(C) An alternate Director shall (except when absent from Singapore) be entitled to receivenotices of meetings of the Directors and shall be entitled to attend and vote as aDirector at any such meeting at which his principal is not personally present andgenerally at such meeting to perform all functions of his principal as a Director and forthe purposes of the proceedings at such meeting the provisions of these presentsshall apply as if he (instead of his principal) were a Director. If his principal is for thetime being absent from Singapore or temporarily unable to act through ill health ordisability, his signature to any resolution in writing of the Directors shall be as effectiveas the signature of his principal. To such extent as the Directors may from time to timedetermine in relation to any committees of the Directors, the foregoing provisions ofthis paragraph shall also apply mutatis mutandis to any meeting of any such committeeof which his principal is a member. An alternate Director shall not (save as aforesaid)have power to act as a Director nor shall he be deemed to be a Director for thepurposes of these presents.
127
(D) An alternate Director shall be entitled to contract and be interested in and benefit fromcontracts or arrangements or transactions and to be repaid expenses and to beindemnified to the same extent mutatis mutandis as if he were a Director but he shallnot be entitled to receive from the Company in respect of his appointment as alternateDirector any fees except only such part (if any) of the fees otherwise payable to hisprincipal as such principal may by notice in writing to the Company from time to timedirect.
Article 102
A Director shall not vote in respect of any contract or proposed contract or arrangement orany other proposal whatsoever in which he has any personal material interest, directly orindirectly. A Director shall not be counted in the quorum at a meeting in relation to anyresolution on which he is debarred from voting.
Article 109
Subject as hereinafter provided and to the provisions of the Statutes, the Directors mayexercise all the powers of the Company to borrow money, to mortgage or charge itsundertaking, property and uncalled capital and to issue debentures and other securities,whether outright or as collateral security for any debt, liability or obligation of the Companyor of any third party.
4. MATERIAL CONTRACTS
The following contracts, not being contracts entered into in the ordinary course of business,have been entered into by the Group within the two years preceding the date of this Prospectusand are or may be material:
(a) Corporate Guarantee dated 31 March 1999 between Federal Hardware and Dai-Ichi KangyoBank Ltd pursuant to which Federal Hardware extended a corporate guarantee for theamount of ¥20 million in favour of the Dai-Ichi Kangyo Bank Ltd on behalf of KVC Co Ltd.
(b) Restructuring Agreement, which takes effect from 20 January 2000, between FederalHardware, Mr Kong Kok Kee and Eastern Jason relating to, inter alia, the subscription byFederal Hardware of approximately 50% stake in Eastern Jason, comprising 224,999 ordinaryshares of $1.00 each, at a cash consideration of $224,999.
(c) Deed of Undertaking, which takes effect from 20 January 2000, between Federal Hardware,Mr Kong Kok Kee and Eastern Jason, pursuant to which Mr Kong Kok Kee, inter alia,warranted to Federal Hardware that the profits of Eastern Jason for certain financial yearswill not be less than certain sums.
(d) Loan Agreement dated 25 February 2000 between Federal Hardware and KVC Co Ltdrelating to the loan of an amount of £300,000 extended by Federal Hardware to KVC CoLtd for business exploration.
(e) Binding Agreement to sale and purchase deed no. 6 dated 6 March 2000 between AzmilRahman and Pratama relating to the purchase by Pratama of 200 shares representing10% of the share capital of Gunanusa from Azmil Rahman.
(f) Binding Agreement to sale and purchase deed no. 12 dated 13 March 2000 between AzmilRahman and Pratama relating to the purchase by Pratama of 1,600 shares representing40% of the share capital of Indoenergi from Azmil Rahman.
(g) Sale and Purchase deed no. 4 dated 10 April 2000 between Azmil Rahman and Pratamarelating to the purchase by Pratama of 200 shares representing 10% of the share capitalof Gunanusa from Azmil Rahman.
128
(h) Sale and Purchase Deed no. 5 dated 10 April 2000 between Azmil Rahman and Pratamarelating to the purchase by Pratama of 1,600 shares representing 40% of the share capitalof Indoenergi from Azmil Rahman.
(i) Share Swap Agreement dated 19 June 2000 between the Company and the then existingshareholders of Federal Hardware pursuant to which the Company acquired the entireissued and paid-up share capital of Federal Hardware, consisting of 8,000,000 ordinaryshares of $1.00 each at a consideration of $25,534,809 to be satisfied by the allotmentand issue of 25,534,809 ordinary shares of $1.00 each in the capital of the Company tothe then existing shareholders of Federal Hardware in the proportions as set out on page33 of this Prospectus.
(j) Sale and Purchase Agreement dated 7 August 2000 between the Company and FederalHardware relating to the purchase by the Company of a 45% stake in Syntellect, comprising135,000 ordinary shares of $1.00 each, at a consideration of $147,414 to be representedas an inter-company loan between the Company and Federal Hardware, which is interestfree and payable upon 14 days of notice in writing.
(k) Sale and Purchase Agreement dated 7 August 2000 between the Company and FederalHardware relating to the purchase by the Company of the entire issued and paid-up sharecapital of Alton, comprising 280,000 ordinary shares of $1.00 each, at a consideration of$209,496 to be represented as an inter-company loan between the Company and FederalHardware, which is interest free and payable upon 14 days of notice in writing.
(l) Share Swap Agreement dated 7 August 2000 between the Company, Federal Hardware,Mr Teo Yew Teck and Mr Lim Tek Hua, Anthony relating to the purchase by the Companyof the entire issued and paid-up share capital of Firematic, comprising 300,000 ordinaryshares of $1.00 each, at a consideration of $1,427,928 to be satisfied by (i) representingthe $713,964 due to Federal Hardware as an inter-company loan between the Companyand Federal Hardware, which is interest free and payable upon 14 days of notice in writing;and (ii) the allotment and issue of 356,982 ordinary shares of $1.00 each in the sharecapital of the Company to each of Mr Teo Yew Teck and Mr Lim Tek Hua, Anthony for the$356,982 due to each of them.
(m) Technical Assistance and Consultancy Agreement dated 21 August 2000 between FederalHardware and Fedsin Oilfield Supplies (M) Sdn Bhd relating to the provision of technicalassistance and consultancy services by Federal Hardware to Fedsin Oilfield Supplies (M)Sdn Bhd.
(n) Technical Assistance Agreement dated 25 August 2000 between Federal Hardware and PTFederin Guna Utama relating to the provision of technical assistance and consultancyservices by Federal Hardware to PT Federin Guna Utama.
(o) Deed of Undertaking dated 25 August 2000 from (1) Dousetech Engineering Pte Ltd(“Doustech”), (2) Chan Kah Yee (“CKY”), (3) Lam Kit Ping (“LKP”) and (4) Lee Kwee LianGrace (“LKLG”) to (A) the Company and (B) Firematic pursuant to which Dousetech, CKY,LKP and LKLG have, inter alia, undertaken not to, for a duration of five years or for so longas Firematic remains a Subsidiary, whichever is the later, carry on any business which maycompete with the existing and future business of Firematic.
(p) The Management and Underwriting Agreement dated 28 August 2000 made between theCompany, UOB Asia and the Underwriters referred to in paragraphs 10(a) and 10(b) onpage 131 below.
(q) The Placement Agreement dated 28 August 2000 made between the Company and UOBAsia referred to in paragraph 10(c) on page 131 below.
129
(r) The Depository Agreement dated 28 August 2000 between the Company and CDP pursuantto which CDP agreed to act as depository for the Company.
(s) The agreement constituted by the letter referred to in paragraph 9(k) on page 131 of thisProspectus.
5. WORKING CAPITAL
The Directors are of the opinion that, after taking into account the present banking facilities andthe net proceeds from the issue of New Shares by the Company, the Group will have adequateworking capital for its present operating requirements.
In the opinion of the Directors, there are no minimum amounts which must be raised by theissue of the New Shares in order to provide for the following:
(i) the purchase price of any property purchased or to be purchased;
(ii) estimated preliminary expenses (including underwriting and placement commission) for theInvitation payable by the Company;
(iii) the repayment of any money borrowed by the Company in respect of any of the foregoingmatters; and
(iv) working capital.
No amount in respect of the foregoing matters is to be provided otherwise than out of theproceeds from the issue of the New Shares.
6. LOAN CAPITAL AND OTHER BORROWINGS
Save as disclosed on pages 59, 108 and 109 of this Prospectus, the Group had no otherborrowings or indebtedness in the nature of borrowings including bank overdrafts and liabilitiesunder acceptances (other than normal trading bills) or acceptance credits, mortgages, charges,hire purchase commitments, guarantees or other material contingent liabilities.
7. FINANCIAL CONDITION AND OPERA TIONS OF THE GROUP
Save as disclosed in this Prospectus, the Directors are not aware of any material informationincluding trading factors or risks which are unlikely to be known or anticipated by the generalpublic and which could materially affect the profits of the Company and its Subsidiaries.
Save as disclosed in this Prospectus, the financial condition and operations of the Group arenot likely to be affected by any of the following:
(i) known trends or known demands, commitments, events or uncertainties that will result inor are reasonably likely to result in the Group’s liquidity increasing or decreasing in anymaterial way;
(ii) material commitments for capital expenditure;
(iii) unusual or infrequent events or transactions or any significant economic changes thatmaterially affected the amount of reported income from operations; and
(iv) known trends or uncertainties that have had or that the Group expects to have a materialfavourable or unfavourable impact on revenues or operating income.
130
8. LITIGATION
Neither the Company nor its Subsidiaries are engaged in any litigation either as plaintiff ordefendant, in respect of any claims or amounts which is material in the context of the Invitation,and the Directors have no knowledge of any proceedings pending or threatened against theGroup or any facts likely to give rise to any litigation, claims or proceedings which might havea material adverse effect on the financial position or business of the Group.
9. GENERAL
(a) The nature of the business of the Company has been stated earlier in this Prospectus. Thecorporations which, by virtue of Section 6 of the Act, are deemed to be related to theCompany are set out under “Subsidiaries” on page 35 of this Prospectus.
(b) No application for Shares will be allotted or issued on the basis of this Prospectus laterthan six months after the date of this Prospectus.
(c) The time of opening of the Application List is stated on page 13 of this Prospectus.
(d) The amount payable on application and allotment is $0.30 for each Invitation Share (otherthan a Reserved Share) and $0.29 for each Reserved Share.
(e) Save as disclosed on page 118 of this Prospectus, there has been no previous issue ofShares by the Company or offer for sale of its Shares to the public within the two yearspreceding the date of this Prospectus.
(f) No property has been purchased or acquired or proposed to be purchased or acquired bythe Company or its Subsidiaries which is to be paid for wholly or partly out of the proceedsof the issue of New Shares or the purchase or acquisition of which has not been completedat the date of this Prospectus other than property the contract for the purchase or acquisitionwhereof was entered into in the ordinary course of business of the Company or itsSubsidiaries, the contract not being made in contemplation of the Invitation nor the Invitationin consequence of the contract.
(g) Save as disclosed in paragraph 10 hereof, no commission, discount or brokerage hasbeen paid or other special terms granted within the preceding two years or is payable toany Director, promoter, expert, proposed Director or any other person for subscribing oragreeing to subscribe or procuring or agreeing to procure subscription for any shares in ordebentures of the Company or its Subsidiaries.
(h) Save as disclosed in paragraph 2(j), no sums have been paid or are agreed to be paid toany Director or any firm in which a Director is a partner in cash or in shares or otherwiseor to any person to induce him to become a Director or in connection with the promotionof the Company.
(i) The expenses payable by the Company in connection with the Invitation, includingunderwriting commission, brokerage, management fee and all other incidental expenses inrelation to this Invitation, are estimated to amount to approximately $1,000,000 which willbe borne by the Company.
(j) No amount of cash or securities or benefit has been or is intended to be paid or given toany promoter within the two years preceding the date of this Prospectus or is proposed orintended to be paid or given to any promoter at any time in respect of this Invitation.
131
(k) Application monies received by the Company in respect of successful applications (includingsuccessfully balloted applications which are subsequently rejected) will be placed in aseparate non-interest bearing account with UOB (the “Receiving Bank”). In the ordinarycourse of its business, the Receiving Bank will deploy these monies in the interbank moneymarket. Pursuant to an agreement entered into between the Company and the ReceivingBank contained in a letter dated 22 August 2000 and accepted by the Company on 22August 2000, the Company and the Receiving Bank have agreed that the Company willreceive 50% of any net revenue in excess of $100,000 earned by the Receiving Bank fromthe deployment of such monies in the interbank money market. Any refund of all or part ofthe application monies to unsuccessful or partially successful applicants will be made withoutany interest or any share of such net revenue.
(l) Ernst & Young were appointed as auditors for the financial year ended 31 December 1999for the Subsidiaries Federal Hardware and Firematic. The auditors of Alton for year ended31 December 1999 was Heng Lee Seng & Co. Prior to 1 January 1999, the SingaporeSubsidiaries were audited by Heng Lee Seng & Co. No audited financial statements of theCompany and the Subsidiary Pratama has been prepared since each of their respectivedate of incorporation.
For the financial year ending 31 December 2000, the Directors had appointed Ernst &Young as auditors of the Company and its Subsidiaries. The Directors intend to continue torecommend Ernst & Young for appointment as auditors of the Company and its Subsidiaries.The Directors intend to continue to recommend Ernst & Young for appointment as auditorsof the Company and its Subsidiaries in the foreseeable future.
10. MANAGEMENT, UNDERWRITING AND PLACEMENT ARRANGEMENTS, AND BROKERAGE
(a) Pursuant to the Management and Underwriting Agreement dated 28 August 2000, theCompany appointed UOB Asia to manage the Invitation. UOB Asia will receive amanagement fee from the Company for its services rendered in connection with the Invitation.
(b) Pursuant to the Management and Underwriting Agreement, the Underwriters have agreedto underwrite the Offer Shares for a commission of 1.5% of the Issue Price for each OfferShare.
(c) Pursuant to the Placement Agreement dated 28 August 2000, UOB Asia has agreed tosubscribe or procure subscriptions for the Placement Shares for a placement commissionof 1.5% of the Issue Price for each Placement Share, to be paid by the Company.
(d) Brokerage will be paid by the Company on the Invitation Shares at the rate of 1.0% of theIssue Price for each Offer Share and 1.0% of the Issue Price for each Placement Share.For the Offer Shares, the brokerage will be paid to members of the Association of Banksin Singapore, members of the SGX-ST and merchant banks in respect of successfulapplications made on Application Forms bearing their respective stamps, or to theParticipating Banks in respect of successful applications made through Electronic Applicationsat their respective ATMs. For the Placement Shares, the brokerage will be paid to thePlacement Agent in accordance with the Placement Agreement.
(e) Save as aforesaid, no commission, discount or brokerage has been paid or other specialterms granted within the two years preceding the date of this Prospectus or is payable toany Directors, promoter, expert, proposed Director or any other person for subscribing oragreeing to subscribe, or procuring or agreeing to procure subscription for any shares in,or debentures of, the Company.
(f) The Management and Underwriting Agreement may be terminated by UOB on behalf ofthe Underwriters at any time on or before the close of the Application List on the occurrenceof certain events. These events include any changes in national or international monetary,financial, political or economic conditions which result or are likely to result in, inter alia,the conditions in the Singapore stock market being materially and adversely affected or thesuccess of the Invitation being materially prejudiced.
132
(g) In the event the Management and Underwriting Agreement is terminated, the Companyreserves the right, at the absolute discretion of the Directors, to cancel the Invitation.
(h) The Placement Agreement is conditional upon the Management and Underwriting Agreementnot being terminated or rescinded pursuant to the provisions of the Management andUnderwriting Agreement.
11. CONSENTS
(a) Ernst & Young has given and has not withdrawn its written consent to the issue of thisProspectus with the inclusion herein of the Accountants’ Report in the form and context inwhich they appear in this Prospectus and references to its name in the form and context inwhich it appears in this Prospectus and to act in such capacity in relation to this Prospectus.
(b) The Manager, Lead Underwriter and Lead Placement Agent, Co-Underwriter and Co-placement Agent, the Share Registrar, the Principal Bankers, the Solicitors to the Invitation,the Valuer and the Auditors and Reporting Accountants have each given and have notwithdrawn their respective written consents to the issue of this Prospectus with the inclusionherein of their respective names and references to their respective names in the forms andcontext in which they respectively appear in this Prospectus and to act in such respectivecapacities in relation to this Prospectus.
12. STATEMENT BY THE MANAGER
UOB Asia acknowledges that, having made due and careful enquiry and to the best of itsknowledge and belief based on the information made available to it by the Company, thisProspectus constitutes full and true disclosure of all material facts about the Invitation and theCompany and its Subsidiaries and that it is satisfied that the forecast financial performance forthe year ending 31 December 2000 has been stated by the Directors after due and carefulenquiry.
13. STATEMENT BY THE DIRECTORS OF THE COMPANY
The Prospectus has been seen and approved by the Directors of the Company and theycollectively and individually accept full responsibility for the truth and accuracy of the informationgiven herein and confirm, having made all reasonable enquires, that to the best of their knowledgeand belief, the facts stated and the opinions expressed in this Prospectus are fair and accuratein all material respects as at the date of this Prospectus and that there are no other materialfacts the omission of which would make any statement herein misleading and that the forecastfinancial performance for the year ending 31 December 2000 has been stated by the Directorsafter due and careful enquiry, and that this Prospectus constitutes full and true disclosure of allmaterial facts about the Invitation and the Company and its Subsidiaries.
14. DOCUMENTS FOR INSPECTION
The following documents may be inspected at the Registered Office of the Company duringnormal business hours for a period of 6 months from the date of this Prospectus:
(a) the Memorandum and Articles of Association of the Company;
(b) the Directors’ Report referred to on page 88 of this Prospectus;
(c) the letter from the Auditors and Reporting Accountants in relation to the unauditedconsolidated proforma financial statements for the five months ended 31 May 2000 set outon page 90 of this Prospectus;
133
(d) the letter from the Auditors and Reporting Accountants in relation to the profit forecast forthe financial year ending 31 December 2000 set out on page 91 of this Prospectus;
(e) the Accountants’ Report referred to on pages 92 to 112 of this Prospectus, together withthe Statement of Adjustments;
(f) the Valuer’s Report referred to on pages 113 to 117 of this Prospectus;
(g) the audited accounts of the Company and of its Subsidiaries for FY1997 to FY1999;
(h) the material contracts referred to in paragraph 4 on pages 127 to 129 of this Prospectus;
(i) the letters of consent referred to in paragraph 11 on page 132 of this Prospectus; and
(j) the Service Agreements referred to on page 84 of this Prospectus.
134
APPENDIX
TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATION
Applications are invited for the subscription of 44,000,000 New Shares at the Offer Price for eachOffer Share and the relevant Placement Price for each Placement Share, subject to the followingterms and conditions:
1. Applications m ust be made in lots of 1,000 Ne w Shares and integral m ultiples thereof .Applications f or an y other n umber of Shares will be rejected .
2. Applications for Offer Shares may be made by way of Offer Shares Application Forms or byway of Electronic Applications through ATMs of the Participating Banks (“ATM ElectronicApplications”) or through Internet Banking (“IB”) web-sites of the relevant Participating Banks(“Internet Electronic Applications”, which together with ATM Electronic Applications, shall bereferred to as “Electronic Applications”). Applications for Placement Shares (other than forReserved Shares) may only be made by way of Placement Shares Application Forms.Applications for Reserved Shares may only be made by way of Reserved Shares ApplicationForms. APPLICANTS MAY NOT USE CPF FUNDS TO APPLY FOR THE NEW SHARES.
3. Only one application ma y be made f or the benefit of one per son f or either the Off erShares or the Placement Shares (other than Reser ved Shares) in his o wn name . A per sonsubmitting an application f or Off er Shares b y way of a printed Application Form MA YNOT submit a separate application f or Off er Shares b y way of an Electr onic Applicationand vice ver sa. A per son submitting an application f or Off er Shares b y way of an A TMElectr onic application ma y not submit another application f or Off er Shares b y way of anInternet Electr onic Application and vice ver sa. Such separate applications shall be deemedto be m ultiple applications and shall be rejected.
A per son, other than an appr oved nominee compan y, who is submitting an application inhis o wn name f or Off er Shares should not submit an y other applications f or Off er Shares,whether on a printed Application Form or thr ough an Electr onic Application, for an yother per son. Such separate applications will be deemed to be m ultiple applications andshall be rejected.
An applicant who has been pr ocured b y the Placement Ag ents to subscribe f or PlacementShares (other than Reser ved Shares) shall not make an y application f or Off er Shareseither thr ough an Electr onic Application or b y way of a printed Application Form. Suchseparate applications shall not be deemed to be m ultiple applications b y suc h applicantand shall be rejected.
Conversely, an applicant who has made an application f or Off er Shares either thr oughan Electr onic Application or b y way of a printed Application Form shall not make an yapplication for Placement Shares (other than for Reserved Shares). Such separateapplications shall be deemed to be multiple applications by such applicant and shall berejected.
Joint or multiple applications will be rejected. Persons submitting or procuring submissionof multiple share applications (whether for Offer Shares, Placement Shares or both OfferShares and Placement Shares) may be deemed to have committed an offence under thePenal Code (Chapter 224) of Singapore and the Securities Industr y Act (Chapter 289) ofSingapore, and such applications may be referred to the relevant authorities forinvestigations. Multiple applications or those appearing to be or suspected of beingmultiple applications are liab le to be rejected at the discretion of the Compan y.
135
An applicant f or Reser ved Shares using the Reser ved Shares Application Form ma ysubmit ONE separate application f or Off er Shares in his o wn name b y way of a printedApplication Form or b y way of an Electr onic Application or submit one separate applicationfor Placement Shares (other than f or Reser ved Shares) b y way of a printed ApplicationForm, pr ovided he adheres to the terms of this Pr ospectus. SUCH SEPARATEAPPLICATIONS SHALL NOT BE TREATED AS MULTIPLE APPLICATIONS.
4. Applications will not be accepted from any person under the age of 21, undischarged bankrupts,sole-proprietorships, partnerships, chops or non-corporate bodies, joint Securities Account holdersof CDP or applicants whose addresses (furnished in their printed Application Forms or, in thecase of Electronic Applications, contained in the records of the relevant Participating Banks, asthe case may be) bear post office box numbers.
5. The existence of a trust will not be recognised. Any application by a trustee or trustees musttherefore be made in his/her/their own name(s) and without qualification or, where the applicationis made by way of a printed Application Form, in the name(s) of an approved nominee companyor companies after complying with paragraph 6 below.
6. NOMINEE APPLICATIONS MAY BE MADE BY APPR OVED NOMINEE COMPANIES ONLY.Approved nominee companies are defined as banks, merchant banks, finance companies,insurance companies, licensed securities dealers in Singapore and nominee companies controlledby them. Applications made by any persons acting as nominees other than approved nomineecompanies shall be rejected.
7. FOR NON-NOMINEE APPLICATIONS, EACH APPLICANT MUST MAINTAIN A SECURITIESACCOUNT WITH CDP IN HIS OWN NAME AT THE TIME OF APPLICATION. An applicantwithout an existing Securities Account with CDP in his own name at the time of application willhave his application rejected (in the case of an application by way of a printed ApplicationForm) or will not be able to complete his Electronic Application (in the case of an ElectronicApplication). An applicant with an existing Securities Account who fails to provide his SecuritiesAccount number or who provides an incorrect Securities Account number in Section B of theApplication Form or in his Electronic Application, as the case may be, is liable to have hisapplication rejected. Subject to paragraph 8 below, an application is liable to be rejected if theapplicant’s particulars such as name, NRIC/passport number, nationality and permanent residencestatus provided in his Application Form or in the records of the relevant Participating Bank atthe time of his Electronic Application, as the case may be, differ from those particulars in hisSecurities Account maintained with CDP. If an applicant possesses more than one individualdirect Securities Account with CDP, his application will be rejected.
8. IF THE ADDRESS OF AN APPLICANT ST ATED ON THE APPLICATION FORM OR IN THECASE OF AN ELECTR ONIC APPLICATION, CONTAINED IN THE RECORDS OF THERELEVANT PARTICIPATING BANK, AS THE CASE MAY BE, IS DIFFERENT FROM THEADDRESS REGISTERED WITH CDP, THE APPLICANT MUST INFORM CDP OF HISUPDATED ADDRESS PROMPTLY, FAILING WHICH THE NOTIFICATION LETTER ONSUCCESSFUL ALLO TMENT AND OTHER CORRESPONDENCE FROM CDP WILL BE SENTTO HIS ADDRESS LAST REGISTERED WITH CDP.
9. The Company reserves the right to reject or accept, in whole or in part, or to scale down orballot, any application without assigning any reason therefor, and no enquiry and/orcorrespondence on the decision of the Company will be entertained. This right applies toapplications made by way of printed Application Forms and by way of Electronic Applications.In deciding the basis of allotment, at the discretion of the Company, due consideration will begiven to the desirability of allotting or allocating New Shares to a reasonable number of applicantswith a view to establishing an adequate market for the Shares.
136
10. The Company reserves the right to reject any application which does not conform strictly to theinstructions set out in the Application Forms and this Prospectus or which does not complywith the instructions for Electronic Applications or with the terms and conditions of this Prospectusor, in the case of an application by way of a printed Application Form, which is illegible,incomplete, incorrectly completed or which is accompanied by remittances improperly drawn.The Company further reserves the right to treat as valid any applications not completed orsubmitted or effected in all respects in accordance with the terms and conditions of thisProspectus and also to present for payment or other processes all remittances at any time afterreceipt and to have full access to all information relating to, or deriving from, such remittancesor the processing thereof.
11. Share certificates will be registered in the name of CDP and will be forwarded only to CDP.CDP will send to each successful applicant, at his own risk, within 15 Market Days of the closeof the Application List, a statement of account stating that the applicant’s Securities Accounthas been credited with the number of New Shares allotted and/or allocated to the applicant.This will be the only acknowledgement of application moneys received and is not anacknowledgement by the Company.
12. Each applicant irrevocably authorises CDP to complete and sign on his behalf as transferee orrenouncee any instrument of transfer and/or other documents required for the issue or transferof New Shares allotted and/or allocated to the applicant. This authorisation applies to applicationsmade both by way of printed Application Forms and by way of Electronic Applications.
13. In the event of an under-subscription for Offer Shares as at the close of the Application List,that number of Offer Shares under-subscribed shall be made available to satisfy applicationsfor Placement Shares to the extent that there is an over-subscription for Placement Shares asat the close of the Application List. Any of the Reserved Shares not taken up by the employeesand business associates of the Group will be made available to satisfy applications for thePlacement Shares to the extent that there is an over-subscription for the Placement Shares. Inthe event of an under-subscription for Placement Shares as at the close of the Application List,that number of Placement Shares under-subscribed shall be made available to satisfy applicationsfor Offer Shares to the extent that there is an over-subscription for Offer Shares as at the closeof the Application List.
In the event of an over-subscription for Offer Shares as at the close of the Application List and/or the number of Placement Shares are fully subscribed or oversubscribed as at the close ofthe Application List, the successful applicants for Offer Shares shall be determined by ballot, orotherwise as determined by the Directors and approved by the SGX-ST.
14. By completing and delivering an Application Form or by making and completing an ElectronicApplication by (in the case of an ATM Electronic Application) pressing the “Enter” or “OK” or“Confirm” or “Yes” key on the ATM (as the case may be) or by (in the case of an InternetElectronic Application) clicking “Submit” or “Continue” or “Yes” or “Confirm” on the IB web-sitescreen (as the case may be) in accordance with the provisions herein, each applicant:
(a) irrevocably offers to subscribe for the number of New Shares specified in his application(or such smaller number for which the application is accepted) at the Offer Price andagrees that he will accept such Shares as may be allocated to him, in each case on theterms of, and subject to the conditions set out in, the Prospectus and the Memorandumand Articles of Association of the Company; and
(b) warrants the truth and accuracy of the information in his application.
15. No Shares will be allotted and/or allocated on the basis of this Prospectus later than six monthsafter the date of this Prospectus.
137
16. Acceptance of applications will be conditional upon the Company being satisfied that:
(a) permission has been granted by the SGX-ST to deal in and for quotation for all the existingShares and the New Shares on a “when issued” basis on the Main Board; and
(b) the Management and Underwriting Agreement and Placement Agreement referred to onpage 131 of this Prospectus have become unconditional and have not been terminated.
17. Each applicant irrevocably authorises CDP to disclose the outcome of his application includingthe number of New Shares allotted and/or allocated to the applicant pursuant to his application,to authorised operators.
18. Any reference to the “applicant” in this section shall include a person applying for the OfferShares by way of Electronic Application or by way of printed Application Forms and a personapplying for the Placement Shares through the Placement Agents.
19. Further terms and conditions for applications by way of printed Application Forms are set outon pages 137 to 140 of this Prospectus.
20. Further terms and conditions for applications by way of Electronic Applications are set out onpages 140 to 145 of this Prospectus.
21. No application will be held in reserve.
ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING PRINTED APPLICATIONFORMS
Applications by way of printed Application Forms shall be made on, and subject to, the terms andconditions of this Prospectus, including but not limited to the terms and conditions appearing belowand including those set out under the section on “Terms and Conditions and Procedures for Application”found on pages 134 to 137 of this Prospectus, as well as in the Memorandum and Articles ofAssociation of the Company.
1. Applications must be made using the WHITE Application Forms and official envelopes “A” and“B” for Offer Shares and the BLUE Application Forms for Placement Shares (other than ReservedShares) accompanying and forming part of this Prospectus. Care must be taken to follow thedetailed instructions set out in the respective Application Forms and this Prospectus for thecompletion of the respective Application Forms. The Compan y reser ved the right to rejectapplications whic h do not conf orm strictl y to the instructions set out in the ApplicationForms and this Pr ospectus or to the terms and conditions of this Pr ospectus or whic hare illegib le, incomplete or incorrectl y completed or whic h are accompanied b y impr operl ydrawn remittances ma y be rejected.
2. The Application Forms must be completed in English. Please type or write clearly in ink usingBLOCK LETTERS. All spaces in the Application Forms except those under the heading “FOROFFICIAL USE ONLY”, must be completed and the words “NOT APPLICABLE” or “N.A.” shouldbe written in any space that is not applicable.
138
3. Individuals, corporations, approved nominee companies and trustees must give their names infull. Applications must, in the case of individuals, be made in their full names as appearing intheir identity cards (if the applicants have such identification documents) or in their passportsand, in the case of corporations, in their full names as registered with a competent authority.Applicants, other than individuals, completing the Application Forms under the hand of an officialmust state the name and capacity in which that official signs. A corporation completing theApplication Form is required to affix its Common Seal (if any) in accordance with theMemorandum and Articles of Association or the equivalent constitutive document(s) of thecorporation. If an application by a corporate applicant is successful, a copy of its Memorandumand Articles of Association or the equivalent constitutive document(s) of the corporation mustbe lodged with the Company’s Share Registrar. The Company reserves the right to require anyapplicant to produce documentary proof of identification for verification purposes.
4. (a) All applicants must complete Sections A and B and sign page 1 of the Application Form.
(b) All applicants are required to delete either paragraph 7(a) or 7(b) on page 1 of the ApplicationForms. Where paragraph 7(a) is deleted, the applicant must also complete Section C ofthe Application Form with particulars of the beneficial owner(s).
(c) Applicants who fail to make the required declaration in paragraph 7(a) or 7(b) (as the casemay be) on page 1 of the Application Forms are liable to have their applications rejected.
5. Applicants may apply for New Shares using cash only. Each application must be accompaniedby a cash remittance in Singapore currency for the full amount payable, in respect of thenumber of New Shares applied for, in the form of a BANKER’S DRAFT, CASHIER’S ORDER orPOSB CASHIER’S ORDER drawn on a bank in Singapore, made out in favour of “FEDERALINTERNATIONAL SHARE ISSUE A CCOUNT” and crossed “A/C PAYEE ONLY”, or in the formof a UOB GROUP ATM CASHIER’S ORDER EQUIVALENT, with the name and address of theapplicant written clearly on the reverse side. Applications not accompanied by any payment oraccompanied by ANY OTHER FORM OF PAYMENT WILL NOT BE ACCEPTED. Remittancesbearing the “Not Transferable” or “Non Transferable” crossings will be rejected. Noacknowledgement of receipts will be issued by the Company or the Manager for applicationsand application moneys received.
6. Individual and corporate applicants, whether incorporated or unincorporated and whereverincorporated or constituted, will be required to declare whether they are citizens or permanentresidents of Singapore or corporations in which citizens or permanent residents of Singaporeor any body corporate constituted under any statute of Singapore have an interest in theaggregate of more than 50 per cent. of the issued share capital of or interests in suchcorporations. Approved nominee companies are required to declare whether the beneficial ownerof the New Shares is a citizen or permanent resident of Singapore or a corporation, whetherincorporated or unincorporated and wherever incorporated or constituted, in which citizens orpermanent residents of Singapore or any body corporate whether incorporated or unincorporatedand wherever incorporated or constituted under any statute of Singapore have an interest inthe aggregate of more than 50 per cent. of the issued share capital of or interests in suchcorporation.
7. Unsuccessful applications are expected to be returned to the applicants by ordinary post at therisk of the applicants within three Market Days after the close of the Application List (withoutinterest or any share of revenue or other benefit arising therefrom). Where an application isrejected or accepted in part only, the full amount or the balance of the application moneys, asthe case may be, will be mailed to the applicant by ordinary post at his own risk (withoutinterest or any share of revenue or other benefit arising therefrom) within 14 Days after theclose of the Application List. Unsuccessful applicants using UOB Group ATM Cashier’s OrderEquivalent will have the full amount of their application moneys (without interest or any share ofrevenue or other benefit arising therefrom) automatically credited to their accounts maintainedwith the banks within the UOB Group.
139
8. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear themeanings assigned to them in this Prospectus.
9. In consideration of the Company having distributed the Application Form to the applicant andagreeing to close the Application List at 12.00 noon on 7 September 2000 or such later time ordate as the Directors may in their absolute discretion decide and by completing and deliveringthe Application Form, each applicant agrees that:
(a) his application is irrevocable;
(b) his remittance will be honoured on first presentation and that any moneys returnable maybe held pending clearance of his payment, without interest or any share of revenue orother benefit arising therefrom;
(c) in respect of New Shares for which his application has been received and not rejected,acceptance of his application shall be constituted by written notification and not otherwise,notwithstanding any remittance being presented for payment by or on behalf of the Company;
(d) he will not be entitled to exercise any remedy of rescission for misrepresentation at anytime after acceptance of his application; and
(e) all applications, acceptances and contracts resulting therefrom pursuant to the Invitationshall be governed by and construed in accordance with the laws of Singapore and that heirrevocably submits to the non-exclusive jurisdiction of the Singapore courts.
10. Application f or Off er Shares
(a) Applications for Offer Shares MUST be made using the WHITE Offer Shares ApplicationForms and the WHITE official envelopes “A” and “B”. ONLY ONE APPLICATION should beenclosed in each envelope.
(b) The applicant must:
(i) enclose the WHITE Offer Shares Application Form, duly completed together with hisremittance in the WHITE envelope “A” which is provided;
(ii) in the appropriate spaces on envelope “A” :
(aa) write his name and address;
(bb) state the number of Offer Shares applied for;
(cc) tick the box if cash payment is by UOB Group ATM Cashier’s Order Equivalent;and
(dd) affix adequate Singapore postage.
(c) SEAL THE OFFICIAL WHITE ENVELOPE “A” ;
(d) write, in the appropriate box provided on the larger official WHITE envelope “B” addressedto FEDERAL INTERNATIONAL (2000) LTD, C/O UOB ASIA LIMITED , 80 RAFFLES PLA CE#12-00, UOB PLAZA 1, SINGAPORE 048624, the number of Offer Shares for which theapplication is made; and
140
(e) insert WHITE official envelope “A” into WHITE official envelope “B”. The applicant must sealthe WHITE official envelope “B”, affix adequate Singapore postage on envelope “B” (ifdespatching by ordinary post) and thereafter DESPATCH BY ORDINARY POST ORDELIVER BY HAND at his own risk to UOB ASIA LIMITED, 80 RAFFLES PLACE #12-00,UOB PLAZA 1, SINGAPORE 048624 so as to arrive by 12.00 NOON ON 7 SEPTEMBER2000 or such later date and time as the Company may, in its absolute discretion, decide.Local Urgent Mail or Registered Post must NOT be used. No acknowledgement of receiptwill be issued for any application or remittance received.
Applications that are illegible, incomplete or incorrectly completed or accompanied byimproperly drawn remittances are liable to be rejected.
11. Application for Placement Shares (other than Reserved Shares)
Applications for Placement Shares (other than Reserved Shares) must be made using theBLUE Placement Shares Application Forms. The completed BLUE Placement Shares ApplicationForm and the applicant’s remittance in accordance with the terms and conditions of thisProspectus must be enclosed and sealed in any envelope to be provided by the applicant. Thesealed envelope must be despatched by ordinary post or delivered by hand at the applicant’sown risk to UOB Asia Limited, 80 Raffles Place, 12th Floor, UOB Plaza 1, Singapore 048624so as to arrive by 12.00 NOON ON 7 SEPTEMBER 2000 or such later date and time as theCompany may, in its absolute discretion, decide. Local Urgent Mail or Registered Post MUSTNOT be used. ONLY ONE APPLICATION should be enclosed in each envelope. No receipt oracknowledgement will be issued for any application or remittances received.
12. Application f or Reser ved Shares
Application for Reserved Shares must be made using the PINK Reserved Shares ApplicationForms. ONLY ONE APPLICATION should be enclosed in each envelope. The completed PINKReserved Shares Application Form and the applicant’s remittance in accordance with the termsand conditions of this Prospectus must be enclosed and sealed in any envelope to be providedby the applicant. The sealed envelope must be despatched by ORDINARY POST ORDELIVERED BY HAND at the applicant’s own risk to the Company’s registered office so as toarrive by 12.00 NOON ON 7 SEPTEMBER 2000 or such later date and time as the Companymay, in its absolute discretion, decide. Local Urgent Mail or Registered Post must NOT beused.
ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS
The procedures for Electronic Applications are set out on the ATM screens (in the case of ATMElectronic Applications) and the IB web-site screens (in the case of Internet Electronic Applications)of the relevant Participating Banks. Currently, UOB, DBS Bank and OUB are the only ParticipatingBanks through which Internet Electronic Applications can be made. For illustration purposes, theprocedure for Electronic Applications through ATMs of the UOB Group and the IB web-site of UOBare set out respectively in the “Steps for an ATM Electronic Application through the ATMs of UOBGroup” and the “Steps for an Internet Electronic Application through the IB web-site of UOB” (the‘’Steps’’) on pages 146 and 147 of this Prospectus. Please read carefully the terms of this Prospectus,the Steps, and the terms and conditions for Electronic Applications set out below before making anElectronic Application.
141
Any reference to the “Applicant” in the terms and conditions for Electronic Applications and the Stepsshall mean the applicant who applies for Offer Shares through an ATM or the IB web-site of arelevant Participating Bank. The Applicant must have an existing bank account with, and be an ATMcardholder of, one of the Participating Banks before he can make an ATM Electronic Application atan ATM of that Participating Bank. An ATM card issued by one Participating Bank cannot be used toapply for the Offer Shares at an ATM belonging to any of the other Participating Bank. For anInternet Electronic Application, the Applicant must have an existing bank account with and an IBUser Identification (“User ID”) and a Personal Identification Number/Password given by a relevantParticipating Bank. The Steps set out the actions that the Applicant must take at ATMs of the UOBGroup or the IB web-site of UOB to complete an Electronic Application. The actions that the Applicantmust take at ATMs or the IB web-sites of other Participating Banks are set out on the ATM screensor the IB web-site screens of the relevant Participating Banks. Upon the completion of his ATMElectronic Application transaction, the Applicant will receive an ATM transaction slip (“TransactionRecord”) confirming the details of his Electronic Application. Upon completion of his Internet ElectronicApplication, there will be an on-screen confirmation (“Confirmation Screen”) of the application whichthe Applicant can print for his record. The Transaction Record or printed record of the ConfirmationScreen is for retention by the Applicant and should not be submitted with any printed ApplicationForm.
An Applicant must ensure that he enters his own Securities Account number when using the ATMcard issued to him in his own name. Using his own Securities Account number with an ATM cardwhich is not issued to him in his own name will render his Electronic Application liable to be rejected.An Applicant operating a joint bank account with any of the Participating Banks must ensure that heenters his own Securities Account number when using an ATM card issued to him in his own name.
An Applicant must ensure, when making an Internet Electronic Application, that the mailing addressof his account selected for the application is in Singapore and the application is being made inSingapore. Otherwise, his application is liable to be rejected. In this connection, the Applicant will beasked to declare that he is in Singapore at the time when he makes his application.
All Electronic Applications shall be made on, and subject to, the terms and conditions appearingbelow as well as those set out under the section on “Terms and Conditions and Procedures forApplication” found on pages 134 to 137 of this Prospectus.
1. The Electronic Application shall be made in accordance with and subject to the terms of thisProspectus and the Memorandum and Articles of Association of the Company.
2. In connection with his Electronic Application for Offer Shares, the Applicant is required to confirmstatements to the following effect in the course of activating his Electronic Application:
(a) that he has read, under stood and a greed to all the terms and conditions of applicationfor Off er Shares and this Pr ospectus prior to eff ecting the Electr onic Applicationand agrees to be bound b y the same;
(b) that he consents to the disc losure of his name , NRIC/passpor t number , nationalityand permanent residence status, address, share application amount, CPF InvestmentAccount n umber (if applicab le) and CDP Securities Account n umber fr om his accountwith that P articipating Bank to the CDP , CPF, SCCS, Share Registrar , the Compan yand the Mana ger (the “Rele vant Parties”); and
(c) that this is his onl y application f or Off er Shares and it is made in his o wn name andat his o wn risk.
142
His application will not be successfully completed and cannot be recorded as a completedtransaction in the ATM or on the IB web-site unless he presses the “Enter” or “Confirm” or “Yes”key in the ATM or click “Confirm” or “OK” on the IB web-site screen. By doing so, the Applicantshall be treated as signifying his confirmation of each of the above three statements. In respectof statement 2(b) above, such confirmation shall signify, and shall be treated as, his writtenpermission given in accordance with the relevant laws of Singapore, including Section 47(4) ofthe Banking Act (Chapter 19) of Singapore, to the disclosure by the relevant Participating Bankof the Relevant Particulars to the Relevant Parties.
3. An applicant may make an ATM Electronic Application at an ATM of any Participating Bank oran Internet Electronic Application at the IB web-site of a relevant Participating Bank for NewShares using cash only by authorising such Participating Bank to deduct the full amount payablefrom his account with such Participating Bank.
4. The Applicant irrevocably agrees and undertakes to subscribe for and to accept the number ofOffer Shares applied for as stated on the Transaction Record or the Confirmation Screen orany lesser number of Offer Shares that may be allotted and/or allocated to him in respect of hisElectronic Application. In the event that the Company decides to allot and/or allocate any lessernumber of such Offer Shares or not to allot or allocate any Offer Shares to the Applicant, theApplicant agrees to accept such decision as final. If the Applicant’s Electronic Application issuccessful, his confirmation (by his action of pressing the “Enter” or “Confirm” or “Yes” key onthe ATM or clicking “Confirm” or “OK” on the IB web-site screen) of the number of Offer Sharesapplied for shall signify, and shall be treated as, his acceptance of the number of Offer Sharesthat may be allotted and/or allocated to him and his agreement to be bound by the Memorandumand Articles of Association of the Company.
5. The Applicant is deemed to have irrevocably requested and authorised the Company to:
(a) register the Offer Shares allotted and/or allocated to the Applicant in the name of CDP fordeposit into his Securities Account;
(b) send the relevant Share certificate(s) to CDP;
(c) return (without interest or any share of revenue or other benefit arising therefrom) theapplication moneys in Singapore currency should his Electronic Application be rejected, byautomatically crediting the Applicant’s bank account with the relevant Participating Bankwith the relevant amount within three Market Days after the close of the Application List;and
(d) return or refund (without interest or any share of revenue or other benefit arising therefrom)the balance of the application moneys in Singapore currency should his Electronic Applicationbe accepted in part only, by automatically crediting the Applicant’s bank account with therelevant Participating Bank with the relevant amount within 14 Days after the close of theApplication List.
6. BY MAKING AN ELECTR ONIC APPLICATION, THE APPLICANT CONFIRMS THAT HE ISNOT APPLYING FOR OFFER SHARES AS NOMINEE OF ANY OTHER PERSON AND THATANY ELECTRONIC APPLICATION THAT HE MAKES IS MADE BY HIM AS BENEFICIALOWNER.
THE APPLICANT SHALL MAKE ONL Y ONE ELECTRONIC APPLICATION AND SHALL NO TMAKE ANY OTHER APPLICATION FOR NEW SHARES (OTHER THAN RESERVED SHARES),WHETHER AT THE ATMS OR THE IB WEB-SITES (IF ANY) OF THE PARTICIPATING BANKSOR ON A PRESCRIBED PRINTED APPLICA TION FORM.
143
7. The Applicant irrevocably agrees and acknowledges that his Electronic Application is subject torisks of electrical, electronic, technical and computer-related faults and breakdowns, fires, actsof God and other events beyond the control of the Participating Banks, the Company and theManager and if, in any such event, the Participating Banks and/or the Company and/or theManager do not receive the Applicant’s Electronic Application, or data relating to the Applicant’sElectronic Application or the tape containing such data is lost, corrupted, destroyed or nototherwise accessible, whether wholly or partially for whatever reason, the Applicant shall bedeemed not to have made an Electronic Application and the Applicant shall have no claimwhatsoever against the Manager, the Participating Banks, or the Company for Offer Sharesapplied for or for any compensation, loss or damage.
8. Electronic Applications shall close at 12 noon on 7 September 2000 or such other time as theDirectors may, in their absolute discretion, decide. An Internet Electronic Application is deemedto be received only upon its completion, that is, when there is an on-screen confirmation of theapplication.
9. All particulars of the Applicant in the records of the relevant Participating Banks at the time hemakes his Electronic Application shall be deemed to be true and correct and the relevantParticipating Bank and the Relevant Parties shall be entitled to rely on the accuracy thereof. Ifthere has been any change in the particulars of the Applicant after the time of the making ofhis Electronic Application, the Applicant shall promptly notify the relevant Participating Bank.
10. The Applicant must have sufficient funds in his bank account(s) with the relevant ParticipatingBank at the time he makes his Electronic Application, failing which his Electronic Applicationwill not be completed. Any Electronic Application which does not strictly conform to theinstructions set out in this Prospectus or on the screens of the ATM or IB web-site throughwhich that Electronic Application is being made will be rejected. Any Electronic Applicationmade at the ATMs of the other Participating Banks which does not strictly conform to theinstructions set out on the ATM screens of such Participating Banks will be rejected.
11. No applications will be kept in reser ve. Where an Electronic Application is rejected, the fullamount of the application moneys will be refunded in Singapore currency (without interest orany share of revenue or other benefit arising therefrom) to the Applicant by being automaticallycredited to the Applicant’s bank account(s) with the relevant Participating Bank within threeMarket Days after the close of the Application List. Trading on a “when issued” basis, ifapplicab le, is expected to commence after suc h refund has been made . Where an ElectronicApplication is accepted in part only, the balance of the application moneys will be refunded(without interest or any share of revenue or other benefit arising therefrom) to the Applicant bybeing automatically credited to the Applicant’s bank account with his Participating Bank within14 days after the close of the Application List.
Responsibility for timely refund of application moneys from Electronic Applications lies solelywith the respective Participating Banks. Therefore the Applicant is strongly advised to consulthis Participating Bank as to the status of his Electronic Application and/or the refund of anymoneys to him from his unsuccessful or partially successful Electronic Application, to determinethe exact number of Offer Shares allotted and/or allocated to him before trading the OfferShares on the SGX-ST. None of the SGX-ST, CDP, SCCS, the Participating Banks, the Companyor the Manager assumes any responsibility for any loss that may be incurred as a result of theApplication having to cover any net sell positions or from buy-in procedures activated by theSGX-ST.
If the Applicant’s Electronic Application is made through the ATMs of KTB and is unsuccessful,it is expected that a computer-generated notice will be sent to the Applicant by the relevantParticipating Bank (at the address of the Applicant stated in the records of the relevantParticipating Bank as at the date of his Electronic Application) by ordinary post at the Applicant’sown risk within three Market Days after the close of the Application List. If the Applicant’sElectronic Application is made through the ATMs of OCBC Group, OUB Group, UOB Group orDBS Bank (including those of its POSBank Service division) and is unsuccessful, no notificationwill be sent by the relevant Participating Bank.
144
If an Applicant’s Internet Electronic Application made through the IB web-site of UOB, OUB orDBS Bank is unsuccessful, no notification will be sent by such Participating Bank.
Applicants who make Electronic Applications through the ATMs of the following banks maycheck the provisional results of their Electronic Applications as follows:
Bank Telephone Availab le at ATM Operating Hour s Service e xpected fr om
DBS 1800-222 2222 Internet Banking or 24 hours a day Evening of the balloting dayBank 3274767 Internet Kiosk
www.dbs.com*
KTB 222 8228 ATM ATM – 24 hours a day ATM – Evening of thePhone Banking – balloting dayMon – Fri 0800-2200 Phone Banking –Sat 0800-1500 8.00 pm on the day
after the balloting day
OCBC 1800-363 3333 ATM ATM – 24 hours a day Evening of the balloting dayPhone Banking –24 hours a day
OUB 1800-224 2000 OUB Personal Internet Phone Banking/ Evening of the balloting dayBanking Internet Bankingwww.oub2000.com.sg* 24 hours a day
OUB Mobile Buzz OUB Mobile Buzz** –24 hours a day
UOB 1800-539 5533 ATM (Other Transactions – Phone Banking/ATM*** Evening of the balloting day1800-222 2121 “IPO Enquiry”) – 24 hours a day
www.uobgroup.com***
* Applicants who make Internet Electronic Application through the IB web-site of OUB or DBS Bank may also checkthe result of their application through the same channels listed in the table above in relation to ATM ElectronicApplications made at ATMs of OUB or DBS Bank.
** Applicants who make Electronic Application through the ATMs or IB web-site of OUB and who have activated theirOUB Mobile Buzz service will be notified of the result of their Electronic Application via their mobile phone.
*** Applicants who make Electronic Application through the ATMs or IB web-site of UOB may check the results of theirapplication through UOB CyberBank, UOB Group ATMs or UOB PhoneBanking Services.
12. In consideration of the Company arranging for the Electronic Application facility through theATMs and the IB web-sites (if any) of the Participating Banks and agreeing to close theApplication List at 12.00 noon on 16 August 2000 or such later time or date as the Directorsmay in their absolute discretion decide, and by making and completing an Electronic Application,the Applicant agrees that:
(a) his Electronic Application is irrevocable;
(b) his Electronic Application, the acceptance by the Company and the contract resultingtherefrom under the Invitation shall be governed by and construed in accordance with thelaws of Singapore and he irrevocably submits to the non-exclusive jurisdiction of theSingapore courts;
(c) he will not be entitled to exercise any remedy of rescission for misrepresentation at anytime after acceptance of his application;
(d) neither the Company, the Manager nor the Participating Banks shall be liable for any delays,failures or inaccuracies in the recording, storage or in the transmission or delivery of datarelating to his Electronic Application to the Company or CDP due to a breakdown or failureof transmission, delivery or communication facilities or any risks referred to in paragraph 7on page 143 of this Prospectus or to any cause beyond their control; and
145
(e) in respect of Offer Shares for which the Applicant’s Electronic Application has beensuccessfully completed and not rejected, acceptance of the Applicant’s Electronic Applicationshall be constituted by written notification by or on behalf of the Compan y and nototherwise, notwithstanding receipt of any payment by or on behalf of the Company.
13. The existence of a trust will not be recognised. Any Electronic Application by a trustee must bemade in his own name and without qualification. The Company will reject any application byany person acting as nominee.
14. The Applicant should ensure that his personal particulars as recorded by both CDP and therelevant Participating Bank are correct and identical, otherwise, his Electronic Application isliable to be rejected. The Applicant should promptly inform CDP of any change in address,failing which the notification letter on successful allotment and/or allocation will be sent to hisaddress last registered with CDP.
INSTRUCTIONS FOR ELECTRONIC APPLICATIONS THROUGH ATMs OF THE UOB GROUP ANDTHE IB WEB-SITE OF UOB
The instructions for an Applicant making an Electronic Application will appear on the ATM screensand the IB web-site screens of the respective Participating Banks. For illustration purposes, thesteps for making an Electronic Application through UOB Group’s ATMs or through the IB web-site ofUOB are shown below. Instructions for Electronic Applications appearing on the ATM screens andthe IB web-site screens (if any) of the Participating Banks (other than UOB Group) may differ fromthose represented below.
Due to space constraints on UOB Group’s ATM screen, the following terms will appear in abbreviatedform:
“&” : AND
“A/C” and “A/CS” : ACCOUNT and ACCOUNTS respectively
“UOB/ICB CPFIS” : UOB or ICB CPF INVESTMENT SCHEME
“YR” : YOUR
146
Steps f or an ATM Electr onic Application thr ough the A TMs of UOB Gr oup
1. Insert your personal Unicard, Uniplus card or UOB VISA/MASTER card and key in your personalidentification number.
2. Select “OTHER TRANSACTIONS”.
3. Select “SHARE APPLN”.
4. Select “ESA - FIXED”.
5. Select the share counter you wish to apply for.
6. Read and understand the following statements which will appear on the screen:
— THE PROSPECTUS IS AVAILABLE AT VARIOUS PARTICIPATING BANKS
— A COPY OF THE PROSPECTUS HAS BEEN LODGED WITH AND REGISTERED BYTHE REGISTRAR OF COMPANIES AND BUSINESSES WHO TAKES NO RESPONSIBILITYFOR ITS CONTENTS
Press the “ENTER” key to confirm that you have read and understood the above statements.
7. Read and understand the following terms which will appear on the screen:
— YOU HAVE READ UNDERSTOOD & AGREED TO ALL TERMS OF THE PROSPECTUS &THIS ELECTRONIC APPLICATION
— YOU CONSENT TO DISCLOSE YR NAME IC/PSSPT NATIONALITY ADDR APPLN AMTCPFINVT A/C NO & CDP A/C NO FROM YR A/CS TO CDP CPF SCCS REGISTRARS &ISSUER/VENDOR(S)
— THIS IS YR ONLY FIXED PRICE APPLN & IS IN YR NAME AND AT YR RISK
Confirm your consent to above terms by pressing the “ENTER” key.
8. Key in your NRIC or passport number (the numerical portion only) and press the “ENTER” key.
9. Select mode of payment i.e. “CASH ONLY”.
10. After you have selected “CASH ONLY”:
(a) key in your CDP Securities Account number (12 digits) and press the “ENTER” key;
(b) select your nationality status; and
(c) key in the number of Shares you wish to apply for and press the “ENTER” key.
11. Check the details of your Electronic Application on the screen and press “ENTER” key to confirmyour Electronic Application.
12. Select “NO” if you do not wish to make any further transactions and remove the TransactionRecord. You should keep the Transaction Record for your own reference only.
147
Owing to space constraints on UOB’s IB web-site screen, the following terms will appear in abbreviatedform:
“CDP” : The Central Depository (Pte) Limited
“CPF” : The Central Provident Fund
“NRIC” or “I/C” : National Registration Identity Card
Steps for an Internet Elect ronic Application th rough the IB website of UOB
1. Connect to UOB website at http://www.uobgroup.com
2. Click on “UOB CyberBank”
3. Login to UOB CyberBank
4. Enter your Access Code/CIN and Password
5. Select “Applications and Purchases”
6. Select ”Initial Public Offerings (IPOs)”
7. Click “Yes” to declare that you are in Singapore and have a mailing address in Singapore
8. Select the share counter you wish to apply for, the mode of payment and the account to debit
9. Click on “Submit”
10. Click on “Confirm” to confirm that
(a) You have read, understood & agreed to all the terms and conditions of the application andProspectus
(b) You consent to disclose your name, I/C or passport number, address, nationality, CDPSecurities Account Number, CPF Investment Account Number (if applicable) and applicationdetails to the share registrars, SCCS, CDP, SGX-ST, CPF Board, issuer/vendor(s) and leadissue manager
(c) This application is made in your own name and at your own risk.
(d) For FIXED price shares application, this is your only application. For TENDER price sharesapplication, this is your only application for this share at the selected tender price
11. Check that the share counter, the payment mode and the account number to debit are correctand click on “Submit”
12. Fill in details for the IPO application
— For Fixed price share application, select your Nationality, enter CDP Securities A/c No.,and the number of share applied for, check your NRIC/Passport No. and click “Submit”.
— For Tender price share application, select your Nationality, enter CDP Securities A/c No.,tender price and the number of shares applied for, check your NRIC/Passport No. and click“Submit”.
13. Check details of your application, your IC/Passport No., CDP Account No. and quantity of shareson the screen and click “Confirm” to confirm your application
14. Print Confirmation Screen (Optional) for our reference & retention only
