CORPORATE INFORMATION

BOARD OF DIRECTORS : Chan Wing Kwan (Chairman)

Chang Wing Yiu (Managing Director)
Cheung Kwok Wing
Ho Yin Sang
Zhang Guanghui
Lee Joo Hai
Teo Kiang Kok
Lai Chung Wing, Robert
COMPANY SECRETARIES : Helen Thomas
ACIS, LL.B. (Hons)
Ira Stuart Outerbridge III
FCIS
REGISTERED OFFICE : Clarendon House
2 Church Street
Hamilton HM II
Bermuda
REGISTRAR FOR THE INVITATION AND
SINGAPORE SHARE TRANSFER
AGENT
: Compact Administrative Services Pte Ltd
95 South Bridge Road #10-10
Pidemco Centre
Singapore 058717
BERMUDA REGISTRAR AND SHARE
TRANSFER OFFICE
: Butterfield Corporate Services Limited
Rosebank Centre
11 Bermudiana Road
Pembroke
Bermuda
MANAGER, UNDERWRITER AND
PLACEMENT AGENT
: The Development Bank of Singapore Ltd
6 Shenton Way
DBS Building Tower One
Singapore 068809
CO-UNDERWRITERS : BNP Prime Peregrine (Singapore) Ltd
30 Cecil Street #19-00
Prudential Tower
Singapore 049712
Citicorp Investment Bank (Singapore) Limited
3 Temasek Avenue #17-00
Centennial Tower
Singapore 039190
Standard Chartered Merchant Bank Asia Limited
6 Battery Road #06-08
Singapore 049909
CO-PLACEMENT AGENTS : Yuanta Securities (Hong Kong) Company Limited
Suite 1901, 19th Floor
Bank of America Tower
12, Harcourt Road
Central, Hong Kong
1
BNP Prime Peregrine (Singapore) Ltd
30 Cecil Street #19-00
Prudential Tower
Singapore 049712
G. K. Goh Stockbrokers Pte Ltd
50 Raffles Place #33-00
Singapore Land Tower
Singapore 048623
Vickers Ballas & Co Pte Ltd
30 Raffles Place #07-00
Caltex House
Singapore 048622
AUDITORS AND REPORTING
ACCOUNTANTS
: Deloitte & Touche
Certified Public Accountants
95 South Bridge Road #09-00
Pidemco Centre
Singapore 058717
SOLICITORS TO THE INVITATION : Shook Lin & Bok
1 Robinson Road #18-00
AIA Tower
Singapore 048542
SOLICITORS TO THE MANAGER,
UNDERWRITER AND PLACEMENT
AGENT
: Wong Partnership
80 Raffles Place #58-01
UOB Plaza 1
Singapore 048624
LEGAL ADVISORS TO THE COMPANY
ON HONG KONG LAW
: Kwok & Yih
(in association with Blake Dawson Waldron)
37th Floor, Gloucester Tower, The Landmark
Central, Hong Kong
LEGAL ADVISORS TO THE COMPANY
ON BERMUDA LAW
: Conyers Dill & Pearman
3408 Two Exchange Square
8 Connaught Place
Central, Hong Kong
PRINCIPAL BANKERS : Citibank N.A.
47th Floor Citibank Tower
Citibank Plaza
3 Garden Road
Central, Hong Kong
Standard Chartered Bank
12th Floor, Standard Chartered Tower
388 Kwun Tong Road, Kwun Tong
Hong Kong
2
DEFINITIONS
For the purpose of this Prospectus and the accompanying Application Forms, the following definitions
have, where appropriate, been used:
Act : The Companies Act, Chapter 50 of Singapore
ATM : Automated teller machine
Application Forms : The official application forms to be used for the purpose of
the Invitation and which form part of this Prospectus
Application List : List of applications for subscription and/or purchase of the
Invitation Shares
Audit Committee : The audit committee of the Company
Bermuda Act or Companies Act : The Companies Act 1981 of Bermuda
BVI : British Virgin Islands
Company or KBCF : Kingboard Copper Foil Holdings Limited
CDP : The Central Depository (Pte) Limited
C-Notes : The guaranteed convertible and exchangeable notes
issued by HKCF(BVI) to the Noteholders relating to the
loans extended by the Noteholders to HKCF(BVI)
pursuant to the terms and conditions of the Subscription
Agreement.
Co-Placement Agents : Yuanta Securities (Hong Kong) Company Limited, BNP
Prime Peregrine (Singapore) Ltd, G. K. Goh Stockbrokers
Pte Ltd and Vickers Ballas & Co Pte Ltd
Co-Underwriters : BNP Prime Peregrine (Singapore) Ltd, Citicorp Investment
Bank and Standard Chartered Merchant Bank Asia
Limited
CPF : Central Provident Fund
DBS Bank : The Development Bank of Singapore Ltd
Directors : The directors of the Company as at the date of this
Prospectus, unless otherwise stated
Electronic Applications : Applications for the Invitation Shares through an ATM of
one of the Participating Banks in accordance with the
terms and conditions of this Prospectus
Executive Officers : The executive officers of the Company as at the date of this
Prospectus, unless otherwise stated
FY : Financial year ended or ending 31 March
Hong Kong, SAR : Hong Kong, Special Administrative Region
Invitation : The invitation to the public in respect of the Invitation
Shares, subject to and on the terms of this Prospectus
3
Invitation Shares : The 170,000,000 New Shares and 45,000,000 Vendor
Shares which are the subject of the Invitation
Issue Price : S$0.53 for each Offer Share and for each Placement
Share
Manager : DBS Bank
Management and Underwriting
Agreement
: The management and underwriting agreement dated 6
December 1999 pursuant to which the Company and the
Vendors appointed DBS Bank to underwrite the Offer
Shares
Market Day : Aday on which the SESTL is open for trading in securities
New Shares : The 170,000,000 new Shares for which the Company
invites applications to subscribe, subject to and on the
terms of this Prospectus
Noteholders : Yuanta Securities Asia Financial Services Limited, Grand
Asia Gemini Fund Limited, High Intelligence Limited, Pan
Asia Special Opportunities Fund, Mr Lin Yu Wen and Mr
Ma Wei Chien
NTA : Net tangible assets
Offer : The offer by the Company of the Offer Shares to the
public for subscription and/or purchase at the Issue Price
Offer Shares : The 43,000,000 Invitation Shares which are the subject of
the Offer
PRC or China : Peoples Republic of China
Participating Banks : DBS Bank (including its POSBank Services division);
Keppel TatLee Bank Limited (KTB); Oversea-Chinese
Banking Corporation Limited (OCBC) Group
(comprising OCBC and Bank of Singapore Limited);
Overseas Union Bank Limited (OUB); and United
Overseas Bank Limited (UOB) Group (comprising UOB,
Far Eastern Bank Limited and Industrial & Commercial
Bank Limited)
Placement : The placement of the Placement Shares by the
Placement Agents on behalf of the Company for
subscription and/or purchase at the Issue Price
Placement Agent : DBS Bank
Placement Shares : The 172,000,000 Invitation Shares which are the subject
of the Placement
Restructuring Exercise : The restructuring exercise of the KBCF Group
undertaken in connection with the Invitation, as described
in pages 22 and 23 of this Prospectus
SCCS : Securities Clearing & Computer Services (Pte) Ltd
SEHK : The Stock Exchange of Hong Kong Limited
SESTL : Singapore Exchange Securities Trading Limited
4
Securities Account : Securities account maintained by a depositor with CDP
Share(s) : Ordinary share(s) of US$0.10 each in the capital of the
Company
Subscription Agreement : The subscription agreement dated 3 April 1998 made
between HKCF(BVI), KCHL and the Noteholders
pursuant to which the Noteholders inter alia extended
loans amounting to an equivalent of US$13,992,774 to
HKCF(BVI)
Underwriter : DBS Bank
US or USA : United States of America
Vendors : The Noteholders
Vendor Shares : The issued and fully paid-up Shares for which the
Vendors invite applications to purchase on the terms and
subject to the conditions of this Prospectus
Companies
KBCF Group Companies
KBCF Group or Proforma Group : The Company, HKCF(BVI), FKI and CPG
HKCF(BVI) : Hong Kong Copper Foil Limited
FKI : Fogang Kingboard Industry Ltd
CPG : Capital Project Group Ltd
Other Companies
HML : Hallgain Management Limited
Jamplan (BVI) : Jamplan (BVI) Limited
KCHL : Kingboard Chemical Holdings Limited, a company
incorporated in the Cayman Islands and listed on the
SEHK
Kingboard Group : KCHL and its subsidiaries, excluding the KBCF Group
Currencies
RMB : The Peoples Republic of China Renminbi
S$ or $ and cents : Singapore dollars and cents respectively, unless
otherwise stated
HK$ : Hong Kong dollars
US$ : United States dollars
Units
kg : Kilogram(s)
tonnes : Metric ton(s)
sq ft : Square foot (feet)
5
sq m : Square metre(s)
% or per cent. : Per centum
Unless otherwise stated, the exchange rate S$1.00 = HK$4.5879 is used throughout this Prospectus.
Words importing the singular shall, where applicable, include the plural and vice versa and words
importing the masculine gender shall, where applicable, include the feminine and neuter genders and
vice versa. References to persons shall include corporations.
Any reference in this Prospectus and the Application Forms to any enactment is a reference to that
enactment as for the time being amended or re-enacted. Any word defined under the Bermuda Act, the
Act or any statutory modification thereof and used in this Prospectus and the Application Forms shall
have the meaning assigned to it under the Bermuda Act, the Act or statutory modification as the case
may be.
Any reference in this Prospectus and the Application Forms to shares being allotted to an applicant
includes allotment to CDP for the account of that applicant.
A reference to a time of day in this Prospectus and the Application Forms shall be a reference to
Singapore time unless stated otherwise.
6
GLOSSARY OF TECHNICAL TERMS
To facilitate a better understanding of the business of the KBCF Group, the following glossary provides
an explanation on some of the technical terms and abbreviations relating to the KBCF Groups industry:
PCB : Printed circuit board.
Laminates : An insulated board used as a raw material in the production of PCBs.
Phase I : Refers to the first phase under which part of the production facilities of the
KBCF Group were put in place. Phase I comprises the operation of 30
titanium drums giving rise to a designed monthly production capacity of 300
tonnes of copper foil. Commercial production commenced in 1995 with the
bulk of its products being adhesive copper foil of 35 microns thickness.
Phase II : Refers to the second phase under which a further part of the production
facilities of the KBCF Group were or will be put in place. Phase II is itself
sub-divided into three sub-phases, namely, Phase IIA, Phase IIB and Phase
IIC.
Phase IIA comprises the operation of 8 titanium drums giving rise to a
designed monthly production capacity of 200 tonnes. Commercial production
commenced in January 1999 with the bulk of its products being uncoated
copper foil of 18 microns and 35 microns thicknesses.
Phase IIB also comprises the operation of 8 titanium drums giving rise to a
designed monthly production capacity of 200 tonnes. Commercial production
commenced in June 1999 with the bulk of its products being uncoated copper
foil of 18 microns and 35 microns thicknesses.
Phase IIC is in the process of being implemented. Installation of the
production lines consisting of 8 titanium drums giving rise to a designed
monthly production capacity of 200 tonnes. The KBCF Group intends to
commence commercial production under Phase IIC in January 2001,
concentrating on 18 microns and 35 microns thick copper foil and, where
there is a market demand, double-side and reverse-side treated copper foil
as well.
Phase III : Refers to the third phase under which new production facilities are to be
added to enhance the KBCF Groups production capacity and capabilities.
The plans for Phase III are set out on page 50 of this Prospectus under the
heading Prospects and Future Plans.
7
PURCHASE BY THE COMPANY OF ITS OWN SHARES
Under the laws of Bermuda, a company may, if authorised by its memorandum of association or
bye-laws, purchase its own shares. The Company has such power to purchase its own shares
under paragraph 7 of its Memorandum of Association. Such power of the Company to purchase
its own shares shall, subject to the Bermuda Act and its Memorandum of Association, be
exercisable by the Directors upon such terms and subject to such conditions as they think fit, in
accordance with Bye-law 3(2).
Under the laws of Bermuda, such purchases may be effected out of the capital paid-up on the purchased
shares or out of the funds of the Company otherwise available for dividend or distribution or out of
proceeds of a fresh issue of shares made for the purpose. Any premium payable on such a purchase
over the par value of the shares to be purchased must be provided for out of the funds of the Company
otherwise available for dividend or distribution or out of the Companys share premium account. Further,
any such purchase may only be made if at least two Directors, by affidavit, declare that on the effective
date of purchase and taking into account the purchase, the Company is solvent or that all of the creditors
of the Company on that date have consented in writing to such purchase. As the Companys shares are
to be listed on the SESTL, such affidavit may, at the option of the Company, be sworn within thirty days
after the end of each calendar quarter giving details of all purchases made during each quarter and shall
confirm that, after taking into account such purchases, the Company was solvent at all material times
during that quarter. The shares so purchased will be treated as cancelled and the Companys issued, but
not its authorised, capital will be diminished accordingly.
For further details, please see Purchase of securities by a company and its subsidiaries in
paragraph (c) of Appendix III on page 112 of this Prospectus.
The Company presently has no intention to purchase its shares after the listing. However, if it decides
to do so later, it would seek the shareholders approval in accordance with Singapore laws and the rules
of the SESTL. The Company will make prompt public announcement of any such share purchase and
has also given an undertaking to the SESTL to comply with all requirements that the SESTL may impose
in the event of any such share purchase.
SELLING RESTRICTIONS
This Prospectus does not constitute an offer, solicitation or invitation to subscribe for and/or purchase the
Shares in any jurisdiction in which such offer, solicitation or invitation is unlawful or is not authorised or
to any person to whom it is unlawful to make such offer, solicitation or invitation. No action has been or
will be taken under the requirements of the legislation or regulations of, or of the legal or regulatory
authorities of, any jurisdiction, except for the filing and/or registration of this Prospectus in Bermuda and
Singapore in order to permit a public offering of the Shares and the public distribution of this Prospectus
in Singapore. The distribution of this Prospectus and the offering of the Shares in certain jurisdictions
may be restricted by the relevant laws in such jurisdictions. Persons who may come into possession of
this Prospectus are required by the Company, the Manager and the Placement Agents to inform
themselves about, and to observe and comply with, any such restrictions.
8
PLACEMENT BY YUANTA SECURITIES (HONG KONG) COMPANY LIMITED
Yuanta Securities (Hong Kong) Company Limited (Yuanta), the co-placement agent of the Placement
Shares, is an investment advisor and a dealer in securities registered under the Securities Ordinance
(Chapter 333 of the Laws of Hong Kong). Yuanta is not directly or indirectly, offering or selling any
Invitation Shares or soliciting any offer or inviting any application for the subscription and/or purchase of
any Invitation Shares in Singapore. No inducement or advice is also being made or offered by Yuanta to
any potential or actual investor in Singapore in connection with the Invitation, the KBCF Group or the
Shares in this Prospectus. This Prospectus (including the Application Forms) is also not being distributed
or circulated in Singapore by Yuanta.
9
DETAILS OF THE INVITATION
LISTING ON SESTL
Application has been made to SESTL for permission to deal in and for quotation for all the Shares already
issued as well as the New Shares on the Official List of SESTL. Such permission will be granted when
the Company has been admitted to the Official List of SESTL. Acceptance of applications will be
conditional upon permission being granted to deal in and for quotation for all 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 or benefit arising therefrom and at the applicants own risk, if the said permission
is not granted.
The SESTL assumes no responsibility for the correctness of any of the statements made, opinions
expressed or reports contained in this Prospectus. Admission to the Official List of SESTL is not to be
taken as an indication of the merits of the Invitation, the Company, its subsidiaries or the Shares.
A copy of this Prospectus, together with copies of the Application Forms, has been lodged with, and
registered by, the Registrar of Companies and Businesses in Singapore who takes no responsibility for
its contents.
Acopy of this Prospectus, together with copies of the Application Forms, has been filed with the Registrar
of Companies in Bermuda. The Bermuda Monetary Authority has given its consent to the issue of the
New Shares and the sale of the Vendor Shares pursuant to the Invitation on the terms referred to in this
Prospectus. In accepting this Prospectus for filing and in granting such consent, the Bermuda Monetary
Authority and the Registrar of Companies in Bermuda accept no responsibility for the financial
soundness of the KBCF Group or any proposal or for the correctness of any of the statements made or
opinions expressed herein or any of the other documents referred to in this Prospectus.
This Prospectus has been seen and approved by the Directors and they individually and collectively
accept full responsibility for the accuracy of the information given in this Prospectus and confirm, having
made all reasonable enquiries, that to the best of their knowledge and belief, there are no other material
facts the omission of which would make any statement in this Prospectus misleading.
No person is authorised to give any information or to make any representation not contained in this
Prospectus in connection with the Invitation and, if given or made, such information or representation
must not be relied upon as having been authorised by the Company, the Vendors, the Manager or the
Placement Agents. Neither the delivery of this Prospectus and the Application Forms nor the Invitation
shall, under any circumstances, constitute a continuing representation or create any suggestion or
implication that there has been no change in the affairs of the Company or of its subsidiaries or in any
statements of fact or information contained in this Prospectus since the date of this Prospectus. Where
such changes occur, the Company may make an announcement of the same to the SESTL. All
applicants should take note of any such announcement and, upon release of such an announcement,
shall be deemed to have notice of such changes. Save as expressly stated in this Prospectus, nothing
herein is, or may be relied upon as, a promise or representation as to the future performance or policies
of the Company or its subsidiaries. This Prospectus has been prepared solely for the purpose of the
Invitation and may not be relied upon by any persons other than the applicants in connection with their
application for the Invitation Shares or for any other purpose. This Prospectus does not constitute an
offer of, or invitation to subscribe for, the Invitation Shares in any jurisdiction in which such offer or
invitation is unauthorised or unlawful nor does it constitute an offer or invitation to any person to whom
it is unlawful to make such offer or invitation.
Copies of this Prospectus and the Application Forms and envelopes may be obtained on request, subject
to availability, from:
The Development Bank of Singapore Ltd
6 Shenton Way
DBS Building Tower One
Singapore 068809
10
and from DBS Bank branches, members of the Association of Banks in Singapore, members of SESTL
and merchant banks in Singapore.
The Application List will open at 10.00 a.m. on 14 December 1999 and will remain open until 12.00
noon on the same day or for such further period or periods as the Directors may, in their absolute
discretion, decide.
INDICATIVE TIMETABLE FOR LISTING
In accordance with the SESTLs News Release of 28 May 1993 on the trading of initial public offering
shares on a when issued basis, an indicative timetable is set out below for the reference of applicants:
Indicative date/time Event
14 December 1999, 12 noon Closing date and time for applications
15 December 1999 Balloting of applications, if necessary
16 December 1999, 9.00 a.m. Commence trading on a when issued basis
27 December 1999 Last day of trading on a when issued basis
28 December 1999, 9.00 a.m. Commence trading on a ready basis
4 January 2000 Settlement date for all trades done on a when issued basis and
for all trades done on a ready basis on 28 December 1999
The above timetable is only indicative as it assumes that the closing of the Application List is 14
December 1999, the date of admission of the Company to the Official List of the SESTL will be 16
December 1999, SESTLs shareholding spread requirement will be complied with and the Invitation
Shares will be issued and fully paid up prior to 16 December 1999. The actual date on which the Shares
will commence trading on a when issued basis will be announced when it is confirmed by SESTL.
The above timetable and procedure may be subject to such modifications as SESTL may in its discretion
decide, including the decision to permit trading on a when issued basis, the commencement date of
such trading. All persons trading in the Shares on a when issued basis do so at their own risk. In
particular, persons trading in the Shares before their Securities Accounts with CDP are credited
with the relevant number of Shares do so at the risk of selling Shares which neither they nor their
nominees, if applicable, have been allotted with or are otherwise beneficially entitled to. Such
persons are also exposed to the risk of having to cover their net sell positions earlier if when
issued trading ends sooner than the indicative date mentioned above. Persons who have a net
sell position traded on a when issued basis should close their position on or before the first
day of ready basis trading.
Investors should consult the SESTL announcement on the ready listing date on the Internet (at the
SESTL website http://www.ses.com.sg), INTV or the newspapers, or check with their brokers on the date
on which trading on a ready basis will commence.
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PROSPECTUS SUMMARY
The information contained in this summary is derived from and should be read in conjunction with the full
text of this Prospectus:
The Company : The Company was incorporated as an exempted company in
Bermuda under the Companies Act 1981 of Bermuda on 10
September 1999. The KBCF Group is engaged in the
manufacture and trading of copper foil, a raw material for the
laminates and PCB industries.
The Invitation
Size : 215,000,000 Shares, comprising 170,000,000 New Shares and
45,000,000 Vendor Shares. The New Shares will, when issued
and fully paid-paid, rank pari passu in all respects with the existing
Shares of the Company.
Issue Price : S$0.53 for each Offer Share and for each Placement Share.
Purpose of the Invitation : The Directors consider that the listing of the Company and the
quotation of the Shares on SESTL will raise funds to finance the
Companys growth and enhance the Companys public image. It
will also provide members of the public an opportunity to
participate in the equity of the Company.
Use of Proceeds : The net proceeds from the issue of the New Shares (after
deducting estimated expenses in relation to the Invitation) of
approximately S$86.1 million will be utilised as follows:
(a) S$8 million for upgrading of production facilities under
Phase I;
(b) S$20 million for the installation of production facilities
under Phase IIC;
(c) S$38 million for the partial implementation of Phase III;
(d) the balance to be used as working capital.
Pending the deployment of net proceeds as aforesaid, the net
proceeds will be added to the KBCF Groups working capital or
used for repayment of revolving banking facilities or investment
in short-term money market instruments, as the Directors may
deem fit.
Listing Status : The Shares will be quoted on the Main Board of SESTL,
subject to admission of the Company to the Official List of
SESTL and permission for dealing in and quotation of the
Shares being granted by SESTL.
12
RISK FACTORS
Prior to making an investment decision, prospective subscribers and purchasers of Shares should
carefully read the entire Prospectus. Subscribers and purchasers should consider, among other things,
certain risk factors including, but not limited to, those set out below with respect to an investment in a
company, a significant proportion of the assets and operations of which are based in the PRC, not usually
associated with investments in the securities of issuers incorporated in Singapore and other jurisdictions.
Dependence on Major Customer
The business of the KBCF Group is dependent on a small number of customers, principally the
Kingboard Group, which is engaged in the manufacture of laminates. A detailed write up on the
Kingboard Group is set out in Appendix I of this Prospectus.
In FY1997 and FY1998, all the copper foil produced by the KBCF Group were sold to the Kingboard
Group. In FY1999, sales to the Kingboard Group accounted for almost 100% of the turnover and profit
before taxation of the copper foil business of the KBCF Group. There has been limited diversification of
the customer base of the KBCF Group as the copper foil needs of the Kingboard Group has so far
exceeded the KBCF Groups capacity. The KBCF Group expects that it will continue to sell a substantial
part of its output to the Kingboard Group in the future. If the demand by the Kingboard Group for copper
foil should fall substantially for any reason, there will be a material adverse effect on the financial position
of the KBCF Group.
Although the KBCF Group has received orders of not less than HK$200 million from the Kingboard
Group for the six months from October 1999 to March 2000, there can be no assurance that the
Kingboard Group will continue to demand copper foil from the KBCF Group after that period.
Fluctuations in Prices of Raw Materials
One of the main raw materials used in the manufacture of copper foil are copper scraps and cathode
plates, which are dissolved in sulphuric acid to form copper sulphate solution. The KBCF Group imports
the copper scraps and cathode plates needed for copper foil production from various countries, for
example, Chile, USA, and Australia. Copper is traded as a commodity and its price is therefore subject
to the fluctuations of the world commodity markets. Adverse movement in prices of copper is likely to
have material negative impact on the KBCF Groups financial position. The chart below shows the
changes in price of copper traded on the London Metal Exchange in the last 30 months.
[Take in CHART]
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Dependence on Supply of Utilities
Due to the nature of the production process of copper foil, the KBCF Groups copper foil facility in
Fogang, Guangdong Province, PRC, requires a constant and adequate supply of electricity and water for
its operations. In 1995, FKI entered into a long-term water supply contract with the Fogang Water
Resource Department under which the Fogang Water Resource Department agreed to supply water to
FKI at preferential rates of approximately 25% discount from normal rates, during the period from the
beginning of 1998 to the end of 2005. This has enabled the KBCF Group to keep its production expenses
down, which translates into attractive copper foil prices for its customers. However, the preferential rates
were only agreed to be applicable for a limited period until the end of 2005. Although the water supply
contract is renewable at the end of 2005, the rates to be charged upon renewal will be subject to
negotiations between the parties. There can be no assurance that the Fogang Water Resource
Department will continue to offer preferential rates for the KBCF Groups copper foil facility in Fogang
after 2005.
FKI currently also enjoys preferential rates of approximately 5%discount fromnormal rates for the supply
of electricity to its copper foil facility, which are offered as an incentive for foreign investors to set up
operations in Fogang. While the supply of electricity to FKI is for an indefinite period, the authorities are
not bound to continue to offer the preferential rates. Thus, any increase in electricity charges will result
in higher production costs for the copper foil business of the KBCF Group.
If FKI is unable to continue to enjoy preferential rates for both the supply of electricity and water, this
would result in lower profits for the KBCF Group
Foreign Exchange Risk
Any material change in the value of the Hong Kong dollar or Renminbi relative to the US dollar would
affect the cost structure of the KBCF Group and may have a material adverse effect on its business,
financial condition and results of operations. The sales of the KBCF Group are denominated mainly in
Hong Kong dollars, with a proportion of the sales (approximately 15%) denominated in Renminbi. The
KBCF Groups expenses, incurred mainly in the import of raw materials, are denominated primarily in US
dollars. Since 1993, the Hong Kong government has maintained the policy of linking the US dollar and
the Hong Kong dollar at an exchange rate of approximately HK$7.80 to US$1.00. The US dollar peg
effectively insures against currency risks but there can be no assurance that this link will be continued.
As up to 15% of the KBCF Groups sales is also denominated in Renminbi, a devaluation of Renminbi
against the US dollar may adversely affect the financial position of the KBCF Group. Although the PRC
government has repeatedly stated that it would not devalue the Renminbi, some analysts hold the view
that China will become hard-pressed to do so if deflationary pressures mount and economic growth
decelerates
(1)
.
Notes:
(1) As reported in the Business Times on 16 August 1999.
14
Preferential Income Tax Rates
FKI, a wholly foreign owned enterprise established by HKCF(BVI), is a Foreign Investment Enterprise
(FIE) subject to the Income Tax Law of the Peoples Republic of China for Foreign Investment
Enterprises (the Income Tax Law). Under the Income Tax Law, FKI is subject to income tax at a rate
of 24%, which is the tax rate applicable to FIEs located in areas like the Fogang county. Under Article 8
of the Income Tax Law, any FIE involved in production shall from the first year in which it generates profit,
be exempt from state income tax in the first and second years and be granted a 50% reduction in state
income tax payable in the third, fourth and fifth years. Currently, FKI is into its fourth year of Phase I
production at the plant in Fogang and is therefore entitled to a 50% reduction in income tax. When the
tax reduction period expires, the effective tax rate will become 24%. In order to reduce its tax liability and
taking advantage of the local governments policy of encouraging foreign investment, FKI applied to the
provincial tax authorities for the 2-year tax holiday and 3-year tax reduction period to be extended to its
profits earned in respect of Phase II of the copper foil production at the Fogang plant. The application has
been approved by the provincial tax authorities and FKI is exempt from income tax in respect of the
profits earned from Phase II production for the years 1999 and 2000 and will enjoy a 50% reduction in
income tax liability in the years 2001, 2002 and 2003. There can be no assurance that FKI will be granted
further preferential income tax treatment after the year 2003.
PRC Political, Economic and Legal Factors
The manufacturing facilities of the KBCF Group are located in Fogang and the principal market of the
KBCF Group is also the PRC and Hong Kong. Therefore, investors should note that there are several
inherent risks of doing business in China.
Internal Political Risks
First, there are the internal political risks of locating the KBCF Groups operations and assets in a
centrally controlled economy like China. Since the adoption of the open door reform policy in 1978 and
the socialist market economy in 1993, China has seen rapid economic growth and the standards of
living of the general population have improved significantly. As the political conditions in China change,
the economic reform measures may be modified or changed from time to time. This may lead to sudden
changes in the laws and regulations, or their interpretation, as well as changes in currency conversion
policies, taxation and import and export restrictions. These changes may have a material adverse effect
on the business of the KBCF Group, results of operation and financial condition. While the PRC
government has been pursuing economic reform policies, encouraging foreign investment and greater
economic decentralization, there is no assurance that such policies will continue to be pursued or that
they will not be altered from time to time without notice. Examples of changes in policies which would
materially affect the KBCF Group are: revocation or reduction of tax incentives to FIEs (for example, FKI)
and foreign companies, changes in tariff structures, stricter currency controls, as well as imposition of
economic austerity measures which may lead to decreased spending in the country.
Tension in the Taiwan Straits
Since the end of the Chinese civil war in 1949, when Taiwan broke away from mainland China to
establish its own political system, the PRC government has regarded the island to be a renegade
province. The PRC government has declared repeatedly that it would not hesitate to use military force
if Taiwan should declare independence at any time. In the past, there have been times when relations
between Taiwan and PRC were tense and the use of military force had been threatened by the PRC
government. Recently, cross-straits relations took a turn for the worse after Taiwan President Lee Teng
Hui made statements in July 1999 as to state-to-state relations between Taiwan and the PRC. Should
the political tensions between the PRC and Taiwan worsen, the market sentiment and business
environment in PRC and Hong Kong would be adversely affected.
15
Current Economic Considerations
There are indications that despite the economic expansion policies implemented by the PRC
government, economic growth in China has shown signs of slowing down. The decline in the currencies
of the East Asian economies has caused Chinas exports to be less cost-competitive as compared to
those of some other countries. The shrinking external sector will put pressure on the domestic economy,
which is already facing deflationary pressures as a result of decreased consumption incentive in the
country arising from massive lay-offs in the state sector. This may affect the general business
environment of the PRC and, in turn, the KBCF Groups business may, to a certain extent, be affected.
PRC Legal System
As FKI is established as a wholly foreign-owned enterprise in the PRC, its operations would have to be
within the framework of the PRC legal system and be regulated thereby.
The PRC legal system is based on the PRC Constitution and is made up of written laws, regulations,
circulars, directives and other governmental orders. Unlike the common law system, decided cases do
not form binding precedents. The National Peoples Congress (NPC) and the Standing Committee of
the NPC are vested with the powers under the PRC Constitution to exercise the legislative power of the
State. The PRC government is still in the process of developing a comprehensive set of laws and
regulations. Although considerable progress has been made in the promulgation of laws involving the
protection of foreign investors interests, some of the laws and regulations, and the interpretation,
implementation and enforcement thereof may be subject to policy changes at State levels as well as
provincial and local levels. Further, precedents on the interpretation, implementation and enforcement of
the PRC laws and regulations are limited. The outcome of dispute resolutions may not be as consistent
or predictable as in other more developed legal jurisdictions.
Application of Singapore Take-over Laws and Regulations
Sections 213, 214 and 215 of the Singapore Companies Act, the Tenth Schedule to the Singapore
Companies Act and the Singapore Code on Take-overs and Mergers (1985 Edition) (collectively the
Singapore Take-over Laws and Regulations) apply only to take-over offers for public companies
incorporated in Singapore and not to companies incorporated outside Singapore. Therefore, the
Singapore Take-over Laws and Regulations do not apply to take-over offers for the Company as it is
incorporated in Bermuda.
Bye-law 168 (as described below) will, due to its binding effect on the members of the Company, require
members of the Company who make take-over offers for the Company to comply with the Singapore
Take-over Laws and Regulations. However, it is uncertain whether this can be implemented in practice.
As Bye-law 168 only binds the members of the Company, a person (including a corporation) who is not
a member of the Company will not be bound to comply with the Singapore Take-over Laws and
Regulations.
Bye-law 168 provides that for so long as the Shares are listed on the Designated Stock Exchange (as
defined in the Bye-laws), the Singapore Take-over Laws and Regulations, including any amendments,
modifications, revisions, variations or re-enactment thereof, shall apply, mutatis mutandis, to all
take-over offers of the Company.
The Companys substantial shareholder KCHL has undertaken to the SESTL that, as long as it continues
to be a substantial shareholder of the Company, it will endeavour to persuade potential offerors to comply
with the requirements of the Singapore Take-over Laws and Regulations in the event of any take-over
offers for the Company.
16
ISSUE STATISTICS
Issue Price for each Offer Share and each Placement Share S$0.53
NET TANGIBLE ASSETS
NTA per Share based on the consolidated balance sheet of the KBCF Group as at
31 March 1999, after taking into account the sub-division of shares and the
Restructuring Exercise referred to on pages 22 and 23 of this Prospectus:
(a) Before adjusting for the estimated net proceeds from the issue of the New
Shares (and based on the pre-flotation share capital of 500,000,000 Shares)
17.57 cents
(b) After adjusting for the estimated net proceeds from the issue of the New
Shares (and based on the post-flotation share capital of 670,000,000 Shares)
25.97 cents
Premium of Issue Price of S$0.53 per Share over the NTA per Share as at 31
March 1999:
(a) Before adjusting for the estimated net proceeds from the issue of the New
Shares and based on the pre-flotation share capital of 500,000,000 Shares
201.7%
(b) After adjusting for the estimated net proceeds from the issue of the New
Shares and based on the post-flotation share capital of 670,000,000 Shares
104.1%
EARNINGS
Historical net earnings per Share of the KBCF Group for the financial year ended
31 March 1999 based on the pre-flotation share capital of 500,000,000 Shares
(1)
1.87 cents
Forecast net earnings per Share of the KBCF Group for the financial year ending
31 March 2000 based on the weighted average share capital of 542,500,000
(2)
Shares
5.25 cents
NET OPERATING CASH FLOW
(3)
Historical net operating cash flow per Share for the financial year ended 31 March
1999 based on the pre-flotation share capital of 500,000,000 Shares
2.35 cents
Forecast net operating cash flow per Share for the financial year ending 31 March
2000 based on the weighted average share capital of 542,500,000
(2)
Shares
6.27 cents
BASED ON THE ISSUE PRICE OF S$0.53 PER SHARE
Historical price earnings ratio based on the historical net earnings per Share of the
KBCF Group for the financial year ended 31 March 1999
(1)
28.3 times
Forecast price earnings ratio based on the forecast net earnings per Share of the
KBCF Group for the financial year ending 31 March 2000
10.1 times
Historical price to net operating cash flow based on the historical net operating
cash flow per Share for the financial year ended 31 March 1999
22.6 times
Forecast price to net operating cash flow based on the forecast net operating cash
flow per Share for the financial year ending 31 March 2000
8.5 times
Notes:
(1) Had the service agreements been in place in FY1999, the Groups net earnings per Share in FY1999 would have been
1.83 cents and the historical price earnings ratio based on the historical net earnings per share of the KBCF Group would have
been 29.0 times.
(2) Weighted average share capital is calculated assuming that the Company has the use of the net proceeds from the issue of
New Shares from 1 January 2000.
(3) Net operating cash flow is defined as net profit after taxation with provision for depreciation added back.
17
SUMMARY OF PROFORMA FINANCIAL INFORMATION
The following selected financial information should be read in conjunction with the Accountants Report
and the full text of this Prospectus.
Operating Results of the Proforma Group
(1)
(HK$000) FY1995 FY1996 FY1997 FY1998 FY1999
Unaudited
six months
ended
30 September
1999
Turnover 41,942 113,498 158,679 174,544 177,396
Operating profit/(loss) (4,361) 7,744 38,527 53,354 62,653 84,449
Foreign exchange gain
(2)
1,479 148 2,588 133 2,221 1,005
Loss on disposal of
property, plant and
equipment (196) (424)
Profit/(Loss) before
depreciation, interest
and taxation (2,882) 7,892 41,115 53,291 64,450 85,454
Depreciation (4,711) (7,517) (8,501) (10,943) (12,343)
Profit/(Loss) before
interest and taxation (2,882) 3,181 33,598 44,790 53,507 73,111
Net interest expense (376) (409) (734) (458) (3,414) (2,226)
Profit/(Loss) before
taxation
(3)
(3,258) 2,772 32,864 44,332 50,093 70,885
Taxation (66) (1,711) (7,068) (9,756)
Profit/(Loss) after taxation (3,258) 2,772 32,798 42,621 43,025 61,129
Extraordinary items
Profit/ (Loss) attributable
to shareholders (3,258) 2,772 32,798 42,621 43,025 61,129
Earnings/(Loss) per Share
(cents)
(4)
(0.65) 0.55 6.56 8.52 8.61 12.23
Average exchange rate
of HK$ per S$1.00 5.2155 5.5029 5.4930 4.9814 4.5958 4.5879
Notes:
(1) The financial results of the Proforma Group for the period under review have been prepared on the basis that the Proforma
Group had been in existence throughout the period under review.
(2) Net foreign exchange gain declined from HK$2.59 million in FY1997 to HK$133,000 in FY1998. Foreign exchange gain arose
due to the difference between the book rates and the market rates of foreign currency transactions and the market rates were
less favourable in FY1998 compared to FY1997. The KBCF Group recorded foreign exchange gain of HK$2.22 million in
FY1999 due to favourable difference between its book rates and market rates of foreign currency transactions.
(3) Had the proposed service agreements referred to on page 45 of this Prospectus been in existence in FY1999, the profit before
taxation for FY1999 would have been HK$49,119,000 instead of HK$50,093,000.
(4) For comparative purposes, the Earnings/(Loss) per Share is calculated using profit/(loss) after taxation but before
extraordinary items and divided by the pre-flotation share capital of 500,000,000 Shares.
18
(S$000) FY1995 FY1996 FY1997 FY1998 FY1999
Unaudited
six months
ended
30 September
1999
Turnover 7,622 20,662 31,854 37,979 38,666
Operating profit/(loss) (837) 1,407 7,014 10,711 13,633 18,407
Foreign exchange gain
(2)
284 27 471 27 483 219
Loss on disposal of
property, plant and
equipment (39) (92)
Profit/(Loss) before
depreciation, interest
and taxation (553) 1,434 7,485 10,699 14,024 18,626
Depreciation (856) (1,368) (1,707) (2,381) (2,690)
Profit/(Loss) before
interest and taxation (553) 578 6,117 8,992 11,643 15,936
Net interest expense (72) (74) (134) (92) (743) (485)
Profit/(Loss) before
taxation
(3)
(625) 504 5,983 8,900 10,900 15,451
Taxation (12) (343) (1,538) (2,126)
Profit/(Loss) after taxation (625) 504 5,971 8,557 9,362 13,325
Extraordinary items
Profit/(Loss) attributable to
shareholders (625) 504 5,971 8,557 9,362 13,325
Earnings/(Loss) per Share
(cents)
(4)
(0.13) 0.10 1.19 1.71 1.87 2.67
Note:
Please see notes on page 18 of this Prospectus.
19
Financial Position of the Proforma Group
(1)
(HK$000) FY1995 FY1996 FY1997 FY1998 FY1999
Unaudited
as at
30 September
1999
Property, plant and
equipment 66,917 86,258 97,402 107,569 284,620 288,279
Current assets 9,385 15,652 61,123 100,099 242,070 314,371
Current liabilities (10,046) (15,174) (39,577) (21,242) (133,419) (146,652)
Net current assets/
(liabilities) (661) 478 21,546 78,857 108,651 167,719
Non-current liabilities (71,724) (92,227) (109,181) (136,985) (247,940) (249,539)
(5,468) (5,491) 9,767 49,441 145,331 206,459
Shareholders equity (5,468) (5,491) 9,767 49,441 145,331 206,459
NTA per Share (cents)
(2)
(1.09) (1.10) 1.95 9.89 29.07 41.29
Closing exchange rate
of HK$ per S$1.00 5.4543 5.5029 5.3689 4.7973 4.4813 4.5610
(S$000) FY1995 FY1996 FY1997 FY1998 FY1999
Unaudited
as at
30 September
1999
Property, plant and
equipment 12,268 15,675 18,142 22,423 63,513 63,205
Current assets 1,721 2,844 11,385 20,866 54,018 68,926
Current liabilities (1,842) (2,757) (7,372) (4,428) (29,772) (32,154)
Net current assets/
(liabilities) (121) 87 4,013 16,438 24,246 36,772
Non-current liabilities (13,150) (16,760) (20,336) (28,555) (55,328) (54,711)
(1,003) (998) 1,819 10,306 32,431 45,266
Shareholders equity (1,003) (998) 1,819 10,306 32,431 45,266
NTA per Share (cents)
(2)
(0.20) (0.20) 0.36 2.06 6.49 9.05
Notes:
(1) The financial results of the Proforma Group for the period under review have been prepared on the basis that the Proforma
Group had been in existence throughout the period under review.
(2) For comparative purposes, the NTA per Share is calculated based on the pre-flotation share capital of 500,000,000 Shares.
20
GENERAL INFORMATION ON THE COMPANY AND THE KBCF GROUP
SHARE CAPITAL
The Company was incorporated in Bermuda on 10 September 1999 under the Bermuda Act as an
exempted company limited by shares with an initial authorised share capital of US$12,000 comprising
12,000 ordinary shares of par value US$1.00 each. At the meeting of the provisional directors held on
15 September 1999, the initial share capital of US$12,000 comprising 12,000 shares of par value
US$1.00 each was issued nil-paid to Jamplan (BVI), a wholly-owned subsidiary of KCHL.
Pursuant to written resolutions of the shareholders of the Company dated 3 December 1999, the
shareholders approved, inter alia, the following:
(a) the sub-division of each of the ordinary shares of US$1.00 each in the capital of the Company into
10 ordinary shares of US$0.10 each in the capital of the Company;
(b) an increase in the authorised share capital of the Company from US$12,000 divided into 120,000
ordinary shares of US$0.10 each to US$200,000,000 divided into 2,000,000,000 ordinary shares of
US$0.10 each by the creation of 1,999,880,000 ordinary shares of US$0.10 each;
(c) the Restructuring Exercise, details of which are set out on pages 22 and 23 of this Prospectus;
(d) the adoption of a new set of Bye-Laws of the Company; and
(e) the issue of 170,000,000 New Shares which, together with the 45,000,000 Vendor Shares, are the
subject of the Invitation.
At the aforesaid meeting, the shareholders also authorised the Directors to issue further shares fromtime
to time, provided the aggregate number of Shares issued pursuant to such authority shall not exceed the
maximum limit permitted under the relevant laws of Singapore and Bermuda (including the rules of the
SESTL) prevailing at that time.
Details of the issued and paid-up share capital of the Company since 10 September 1999, being the date
of incorporation of the Company, and its issued and paid-up share capital immediately after the Invitation
are as follows:
Number of
shares US$
At incorporation
Issued and nil-paid ordinary shares of US$1.00 each 12,000 Nil
12,000 Nil
Sub-division of ordinary shares of US$1.00 each into ordinary
shares of US$0.10 each 120,000 Nil
Shares (including the 120,000 nil-paid Shares) issued and
credited as fully paid pursuant to the Restructuring Exercise 500,000,000 50,000,000
Pre-Invitation share capital 500,000,000 50,000,000
New Shares to be issued for Invitation 170,000,000 17,000,000
Post-Invitation share capital 670,000,000 67,000,000
21
The authorised share capital of the Company as at 6 December 1999 before and after adjustments to
reflect, inter alia, the Restructuring Exercise, the increase in the authorised share capital of the
Company, the sub-division of the ordinary shares from US$1.00 each to 10 ordinary shares of US$0.10
each and the issue of New Shares are set forth below. These statements should be read in conjunction
with the Accountants Report set out on pages 56 to 74 of this Prospectus.
As at
10 September 1999 As adjusted
US$ US$
Authorised Share Capital
Ordinary shares of US$1.00 each 12,000
Ordinary shares of US$0.10 each 200,000,000
Shareholders Funds
Issued and paid-up share capital 50,000,000
Reserves 809,684
Total Shareholders funds 50,809,684
RESTRUCTURING EXERCISE
To rationalise the KBCF Groups corporate structure, the Restructuring Exercise, details of which are set
out below, was implemented following the Companys incorporation.
Group Structure Before Restructuring Exercise
The KBCF Group was formed through a series of acquisition and restructuring of the shareholdings in
the respective subsidiaries. The Restructuring Exercise involved the following transactions:
(1) The Company was incorporated in Bermuda on 10 September 1999 under the Bermuda Act as an
exempted company with an initial authorised share capital of US$12,000 of which 12,000 ordinary
shares of par value US$1.00 each were allotted and issued to Jamplan (BVI) nil-paid. The 12,000
ordinary shares of par value US$1.00 each were then sub-divided into 120,000 ordinary shares of
US$0.10 each.
22
KCHL
100%
Jamplan (BVI)
HKCF(BVI)
FKI CPG
100%
100%
(2) As part of the Restructuring Exercise, HKCF(BVI) and the Noteholders undertook the following
transactions:
(a) HKCF(BVI) capitalised loans from the Kingboard Group amounting to an equivalent of
US$18,064,516 (at the exchange rate of US$1.00 : HK$7.75) in exchange for 18,064,516
shares in HKCF(BVI); and
(b) The Noteholders issued promissory notes to HKCF(BVI) with an aggregate value equivalent to
US$13,992,774 (at the exchange rate of US$1.00 : HK$7.75) in exchange for an aggregate of
13,992,774 shares in HKCF(BVI).
Pursuant to the foregoing, a total of 32,057,290 ordinary shares of US$1.00 each in the capital of
HKCF(BVI) were issued to Jamplan (BVI) and the Noteholders, resulting in an increased share
capital of US$47,057,290 divided into 47,057,290 ordinary shares of US$1.00 each in the capital of
HKCF(BVI).
Upon the conditions under the Management and Underwriting Agreement being satisfied, the
promissory notes issued by the Noteholders and the C-Notes held by the Noteholders would be set
off against each other.
(3) The Company then acquired the entire issued share capital in HKCF(BVI) from Jamplan (BVI) and
the Noteholders for a consideration which is equal to the aggregate of the audited NTA of
HKCF(BVI) and its subsidiaries as at 31 March 1999 (taking into account the capitalisation of loans
as described in the preceding paragraph) amounting to US$50,809,684 . The said consideration
was satisfied in full by the allotment and issue of Shares by the Company to Jamplan (BVI) and the
Noteholders in proportion to their shareholdings in HKCF(BVI) and on the basis of 500,000,000
Shares for the 47,057,290 ordinary shares of US$1.00 each in HKCF(BVI) acquired save that, as
part of the consideration paid by the Company to Jamplan (BVI), the 120,000 Shares which were
originally issued to Jamplan (BVI) nil-paid were deemed to be credited as fully paid upon the
completion of the Restructuring Exercise.
Adjustment of shareholding interests between Jamplan (BVI) and the Noteholders
For the purpose of giving effect to the agreement contemplated under the Subscription Agreement, the
Noteholders executed share transfers in respect of an aggregate of 75,178,069 Shares in favour of
Jamplan (BVI), such that the Noteholders hold in aggregate a shareholding interest of 14.7% in the
capital of the Company. None of the Noteholders are substantial shareholders or deemed to be
substantial shareholders of the Company.
The KBCF Group structure after the Restructuring Exercise and the aforesaid adjustment of
shareholding interests, but prior to Invitation is as follows:
23
14.7%
KBCF
HKCF(BVI)
FKI CPG
100%
100%
Jamplan (BVI) Noteholders
KCHL
100%
85.3%
GROUP STRUCTURE
The KBCF Group structure after the Restructuring Exercise is shown below:
Details of subsidiaries of the KBCF Group as at the date of this Prospectus are as follows:
Subsidiaries
Name of Company
Date and Place
of Incorporation
Group
Equity
Interest
Issued and Paid-up
Capital/Registered
Capital Principal Activities
HKCF(BVI) 7 August 1992/
BVI
100% US$47,057,290 Investment holding
FKI 13 July 1993/
PRC
100% RMB166,737,626 Manufacture and
sale of copper foil
CPG 8 February 1996/
BVI
100% US$50,000 Trading in copper
foil
None of the above subsidiaries of the KBCF Group are listed on any stock exchange.
Save as disclosed in this Prospectus, no Director or substantial shareholder of the Company has an
interest (direct or indirect) in any of the subsidiaries of the KBCF Group.
24
Kingboard Copper Foil
Holdings Limited
HKCF(BVI)
FKI CPG
100%
100% 100%
SHAREHOLDERS
The shareholders of the Company and their respective direct and deemed shareholdings immediately
before and after the Invitation are set out below:
Before Invitation
Direct Interest Deemed Interest Total Interest
Number of
Shares %
Number of
Shares %
Number of
Shares %
Directors
Cheung Kwok Wing
(1)
426,500,000 85.3 426,500,000 85.3
Chan Wing Kwan
Chang Wing Yiu
Ho Yin Sang
Zhang Guanghui
Lee Joo Hai
Teo Kiang Kok
Lai Chung Wing, Robert
Substantial Shareholders
Jamplan (BVI) 426,500,000 85.3 426,500,000 85.3
HML
(1)
426,500,000 85.3 426,500,000 85.3
KCHL
(1)
426,500,000 85.3 426,500,000 85.3
Others (holders of less than
5% who are related to
Directors or Substantial
Shareholders)
Nil
Noteholders 73,500,000 14.7 73,500,000 14.7
Public
Total 500,000,000 100.0
Notes:
(1) Mr Cheung Kwok Wing has a deemed interest in respect of the 426,500,000 Shares held by Jamplan (BVI) by virtue of his
21.5%shareholding interest in HML. HML in turn has a deemed interest in respect of the 426,500,000 Shares held by Jamplan
(BVI) through its 36.0% shareholding interest in KCHL. Jamplan (BVI) is a wholly-owned subsidiary of KCHL.
25
After Invitation
Direct Interest Deemed Interest Total Interest
Number of
Shares %
Number of
Shares %
Number of
Shares %
Directors
Cheung Kwok Wing
(1)
426,500,000 63.7 426,500,000 63.7
Chan Wing Kwan
Chang Wing Yiu
Ho Yin Sang
Zhang Guanghui
Lee Joo Hai
Teo Kiang Kok
Lai Chung Wing, Robert
Substantial Shareholders
Jamplan (BVI) 426,500,000 63.7 426,500,000 63.7
HML
(1)
426,500,000 63.7 426,500,000 63.7
KCHL
(1)
426,500,000 63.7 426,500,000 63.7
Others (holders of less than
5% who are related to
Directors or Substantial
Shareholders)
Nil
Noteholders
(2)
28,500,000 4.3 28,500,000 4.3
Public 215,000,000 32.0 215,000,000 32.0
Total 670,000,000 100.0
Notes:
(1) Mr Cheung Kwok Wing has a deemed interest in respect of the 426,500,000 Shares held by Jamplan (BVI) by virtue of his
21.5%shareholding interest in HML. HML in turn has a deemed interest in respect of the 426,500,000 Shares held by Jamplan
(BVI) through its 36.0% shareholding interest in KCHL. Jamplan (BVI) is a wholly-owned subsidiary of KCHL.
(2) None of the Noteholders are substantial shareholders or deemed to be substantial shareholders.
Jamplan(BVI) is the registered and beneficial holder of 85.3% of the issued and paid-up share capital of
the Company after the Restructuring Exercise. Jamplan (BVI) is a wholly-owned subsidiary of KCHL.
KCHL is an investment holding company incorporated in the Cayman Islands on 12 January 1993, and
is listed on the SEHK. It is the ultimate holding company of the KBCF Group and the Kingboard Group.
As at the date of this Prospectus, KCHL has an issued and paid up capital of HK$47,207,745 comprising
472,077,448 ordinary shares of HK$0.10 each.
The business of the Kingboard Group was founded in 1988 by Mr Cheung Kwok Wing, Dr Chan Wing
Kwan, Mr Lam Ka Po and Mr Lum Gum Wun. The Kingboard Group is principally engaged in the
manufacture and sale of laminates and glass cloth for the PCB industry. The directors of KCHL are
Messrs Cheung Kwok Wing, Chan Wing Kwan, Lam Ka Po, Lum Gum Wun, Cheung Kwong Kwan,
Cheung Kwok Wa, Cheung Kwok Ping, Cheung Kwok Keung and Chang Wing Yiu. Please refer to
Appendix I of this Prospectus for background information on the Kingboard Group.
26
As at the date of this Prospectus, the substantial shareholders of KCHL (being, pursuant to the Securities
Disclosure of Interest Ordinance of Hong Kong, shareholders holding 10% or more of the issued share
capital of KCHL) are as follows:
Interest in KCHL shares Percentage Interest in KCHL
HML 169,916,000 36.0%
HML is an investment holding company incorporated in BVI and its shareholders are as follows:
Name of shareholder of HML Percentage Interest in HML
Cheung Kwok Wing 21.5%
Chan Wing Kwan 15.0%
Lum Gum Wun 10.0%
Lam Ka Po 5.5%
Cheung Kwong Kwan 8.0%
Cheung Kwok Wa 10.0%
Cheung Kwok Ping 9.0%
Cheung Kwok Keung 5.0%
Chang Wing Yiu 5.0%
Ho Yin Sang 5.0%
Cheung Kun Tong 5.0%
Tsang Chor Chu 1.0%
Messrs Cheung Kwok Wing, Chan Wing Kwan, Chang Wing Yiu and Ho Yin Sang are Directors of KBCF.
In addition, Messrs Cheung Kwok Wa, Cheung Kwok Ping, Cheung Kwok Keung are brothers of Mr
Cheung Kwok Wing, the Chairman of KCHL. Mr Cheung Kwong Kwan is the cousin of Mr Cheung Kwok
Wing and Messrs Chang Wing Yiu, Ho Yin Sang and Cheung Kun Tong are brothers-in-law of Mr Cheung
Kwok Wing.
In addition to the indirect shareholding interests which they have in KCHL through HML, Mr Cheung
Kwok Wing, Dr Chan Wing Kwan and Mr Chang Wing Yiu also hold shares directly in KCHL. Their direct
shareholdings in KCHL as at the date of this Prospectus are as follows:
Name Percentage Shareholding
Cheung Kwok Wing 3.6%
Chan Wing Kwan 2.0%
Chang Wing Yiu 0.3%
27
MORATORIUM
To demonstrate its commitment to the KBCF Group, Jamplan (BVI), which will own 63.7% of the
Companys share capital after the Invitation, has given an undertaking to the Company not to realise or
transfer any part of its interests in the Company for a period of 6 months commencing from the date of
admission of the Company to the Official List of SESTL and for a period of 6 months thereafter not to
reduce its shareholding to below 50% of the Companys issued share capital after the Invitation. KCHL,
in turn, has given an undertaking to the Company not to realise or transfer any part of its interests in
Jamplan (BVI) for a period of 12 months commencing from the date of admission of the Company to the
Official List of SESTL. HML has also given an undertaking to the Company to maintain beneficial
ownership of at least 169,916,000
(1)
ordinary shares of HK$0.10 each in the capital of KCHL (adjusted
for consolidation or sub-division) for a period of 12 months commencing from the date of admission of
the Company to the Official List of SESTL. In addition, Messrs Cheung Kwok Wing, Chan Wing Kwan,
Ho Yin Sang and Chang Wing Yiu have each given an undertaking to the Company to collectively and
beneficially hold not less than 46.5% of the total issued and paid-up capital of HML for a period of 12
months commencing from the date of admission of the Company to the SESTL.
Note:
(1) the shareholding of HML as at the date of this Prospectus.
HISTORY
The Company was incorporated in Bermuda on 10 September 1999 and the KBCF Group was formed
as a result of the Restructuring Exercise as described under the section Restructuring Exercise on
pages 22 and 23 of this Prospectus.
Mr Cheung Kwok Wing, the Chairman of the Kingboard Group, was first engaged in the trading of
electronic and electrical components in the 1970s. One of the most important components in electronic
products are PCBs. As the demand for downstream products that require PCBs, such as mobile phones
and computers, increased, and more plants engaged in the manufacture of these products were being
set up in PRC, Mr Cheung decided to tap on the potential for growth of the laminates industry. Mr
Cheung, together with a few of the directors, namely, Dr Chan Wing Kwan, Mr Lam Ka Po and Mr Lum
Gum Wun, established a laminate manufacturing facility in 1988 in Shenzhen, PRC and started
producing copper clad laminates in 1989. Through expansion and growth over the past decade, the
laminates business of the Kingboard Group has become firmly established in Hong Kong and PRC. The
shares of KCHL, the holding company of the Kingboard Group, were listed on the Stock Exchange of
Hong Kong in 1993.
The principal product of the KBCF Group, namely, copper foil, is a key raw material used in the
production of laminates by the Kingboard Group. In order to ensure continuous supply of the key raw
materials, the Kingboard Group began exploring the feasibility of producing its own copper foil in an
attempt to vertically integrate its operations.
In 1992, the management of the Kingboard Group, led by Dr Chan Wing Kwan, began studies into the
manufacture and production of copper foil, including sourcing for the related technologies, skilled labour
as well as a suitable site to establish the manufacturing plant and facilities. HKCF(BVI) was established
in August 1992 as an investment holding company for the copper foil business.
By May 1993, a site in Fogang, Guangdong Province, PRC was identified and a team of engineers with
suitable experience was recruited. Construction of the copper foil factory also began at about the same
time. In July 1993, FKI was established as a wholly foreign-owned enterprise to carry on the business
of manufacture of and trading in copper foil.
28
Phase I of the commercial production of copper foil began sometime in June 1995. The KBCF Group
started out with 6 production lines comprising 6 drums which give a total annual production capacity of
about 720 tonnes. Demand for copper foil increased substantially and in just slightly more than a year,
that is, by October 1996, the KBCF Group had to increase its production capacity to meet the increasing
demand for copper foil. The number of drums in use was increased from 6 to 24, thus giving the KBCF
Group a total designed annual production capacity of about 2,880 tonnes. By October 1997, the number
of drums in use was further increased from 24 to 30, giving the KBCF Group a total designed annual
production capacity of about 3,600 tonnes.
Phase II of the commercial production of copper foil was embarked upon primarily to meet further market
demand for copper foil. The KBCF Group began construction and installation of the factory and
production facilities in December 1997. Commercial production under Phase II commenced in January
1999 with 8 drums (under Phase IIA) and an additional 8 drums were added in June 1999 (under
Phase IIB).
To facilitate trading of copper foil outside PRC, CPG was established in February 1996 as a
wholly-owned subsidiary of HKCF(BVI). CPG sells mainly to the Kingboard Group. Domestic sales of
copper foil within the PRC are carried out directly by FKI.
INDUSTRY BACKGROUND
The principal use of copper foil is in the manufacture of copper clad laminates, an essential component
in the manufacture of PCBs, and multi-layered PCBs. A study made by BPA Group Ltd in March 1998
entitled Opportunities for Copper Foil in the Asia/Japan PCB and Laminates Industries
(1)
(BPA
Report) noted that laminates and PCB industries represent 95% of the worlds copper foil market.
Copper foil is also used in the manufacture of smart cards and decorative laminates in buildings. As such,
there is a direct correlation between the market demand for laminates and PCBs and the market demand
for copper foil.
Applications of Laminates and PCBs
Most of the PCB market is made up of 5 key types of boards; namely, paper and composite boards,
single-sided glass epoxy boards, double-sided glass epoxy boards, multi-layer boards and flexible
circuits.
Paper and composite boards
The manufacture of paper and composite boards normally require the use of 35 microns or 70 microns
copper foils. These boards are predominantly used in the consumer and entertainment electronics
industry and some industrial electronic applications; for instance, the manufacture of television sets,
video cassette recorders, house telephones, telephone accessories, domestic electronic devices such
as central heating controllers and other low-end electronic and electrical devises used in cars. Paper and
composite boards are usually produced in single-sided format using laminates produced by bonding
copper foil to an insulating substrate. The insulating substrate may be a special paper which has been
impregnated with phenolic resin and then built up in a series of layers and cured or a combination of two
layers of glass cloth sandwiching a central layer of either paper impregnated with epoxy resin or a
non-woven glass fleece impregnated with resin.
Note:
(1) The study was commissioned by Pan Asia Special Opportunities Fund in connection with the Noteholders investments into
the Kingboard Group in 1998. The facts extracted from the BPAReport and reproduced in this Prospectus have been updated
and verified in November 1999. BPA Group Ltd is an international consultancy company based in the United Kingdom which
provides consulting services to organisations and businesses in the global electronics industry. Since 1971, it has been
providing technical and market forecast information to manufacturers, trade associations, investment banks, venture capital
companies and research institutes.
29
Single-sided glass epoxy boards
Single-sided glass epoxy boards form a relatively small market. They are made from laminates
constructed from a woven glass cloth which have been impregnated with epoxy resin and then bonded
in layers to form a rigid substrate. The copper foil is applied to only one surface. Single-sided glass epoxy
boards are used when a more heat resistant and more mechanically rigid material is required. They are
typically used in industrial control equipment and measuring instruments.
Double-sided glass epoxy boards
Double-sided glass epoxy boards are constructed from laminates which comprise up to 8 plies of woven
glass cloth impregnated with epoxy resin. These 8 plies of glass cloth are sandwiched between two
sheets of copper foil, which are then pressed, cured and hardened. The technology involved in the
production of double-sided glass epoxy boards is complex and costly. They are typically used in the
manufacture of electronic equipment such as PABXs, advanced desk telephones, modems, engine
control units for cars and mobile radios.
Multi-layer boards
Multi-layer boards are produced in much the same way as double-sided glass epoxy boards. A
multi-layer board is essentially a series of double-sided glass epoxy boards stacked on top of each other
and sharing a common hole pattern. As multi-layer boards use very thin laminates, the copper foils
deployed for use are also very thin, usually of the 18 microns thickness. Multi-layer boards are commonly
used in high technology electronic equipment including mainframe computers, personal computers and
laptops, mobile phones, data transmission equipment and space electronics.
Flexible circuits
Flexible circuits are constructed from a range of flexible polymer based laminates with a copper layer (or
layers) bonded to the surfaces. Flexible circuits are used in ways which take advantage of their flexibility,
in particular, the ability to be folded into small or confined space. They are popularly used in military and
aerospace electronics as well as consumer electronic products.
Industry Outlook
The BPA Report reveals the following findings:
(1) The world market for PCBs is expected to increase by an average growth rate of 7.5% per annum
from now till 2001. It was further reported that the PCB market for Asia is expected to grow at a
CAAGR of 9.8% and for the PRC, a CAAGR of 22.2% for the period between 1996 and 2001.
(2) The laminates market for Asia is expected to achieve a CAAGR of 6% for the period between 1996
to 2001 whereas for the laminates market in the PRC, a CAAGR of 7.1% is projected for the same
period.
(3) The study also showed that the market for copper foil used in the PCB industry in Asia/Japan is
expected to rise from 78,000 tonnes in 1996 to 118,000 tonnes in 2001, i.e., a CAAGR of 8.5%. The
PRCs share of the copper foil demand will also rise from 10% of the demand in the Asia/Japan
region in 1996 to 13.2% by 2001.
The BPA Report concluded that in general, the outlook for the laminates and PCB industries are
promising and is likely to have a positive impact on the growth of the copper foil industry.
30
According to the BPA Report, about 17% of the copper foil purchased worldwide is used by PCB makers
at the point of manufacturing multi-layer circuit boards. The balance is consumed by the laminates
industry. Copper foil is commercially manufactured and sold in terms of different thicknesses ranging
from 18 microns (
1
2 oz), 35 microns (1 oz) to 70 microns (2 oz) and above 70 microns (above 2 oz). The
uses of copper foil include the following:
Thickness Main Uses
18 microns
(
1
2 oz)
For the production of glass epoxy boards, multi-layer boards and flexible
circuits
35 microns
(1 oz)
For the production of paper boards and composite boards, single-sided glass
epoxy boards, double-sided glass epoxy boards and multi-layer boards
70 microns plus
(2 oz and above)
For the production of paper and composite boards, single-sided glass epoxy
boards and double-sided glass epoxy boards
BUSINESS
The KBCF Group is principally engaged in the production and sale of copper foil which is a key raw
material for the production of laminates and PCBs. The BPA Report indicated that the estimated total
copper foil production capacity in PRC is relatively small (as at November 1999, only 4,800 tonnes) when
compared to the market need of nearly 8,000 tonnes per annum. Based on the feedback from the KBCF
Groups customers and professional consultants, the Directors note that there are only a few key players
in the PRC which are involved in the large scale production of copper foil for the laminates and PCB
industries in the region. Some of the Chinese copper foil producers are old and between them only
produce about 1,800 tonnes per annum (estimation as at 31 March 1998). The Directors further note that
the copper foil production capacity of the KBCF Group as at 31 March 1999 was 3,386 tonnes,
constituting about 70% of the estimated total copper foil production capacity in the PRC of 4,800 tonnes
as reported in the BPA Report. As such, the Directors are of the view that the KBCF Group is one of
the largest manufacturers (if not the largest manufacturer) of copper foil in the PRC.
As explained above, copper foil is produced in various thicknesses, depending on the type of laminates
and PCBs in which it is to be finally deployed for use. They may be coated with a special adhesive or
uncoated. The KBCF Group currently commercially produces copper foil of 18 microns, 35 microns and
70 microns thicknesses, in both coated as well as uncoated forms.
The 35 microns copper foil constitutes about 96% of the total copper foil produced by the KBCF Group
for FY1999, with the balance 1% being 18 microns copper foil and 3% being 70 microns plus copper foil.
The KBCF Group is currently able to produce 12 microns copper foil though commercial production will
commence only when there is sufficient market demand. Based on the current market, 35 microns and
70 microns plus copper foils have similar profit margins while 18 microns copper foil is able to command
substantially higher profit margins due to the higher technical expertise required and limited number of
producers with such capabilities.
The PCB market in the PRC is expected to grow at a CAAGR of 22.2% for the period 1996 to 2001. The
demand for laminates and thus, copper foil would correspondingly be expected to increase, thereby
resulting in greater demand for copper foil. The Directors believe that the strategic location of the KBCF
Groups copper foil manufacturing plants in Fogang augurs well for the KBCF Groups future
development and expansion.
Currently, the copper foil produced by the KBCF Group is not sold under any brand name. However, the
copper foil is sold and marketed under the trade names of HKCF(BVI) and FKI.
31
Year 2000 Issue
With the approach of the year 2000, companies are exposed to the risk of the Y2K issue which may affect
the integrity and stability of any computer-based systems which they use or rely on. The Y2K issue will
affect the software applications of essentially all corporations and bodies (including governmental
agencies and the military).
The Directors are fully aware of the Y2K issue and the potential impact which it can have on the KBCF
Group. AY2K compliance project team headed by a Director and assisted by an independent consultant
has been commissioned to look into the Y2K issue in respect of both the Kingboard Group and the KBCF
Group since 1998. The KBCF Group has already upgraded all of its in-house computer hardware and
software in connection with the Y2K issue and a recent test conducted has shown that they are fully Y2K
compliant. The KBCF Group has received confirmation from its principal suppliers and other agents that
they have also taken steps to ensure full Y2K compliance.
The total cost of the KBCF Groups efforts to resolve the Y2K issue is estimated to be HK$200,000 and
the amount will be capitalised.
PRODUCTION TECHNOLOGY AND PROCESS
Please refer to the production flow chart on page 33 for diagrammatic presentation of the production
process of copper foil.
The raw materials used in the production of copper foil include copper, sulphuric acid and additives such
as zinc. Copper in the form of scraps or cathode plates is dissolved in sulphuric acid in a dissolving tank
to form copper sulphate solution. This solution will undergo a filtration process before it is passed through
an electrolytic cell in the form of a rotating titanium drum. The electro-depositing process produces
copper foil, which is deposited on the surface of the rotating titanium drum. The thickness of the copper
foil is determined at this stage by the speed of rotation of the drum. The copper foil is then rolled off the
drum into a winder. The copper foil roll is then transferred to a treater, where the matt side of the copper
foil is roughened and treated by passing an electric current through a chemical solution that contains
copper and zinc elements. This process increases the bond strength as well as thermal and chemical
resistance of the copper foil. The sides of the treated copper foil are then slitted before the product is
packaged. Alternatively, the treated copper foil may be further coated with a resin-based adhesive, dried
in a dryer and cut into sheet form before packaging.
32
Production Process for Copper Foil
33
Dissolving of copper (in the
form of scraps or cathode
plates) in sulphuric acid to
form copper sulphate solution
Electro-depositing of
copper foil
Surface treatment of
copper foil
Adhesive coating of
copper foil
Cutting of copper foil
into sheets
Packaging
Waste Water
Treatment
Slittering
Sheet Type
M
Roll type
M
M
M
M
M
M
M
RESEARCH AND DEVELOPMENT
The research and development (R&D) department of the KBCF Group has a current strength of 30
full-time technical staff, comprising experienced engineers and technical staff, many of whom possess
tertiary qualifications. Mr Chang Wing Yiu, an Executive Director, oversees the operations and
management of this department. Besides keeping the KBCF Group apprised of the latest available
technological developments in the copper foil, the R&D department has, since its inception, been actively
researching into and developing new processes as well as equipment and raw materials for the
production of copper foil. In the past three financial years, the KBCF Group invested, in aggregate,
approximately HK$10 million in research and development. Major achievements of the R&D department
include the following:
(i) development of a new formula and improving on the existing formulae for the adhesive used in the
production of coated copper foil;
(ii) design and improvement on the filtration system engaged in the preparation of copper sulphate
solution thereby enhancing the purity of the copper sulphate solution when used in the electro-
depositing process in the production of copper foil;
(iii) development of a production line for the production of 18 microns and 35 microns copper foil, the
properties of which could be customised to serve the requirements of individual clients;
(iv) developing the know-how and technical expertise on, and having successfully produced copper foil
of 12 micron thickness on a trial basis; and
(v) modification of existing machinery to enhance the KBCF Groups production efficiency.
The above achievements have enabled the KBCF Group to enjoy better production efficiency in
terms of yield rate and production line speed and thus higher profit margins. Looking forward and
taking into account the market trend towards producing more sophisticated and portable electronic
equipment (such as mobile phones) which require fine circuit etching patterns on the PCBs, the R&D
department is currently engaged in the development of double-side treated and reverse-side treated
copper foils which will meet the industry specifications for reproduction of such fine circuit etching
patterns on PCBs.
QUALITY CONTROL
In order to ensure that the KBCF Group stays ahead of competition and deliver products of high and
consistent quality to its customers, the KBCF Group adopts stringent quality control measures as
follows:
(1) Each batch of raw materials purchased is inspected and tested by the KBCF Groups in-house
laboratories to ensure that they meet the standards and specifications set down by the KBCF Group
prior to being deployed for use in any production process.
(2) During each stage of the production process, stringent and intensive quality checks are carried out
by the KBCF Groups production department.
(3) For each batch of products produced, a quality assurance check is conducted by the Quality
Assurance (QA) department of FKI. The QA department, with a staff strength of about 15, will run
a simulated end-user production test to ensure that the products not only meet with the standards
and specifications of the KBCF Group but also with the special specifications (if any) laid down by
the purchaser or end-user. This simulated end-user production test seeks to replicate the exact
production process which the end-user would have carried out using the products of the KBCF
Group. Each batch of products is finally packaged with a QA report attached to it before sale or
shipment to the purchaser or end-user.
The rejection rates for the KBCF Groups products in the last three financial years had been
negligible (less than 0.5% of total sales).
34
MARKETING AND DISTRIBUTION
The KBCF Group has traditionally sold almost all of its output to its major customer, the Kingboard
Group. In line with its plans to expand its production capacity in 1999 and beyond and in order to diversify
its customer base, the KBCF Group has since late 1998 started selling its output to other customers. For
the three months ended 30 June 1999, the KBCF Group sold approximately 4% of its copper foil to
customers other than the Kingboard Group in the PRC, United States, Taiwan, India and countries in
Europe and Southeast Asia. Customers of the KBCF Group include distributors of copper foil as well as
laminates and PCB manufacturers.
The sales and marketing functions of the KBCF Group is assumed by Dr Chan Wing Kwan together with
2 marketing executives. The KBCF Group will expand its sales team as and when required to meet its
sales and marketing needs, particularly, as the KBCF Group intends to gradually increase its market
sales to customers (other than the Kingboard Group) in the next few years. Sales of copper foil within
the PRC (including to subsidiaries of the Kingboard Group which are located in the PRC) are conducted
directly by FKI. Sales of copper foil to companies located outside the PRC (including to subsidiaries of
the Kingboard Group which are located outside the PRC) are conducted mainly through CPG.
The KBCF Group also participates in trade fairs and exhibitions (domestic as well as international) to
market and promote its products and to establish new contacts. In May 1999, the KBCF Group
participated in an exhibition held in Shanghai, PRC, organised by the China Printed Circuit Association.
The KBCF Group has also reserved a booth at an international exhibition organised by the Institute for
Interconnecting and Packaging Electronic Circuits to enhance the KBCF Groups profile amongst
international laminates and PCB manufacturers. The exhibition is scheduled to be held in the United
States in year 2000. The KBCF Group has recently launched its internet web-site to further promote its
products.
The KBCF Group has traditionally granted to the Kingboard Group credit for approximately 90 days from
the date of issue of the invoice. Sales to its other newer customers are generally made on letters of credit
terms (of up to 60 days sight). Notwithstanding, repeat orders have been received from time to time from
such customers. Taking into consideration the size of transactions, the KBCF Group intends to continue
to grant credit terms of up to 90 days to the Kingboard Group in future. To ensure the credit terms granted
to the Kingboard Group are not prejudicial to the interest of KBCFs shareholders, these terms will be
reviewed by the Audit Committee.
The KBCF Group believes that the present sales and marketing channels are adequate to meet its needs
in view of the volume of the sales of products to customers (other than the Kingboard Group). It will
appoint distributors and sales agents in and outside China as the demand increases.
NEW PRODUCTS/ACTIVITIES
As mentioned earlier in this Prospectus, the KBCF Group has embarked on research and development
of double-side and reverse-side treated copper foils which are particularly suited for PCBs which require
reproduction of fine circuit etching patterns. Although the KBCF Group has not procured orders for these
double-side and reverse-side treated copper foils, it plans to commence commercial production of such
copper foils as part of the expansion of its copper foil production capacity under Phase IIC. The KBCF
Group is expected to undertake trial runs on the production of double-side and reverse-side treated
copper foils by the fourth quarter of year 2000 and will commence commercial production by first quarter
of year 2001 upon completion of the expansion of production capacity under Phase IIC and if the trial
runs prove to be successful. The double-side and reverse-side treated copper foils will be supplied to the
Kingboard Group and to customers based in Europe and the United States. The KBCF Group has also
completed its trial runs on the production of 12 microns copper foil. As the 12 microns copper foil is very
thin, it is most suited for use in the production of laminates and PCBs or other circuits used in
sophisticated electronic gadgets or products which require very fine circuit etching pattern. Commercial
production on a large scale basis is pending as the demand for such copper foil has currently not reached
a viable level.
35
FACILITIES AND PRODUCTION
Production Facilities, Machinery and Equipment
The main production facilities of the KBCF Group include the following:
Dissolving tanks
Titanium drums
Electro-depositing machines
Treaters
Coating machines
Slitters
Cutting machines
Water treatment and recycling systems
Production Capacity
The KBCF Group has production facilities in Fogang, which occupy a gross floor area of approximately
45,745.33 sq m. The annual production capacity of the KBCF Group for the past three financial years,
namely, FY1997, FY1998 and FY1999 are 1,877 tonnes, 2,640 tonnes and 3,386 tonnes respectively. In
each of the three financial years, the utilisation rate had been almost 100%.
Under Phase IIC, the installation of additional production facilities at the Fogang factory is expected to
commence in July 2000. The additional production facilities will increase the production capacity of the
KBCF Group by another 160 tonnes per month. The increased capacity will initially be utilised for the
production of 18 microns and 35 microns copper foils (including double-side and reverse-side treated
copper foils).
STAFF TRAINING
The KBCF Group places strong emphasis on staff training at all levels. Factory operators are required
to undergo in-house training before they are deployed on the production floor. The training involves
learning the correct procedures to operate tools and machinery, quality awareness, safety regulations
and other operating and technical requirements. After the factory operators have gone through the
orientation program, they will start work at the production floor and receive on-the-job training under the
guidance of qualified engineers and experienced supervisors. The factory supervisors will periodically
review the training requirements of individual departments and identify the areas in which training or
retraining are needed. Such training ensures that new as well as existing production staff are equipped
with the necessary skills to meet the KBCF Groups stringent quality standards.
To further upgrade their technical knowledge on the products and activities, the technical supervisors are
sent for relevant training programs, seminars and exhibitions. Other staff are encouraged to attend such
training events and are subsidised where the training events are relevant to their jobs. The KBCF Group
periodically arranges its staff, who are mainly PRC nationals, to attend courses organised by the Hong
Kong Productivity Council. External consultants and instructors are also invited to provide training and
conduct courses for the staff.
INTANGIBLE ASSETS
The KBCF Group is not utilising any technology which may be the subject of any patent, patent rights,
licences, patented processes or other intangible assets including intellectual properties for its operations
and production. Thus it is not dependent on, nor is it vulnerable to infringement of such intangible assets
or intellectual properties.
36
COMPETITION AND COMPETITIVE STRENGTHS
The production capacity of the KBCF Group as at 31 March 1999 was 3,386 tonnes. This constituted
about 70% of the estimated total copper foil production capacity in the PRC of 4,800 tonnes, as reported
in the BPA Report.
The KBCF Group believes that its products compete directly with those produced by enterprises in China
(which include FIEs and state-owned enterprises). The KBCF Group also competes with overseas
suppliers of copper foil from Japan (Fukuda and Mitsui group of companies), Korea (Iljin Copper Foil Co.,
Ltd) and Luxembourg (Circuit Foil Luxembourg). The close relationship between the Kingboard Group
and the KBCF Group ensures that the KBCF Group will continue to enjoy a stable demand for its
products. In addition, KBCF Group currently has approximately 15 third party customers besides the
Kingboard Group which are mainly laminates and PCB manufacturers. The Directors are of the view that
in the event that the demand from the Kingboard Group ceases or is reduced, KBCF Group has the
ability to sell its products to its third party customers, occurs suddenly unless such cessation or reduction
in demand for copper foils from Kingboard Group
Further, the KBCF Groups proximity to laminates manufacturers which are concentrated in the southern
and eastern parts of China will give the KBCF Group an advantage over overseas suppliers of copper
foil as it is able to provide a faster turnaround time in delivery as well as better after sales service.
The KBCF Group believes that its competitive strengths are as follows:
Experienced Management Team
The KBCF Groups continued success is attributable, to a large extent, to its management team and
technical support personnel. Two of the Executive Directors, Mr Cheung Kwok Wing and Dr Chan Wing
Kwan, have more than 20 years experience each in the copper foil, laminates and electronics industries.
The other Executive Directors, Mr Chang Wing Yiu, Mr Zhang Guanghui and Mr Ho Yin Sang also have
about 10 years experience each in the same industries. They are supported by a pool of experienced
staff who are experienced in various functions such as finance, marketing and information systems.
High Entry Barriers to the Copper Foil Industry in PRC
As stated on page 49 of this Prospectus, the laminates industry is expected to grow rapidly in China and
the demand for copper foil is expected to increase correspondingly. At present, copper foil capacity in
China is considered small, about 4,800 tonnes against a market need of 8,000 tonnes and there is
therefore room for growth. Whilst new producers may try to break into the market, the following
pre-requisites of high quality copper foil manufacturing will restrict the number of entrants into the
industry:
highly skilled engineering and technical personnel with specialised knowledge of the formulations,
processes and production techniques involved;
a strong customer base with sufficient aggregate demand to justify full scale commercial production;
sufficient financial resources to make capital investments in equipment and technology.
Based on the BPA Report, although there are a number of existing producers of copper foil in the PRC,
the technology used by them is outdated and the quality of the products is inconsistent. The yield rates
achieved by these plants are low and consequently, the prices of the copper foil sold by them are less
competitive. In comparison, the KBCF Group utilises state of the art technology, such as the use of
imported titanium drums which yield copper foil of high purity and uniform thickness. The high costs of
installing such high precision manufacturing equipment represent substantial capital investments to a
copper foil manufacturer, but are necessary to achieve high utilisation rates and produce copper foil of
international standards. The Directors are of the view that the estimated investments required to gain
entrance to the copper foil manufacturing business and to achieve the necessary scale of production is
between US$80 million and US$100 million. In addition, the operation and maintenance of the equipment
require experienced and highly-skilled technical staff.
37
In this respect, the KBCF Group has systematic training programs to help its technical staff upgrade their
skills constantly and the low staff turnover of the KBCF Group ensures that there is consistent and
reliable technical support for the production processes at all times. For the above reasons, the Directors
are of the view that the Group has a competitive edge over many of the traditional manufacturers and
new entrants in the copper foil industry.
Manufacturing Expertise
Through constant investment in machinery and training, the KBCF Group has over the years acquired
the relevant manufacturing know-how, information network and skilled personnel to provide responsive
and quality service to its customers. As an upstream supplier of raw materials to the laminates and PCB
industries, the KBCF Group recognises the need to be constantly updated on the latest technological
developments in these industries by participating in trade fairs and working closely with PCB and
laminates manufacturers to develop new products. Through maintaining close relationships with
end-users, who provide support and information to the KBCF Group in evaluating and analysing test
samples and processes, the KBCF Group is able to make improvements to its technical capabilities. As
an endorsement on the quality of its products, FKI received the Advanced and High Technology
Enterprise award from the China Science and Technology Committee at both state and provincial levels
for its production of coated copper foil.
Wide Range of Products
As a result of the strong research and development capabilities of the KBCF Group, as well as its
commitment to acquire technological expertise, the KBCF Group has been able to offer its customers a
wide range of products suitable for use in the production of different types of laminates. The KBCF Group
is also able to produce copper foil tailored to customers needs.
The KBCF Group strives to improve its process capabilities and production techniques and is currently
capable of producing copper foil of 12 microns and 18 microns thicknesses as well as double-side and
reverse-side treated copper foil on large scale basis.
Cost and Other Advantages
The Directors believe that the location of its manufacturing facilities in the PRC provides the KBCF Group
with cost advantages (in terms of lower labour costs and cheaper utilities) over many of their overseas
competitors. The availability of constant sources of water and electricity (which are used in large
quantities for the production of copper foil) in Fogang further gives the KBCF Group a competitive edge
over some of its overseas competitors.
Close Relationship with Main Customer
The Directors believe that the KBCF Groups main customer, the Kingboard Group, is the largest
manufacturer of laminates in China
(1)
and is expected to continue to register growth in sales over the next
few years. The demand by the Kingboard Group for copper foil is expected to increase with its capacity
and output levels. The Directors further believe that the Kingboard Group is likely to continue to source
for copper foil from the KBCF Group for the main reason that the KBCF Groups copper foil operations,
having been established by the Kingboard Group as part of its vertical integration plans, are particularly
suited to meet the latters requirements in its production of laminates. Owing to the close proximity
between the production facilities of the two groups, the KBCF Group is able to achieve faster turnaround
time as compared to other copper foil suppliers. The Directors are of the view that the KBCF Group would
continue to benefit from the synergistic relationship between the two groups, as it is assured of a reliable
and stable customer base on which it can develop its future expansion plans.
Note:
(1) BPA Report.
38
MAJOR SUPPLIERS
The suppliers which each accounts for 5% or more of the KBCF Groups total purchases and the
percentage contribution of each such supplier for each of the last 3 financial years are as follows:
Percentage of total purchases (%)
Supplier FY1997 FY1998 FY1999
Simsen Metals Company Limited 62.9% 51.7% 18.0%
China Wise (Hong Kong) Limited
(formerly known as Ying Wah Company Limited) 18.2% 26.1%
Mitsubitshi Corporation (Hong Kong) Limited 12.7%
Chang Chun Petrochemical Company Limited 10.0%
Pechiney Far East Limited 27.2%
Hang Yip Metal Company Limited 10.2%
Cheun Hing Metal Trading Company Limited 6.0%
None of the Directors or substantial shareholders have any interest (direct or indirect) in the suppliers
mentioned above.
Simsen Metals Company Limited (Simsen) has been the key supplier of copper scraps to the KBCF
Group for the past three financial years as the management is of the opinion that it is a reliable supplier
and has been able to offer copper scraps and cathode plates at competitive rates. Simsens principal
activity is in the trading of metals (including copper scraps and cathode plates) and is listed on the Stock
Exchange of Hong Kong. The KBCF Groups purchases from Simsen as a percentage of its total
purchases had declined from 62.88% in FY1997 to 17.96% in FY1999 as Simsens prices had become
less competitive and the KBCF Group had progressively widened its supplier base to reduce its
dependence on any single raw material supplier.
The KBCF Group does not depend on a single supplier for all its raw materials. The KBCF Group is also
not dependent on any of the major suppliers of copper scraps or cathode plates listed above as the
copper scraps or cathode plates supplied by these major suppliers can be easily sourced from other
suppliers in and outside the PRC.
To ensure that fluctuations in the price of copper will not adversely affect the KBCF Groups financial
position, it adopts a hedging policy for its copper purchases. Based on projected production output and
target delivery schedules, the KBCF Group enters into corresponding copper futures contracts to hedge
against fluctuations in the price of copper.
MAJOR CUSTOMERS
Other than the Kingboard Group, the KBCF Group does not have customers or distributors that each
accounts for 5% or more of the KBCF Groups total turnover.
The KBCF Group is dependent on the Kingboard Group to the extent of 100% of its operating profit for
FY1997 and FY1998, and almost 100% of its operating profit for FY1999.
As explained under the section on Competition and Competitive Strengths on pages 37 and 38 of this
Prospectus, the Kingboard Group is likely to continue to be an important customer of the KBCF Group
in future. However, as the KBCF Groups production capacity increases, it will at the same time
endeavour to diversify its customer base to reduce its reliance on the Kingboard Group. It has been
making active efforts to establish a wider network of customers both in China and overseas. It has
established a marketing team to make regular visits to existing and potential customers both within and
outside PRC to introduce the KBCF Groups products.
39
REVIEW OF PAST PERFORMANCE BY ACTIVITY AND GEOGRAPHICAL MARKETS
Review of Past Performance by Activity
The income and profits of the KBCF Group are derived from the single activity of manufacturing and sale
of copper foil and all its assets are deployed in these operations.
Review of Past Performance by Geographical Markets
The income and profits of the KBCF Group are derived almost wholly from customers located in one
geographical market, namely, the PRC (including Hong Kong).
INTERESTED PERSON TRANSACTIONS
Transactions with Directors, Executive Officers or Substantial Shareholders
The value of the transactions between the KBCF Group and the Kingboard Group for each of the past
three financial years are set out below:
FY1997 %
(1)
FY1998 %
(1)
FY1999 %
(1)
HK$ HK$ HK$
Purchase of Goods from
the Kingboard Group
Kingboard Laminates Limited 622,819 1.2 1,105,539 1.8
FY1997 %
(2)
FY1998 %
(2)
FY1999 %
(2)
Sale of Goods to the
Kingboard Group
Kingboard Laminates Limited 105,008,961 92.5 141,741,923 89.3 148,250,972 84.9
Shanghai Jamplan Chemical
Industry & Insulated
Material Development Co.,
Ltd. 3,594,536 3.2 6,589,983 4.2 2,092,819 1.2
Yat Tao Chemical Holdings
(H.K.) Limited 2,303,154 2.0 10,347,295 6.5 5,333,040 3.1
Kunshan Yattao Chemical
Co., Ltd. 2,396,358 2.1 16,204,664 9.3
Kingboard Laminates
Shenzhen Co., Ltd. 195,140 0.2 2,015,736 1.1
Notes:
(1) As a percentage of the KBCF Groups total purchases for the respective financial years.
(2) As a percentage of the KBCF Groups total sales for the respective financial years.
Purchase of Chemicals from the Kingboard Group
For FY1997 and FY1998, Kingboard Laminates Limited supplied raw materials (such as adhesives) to
FKI for use in the latters production processes. Kingboard Group purchased these raw materials in large
quantities, as such it was able to command better prices. The chemicals were then sold to the KBCF
Group based on Kingboard Groups purchase prices without any mark-ups. As such, the aforesaid
transactions were conducted on the same commercial terms as those between KCHL and its suppliers.
In FY1999, FKI began to source all the chemicals which it required from outside the Kingboard Group
as part of its policy to diversify its base of suppliers. The KBCF Group currently has no plans to resume
the purchase of chemicals from the Kingboard Group.
40
Supply of Copper Foil to the Kingboard Group
The KBCF Group has been supplying copper foil to the Kingboard Group since its inception. In the past,
for sales of copper foil directly by FKI to subsidiaries of the Kingboard Group which are located in the
PRC (approximately 20% of KBCF Groups sales to the Kingboard Group), the transaction prices were
at a discount of approximately 30% compared to prices of copper foil which the Kingboard Group
purchased from other third party copper foil suppliers. In the past, for sales of copper foil by CPG to
subsidiaries of the Kingboard Group which are located outside the PRC (approximately 80% of KBCF
Groups sales to the Kingboard Group), the transaction prices were normally at a bulk purchase
discounts of between 5% and 10% compared to prices of copper foil which the Kingboard Group
purchased from other third party copper foil suppliers.
The KBCF Group is likely to continue to supply a substantial part of its production output to the Kingboard
Group in future. The supply of such products by the KBCF Group to the Kingboard Group is mutually
beneficial for the KBCF Group and the Kingboard Group for the following reasons:
(1) from the perspective of the Kingboard Group, there is reliability and assurance of constant supply
of high quality raw materials;
(2) from the perspective of the KBCF Group, there is assurance of constant demand for its products in
view of the Kingboard Groups market position in the laminates industry.
The Kingboard Group obtains its supply of copper foil by placing purchase orders with the KBCF Group
from time to time. Presently, the KBCF Group has entered into long-term sales contracts with the
Kingboard Group for the supply of approximately 6,000,000 sheets of adhesive coated copper foil and
approximately 2,100 tonnes of uncoated copper foil of various thickness, up to March 2000. Thereafter,
the KBCF Group would continue to enter into contracts with the Kingboard Group for periods between
3 to 6 months. The quantity of such orders would depend on the demand for Kingboard Groups
laminates at the relevant time as well as negotiations between KBCF Group and the Kingboard Group.
In order to regulate the future sales of copper foil to the Kingboard Group, the Company and KCHL, the
ultimate holding company of the Kingboard Group, have entered into a Supplies Agreement pursuant to
which the Company agrees to procure its subsidiaries to supply to the Kingboard Group upon its request
copper foil required by the Kingboard Group. The principal terms of the Supplies Agreement are
summarised as follows:
(a) The price at which any copper foil is to be sold to the Kingboard Group after the listing of the KBCF
Group shall not be lower than that at which the KBCF Group would have at the relevant point of time
sold to other customers generally having regards to the quantity, quality and special specifications
of the products ordered, the creditworthiness of the customers and other special circumstances.
(b) In addition, the gross profit margin achieved from sales to the Kingboard Group after the listing of
the KBCF Group shall not be lower than that currently achieved by the KBCF Group until such time
the KBCF Group meaningfully diversifies its sales to parties other than the Kingboard Group. The
KBCF Group will be deemed to have meaningfully diversified its sales to third parties when it sells
not less than 30% of its output to customers outside the Kingboard Group. Notwithstanding this, the
other provisions in the Supplies Agreement, including the requirement as described in (a) above
shall continue to be in force.
(c) Any industry-wide decline in the profit margin for laminates may make it unrealistic to expect the
KBCF Group to continue achieving the same profit margin from sales to the Kingboard Group as
described in paragraph (b) above. The Supplies Agreement provides that in the event of a material
decline in the pricing of laminates sold by the Kingboard Group, the Audit Committee may permit an
adjustment to the gross profit margin level to be achieved by the KBCF Group. A material decline
in the pricing of laminates shall be deemed to have taken place if the average unit sale price of
laminates sold by the Kingboard Group over a period of 3 months immediately preceding the date
of the relevant purchase of copper foil from the KBCF Group is lower by not less than 5% when
compared to the average unit sale price of laminates sold by the Kingboard Group over a period of
three (3) months immediately preceding the listing of the KBCF Group.
41
(d) Further, if as a result of developments in the market conditions for copper foil to the extent that the
Audit Committee deems it no longer practical or viable for the parties to continue to transact in
accordance with the terms of the Supplies Agreement, the Audit Committee is authorised to make
such amendments or modifications to the terms of the Supplies Agreement as are necessary so as
to enable the parties to continue to transact on an arms length commercial basis.
(e) The Kingboard Group is not obliged to purchase any copper foil at a unit price which is less
favourable than that at which KCHL or the relevant Kingboard Group company could have at the
relevant point of time bought from its suppliers other than the KBCF Group generally having regards
to the quantity, quality, special specifications of the products ordered, creditworthiness of such
suppliers and other special circumstances.
The Supplies Agreement will be effective upon the listing and quotation of the shares in the capital of the
Company on SESTL and will continue for as long as the listing continues subject to the provisions of
Chapter 9A of the Listing Manual of the SESTL. The Supplies Agreement may not be unilaterally
terminated by KCHL or the Company, but both parties may mutually agree to terminate the Supplies
Agreement. Any decision to be made by the Company with regards to the termination of the Supplies
Agreement shall be subject to the approval of shareholders and the Audit Committee of the Company.
All transactions involving the sale of products of the KBCF Group to the Kingboard Group will be
summarised and submitted to the Audit Committee for regular and periodic review to ensure that the
terms of the Supplies Agreement, including those relating to the determination of the price of copper foil
to be sold to the Kingboard Group, are adhered to.
Rental of Premises
The Group has entered into a tenancy agreement with Kingboard Laminates Limited, a wholly-owned
subsidiary of KCHL, in respect of the rental of office space for use as the KBCF Groups head
administration and management office. Details of the tenancy are as follows:
Landlord Tenant Location of Premises
Rental
per Month Term of Lease
Kingboard
Laminates
Limited
HKCF(BVI) 5thFloor, Block I
Valiant Industrial Building
212 Au Pui Wan Street
Fo Tan Shatin, N.T.
Hong Kong
HK$9,780 2 years (from
1 September 1999)
The rental rate is arrived at based on the prevailing market rental rates for similar units in the vicinity.
Cross Guarantees
In the past three years, KCHL, as the ultimate holding company of the Kingboard Group as well as the
KBCF Group, has secured several financing facilities from numerous banks and financial institutions for
use by the companies in the Kingboard Group as well as the KBCF Group. As at the date of this
Prospectus, the financing facilities are as follows:
(a) financing facilities amounting to a total of HK$230,000,000 for use by the Kingboard Group
(Kingboards Financing Facilities);
(b) financing facilities amounting to a total of HK$254,000,000 for use by the Kingboard Group and the
KBCF Group (Joint Financing Facilities).
The terms and conditions of the various loan agreements entered into in connection with the Kingboards
Financing Facilities inter alia require HKCF(BVI) to issue guarantees on a joint and several basis with the
Kingboard Group to secure repayment of any and all sums outstanding under the Kingboards Financing
Facilities. The terms and conditions of the various loan agreements entered into in connection with the
Joint Financing Facilities also inter alia require HKCF(BVI) to issue guarantees on a joint and several
basis with the Kingboard Group to secure repayment of any and all sums outstanding (whether as a
result of the borrowings of the Kingboard Group or those of the KBCF Group) under the Joint Financing
Facilities.
42
With the view to segregating the financing facilities used by the KBCF Group from those used by the
Kingboard Group, the Kingboard Group obtained written confirmation from the relevant banks and
financial institutions that the KBCF Group will be released from the joint and several guarantees given
by it in respect of the borrowings of the Kingboard Group, such release to take effect upon the admission
of the Company to the Official List of the SESTL.
Future Related Party Transactions
The Audit Committee will review all existing and future related party transactions on a quarterly basis to
ensure that they are carried out on normal commercial terms and are not prejudicial to the interests of
the Companys shareholders. The Audit Committee will also review all the related party transactions to
ensure that the then prevailing rules and regulations of the SESTL (in particular, Chapter 9Aof the Listing
Manual) are duly complied with. The KBCF Group will endeavour to comply with the principles and best
practices set out in the Best Practices Guide, in a manner which best suits its particular circumstances.
POTENTIAL CONFLICTS OF INTEREST
No Director, substantial shareholder or Executive Officer of the KBCF Group has any interest, direct or
indirect, in any enterprise or company carrying on the same business or dealing in similar products as
the KBCF Group.
Save as disclosed in Interested Person Transactions and Potential Conflicts of Interest above:
(a) No Director, substantial shareholders or Executive Officer of the KBCF Group has any interest,
direct or indirect, in any transactions to which the Company was or is to be a party;
(b) No Director, substantial shareholders or Executive Officer of the KBCF Group has any interest,
direct or indirect, in any company carrying on the same business or carrying on a similar trade as
the KBCF Group; and
(c) No Director, substantial shareholders or Executive Officer of the KBCF Group has any interest,
direct or indirect, in any enterprise or company that is the Companys customer or supplier of goods
or services.
CORPORATE GOVERNANCE
The Audit Committee comprises Mr Lee Joo Hai, Mr Chang Wing Yiu, Mr Teo Kiang Kok and Mr Lai
Chung Wing, Robert. The Audit Committee will be chaired by Mr Lee Joo Hai. Mr Chang Wing Yiu is an
Executive Director of the Company and Mr Lee Joo Hai, Mr Teo Kiang Kok and Mr Lai Chung Wing,
Robert are independent Directors of the Company.
The Audit Committee will meet periodically to discuss and review the following:
(a) the audit plan, the system of internal accounting controls and the audit report in conjunction with the
external auditors;
(b) the assistance given by the Companys officers to the external auditors;
(c) the accounts of the Company and the consolidated accounts of the KBCF Group; and
(d) the review of all related party transactions entered into by the KBCF Group.
43
DIRECTORS, MANAGEMENT AND STAFF
Directors
The Board of Directors is entrusted with the responsibility for the overall management of the Company.
The Directors particulars are listed below:
Name Age Country of Residence Current Occupation
Chan Wing Kwan 53 Hong Kong SAR
PRC
Executive Chairman
Chang Wing Yiu 33 Hong Kong SAR
PRC
Managing Director
Cheung Kwok Wing 44 Hong Kong SAR
PRC
Executive Director
Ho Yin Sang 45 Hong Kong SAR
PRC
Executive Director
Zhang Guanghui 34 Hong Kong SAR
PRC
Executive Director
Lee Joo Hai 43 Singapore Certified Public Accountant
Teo Kiang Kok 43 Singapore Advocate & Solicitor
Lai Chung Wing, Robert 52 Singapore General Manager (Business
Development), L&M Group
Investments Ltd
The Independent Directors are Messrs Lee Joo Hai, Teo Kiang Kok and Lai Chung Wing, Robert. The
Audit Committee comprises Messrs Chang Wing Yiu, Lee Joo Hai, Teo Kiang Kok and Lai Chung Wing,
Robert. The chairman of the Audit Committee will be Mr Lee Joo Hai, who shall have the casting vote in
the event that there is an equality of votes in any resolution of the Audit Committee.
Management
The day-to-day operations of the KBCF Group are entrusted to the Executive Directors and an
experienced and qualified team of Executive Officers responsible for the different functions of the KBCF
Group. The particulars of the Executive Officers are set out below:
Name Age Country of Residence Current Occupation
Lo Ka Leong 26 Hong Kong SAR
PRC
Accounting Manager
Li Weiming 25 Guangdong, PRC Quality Control Manager
Chen Xiping 28 Guangdong, PRC Quality Control Manager
Liu Min 31 Guangdong, PRC Plant Manager (Phase I)
Deng Shijun 25 Guangdong, PRC Plant Manager (Phase II)
He Beiyang 29 Guangdong, PRC Production Manager
Liu Zhigang 26 Guangdong, PRC Production Manager
44
Staff
As at 31 October 1999, the KBCF Group has approximately 515 full-time employees. The KBCF Group
does not experience any significant seasonal fluctuations in the number of employees. Relationship
between management and staff are good and there have not been any industrial disputes in the
Company or its subsidiaries.
SERVICE AGREEMENTS
The Executive Directors, Messrs Chan Wing Kwan, Chang Wing Yiu, Cheung Kwok Wing, Ho Yin Sang
and Zhang Guanghui, each entered into separate service agreements with the Company on 29
November 1999. The principal terms of the service agreements are as follows:
(a) The appointment of each Director shall be for a term of two years commencing on 29 November
1999 (the initial period) and is thereafter renewable for a succeeding period, the length and terms
of which shall be agreed upon at the conclusion of the initial period. The renewed service
agreements for the succeeding period may be terminated for cause or by either party giving at least
6 months written notice. The Company may also terminate the respective service agreements by
summary notice, without any compensation to the respective Directors, upon the occurrence of
certain specified events such as misconduct or bankruptcy.
(b) For the duration of the initial period, Messrs Chang Wing Yiu and Ho Yin Sang are entitled to annual
salaries of HK$2,674,000 in aggregate. The annual salaries may be adjusted with the approval of
the Board of Directors. The other Executive Directors, Messrs Cheung Kwok Wing, Chan Wing
Kwan and Zhang Guanghui will not receive fixed remuneration or other benefits from the KBCF
Group. However, all the Executive Directors are collectively entitled to an aggregate bonus payment
equivalent to 2 per cent. of the KBCF Groups audited profit before taxation, exceptional items and
extraordinary items but after minority interests (PBT) provided that the aforesaid bonus payment
shall be payable if the KBCF Group achieves an audited PBT of not less than HK$150 million.
The service agreements contain non-competition and non-solicitation clauses which are binding on each
Director for a period of 1 year after the cessation of his employment with the Company.
The Board of Directors wil review the terms of the service agreeements when they are renewed upon
expiry. However, any Director whose service agreement is being reviewed by the Board of Directors shall
abstain from voting and shall refrain from making recommendations in respect of any resolution or
decision by the Board of Directors to be passed in relation to his service agreement.
Had the proposed service agreements been in existence in the last financial year:
(i) the KBCF Groups profit before taxation for the financial year ended 31 March 1999 would have
been HK$49,119,000 instead of HK$50,093,000; and
(ii) the remuneration payable to Executive Directors as a percentage of profit before taxation (with the
remuneration of the Executive Directors added back) would have been 5.2% instead of 3.3%.
Save as disclosed above, there are no other existing or proposed service agreements between the
KBCF Group and any Director or Executive Officer of the Company.
45
DIRECTORS REMUNERATION
The remuneration of the Directors on an aggregate basis in the Proforma Group and in remuneration
bands for FY1998 and FY1999 are as follows:
(a) Aggregate Directors Remuneration
HK$000 FY1998 FY1999
Executive Directors 2,787 1,700
Non-Executive Directors
Total 2,787 1,700
Aggregate Directors remuneration in FY1999 was significantly lower than in FY1998 as the
Directors were paid aggregate performance bonuses amounted to approximately HK$1.12 million
in FY1998.
(b) Number of Directors in Each Remuneration Bands
FY1998 FY1999
Executive
Directors
Non-
Executive
Directors Total
Executive
Directors
Non-
Executive
Directors Total
HK$500,000 and above 2 2 1 1
HK$250,000 to HK$499,999 2 2 2 2
HK$0 to HK$249,999 1 3 4 2 3 5
Total 5 3 8 5 3 8
PROPERTIES AND FIXED ASSETS
The KBCF Group currently owns the following properties:
Description/Location Tenure Gross Area
Registered
Owner of
Land-Use
Rights
Net Book Value
as at
31 March 1999
HK$
Shijiao Town, Fogang, Guangdong
Province, PRC
(1)
70 years 8,981 sq m HKCF(BVI) 6,020,464
Gangtian Zone, Shijiao Town, Fogang,
Guangdong Province, PRC
(1)
50 years 18,413.33 sq m FKI 21,043,070
Shijiao Town, Fogang, Guangdong
Province, PRC
(1)
50 years 27,332 sq m HKCF(BVI) 28,120,177
Tangtang Town, Huanghuahu
Development Area, Fogang,
Guangdong Province, PRC
(1)
70 years 666 sq m FKI 34,390
Note:
(1) Land-use rights certificates have been issued by the relevant land authorities in the PRC.
46
The KBCF Group currently rents/leases the following properties:
Description/Location Tenure Gross Area Annual Rental Lessor
5th Floor, Block I
Valiant Industrial Building
212 Au Pui Wan Street
Fo Tan, Shatin, N.T.
Hong Kong
2 years (from
1 September 1999)
1,956 sq ft HK$117,360 Kingboard Laminates
Limited
FINANCE
The KBCF Groups outstanding borrowings as at 31 March 1999 (excluding the C-Notes and loans from
the Kingboard Group) totalled HK$41.70 million.
Property, plant and equipment (PPE)
PPE increased from HK$97.40 million in FY1997 to HK$107.57 million in FY1998 due to the addition of
six drums to the KBCF Groups Phase I production facilities in FKI. Following the start up of the Phase
II manufacturing facilities in FKI, PPE increased significantly by 165.6% to HK$284.62 million in FY1999.
The design and construction of the factory building for Phase II facilities amounted to HK$44.1 million.
The additional equipment included electro-depositing machines (HK$32.0 million), treaters (HK$28.5
million) and electrical systems (HK$16.6 million).
Current assets
Current assets rose by 63.8% from HK$61.12 million in FY1997 to HK$100.10 million in FY1998. The
increase was due mainly to higher trade receivables from the Kingboard Group which increased to
HK$79.50 million in FY1998 from HK$44.23 million in the previous year. Sales to the Kingboard Group
rose by 39.8% in the corresponding period, from HK$113.50 million in FY1997 to HK$158.68 million in
FY1998.
Current assets more than doubled from HK$100.10 million in FY1998 to HK$242.07 million in FY1999.
The increase was attributable mainly to higher trade receivables from the Kingboard Group which rose
by HK$81.42 million from HK$79.50 million in FY1998 to HK$160.92 million in FY1999 as the KBCF
Group continued to increase the volume of sales to the Kingboard Group whose business had been
expanding. The cash and bank balances position of the KBCF Group also improved significantly from
HK$871,000 in FY1998 to HK$55.17 million in FY1999 due mainly to cash receipt from the C-Notes.
Current liabilities
Compared to proposed dividend of HK$15.00 million in FY1997, the KBCF Group did not propose
year-end dividend payment in FY1998 resulting in a decline in dividend payable. In FY1997, the
KBCF Group utilised short-term banking facilities to finance the purchase of the six additional drums
for Phase I of its facilities. It repaid part of these borrowings in FY1998 and as a result, short-term
banking facilities balances as at the end of FY1998 reduced by 50.2% from HK$16.77 million in
FY1997 to HK$8.35 million. The above reductions were partly offset by an increase in tax payable
which rose from HK$66,000 in FY1997 to HK$1.78 million in FY1998 following higher profitability of
the KBCF Group. Consequently, current liabilities reduced from HK$39.58 million in FY1997 to
HK$21.24 million in FY1998.
Current liabilities increased to HK$133.42 million in FY1999 due mainly to (a) a special dividend declared
in respect of FY1999 which amounted to HK$70.00 million; (b) the utilisation of HK$8.35 million of
short-term facilities to part finance the purchase of machinery; and (c) the utilisation of credit facilities for
raw material purchases in line with the KBCF Groups sales expansion. Short-term banking facilities
balances increased by approximately four times from HK$8.35 million in FY1998 to HK$41.70 million in
FY1999.
47
Non-current liabilities
Non-current liabilities rose by 25.5% from HK$109.18 million in FY1997 to HK$136.99 million in FY1998.
The liabilities comprised mainly advances from the Kingboard Group. In FY1999, non-current liabilities
increased to HK$247.94 million, a rise of 81.0% compared to HK$136.99 million in FY1998. The increase
was mainly attributable to the issuance of the HK$108.44 million C-Notes as described on page 3 of this
Prospectus.
Shareholders equity
Shareholders equity rose from HK$9.77 million in FY1997 to HK$49.44 million in FY1998, representing
an increase of HK$39.67 million. This was in line with the retention of the KBCF Groups profit after
taxation of HK$42.62 million for the corresponding period, less the amount of dividend declared of
HK$5.00 million. The KBCF Groups shareholders equity rose from HK$49.44 million in FY1998 to
HK$145.33 million in FY1999 due mainly to the capitalisation of HK$117.00 million shareholders loans
by the issue of new shares. During the same period, the retention of the KBCF Groups profit also
contributed to the sharp rise in shareholders equity. Nevertheless, the increase was offset by a special
dividend declared of HK$70.00 million before the Invitation.
REVIEW OF PAST PERFORMANCE
FY1997 to FY1998
Turnover rose by 39.8% from HK$113.50 million in FY1997 to HK$158.68 million in FY1998. The
increase in turnover was derived mainly from the approximately 25% increase in the KBCF Groups
production capacity following the addition of six drums in October 1997 to meet the demand of its
customers. In line with the increase in turnover, the KBCF Groups operating profit also increased from
HK$38.53 million in FY1997 to HK$53.35 million in FY1998, representing an increase of 38.5%.
However, foreign exchange gain declined from HK$2.59 million in FY1997 to HK$133,000. Foreign
exchange gain arose due to the difference between the book rates and the market rates of foreign
currency transactions and the market rates were less favourable in FY1998 compared to FY1997. In
FY1998, depreciation expense increased by 13.1% to HK$8.50 million, compared to HK$7.52 million in
FY1997 following the addition of the above-mentioned six drums. The increase in profit was further
augmented by the lower net interest expenses which reduced from HK$734,000 to HK$458,000 in
FY1998 due to lower utilisation of financing facilities. Consequently, profit before taxation was 34.9%
higher in FY1998 at HK$44.33 million compared to HK$32.86 million in FY1997.
FY1998 to FY1999
The KBCF Groups turnover further increased from HK$158.68 million in FY1998 to HK$174.54 million
in FY1999. Turnover increased at a slower rate of about 10% compared to the previous year as the
KBCF Group had utilised its manufacturing facilities then to almost their full capacity. The KBCF Group
did not increase its production capacity in FY1999 save for the Phase IIAproduction facilities which were
in operation for only three months in FY1999. With the increase in turnover, operating margin improved
marginally resulting in an operating profit of HK$62.65 million. The KBCF Group also recorded foreign
exchange gain of HK$2.22 million arising from the favourable difference between its book rate and
market rates of foreign currency transactions. During the period, depreciation expenses increased by
HK$2.44 million to HK$10.94 million, compared to HK$8.50 million in FY1998 as the KBCF Group
carried out capital expenditure which amounted to approximately HK$190 million, which included the
purchases of plant and machinery and the construction of Phase II of the production facilities in FKI. In
addition, interest expenses increased significantly from HK$458,000 in FY1998 to HK$3.41 million in
FY1999. This was due mainly to the high interest rate environment following the on set of the regional
economic crisis and the utilisation of short-term banking facilities to part finance the purchase of
machinery. During the corresponding period, short-term banking facilities balances increased by
approximately four times. Consequently, profit before taxation rose by 13.0% from HK$44.33 million to
HK$50.09 million.
48
Six months ended 30 September 1999
For the six months up to 30 September 1999, the Group achieved turnover of HK$177.40 million. The
significant increase in turnover was due to full contribution from its Phase IIAproduction facilities and the
commencement in production at Phase IIB facilities in June 1999. These production facilities had
increased the Groups monthly production capacity by 400 tonnes. Profit margins increased substantially
in the first half of FY2000 due to (a) lower costs of raw material as copper prices declined over the
corresponding period; (b) the introduction of 18 microns copper foil which commanded high profit
margins; and (c) higher efficiency of the new and sophisticated machinery of Phase II production
capacities. Consequently, operating profit of HK$84.45 million was achieved.
Depreciation expenses for the six months ended 30 September 1999 was HK$12.34 million, which was
higher than the full year HK$10.94 million reported in FY1999. The significant increase was due to capital
expenditure in relation to the phase II production facilities. Following the increase in sales, the Group also
utilised higher trade facilities to finance the purchase of raw materials, resulting in interest expense of
HK$2.23 million. Thus, the Group achieved profit before tax of HK$70.89 million for the six months ended
30 September 1999, a significant increase over the pro-rated six months profit before tax of HK$25.05
million achieved in FY1999.
PROSPECTS AND FUTURE PLANS
Prospects
The KBCF Groups prospects are largely dependent on the laminates and PCB industries and as well as
the performance of the Kingboard Group, its major customer. The KBCF Groups prospects to a certain
extent is also dependent on the economic growth of the PRC. Based on the findings of the BPA Report,
the PCB market for Asia and the PRC are expected to grow at a CAAGR of 9.8% and 22.2% respectively
for the period 19962001. Much of this is due to the high concentration of consumer electronics
manufacturing companies in Asia. As the PCB content in consumer electronics rises (from 3.1% in 1996
to 3.25% in 1999), there is every reason to believe that demand for PCBs will continue to grow. As for
the laminates market, the projected CAAGR are 6% for Asia and 7.1% for PRC.
The application of electronic components have proliferated in the past few years in areas like automotive,
consumer electronics, industrial equipment, telecommunications, satellite, avionics and military
applications. According to the BPA Report, this development has resulted in the laminates and PCB
industries becoming one of the less volatile sectors of the general electronic manufacturing industry as
they cater to a vast range of sub-industries as aforesaid. The liberalisation of and huge investments into
the telecommunications industries, increased usage of electronic components in automobiles and the
increasing number of manufacturers in the United States and Europe sourcing their laminates and PCB
requirements from countries in the Asia Pacific region are factors which add to the strong and stable
growth of the laminates and PCB industries. All these factors augur well for the KBCF Groups prospects
in view of the fact that the bulk of its products are sold to laminates and PCB manufacturers. Despite the
Asian economic crisis that had plagued most Asian countries since 1997, the PRC economy continued
to register strong growths of 8.8% in 1997 and 7.8% in 1998. It is widely expected that the PRC economy
is likely to continue to grow over the next few years, albeit at a slower pace.
On-going and Future Plans
The KBCF Group will continue to focus on its core business activities of producing and selling copper foil.
The Directors believe that the key to stable and strong growth in the short-term is to concentrate on
expanding the production capacities of its plants, as well as to research on and develop new and better
production processes and raw materials so as to increase or enhance the production efficiency or yield
rate of its existing or new facilities. In particular, the KBCF Group has undertaken or intends to undertake
the following to achieve its expansion plans:
(i) Upgrade and expansion of production capacities under Phase I and Phase II
The KBCF Group is currently upgrading its production facilities under Phase I. The upgrading
involves the modification and replacement of the existing equipment and machinery using the
technology and expertise developed under Phase IIA and Phase IIB. The upgrading is expected to
be completed by end 2000.
49
The KBCF Group is also actively preparing to embark on Phase IIC of its copper foil production in
Fogang. The installation of the production facilities is expected to commence in July 2000. Under
Phase IIC, the KBCF Group will concentrate on the production of 18 microns and 35 microns
copper foil, as well as the production of double-side and reverse-side treated copper foil.
(ii) Implementation of Phase III
As part of the KBCF Groups long-term goal to expand its production capacity to meet the growing
demand for copper foil, in particular, higher quality and thinner copper foil, the management is in
the process of finalising the Phase III expansion plans which are expected to increase the KBCF
Groups production capacity by another 600 tonnes when implemented. The initial part of Phase III
will involve the sourcing and acquisition of suitable land, construction of new factory buildings and
purchase of production facilities in the course of the next two years. Installation of the production
facilities will commence thereafter. The Directors expect the capital investments for Phase III to
require an estimated US$30 million to US$35 million, part of which will be financed by the proceeds
from the Invitation. The estimate of US$30 million to US$35 million is calculated based on the
KBCF Groups experience in the implementation of Phase II. As in Phase II, installation of the
production facilities for Phase III will be in several sub-phases.
(iii) Research and development
As in the case of developing the process which enables 18 microns copper foil to be produced
using production facilities which were originally constructed to produce 35 microns copper foil, the
KBCF Group will seek to develop more of such processes which will enable it to enhance the use
of and fully tap on the existing available production facilities. Research and development activities
of the KBCF Group will also focus on the production of new standards or types of copper foil (for
instance, thinner copper foil) so as to stay ahead of its competitors in meeting the rapid changing
needs of the laminates and PCB industries as well as other electronics industries which use copper
foil.
(iv) Diversification of customer base
The KBCF Group recognises the need, and intends, to establish a wider network of customers in
terms of numbers as well as volume of transactions. Since 1998, the KBCF Group has been making
active efforts to market its products to customers outside the Kingboard Group, including laminates
manufacturers located both within and outside the PRC. The KBCF Group will concentrate its
efforts on promoting its products to the increasing number of laminates and PCB manufacturers in
the southern and eastern parts of the PRC.
PROFIT ESTIMATE AND DIVIDENDS
Profit Forecast
The Directors forecast that, in the absence of unforseen circumstances and on the bases and
assumptions set out below, the proforma consolidated turnover and profit after taxation and minority
interests but before extraordinary items of the KBCF Group for the financial year ending 31 March 2000
will be approximately HK$378 million and HK$130 million respectively. This represents an increase of
116% and 203% respectively over the corresponding figures in FY1999. The Directors are not aware of
any extraordinary items which have arisen or are likely to arise during the financial year ending 31 March
2000.
The Directors believe that the projected turnover and profit forecast are achievable for the following
reasons:
(a) The turnover forecast of HK$378 million is based on the actual sales of HK$177.40 million achieved
for the first six months of FY2000 (fromApril to September 1999) together with confirmed orders of
not less than HK$200 million for the six months from October 1999 to March 2000. The confirmed
orders for copper foil have been placed by the Kingboard Group to meet its production schedule to
fulfill the purchase orders received by the Kingboard Group to date. The confirmed orders placed
by the Kingboard Group to the KBCF Group constitute binding contracts between the parties.
50
(b) To meet the increased demand for FY2000, the KBCF Groups production capacity has been
successfully stepped up in 1999 according to the following schedule:
Phase
Monthly
Production
Capacity
Commencement
of Production Copper Foil Type
I 300 tonnes 1997 35 microns
IIA 150 tonnes January 1999 18 microns, 35 microns
IIB 150 tonnes June 1999 18 microns, 35 microns
(c) The 18 microns copper foil carries a higher profit margin than the 35 microns copper foil. With the
completion of Phase IIA and Phase IIB, the KBCF Group expects to be producing and selling a
higher proportion of 18 microns copper foil against confirmed orders from the Kingboard Group. The
rise in proportion of 18 microns copper foil from 1.1% of total sales in FY1999 to an estimated 30.0%
of total sales in FY2000 will raise the overall profit margin to help the Group realise the forecasted
profit after taxation of HK$130 million in FY2000.
Dividends
The Directors do not intend to recommend payment of dividends in respect of the financial year ending
31 March 2000.
In future the Directors intend to pursue a dividend policy commensurate with the KBCF Groups earnings,
its financial position and future plans.
The profit estimate, for which the Directors are solely responsible, has been prepared on bases
consistent with the accounting policies normally adopted by the KBCF Group in the preparation of its
audited accounts and has been prepared based on the following assumptions:
(a) there will be no material changes in interest rates and currency exchange rates to those prevailing
at the date of the forecast;
(b) there will be no material changes in the existing political, economic, legal or regulatory environment;
and
(c) there will be no material changes in the bases or rates of taxation, tariffs and duties imposed on the
KBCF Group.
51
LETTER FROM THE AUDITORS AND REPORTING ACCOUNTANTS
IN RELATION TO THE PROFORMA CONSOLIDATED PROFIT FORECAST
FOR THE FINANCIAL YEAR ENDING 31 MARCH 2000
6 December 1999
The Board of Directors
Kingboard Copper Foil Holdings Limited
Dear Sirs
This letter has been prepared for inclusion in the Prospectus of Kingboard Copper Foil Holdings Limited
(the Company) to be dated 6 December 1999 (the Prospectus) in connection with the Invitation in
respect of 170,000,000 New Shares of US$0.10 each and 45,000,000 Vendor Shares of US$0.10 each
in the capital of the Company, comprising 43,000,000 Offer Shares at S$0.53 for each Offer Share and
172,000,000 Placement Shares at S$0.53 for each Placement Share, payable in full upon application.
We have examined the forecast of the Company and its subsidiaries (the KBCF Group) for the financial
year ending 31 March 2000 set out on page 50 of the Prospectus in accordance with Singapore
Standards on Auditing applicable to the examination of prospective information. The Directors are solely
responsible for the forecast including the assumptions as set out on page 51 of the Prospectus on which
the forecast is based.
The forecast includes results shown by unaudited proforma consolidated financial statements for the six
months period ended 30 September 1999.
Based on our examination of the evidence supporting the assumptions, nothing has come to our
attention to cause us to believe that these assumptions do not provide a reasonable basis for the
forecast. Furthermore, in our opinion, the forecast, so far as the accounting policies and calculations are
concerned, is properly prepared on the basis of the assumptions, is consistent with the accounting
policies normally adopted by the KBCF Group, and has been presented in accordance with the
Statements of Accounting Standard.
Yours faithfully
Deloitte & Touche
Certified Public Accountants
Singapore
Chaly Mah Chee Kheong
Partner-in-charge
52
UNAUDITED PROFORMA CONSOLIDATED PROFIT AND LOSS STATEMENT
AND PROFORMA BALANCE SHEET FOR THE SIX MONTHS
ENDED 30 SEPTEMBER 1999
The unaudited proforma consolidated profit and loss statement of the KBCF Group for the six months
ended 30 September 1999 and the unaudited proforma consolidated balance sheet of the KBCF Group
as at 30 September 1999 set out below have been prepared on the basis set out in the Accountants
Report, on pages 56 to 74 of this Prospectus.
Proforma Consolidated Profit and Loss
HK$000
Turnover 177,396
Profit before taxation 70,885
Taxation (9,756)
Profit after taxation 61,129
Proforma Consolidated Balance Sheet
HK$000
Property, plant and equipment 288,279
Current assets 314,371
Current liabilities (146,652)
Net current assets 167,719
Non-current liabilities (249,539)
206,459
Represented by
Proforma shareholders equity 206,459
53
LETTER FROM THE AUDITORS AND REPORTING ACCOUNTANTS IN RELATION
TO THE UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 1999 AND PROFIT AND LOSS STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999
6 December 1999
The Board of Directors
Kingboard Copper Foil Holdings Limited
Dear Sirs
This letter has been prepared for inclusion in the Prospectus of Kingboard Copper Foil Holdings Limited
(the Company) to be dated 6 December 1999 (the Prospectus) in connection with the Invitation in
respect of 170,000,000 New Shares of US$0.10 each and 45,000,000 Vendor Shares of US$0.10 each
in the capital of the Company, comprising 43,000,000 Offer Shares at S$0.53 for each Offer Share and
172,000,000 Placement Shares at S$0.53 for each Placement Share, payable in full upon application.
We have reviewed the unaudited proforma consolidated balance sheet of the Company and its
subsidiaries (the KBCF Group) as at 30 September 1999 and the proforma consolidated profit and loss
statement for the six months ended 30 September 1999 as set out on page 53 of the Prospectus. These
unaudited consolidated balance sheet and profit and loss statement are the responsibility of the
Companys directors. Our responsibility is to issue a report on the unaudited proforma consolidated
balance sheet and profit and loss statement based on our review.
A review of the financial information consists principally of obtaining an understanding of the system for
the preparation of financial information, applying analytical review procedures to financial data and
making inquiries of persons responsible for financial and accounting matters. It is substantially less in
scope than an examination in accordance with Singapore Standards on Auditing and Statements of
Auditing Practice, the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, nothing has come to our attention that causes us to believe that the financial
information set out on page 53 of the Prospectus has not been presented fairly, in all material aspects,
in accordance with Statements of Accounting Standard.
Yours faithfully
Deloitte & Touche
Certified Public Accountants
Singapore
Chaly Mah Chee Kheong
Partner-in-charge
54
DIRECTORS REPORT
6 December 1999
The Shareholders
Kingboard Copper Foil Holdings Limited
Dear Sirs
This report has been prepared for inclusion in the Prospectus of Kingboard Copper Foil Holdings Limited
(the Company) to be dated 6 December 1999 in connection with the Invitation in respect of
170,000,000 new ordinary shares of US$0.10 each and 45,000,000 existing ordinary shares of US$0.10
each in the capital of the Company (the Invitation Shares).
On behalf of the Directors of the Company, I report that, having made due inquiry in relation to the interval
between 31 March 1999, the date to which the last audited accounts of the Company were made up, and
the date hereof:
(a) the business of the Company and its subsidiaries has, in the opinion of the Directors, been
satisfactorily maintained;
(b) no circumstances have, in the opinion of the Directors, arisen since the date of incorporation of the
Company which would adversely affect the trading or the value of the assets of the Company or its
subsidiaries;
(c) the current assets of the Company and its subsidiaries appear in the books at values which are
believed to be realisable in the ordinary course of business;
(d) no contingent liabilities have arisen by reason of any guarantees given by the Company or its
subsidiaries; and
(e) there have been no changes in the published reserves or any unusual factors affecting the profit of
the Company and its subsidiaries since the last audited accounts.
Yours faithfully
for and on behalf of the
Board of Directors
Chan Wing Kwan
Executive Chairman
55
ACCOUNTANTS REPORT
6 December 1999
The Board of Directors
Kingboard Copper Foil Holdings Limited
Clarendon House
2 Church Street
Hamilton HM II
Bermuda
Dear Sirs
A. INTRODUCTION
This report has been prepared for inclusion in the prospectus to be dated 6 December 1999 (the
Prospectus) in connection with an invitation in respect of 170,000,000 new ordinary shares (New
Shares) of US$0.10 each and 45,000,000 Vendor Shares of US$0.10 each in the capital of
Kingboard Copper Foil Holdings Limited (the Company), comprising 43,000,000 Offer Shares at
S$0.53 for each Offer Share by way of public offer and 172,000,000 Placement Shares by way of
placement at S$0.53 for each Placement Share, payable in full on application (the Invitation).
The Company was incorporated in Bermuda on 10 September 1999 as an exempted company
under the Companies Act 1981 of Bermuda.
The principal activity of the Company is that of investment holding.
The movement in the paid-up capital of the Company since its date of incorporation were as
follows:
(a) Issue of 12,000 ordinary shares of US$1.00 each, nil-paid, upon incorporation.
(b) Sub-division of each ordinary share of US$1.00 each into 10 ordinary shares of US$0.10 each,
resulting in 120,000 ordinary shares of US$0.10 each.
(c) Issue of 500,000,000 ordinary shares of US$0.10 each, credited as fully paid, as consideration
to acquire subsidiaries in accordance with a restructuring exercise (the Restructuring
Exercise) undertaken for purpose of the Companys listing on the Singapore Exchange
Securities Trading Limited. The 500,000,000 shares include the 120,000 nil-paid shares
described in (a) and (b) above.
At the date of this report, the authorised share capital of the Company is US$200,000,000 divided
into 2,000,000,000 ordinary shares of US$0.10 each and the issued and fully paid-up share capital
of the Company is US$50,000,000 divided into 500,000,000 ordinary shares of US$0.10 each.
The Kingboard Copper Foil Holdings Limited group of companies (collectively the KBCF Group)
was formed as a result of the Restructuring Exercise. The Restructuring Exercise involved the
following transactions:
(a) As part of the Restructing Exercise, Hong Kong Copper Foil Limited (HKCF(BVI)) and the
holders of the guaranteed convertible and exchangeable notes (the Noteholders) undertook
the following transactions:
(1) HKCF(BVI) capitalised loans from Kingboard Chemical Holdings Limited (KCHL) and its
subsidiaries, but excluding the KBCF Group, (hereinafter referred to as the Kingboard
Group) amounting to HK$140,000,000 (equivalent to US$18,064,516) in exchange for
18,064,516 ordinary shares of US$1.00 each in HKCF(BVI); and
56
A. INTRODUCTION (continued)
(2) The Noteholders issued promissory notes to HKCF(BVI) with an aggregate value
amounting to HK$108,444,000 (equivalent to US$13,992,774) (see note 12 of Section H
below) in exchange for an aggregate of 13,992,774 ordinary Shares of US$1.00 each in
HKCF(BVI).
Pursuant to the foregoing a total of 32,057,290 ordinary shares of US$1.00 each in the capital
of HKCF(BVI) were issued to Jamplan (BVI) Limited (Jamplan (BVI)) and the Noteholders,
resulting in an increased share capital of 47,057,290 ordinary shares of US$1.00 each in the
capital of HKCF(BVI).
Upon the conditions under the Management and Underwriting Agreement being satisfied, the
promissory notes issued by the Noteholders and the guaranteed convertible and exchangeable
notes issued by HKCF(BVI) and held by the Noteholders would be set off against each other.
(b) The Company then acquired the entire issued share capital in HKCF(BVI) from Jamplan (BVI)
and the Noteholders for a consideration equal to the aggregate of the audited net tangible
assets of HKCF(BVI) and its subsidiaries as at 31 March 1999 (taking into account the
capitalisation of loans as described in the preceding paragraph) amounting to HK$393,775,050
(equivalent to US$50,809,684). The said consideration was satisfied in full by the allotment and
issue of 500,000,000 ordinary shares of US$0.10 each in the Company to Jamplan (BVI) and
the Noteholders in proportion to their shareholdings in HKCF(BVI) save that, as part of the
consideration paid by the Company to Jamplan (BVI), the 120,000 ordinary shares of US$0.10
each in the capital of the Company which were originally issued to Jamplan (BVI) nil-paid were
deemed to be credited as fully paid upon the completion of the Restructuring Exercise.
For the purpose of giving effect to the agreement contemplated under the subscription agreement
regarding the guaranteed convertible and exchangeable notes, the Noteholders executed share
transfers in respect of an aggregate of 75,178,069 ordinary shares of US$0.10 each in the capital
of the Company in favour of Jamplan (BVI), such that the Noteholders hold in aggregate a
shareholding interest of 14.7% in the capital of the Company. None of the Noteholders are
substantial shareholders or deemed to be substantial shareholders of the Company.
Pursuant to written resolutions of the shareholders of the Company dated 3 December 1999, the
shareholders of the Company approved, inter alia, the following:
(a) the sub-division of each of the ordinary shares of US$1.00 each in the capital of the Company
into 10 ordinary shares of US$0.10 each in the capital of the Company;
(b) an increase in the authorised share capital of the Company from US$12,000 divided into
120,000 ordinary shares of US$0.10 each to US$200,000,000 divided into 2,000,000,000
ordinary shares of US$0.10 each by the creation of 1,999,880,000 ordinary shares of US$0.10
each;
(c) the Restructuring Exercise;
(d) the adoption of a new set of Bye-Laws of the Company; and
(e) the issue of 170,000,000 new ordinary shares of US$0.10 each in the capital of the Company
which, together with the 45,000,000 Vendor Shares, are the subject of the Invitation.
Aresolution was also passed by the shareholders authorising the directors of the Company to issue
further shares from time to time, provided the aggregate number of shares of the Company issued
pursuant to such authority shall not exceed the maximum limit permitted under the relevant laws of
Singapore and Bermuda (including the rules of the Singapore Exchange Securities Trading Limited)
prevailing at that time.
57
B. BASIS OF PREPARATION OF FINANCIAL INFORMATION
The particulars of the subsidiaries in the KBCF Group which have been included in the preparation
of the Proforma Statement of Group Results and the Proforma Statement of Group Balance Sheets
for each of the financial years ended 31 March 1995 to 1999 and the Proforma Statement of Net
Assets as at 31 March 1999 are as follows:
Name of company
Place and date
of incorporation/
operation
Issued and paid
up capital/
contributed
capital
Effective equity
interest held
by the Company
Principal
activity
Directly Indirectly
Hong Kong Copper
Foil Limited
(formerly known as
Jamplan (China)
Group Limited)
British Virgin Islands
7 August 1992
British Virgin Islands
Ordinary share
capital
US$15,000,000
100% Investment
holding
Capital Project Group
Ltd. (CPG)
British Virgin Islands
8 February 1996
See note 1 below
Ordinary share
capital
US$50,000
100% See note 1
below
Fogang Kingboard
Industry Ltd.
(FKI)
(see note 2 below)
Peoples Republic
of China (PRC)
13 July 1993
PRC
Contributed
capital
RMB166,737,626
100% Manufacture
and sale of
copper foil
Notes:
(1) CPG is incorporated in the British Virgin Islands to facilitate the transfer of copper foil among related facilities for further
conversion into finished goods in the PRC.
(2) The registered capital of FKI is RMB248,917,000. The amount was fully contributed subsequent to 31 March 1999 and
an official verification report to that effect was issued on 28 June 1999.
The financial information set out in this report is expressed in Hong Kong dollars. The Proforma
Statement of Group Results for each of the financial years ended 31 March 1995 to 1999, the
Proforma Statement of Group Balance Sheets at 31 March of each year and the Proforma
Statement of Net Assets as at 31 March 1999 have been prepared on the assumption that the
current group structure of the KBCF Group as outlined above had been in existence throughout the
period under review, or since the dates of incorporation or registration of the companies, if later. The
financial information is based on the audited consolidated financial statements of HKCF(BVI) for the
period from 7 August 1992 (date of incorporation) to 31 March 1998 and for the financial year ended
31 March 1999 and has been prepared on the basis of accounting policies set out in Section G after
making such adjustments which we considered necessary.
All material inter-company transactions and balances within the KBCF Group have been eliminated
in the preparation of the Proforma Statement of Group Results, the Proforma Statement of Group
Balance Sheets and the Proforma Statement of Net Assets.
The audited consolidated financial statements of HKCF(BVI) for the period from 7 August 1992 (date
of incorporation) to 31 March 1998 and for the financial year ended 31 March 1999 incorporated the
financial statements of HKCF(BVI) and its subsidiaries, namely, CPG and FKI (hereinafter
collectively referred to as the HKCF Group).
There were no audit qualifications made to the audited financial statements of the companies within
the KBCF Group in the last five financial years ended 31 March 1999.
The financial year of FKI covers a twelve months period from 1 January to 31 December. For the
purpose of preparing the consolidated financial statements of HKCF(BVI), the management
accounts of FKI from 1 April to 31 March were used. Other than the above, as at 31 March 1999,
the financial year end of all the subsidiaries within the KBCF Group is co-terminous.
58
We have acted as auditor of the Company since the date of incorporation on 10 September 1999.
Our member firm, Deloitte Touche Tohmatsu Hong Kong, has acted as auditor of HKCF(BVI) since
its date of incorporation. The first set of audited financial statements of HKCF(BVI) covered the
period from 7 August 1992 (date of incorporation) to 31 March 1998. We have undertaken an
independent audit of the management accounts of each member of the HKCF Group for each of the
financial years ended 31 March 1995 to 1998, and are satisfied that the management accounts are
appropriate and proper for inclusion in the Proforma Statement of Group Results and the Proforma
Statement of Group Balance Sheets.
The financial statements of FKI from its date of establishment to 31 December 1995 were not
audited. The statutory financial statements of FKI for the financial years ended 31 December 1996
and 1998 were audited by Fogang Certified Public Accountants, Certified Public Accountants in the
PRC and for the financial year ended 31 December 1997 by Certified Public
Accountants in the PRC. There is no statutory audit requirement for CPG. For the purpose of
preparing the audited consolidated financial statements of HKCF(BVI), we have undertaken an
independent audit of the management accounts of FKI and CPG for each of the relevant financial
years to 31 March.
C. PROFORMA STATEMENT OF GROUP RESULTS
The Proforma Statement of Group Results for each of the five financial years up to 31 March 1999
prepared on the basis set out in paragraph B above, after making such adjustments as we
considered appropriate, are as follows:
Proforma
Year ended 31 March
Notes 1995 1996 1997 1998 1999
HK$000 HK$000 HK$000 HK$000 HK$000
Turnover 1 41,942 113,498 158,679 174,544
(Loss) Profit before taxation 2 (3,258) 2,772 32,864 44,332 50,093
Taxation 3 (66) (1,711) (7,068)
(Loss) Profit attributable to
the Proforma Group (3,258) 2,772 32,798 42,621 43,025
Notes:
1. Turnover
Turnover represents the amounts received and receivable from sale of manufactured goods.
59
C. PROFORMA STATEMENT OF GROUP RESULTS (continued)
Notes: (continued)
2. (Loss) Profit before taxation
(Loss) Profit before taxation has been arrived at after charging (crediting):
Proforma
Year ended 31 March
1995 1996 1997 1998 1999
HK$000 HK$000 HK$000 HK$000 HK$000
Interest expense to non-related
parties:
bank borrowings 29 152 880 517 1,485
finance leases and hire
purchase contracts 361 265 44 35 11
guaranteed convertible
and exchangeable
notes 2,268
390 417 924 552 3,764
Amortisation of the issue costs
of the guaranteed convertible
and exchangeable notes 252
390 417 924 552 4,016
Less: Interest capitalised (545)
390 417 924 552 3,471
Auditors remuneration
(see note below) 111 66 238 216 207
Non audit fees paid to auditors 120 20 122
Depreciation of property, plant
and equipment:
owned assets 4,025 7,431 8,415 10,943
assets held under finance
leases and hire
purchase contracts 686 86 86
Directors remuneration:
fees
other emoluments 1,160 1,745 1,764 2,787 1,700
Loss on disposal of property,
plant and equipment 196 424
Foreign exchange gain (1,479) (148) (2,588) (133) (2,221)
Interest income from non-related
parties (14) (8) (190) (94) (57)
Note:
Auditors remuneration for the financial year ended 31 March 1996 amounting to HK$60,000 was borne by a related
party.
60
C. PROFORMA STATEMENT OF GROUP RESULTS (continued)
Notes: (continued)
3. Taxation
Proforma
Year ended 31 March
1995 1996 1997 1998 1999
HK$000 HK$000 HK$000 HK$000 HK$000
PRC income tax 66 1,711 7,068
FKI, the major operating company within the KBCF Group, is a foreign investment enterprise
established in the PRC. Under the applicable tax regulations, FKI is exempt from state income
tax in the PRC in the first and second years in which it generates profit, and is granted a 50%
reduction in state income tax payable in the third, fourth and fifth years. When the tax reduction
period expires, the effective tax rate of FKI will be 24%.
FKI has successfully applied to the relevant tax authorities in the PRC for the two-year tax
holiday and the three-year tax reduction period to be granted to each of its two distinct phases
of production. Consequently, in respect of the first completed phase of production, FKI was
exempt from state income tax in respect of the profits earned in 1996 and 1997 and is currently
enjoying a 50% reduction in state income tax liability for the three years up to 31 December
2000. In respect of the profits derived from the second phase of production, FKI is exempt from
state income tax for the years 1999 and 2000 and will enjoy a 50% reduction in state income tax
liability for the three years up to 31 December 2003.
4. Related party transactions
Significant related party transactions are as follows:
Proforma
Year ended 31 March
1995 1996 1997 1998 1999
HK$000 HK$000 HK$000 HK$000 HK$000
Sales of goods to related parties 41,942 113,498 158,679 173,897
Purchases of goods from related
parties 623 1,106
Recharge of finance costs by
related parties 156
61
D. PROFORMA STATEMENT OF GROUP BALANCE SHEETS
The Proforma Group Balance Sheets for each of the five financial years ended 31 March 1999 which
have been prepared on the basis set out in paragraph B above, after making such adjustments as
we considered appropriate, are as follows:
Proforma
As at 31 March
1995 1996 1997 1998 1999
HK$000 HK$000 HK$000 HK$000 HK$000
Property, plant and equipment 66,917 86,258 97,402 107,569 284,620
Current assets 9,385 15,652 61,123 100,099 242,070
Less: Current liabilities (10,046) (15,174) (39,577) (21,242) (133,419)
Net current (liabilities) assets (661) 478 21,546 78,857 108,651
Non-current liabilities:
Advances from related parties (66,902) (91,734) (108,957) (136,985) (140,000)
Obligations under finance leases
and hire purchase contracts (4,822) (493) (224)
Guaranteed convertible and
exchangeable notes (107,940)
Total non-current liabilities (71,724) (92,227) (109,181) (136,985) (247,940)
(5,468) (5,491) 9,767 49,441 145,331
Represented by:
Shareholders funds (deficiency)
surplus (5,468) (5,491) 9,767 49,441 145,331
The movements in the proforma shareholders equity of the KBCF Group for each of the five
financial years are as follows:
Proforma
Year ended 31 March
1995 1996 1997 1998 1999
HK$000 HK$000 HK$000 HK$000 HK$000
Balance brought forward (848) (5,468) (5,491) 9,767 49,441
Add (deduct):
Issue of shares 117,000
(Loss) Profit attributable to the
Proforma Group (3,258) 2,772 32,798 42,621 43,025
Dividends (15,000) (5,000) (70,000)
Proforma adjustments
(see note below) (1,362) (2,795) (2,540) 2,053 5,865
Balance carried forward (5,468) (5,491) 9,767 49,441 145,331
Note:-
See Statement of Adjustments.
62
E. STATEMENT OF ADJUSTMENTS
Year ended 31 March
1995 1996 1997 1998 1999
HK$000 HK$000 HK$000 HK$000 HK$000
(Loss) Profit before taxation per
aggregation of financial
statements of the KBCF Group (4,620) (23) 30,324 46,385 56,983
Proforma adjustments
(see note 1 below):
Reversal of net interest expense
(income) charged by (to) related
parties 2,522 4,540 4,304 1,149 (6,188)
Reversal of management fees 1,200
Directors remuneration (1,160) (1,745) (1,764) (2,787) (1,700)
Staff costs (415) (202)
(Loss) Profit before taxation per
Proforma Statement of Group
Results (3,258) 2,772 32,864 44,332 50,093
Taxation per aggregation of financial
statements of the KBCF Group 4,928 6,849 (1,907)
Adjustment to reflect reversal of
overprovision in the appropriate
accounting year (see note 2
below) (4,862) (5,138) 10,000
Proforma adjustment:
Effect of reversal of interest
income from a related party (1,025)
Taxation per Proforma Statement of
Group Results 66 1,711 7,068
Notes:
(1) During the periods under review, interest were charged by or to related parties of the KBCF Group on intercompany
balances. Salary costs, including those of directors, paid on behalf of the KBCF Group were sometimes, but not
necessarily all the time, recharged by related parties as management fees. As the KBCF Group will bear its own
expenses and no interest and management fees will be charged by related parties in future, proforma adjustments have
therefore been made.
(2) In the year ended 31 March 1999, tax provisions totalling HK$10,000,000 which were made in prior years as a prudent
measure in respect of certain of the KBCF Groups activities were reversed. Adjustments have therefore been made in
the appropriate accounting year to reflect the effect of the reversal.
63
F. PROFORMA STATEMENT OF NET ASSETS
The Proforma Statement of Net Assets of the KBCF Group and the Company as at 31 March 1999
is set out below:
Notes Group Company
HK$000 HK$000
ASSETS
Current assets:
Inventories 3 23,004
Trade receivables 4 160,921
Other receivables and prepaid expenses 5 2,973
Bank balances and cash 55,172
Total current assets 242,070
Property, plant and equipment 6 284,620
Subsidiaries 7 145,331
Total 526,690 145,331
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Trade payables 8 8,362
Other payables and accrued charges 9 3,666
Income tax payable 9,692
Proposed dividend 70,000
Bank borrowings 10 41,699
Total current liabilities 133,419
Non-current liabilities:
Loans from related parties 11 140,000
Guaranteed convertible and exchangeable notes 12 107,940
Total non-current liabilities 247,940
Shareholders equity 145,331 145,331
Total 526,690 145,331
64
G. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies which have been adopted in arriving at the financial information set out in
this report and which conform with accounting principles generally accepted in Singapore are as
follows:
Accounting Convention The financial statements expressed in Hong Kong dollars are prepared
under the historical cost convention.
Basis of Consolidation The Proforma Statement of Group Results and the Proforma Statement
of Group Balance Sheets incorporate the financial statements of the companies comprising the
KBCF Group made up to the respective year ends and have been prepared on the assumption that
the current group structure had been in existence throughout the periods under review.
All significant intercompany transactions and balances within the KBCF Group are eliminated on
consolidation.
Subsidiaries Asubsidiary is an enterprise in which the Company, directly or indirectly, holds more
than half of the issued share capital, or controls more than half of the voting power, or where the
Company controls the composition of its board of directors or equivalent governing body.
Investment in subsidiaries is stated in the Companys balance sheet at cost less provision, if
necessary, for impairment in value. Dividends from subsidiaries are recognised by the Company
when the Companys right to receive payments has been established.
Property, Plant and Equipment Property, plant and equipment are stated at cost less depreciation.
The cost of an asset comprises its purchase price and any directly attributable costs of bringing the
asset to its working condition and location for its intended use. Expenditure for additions,
improvements and renewals is capitalised while expenditure for maintenance and repairs is charged
to the profit and loss account in the period in which it is incurred. The gain or loss arising from the
disposal or retirement of an asset is determined as the difference between the sale proceeds and
the carrying amount of the asset and is recognised in the profit and loss account.
The cost of properties in the PRC is amortised on a straight line basis over the period for which the
relevant land use rights have been granted to the KBCF Group.
Assets under construction are stated at cost. No depreciation is provided until the construction is
completed and the assets are put into use.
Depreciation is provided to write off the cost of other assets, less residual value, if appropriate, over
their estimated useful lives, using the straight line method at the following rates per annum:
Plant and machinery 1020%
All other assets 20%
Inventories Inventories are stated at the lower of cost and net realisable value. Cost, which
comprises all costs of purchase and, where applicable, cost of conversion and other costs that have
been incurred in bringing the inventories to their present location and condition, is calculated using
the weighted average method. Net realisable value is calculated by reference to actual or
anticipated selling price in the ordinary course of business less estimated future costs to be incurred
to complete production and to make the sale.
Guaranteed Convertible and Exchangeable Notes Guaranteed convertible and exchangeable
notes are separately disclosed and regarded as liabilities unless conversion actually occurs. The
finance cost recognised in the profit and loss account in respect of the notes is calculated so as to
produce a constant periodic rate of charge on the balance of the notes for each accounting period.
65
G. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The costs incurred in connection with the issue of guaranteed convertible and exchangeable notes
are deferred and amortised on a straight line basis over the lives of the notes from the date of issue
of the notes to their final redemption date.
Recognition of Revenue Income from the sale of goods is recognised when the goods are
delivered and title has passed.
Interest income is accrued on a time basis by reference to the principal outstanding and the
applicable rate of interest.
Taxation The charge for taxation is based on the results for the year after adjusting for items
which are non-assessable or disallowed. Certain items of income and expenses are recognised for
tax purposes in a different accounting period from that in which they are recognised in the financial
statements. The tax effect of the resulting timing differences, computed under the liability method,
is recognised as deferred taxation in the financial statements to the extent that it is probable that a
liability or asset will crystallise in the foreseeable future.
Capitalisation of Borrowing Costs Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, namely assets that necessarily take a substantial
period of time to get ready for their intended use or sale, are capitalised as part of the cost of these
assets. Capitalisation of borrowing costs ceases when the assets are substantially ready for their
intended use or sale. Any investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs
capitalised.
All other borrowing costs are recognised as an expense in the period in which they are incurred.
Foreign Currencies Transactions in currencies other than Hong Kong dollars are translated at the
approximate rates ruling on the dates of the transactions. Monetary assets and liabilities
denominated in currencies other than Hong Kong dollars are re-translated at the rates ruling on the
balance sheet date. Profits and losses arising on exchange are dealt with in the profit and loss
account.
In preparing consolidated financial statements, the financial statements of operations which are not
denominated in Hong Kong dollars are translated using the closing rate method. Exchange
differences arising on consolidation are dealt with in the translation reserve.
66
H. NOTES TO THE PROFORMA STATEMENT OF GROUP NET ASSETS AS AT 31 MARCH 1999
1. General
The Company is incorporated in Bermuda. The principal activity of the Company is that of
investment holding.
2. Holding Company and Related Party Transactions
The Company is a subsidiary of KCHL which is also the Companys ultimate holding company.
The shares of KCHL are listed on The Stock Exchange of Hong Kong Limited. Related parties
in this report refer to companies in the Kingboard Group other than those in the KBCF Group.
Many of the KBCF Groups transactions and arrangements are with related parties and the
effect of these on the basis determined between the parties are reflected in this report. The
balances with related parties are without fixed repayment terms and interest unless stated
otherwise.
Significant related party transactions during the year are as follows:
Group Company
HK$000 HK$000
Sales of goods to related parties 173,897
3. Inventories (at cost)
Group Company
HK$000 HK$000
Raw materials 8,056
Work in progress 14,948
Total 23,004
4. Trade Receivables
Group Company
HK$000 HK$000
Related parties (note 2) 160,921
5. Other Receivables and Prepaid Expenses
Group Company
HK$000 HK$000
Prepayments 2,739
Others 234
Total 2,973
67
H. NOTES TO THE PROFORMA STATEMENT OF GROUP NET ASSETS AS AT 31 MARCH 1999
(continued)
6. Property, Plant and Equipment
Properties
Plant and
machinery
Furniture
and
fixtures
Motor
vehicles
Assets
under
construction Total
Group HK$000 HK$000 HK$000 HK$000 HK$000 HK$000
Cost:
At beginning of
year 37,485 79,029 1,567 2,972 7,229 128,282
Additions 4,696 4,944 116 416 178,665 188,837
Reclassifications 15,870 96,937 (1,094) (111,713)
Disposals (303) (319) (126) (522) (1,270)
At end of year 57,748 180,591 463 2,866 74,181 315,849
Accumulated depreciation:
At beginning of
year 1,716 17,276 233 1,488 20,713
Depreciation for the
year 834 9,474 100 535 10,943
Eliminated on
disposal (20) (4) (80) (323) (427)
At end of year 2,530 26,746 253 1,700 31,229
Net book value:
At beginning of
year 35,769 61,753 1,334 1,484 7,229 107,569
At end of year 55,218 153,845 210 1,166 74,181 284,620
Depreciation for 1998 671 7,162 94 574 8,501
Group
HK$000
The net book value of properties comprises:
Land and buildings in the PRC with land use rights of 20 to 50 years
granted to the KBCF Group 49,218
Other land and buildings in the PRC with terms longer than 50 years 6,000
55,218
Assets under construction included interest capitalised of HK$545,000.
68
H. NOTES TO THE PROFORMA STATEMENT OF GROUP NET ASSETS AS AT 31 MARCH 1999
(continued)
7. Subsidiaries
Company
HK$000
Unquoted equity shares, at cost 145,331
Details of the subsidiaries are as follows:
Name of subsidiary
Place and
date of
incorporation/
operation
Effective
equity
interest held
by the Group
Principal
activities
Cost of
investment
Directly Indirectly HK$000
Hong Kong Copper
Foil Limited
(formerly known as
Jamplan (China)
Group Limited)
British Virgin Islands
7 August 1992
British Virgin Islands
100% Investment
holding
145,331
Capital Project Group
Ltd.
British Virgin Islands
8 February 1996
See note below
100% See note
below

Fogang Kingboard
Industry Ltd.
PRC
13 July 1993
PRC
100% Manufacture
of copper
foil

145,331
Note:
CPG is incorporated in the British Virgin Islands to facilitate the transfer of copper foil among related facilities for further
conversion into finished goods in the PRC.
8. Trade Payables
Group Company
HK$000 HK$000
Outside parties 8,362
9. Other Payables and Accrued Charges
Group Company
HK$000 HK$000
Outside parties 3,666
69
H. NOTES TO THE PROFORMA STATEMENT OF GROUP NET ASSETS AS AT 31 MARCH 1999
(continued)
10. Bank Borrowings
Group Company
HK$000 HK$000
Trust receipt loans 41,699
The bank borrowings are unsecured and bear interest at market rates.
The bank facilities are guaranteed by the Kingboard Group .
11. Loans from Related Parties
Group Company
HK$000 HK$000
Loans from related parties (note 2) 140,000
The loans are unsecured and interest free.
12. Guaranteed Convertible and Exchangeable Notes
Group Company
HK$000 HK$000
Principal amount of the notes issued during the
year 108,444
Accrued interest 2,268
110,712
Issue costs:
Amount incurred (3,024)
Amount amortised during the year 252
(2,772)
Balance at end of year 107,940
On 3 April 1998, HKCF(BVI) and KCHL entered into a subscription agreement with several
independent third parties pursuant to which HKCF(BVI) issued to the subscribers guaranteed
convertible and exchangeable notes in the aggregate principal amount of US$14 million
(equivalent to HK$108,444,000) in denomination of US$100,000 each. An interest of 4% per
annum will be payable semi-annually in arrears on the principal amount of the notes
outstanding subject to a grace period from the date of completion of the transaction to 30 June
1999 (both dates inclusive). During such grace period, there will be neither payment nor
accrual of interest.
70
H. NOTES TO THE PROFORMA STATEMENT OF GROUP NET ASSETS AS AT 31 MARCH 1999
(continued)
12. Guaranteed Convertible and Exchangeable Notes (continued)
KCHL intends to spin-off HKCF(BVI) within six years on an approved stock exchange. Each of
the notes carries with it a right of conversion into shares of HKCF(BVI) or its holding company
which may be set up for the purpose of an initial public offering. If the initial public offering does
not take place within three years, the Noteholders have the option within the succeeding three
years to exchange half of the consideration, after adjusting for interest in accordance with the
agreement, at a price equal to 95% of the average of the closing prices of KCHLs shares
quoted on The Stock Exchange of Hong Kong Limited on the 30 trading days immediately
preceding the date of the exchange, and to receive the other half in cash. If the initial public
offering does not take place within six years, there will be automatic exchange and redemption
under the same terms. The obligations of HKCF(BVI) under the notes are guaranteed by
KCHL.
13. Contingent Liabilities
GROUP
HK$000
Maximum liabilities in respect of:
Cross guarantees to financial institutions to secure credit
facilities for related parties 254,000
Corporate guarantees to financial institutions to secure credit
facilities granted to related parties 200,000
Total 454,000
At 31 March 1999, the extent of credit facilities utilised by related parties amounted to
approximately HK$246,967,000.
14. Commitments
As at 31 March 1999, the Group had the following commitments:
(a) Capital expenditure contracted for but not provided in this report in respect of acquisition
of property, plant and machinery amounting to HK$13,375,000;
(b) Capital expenditure contracted for on behalf of a related party but not provided in this
report amounting to HK$3,009,000; and
(c) Copper future contracts for the purchase of 3,500 tonnes of copper at prices ranging
from approximately HK$11,860 (equivalent to US$1,530) to approximately HK$12,750
(equivalent to US$1,645) per tonne.
15. Segment Information
The operations of the KBCF Group are in the manufacturing and sale of copper foil in the PRC
and most of the assets of the KBCF Group are deployed in these operations. Accordingly, the
income and profits of the KBCF Group are derived substantially from this industry segment.
71
H. NOTES TO THE PROFORMA STATEMENT OF GROUP NET ASSETS AS AT 31 MARCH 1999
(continued)
16. Subsequent Events
Pursuant to written resolutions of the shareholders of the Company dated 3 December 1999,
the shareholders of the Company approved, inter alia, the following:
(a) the sub-division of each of the ordinary shares of US$1.00 each in the capital of the
Company into 10 ordinary shares of US$0.10 each in the capital of the Company;
(b) an increase in the authorised share capital of the Company from US$12,000 divided into
120,000 ordinary shares of US$0.10 each to US$200,000,000 divided into 2,000,000,000
ordinary shares of US$0.10 each by the creation of 1,999,880,000 ordinary shares of
US$0.10 each;
(c) the Restructuring Exercise;
(d) the adoption of a new set of Bye-Laws of the Company; and
(e) the issue of 170,000,000 new ordinary shares of US$0.10 each in the capital of the
Company which, together with the 45,000,000 Vendor Shares, are the subject of the
Invitation.
A resolution was also passed by the shareholders authorising the directors of the Company to
issue further shares from time to time, provided the aggregate number of shares of the
Company issued pursuant to such authority shall not exceed the maximum limit permitted
under the relevant laws of Singapore and Bermuda (including the rules of the Singapore
Exchange Securities Trading Limited) prevailing at that time.
I. NET TANGIBLE ASSETS BACKING
The net tangible assets backing of the KBCF Group for each ordinary share of US$0.10 is based on
the net tangible assets of the KBCF Group as at 31 March 1999 and after taking into account the
following:
Net Tangible Assets
HK$000
Net tangible assets as at 31 March 1999 145,331
Capitalisation of loans from the Kingboard Group amounting to
HK$140,000,000 (equivalent to US$18,064,516) 140,000
Capitalisation of loans from the Noteholders amounting to
HK$108,444,000 (equivalent to US$13,992,774) 108,444
Net tangible assets before the Invitation 393,775
Proceeds from the issue of New Shares at S$0.53 per share which is the
subject of the Invitation 413,370
Less: Estimated issue expenses (18,352)
Adjusted net tangible assets 788,793
72
I. NET TANGIBLE ASSETS BACKING (continued)
Issued Share Capital
Number of shares
At incorporation
Issue of ordinary shares of US$1.00 each, nil-paid 12,000
12,000
Sub-division of 1 ordinary share of US$1.00 each to 10 ordinary shares of
US$0.10 each 120,000
New Shares issued pursuant to the Restructuring Exercise 499,880,000
Pre-flotation ordinary shares of US$0.10 each 500,000,000
New Shares which are the subject of the Invitation 170,000,000
Post-invitation ordinary shares of US$0.10 each 670,000,000
Net Tangible Assets Backing Per Issue and Fully Paid Share of
US$0.10 each
Pre-flotation 78.76 HK cents
Post-flotation 117.73 HK cents
J. DIVIDENDS
The Company has not paid or proposed any dividend since incorporation. However, during the
periods under review, the following companies in the KBCF Group had declared dividends to their
then shareholders:
1995 1996 1997 1998 1999
HK$000 HK$000 HK$000 HK$000 HK$000
Hong Kong Copper Foil Limited 15,000 5,000 70,000
Capital Project Group Ltd. 16,000 11,000 60,000
Fogang Kingboard Industry Ltd.
(see note below) 16,822
31,000 16,000 146,822
Less: Elimination of intra-group
dividend (16,000) (11,000) (76,822)
Total 15,000 5,000 70,000
Note:
The dividend declared in the financial year ended 31 March 1999 is equivalent to RMB18,000,000.
73
K. AUDITED FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company or any of its subsidiaries in
respect of any period subsequent to 31 March 1999.
Yours faithfully
Deloitte & Touche
Certified Public Accountants
Singapore
Chaly Mah Chee Kheong
Partner-in-charge
74
GENERAL AND STATUTORY INFORMATION
INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS
1. The names, ages, addresses and current occupations of the Directors of the Company and
Executive Officers of the KBCF Group are set out on page 44 of this Prospectus.
2. Information on the business and working experience of the Directors is set out below:
Dr Chan Wing Kwan is an Executive Director and Executive Chairman of the KBCF Group. He is
also the managing director and co-founder of the Kingboard Group. Dr Chan has over 22 years
experience in the sale and distribution of electronic components, as well as upstream products such
as PCBs, laminates and copper foil. Dr Chan is responsible for the overall implementation of the
strategic plans and goals of the KBCF Group and supervises the management in the day to day
operations of the KBCF Group.
Mr Chang Wing Yiu, an Executive Director and the Managing Director of the KBCF Group, joined
the Kingboard Group in 1989. He has over 10 years experience in laminates and copper foil
production. Mr Chang is responsible for the day-to-day management and operations of the KBCF
Group (including the purchasing function, market development and all technical aspects of product
development).
Mr Cheung Kwok Wing is an Executive Director in the KBCF Group. He is also the group chairman
and co-founder of the Kingboard Group and has over 20 years experience in the production and
sales of laminates for use by manufacturers of PCBs and electronic products. Mr Cheung is
responsible for the overall strategic planning of the KBCF Group and sets the general direction and
goals for the KBCF Group. He was awarded the Young Industrialist Award of Hong Kong 1993 by the
Federation of Hong Kong Industries.
Mr Ho Yin Sang, an Executive Director and Factory Manager of FKI, joined the Kingboard Group in
1989. He has over 10 years experience in copper foil production. He became the General Manager
of HKCF(BVI) in 1995 and is in charge of overall operations and enterprise management in the KBCF
Group.
Mr Zhang Guanghui, an Executive Director, joined the Kingboard Group in 1989 and has over
10 years experience in laminates and copper foil production. He was involved in the establishment
of the KBCF Group and is currently the General Manager of Kingboard Group Long Hua factory. Mr
Zhang assists in the strategic planning of the KBCF Group.
Mr Lee Joo Hai was appointed as a non-executive independent Director of the Company on
29 November 1999. He is a Certified Public Accountant of Singapore and is a member of the Institute
of Chartered Accountants in England and Wales. He has more than 20 years of experience in
accounting, auditing, taxation and company secretarial work. Mr Lee is currently a partner in a public
accounting firm.
Mr Teo Kiang Kok was appointed as a non-executive independent Director of the Company on
29 November 1999. He is a partner of Shook Lin & Bok, a firm of advocates and solicitors. His main
areas of practice are corporate finance, international finance and securities.
Mr Lai Chung Wing, Robert was appointed as a non-executive independent Director of the
Company on 29 November 1999. He is currently the General Manager (Business Development) of
L&M Group Investments Ltd. He was previously the Managing Director and Chief Executive Officer
of Scaunion Holdings Limited (now known as Sen Hong Resources Ltd), an oil and gas company
which is listed on the SEHK.
75
3. The list of present and past directorships of each Director for the last five years is set out below:
Name Present Directorships Past Directorships
Chan Wing Kwan Group Companies
KBCF
FKI
Group Companies
Nil
Other Companies
KCHL
Hong Kong Fibre Glass
Company Limited
Jamplan (BVI) Limited
Jamplan Marketing Limited
King Board (Panyu) Chemical
Co., Ltd
Kingboard Investments Limited
Kingboard Laminates Limited
Kingboard Laminates Shenzhen
Co., Ltd
Kingboard (Taicang) Chemical
Co. Ltd
Kunshan Yattao Chemical Co.,
Ltd
Shanghai Jamplan Chemical
Industry & Insulated Material
Development Co., Ltd
Yat Tao Chemical Holdings
(H.K.) Limited
Sun Hing Optical Manufacturing
Limited
Hallgain Management Limited
Other Companies
Nil
Chang Wing Yiu Group Companies
KBCF
FKI
Group Companies
Nil
Other Companies
KCHL
Hong Kong Fibre Glass
Company Limited
King Board (Panyu) Chemical
Co., Ltd
Kingboard Laminates Shenzhen
Co., Ltd
Other Companies
Nil
76
Name Present Directorships Past Directorships
Cheung Kwok Wing Group Companies
KBCF
FKI
Group Companies
Nil
Other Companies
KCHL
Hong Kong Fibre Glass
Company Limited
Jamplan (BVI) Limited
Jamplan Marketing Limited
King Board (Panyu) Chemical
Co., Ltd
Kingboard Investments Limited
Kingboard Laminates Limited
Kingboard Laminates Shenzhen
Co., Ltd
Kingboard (Taicang) Chemical
Co. Ltd
Kunshan Yattao Chemical Co.,
Ltd
Shanghai Jamplan Chemical
Industry & Insulated Material
Development Co., Ltd
Yat Tao Chemical Holdings
(H.K.) Limited
Gattopardo Company Limited
Hallgain Management Limited
Other Companies
Victory Group Limited
Ho Yin Sang Group Companies
KBCF
Group Companies
Nil
Other Companies
Nil
Other Companies
Nil
Zhang Guanghui Group Companies
KBCF
Group Companies
Nil
Other Companies
Nil
Other Companies
Nil
Lee Joo Hai Group Companies
KBCF
Group Companies
Nil
Other Companies
IPC Corporation Ltd
Kian Ho Bearings Limited
Lung Kee Metal Holdings Limited
PSL Holdings Limited
Teamsphere Limited
Other Companies
Solid Resources Investment Ltd
77
Name Present Directorships Past Directorships
Teo Kiang Kok
(1)
Group Companies
KBCF
Group Companies
Nil
Other Companies
Asean Emerging Companies
Growth Fund Ltd
Circuit Plus Holdings Ltd
Mayfran International Ltd
Praxair Surface Technologies
Pte Ltd
SLAB Services Private Limited
SM Summit Holdings Limited
The Vittoria Fund Limited
Teamsphere Limited
The Vittoria One Limited
Other Companies
GRP Limited
IPC Corporation Ltd
Malaysian Emerging
Companies Growth Fund Ltd
Solid Resources Investment Ltd
Lai Chung Wing, Robert Group Companies
KBCF
Group Companies
Nil
Other Companies
Nil
Other Companies
Seaunion Holdings Limited
Chancery Saigon Hotel Vietnam
Note:
(1) Companies in which Mr Teo Kiang Kok was appointed as directors for the purposes of incorporation or as nominee
directors only and in the course of their professional practive have not been included.
4. Information on the business and working experience of the Executive Officers of the KBCF Group is
given below:
Lo Ka Leong, the Accounting Manager, joined the Kingboard Group in May 1999. Prior to that, he
was an accountant at an international accounting firm. He holds a Bachelor in Professional
Accountancy from the Chinese University of Hong Kong. He is in charge of the financial
management of the KBCF Group.
Chen Xiping joined the KBCF Group in 1997 and was appointed as a Quality Control Manager of
FKI. He is responsible for the quality control processes and systems at the copper foil plant in
Fogang. Mr Chen graduated from Hubei University in China with a chemical engineering degree.
He Beiyang is a Production Manager and has been with the KBCF Group since 1994. He is
specialised in the technical aspects of copper foil production, and is responsible for ensuring that the
KBCF Groups products meet the specifications required by customers.
Liu Zhigang is a Production Manager of the KBCF Group and is responsible for planning the
operations of the plant and ensuring the stability of the technical processes. Mr Liu was trained at the
Harbin Technological University in Applications Chemical and Electrical Engineering.
Liu Min joined the KBCF Group in 1998 and is currently the Plant Manager for Phase I of the copper
foil production. He is overall in charge of the operational functions of the KBCF Group, including the
planning, design and technological development of the production capabilities of the plant. Mr Liu
holds an engineering degree from Harbin University and was working in a copper foil plant before
joining the KBCF Group.
78
Deng Shijun is the Plant Manager for Phase II of the copper foil production of the KBCF Group.
He is mainly responsible for the technical and day to day operations of the plant and coordinates
the different functions of the technical and operations departments. Mr Deng holds an engineering
degree from Hubei University in China.
Li Weiming is a Quality Control Manager and is responsible for the technical operations of the
quality assurance department. He joined the KBCF Group in 1997 after graduating from Hubei
University with a degree in chemical engineering.
5. None of the above Executive Officers hold any present or past directorships for the past five years.
6. None of the Directors or Executive Officers are or were involved in any of the following events:
(a) a petition under any bankruptcy laws filed in any jurisdiction against him or any partnership in
which he was a partner or any corporation of which he was a director or an executive officer;
(b) a conviction of any offence, other than a traffic offence, or a judgement, including findings in
relation to fraud, misrepresentation or dishonesty, given against him in any civil proceedings
in Singapore or elsewhere, or any proceedings now pending which may lead to a conviction
or judgement, or any criminal investigation pending against him; or
(c) the subject of an order, judgment or ruling of any court, tribunal or government body
permanently or temporarily enjoining him from acting as an investment adviser, dealer in
securities, director or employee of a financial institution and engaging in any type of business
practice or activity.
7. The aggregate emoluments (including remuneration) paid to the then existing Directors for services
rendered in all capacities to the Company and its subsidiaries in FY1999 amounted to
approximately HK$1,700,000. The aggregate emoluments payable to the present Directors in
FY2000 under the arrangements in force at the date of this Prospectus, including the service
agreements referred to on page 45 of this Prospectus, is approximately HK$2,974,000.
8. Save as disclosed on page 45 of this Prospectus, there are no existing or proposed service
contracts between the Directors and the Company or its subsidiaries.
9. Save as disclosed on page 27 of this Prospectus, the Directors and Executive Officers are
unrelated by blood or marriage to one another nor are they so related to any substantial
shareholder of the Company.
10. No option to subscribe for shares in, or debentures of, the Company or its subsidiaries has been
granted to, or was exercised by, any Director or Executive Officer within the last financial year.
11. Save for the C-Notes held by the Noteholders, no person has been, or is entitled to be, given an
option to subscribe for any shares in or debentures of the Company or its subsidiaries.
12. Save as disclosed on page 42 of this Prospectus, no Director or expert is interested, directly or
indirectly, in the promotion of, or in any assets acquired or disposed of by, or leased to, the
Company or its subsidiaries within two years preceding the date of this Prospectus, or in any
proposal for such acquisition or disposal or lease as aforesaid.
13. Save as disclosed on page 41 of this Prospectus, no Director has any interest in any existing
contract or arrangement that is significant in relation to the business of the KBCF Group taken as
a whole.
14. No Director, substantial shareholder or Executive Officer has any interest, direct or indirect, in any
business carrying on a similar trade as the Company or its subsidiaries.
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15. There is no shareholding qualification for Directors in the Bye-laws of the Company.
16. The interests of the Directors and substantial shareholders in the Shares at the date of this
Prospectus and as recorded in the Register of Directors Shareholdings and the Register of
Substantial Shareholders maintained by the Company are as follows:
Name
Number of Shares
registered in
the names of
Directors and
substantial shareholder %
Number of Shares
in which the Directors
and substantial
shareholders are deemed
to have an interest %
Directors
Cheung Kwok Wing 426,500,000 85.3
Chan Wing Kwan
Chang Wing Yiu
Ho Yin Sang
Zhang Guanghui
Lee Joo Hai
Teo Kiang Kok
Lai Chung Wing, Robert
Holders of 5% or more
Jamplan (BVI) 426,500,000 85.3
KCHL 426,500,000 85.3
HML 426,500,000 85.3
Save as disclosed above, no Director has any interest in the Shares, including the Invitation
Shares, which are the subject of this Invitation.
17. No sum has been paid or has been agreed to be paid to any Director or to any firm in which a
Director is a partner in cash or in shares or otherwise by any person to induce him to become a
Director in connection with the promotion or formation of the Company.
Mr Teo Kiang Kok is a partner of Messrs Shook Lin & Bok, which will be receiving a fee from the
Company for legal services rendered in connection with the Invitation. It is envisaged that the KBCF
Group may continue to engage the services of Shook Lin & Bok as and when the need arises. The
Directors are of the view that the provision by Shook Lin & Bok of such services will not interfere
with Mr Teo Kiang Koks exercise of independent judgement in his role as a member of the Audit
Committee.
Messrs John C.R. Collis and Anthony D. Whaley, the Companys Bermuda resident representative
and deputy representative respectively, are partners of Conyers Dill & Pearman, legal advisers to
the Company on Bermuda law. Conyers Dill & Pearman will receive usual professional fees in
connection with the incorporation of the Company and the Invitation. Mr Ira Stuart Outerbridge III,
the secretary of the Company, is an employee of the Codan Services Limited, a company affiliated
with Conyers Dill & Pearman.
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SHARE CAPITAL
18. As at the date of this Prospectus, there is only one class of shares in the capital of the Company.
The rights and privileges attached to the Shares are stated in the Bye-laws of the Company. There
are no founder, management or deferred shares.
19. Save as disclosed herein, there were no changes in the issued and paid-up share capital of the
Company or its subsidiaries within the three years preceding the date of this Prospectus.
Date of Issue
Number of Shares
Issued/Increase
in Registered
Capital
Issue Price
per share
Purpose of Issue/
Consideration
Resultant Issued
Share Capital/
Registered Share
Capital
The Company
15 September 1999 12,000 US$1.00 Issued nil paid upon
establishment and
credited as fully paid
pursuant to the
Restructuring Exercise
US$12,000
3 December 1999 499,880,000 US$0.10 Acquisition of the
KBCF Group pursuant
to the Restructuring
Exercise
US$50,000,000
HKCF(BVI)
20 April 1998 14,999,999 US$1.00 Working capital US$15,000,000
3 December 1999 32,057,290 US$1.00 Capitalisation of loans
from the Kingboard
Group and issue of
Shares to Noteholders
US$47,057,290
FKI
7 October 1997 RMB 98.917 million Working capital RMB248.917 million
20. Save as disclosed in this Prospectus, no shares or debentures were issued or were agreed to be
issued by the Company or its subsidiaries for cash or for a consideration other than cash during the
last three years preceding the date of this Prospectus.
BYE-LAWS
21. The provisions in the Bye-laws relating to the Directors remuneration, voting rights on proposals
and contracts in which the Directors are interested, borrowing powers of the Directors, voting rights
of the Members, consents necessary for the variation of class rights and restrictions on
transferability of shares are set out in Appendix II.
BANK BORROWINGS AND WORKING CAPITAL
22. Save as disclosed on page 47 of this Prospectus and in the Accountants Report, the Company and
its subsidiaries had as at 31 March 1999, no other borrowings or indebtedness in the nature of
borrowings including bank overdrafts and liabilities under acceptances (other than normal trading
bills) or acceptances credits, mortgages, charges, hire purchase commitments, guarantees or other
material contingent liabilities.
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23. In the opinion of the Directors and for purposes of Section 28 of the Bermuda Act, there are no
minimum amounts which must be raised by the issue of the New Shares in order to provide for the
following items:
(a) The purchase price of any assets or properties purchased or to be purchased which is to be
defrayed in whole or in part out of the proceeds of the issue;
(b) Estimated preliminary and issue expenses (including underwriting commission) for this
Invitation payable by the Company;
(c) The repayment of any money borrowed by the KBCF Group in respect of any of the foregoing
matters; and
(d) Working capital.
24. The Directors are of the opinion that, after taking into account the present banking facilities, the
KBCF Group has adequate working capital for its present requirements.
MATERIAL CONTRACTS
25. The following contracts not being contracts entered into in the ordinary course of business of the
Company and its subsidiaries (as the case may be) have been entered into by the Company and
its subsidiaries (as the case may be) within the two years preceding the date of this Prospectus and
are or may be material:
(a) Subscription Agreement dated 3 April 1998 relating to guaranteed convertible and
exchangeable notes made between HKCF(BVI), KCHL and the Noteholders.
(b) Supplies Agreement dated 29 November 1999 made between KCHL and the Company
pursuant to which the Company agrees to sell and KCHL agrees to purchase copper foil
produced by the KBCF Group on the terms and conditions set out therein.
(c) Restructuring Agreement dated 3 December 1999 made between the Company, Jamplan
(BVI) and the Noteholders pursuant to which the Company acquired the entire issued share
capital of HKCF(BVI).
(d) The Management and Underwriting Agreement dated 6 December 1999 made between the
Company and DBS Bank referred to in paragraph 27 on page 83 below.
(e) The Placement Agreement dated 6 December 1999 made between HKCF and DBS Bank
referred to in paragraph 27 on page 83 below.
(f) The agreement constituted by the letter referred to on page 84 of this Prospectus.
(g) Depository Agreement dated 3 December 1999 between the Company and CDP pursuant to
which CDP agreed to act as share depository for the Company.
LITIGATION
26. Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration either as
plaintiff or defendant in respect of any claims or amounts which may have or have had during the
previous 12 months a significant effect on the KBCF Groups financial position. The Directors have
no knowledge of any proceeding, litigation or claim of material importance which are pending or
threatened against the Company or any of its subsidiaries or of any facts likely to give rise to any
such litigation, arbitration or claim.
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MANAGEMENT AND UNDERWRITING ARRANGEMENTS
27. (a) Pursuant to the Management and Underwriting Agreement dated 6 December 1999, the
Company appointed DBS Bank to manage the Invitation and the Underwriter to underwrite the
Offer Shares. The Underwriter has also appointed the Co-Underwriters to co-underwrite the
Offer Shares.
DBS Bank will receive a management fee from the Company and the Vendors in proportion
in which the number of Invitation Shares offered by each of them pursuant to the Invitation
bears to the total number of Invitation Shares, for its services rendered in connection to the
Invitation.
(b) Pursuant to the Management and Underwriting Agreement, the Underwriter agreed to
underwrite the Offer Shares for a commission of 1.5% of the Issue Price for each Offer Share,
payable by the Company and the Vendors in the proportion in which the number of Invitation
Shares offered by each of them pursuant to the Invitation bears to the total number of
Invitation Shares, for its services rendered in connection to the Invitation.
(c) Pursuant to the placement agreement (Placement Agreement) dated 6 December 1999, the
Placement Agent agreed to subscribe or procure subscriptions for the Placement Shares for
a placement commission of 1.5% of the Issue Price for each Placement Share, payable by the
Company and the Vendors in proportion in which the number of Invitation Shares offered by
each of them pursuant to the Invitation bears to the total number of Invitation Shares, for its
services rendered in connection to the Invitation. The Placement Agent has also appointed the
Co-Placement Agents as co-placement agents for the Placement Shares.
(d) Brokerage will be paid by the Company to the member companies of the SESTL, merchant
banks and members of the Association of Banks in Singapore in respect of accepted
applications made on Application Forms bearing their respective stamps, or to Participating
Banks in respect of successful applications made through Electronic Applications at the ATMs
of the relevant Participating Banks, at the rate of 1.0% of the Offer Price for each Offer Share
and at a rate of 1.0% of the Placement Price of each Placement Share.
(e) Save as aforesaid, no commission, discount or brokerage, has been paid or other special
terms granted within the two years preceding the date of this Prospectus or is payable to any
Director, promoter, expert, proposed Director or any other person for subscribing or agreeing
to subscribe or procuring or agreeing to procure subscriptions for any shares in or debentures
of the Company.
(f) The Management and Underwriting Agreement may be terminated by the Underwriter at any
time on or before the closing of the Application List on the occurrence of certain events
including, inter alia, changes in political, financial or economic conditions in Singapore or
abroad which result, inter alia, in the Singapore stock market being materially and adversely
affected.
(g) The Placement Agreement is conditional upon the Management and Underwriting Agreement
not having been terminated or rescinded pursuant to the provisions of the Management and
Underwriting Agreement.
MISCELLANEOUS
28. The nature of the business of the Company is stated on pages 31 and 32 of this Prospectus. At the
date of this Prospectus, all the corporations listed below are, by virtue of Section 6 of the
Companies Act (Chapter 50), deemed to be related to the Company:
Holding company of the Company
Jamplan (BVI)
Ultimate holding company of the Company
KCHL
83
Subsidiaries of the Company
HKCF(BVI)
FKI
CPG
Principal subsidiaries of KCHL
Hong Kong Fibre Glass Company Limited
Jamplan (BVI) Limited
Jamplan Marketing Limited
King Board (Panyu) Chemical Co., Ltd
Kingboard Investments Limited
Kingboard Laminates Limited
Kingboard Laminates Shenzhen Co., Ltd
Kingboard (Taicang) Chemical Co. Ltd
Kunshan Yattao Chemical Co., Ltd
Shanghai Jamplan Chemical Industry & Insulated Material Development Co., Ltd
Yat Tao Chemical Holdings (H.K.) Limited
29. The time of opening of the Application List is set out on page 11 of this Prospectus.
30. The amount payable on application is S$0.53 for each Offer Share and each Placement Share.
There has been no previous issue of Shares by the Company or offer for sale of its Shares to the
public within the two years preceding the date of this Prospectus.
31. Application moneys received by the Company in respect of successful applications (including
successful balloted applications which are subsequently rejected) will be placed in separate
non-interest bearing accounts with DBS Bank (the Receiving Bank). In the ordinary course of
business, the Receiving Bank will deploy these moneys in the interbank money market. Pursuant
to an agreement contained in a letter dated 6 December 1999, the Company and the Receiving
Bank have agreed that the Company will receive for its own account an aggregate of a 50% share
of any net revenue in excess of S$50,000 earned by the Receiving Bank from the deployment of
such monies in the interbank money market. Any refund of all or part of the application monies to
unsuccessful or partially successful applicants will be made without any interest or any share of
such revenue or any other benefits.
32. No property has been purchased or acquired or proposed to be purchased or acquired by the
Company or its subsidiaries which is to be paid for wholly or partly out of the proceeds of the
Invitation or the purchase or acquisition of which has not been completed at the date of the issue
of this Prospectus other than property the contract for the purchase or acquisition whereof was
entered into in the ordinary course of business of the Company or its subsidiaries, the contract not
being made in contemplation of the Invitation nor the Invitation in consequence of the contract.
33. The estimated amount of the expenses of this issue and of the application for listing, including
underwriting and placement commission, brokerage, management fee and all other incidental
expenses in relation to this Invitation is approximately S$4.0 million will be borne by the Company
and the Vendors in the proportion of the number of Invitation Shares to be offered by them in the
Invitation. The listing fee and other fees payable to the SESTL for the listing are payable by the
Company.
84
34. No amount of cash or securities or benefit has been paid or given to any promoter within the two
years preceding the date of this Prospectus or is proposed or intended to be paid or given to any
promoter at any time.
35. Save as disclosed in this Prospectus, the Directors are not aware of any relevant material
information including trading factors or risks not mentioned elsewhere in this Prospectus which is
unlikely to be known or anticipated by the general public and which could materially affect the
profits of the Company and its subsidiaries.
36. Save as disclosed in this Prospectus, the financial condition and operations of the KBCF Group are
not likely to be affected by any of the following:
(a) known trends or known demands, commitments, events or uncertainties that will result in or
are reasonably likely to result in the KBCF Groups liquidity increasing or decreasing in any
material way;
(b) material commitments for capital expenditures;
(c) unusual or infrequent events or transactions or any significant economic changes that
materially affected the amount of reported income from operations; and
(d) known trends or uncertainties that have had or that the KBCF Group reasonably expects to
have a material favourable or unfavourable impact on revenues or operating income.
CONSENTS
36. The Auditors and Reporting Accountants have given and have not withdrawn their written consent
to the issue of this Prospectus with the inclusion herein of the Accountants Report and their letters
in relation to the limited review of the unaudited proforma consolidated profit and loss account for
the six months ended 30 September 1999 and proforma consolidated balance sheet as at 30
September 1999 and relating to the profit forecast for the year ending 31 March 2000, in the form
and context in which they appear in this Prospectus and references to their name in the form and
context in which it appears in this Prospectus and to act in such capacity in relation to this
Prospectus.
37. The Manager, Underwriter and Placement Agent, the Co-Underwriters, the Co-Placement Agents,
the Solicitors to the Invitation, the Solicitors to the Manager, Underwriter and Placement Agent, the
legal advisers to the Company, the Principal Bankers and the Share Registrars have given and
have not withdrawn their consent to the issue of this Prospectus with the inclusion herein of their
names in the formand context in which they appear in this Prospectus and to act in those capacities
in relation to this Prospectus.
DOCUMENTS AVAILABLE FOR INSPECTION
38. Copies of the following documents may be inspected at the registered office of the Company and
at the offices of Shook Lin & Bok, 1 Robinson Road #18-00, AIA Tower, Singapore 048542 during
normal business hours for a period of six months from the date of this Prospectus:
(a) the Memorandum of Association and Bye-laws of the Company;
(b) the Accountants Report (including the Statement of Adjustments),
(c) the material contracts referred to on page 82 of this Prospectus;
(d) the letters of consent referred to above;
(e) the audited accounts of the companies within the KBCF Group for the last two financial years
ended 31 March 1998 and 31 March 1999; and
(f) the Companies Act 1981 of Bermuda.
85
STATEMENT BY DIRECTORS OF THE COMPANY
39. This Prospectus has been seen and approved by the Directors and they collectively and individually
accept full responsibility for the accuracy of the information given in this Prospectus and confirm,
having made all reasonable enquiries, that to the best of their knowledge and belief, there are no
other facts the omission of which would make any statements herein misleading, and that this
Prospectus constitutes full and true disclosure of all material facts about the Invitation and the
Company and its subsidiaries.
STATEMENT BY THE VENDORS
40. This Prospectus has been seen and approved by the Vendors and each of the Vendors accepts full
responsibility for the accuracy of the information given herein, except that such information shall be
limited to the information contained under the headings Definitions, Corporate Information,
Purchase by Company of its own shares, Details of the Invitation, Prospectus Summary,
Risk Factors, Issue Statistics, Summary of Proforma Group Financial Information, Share
Capital, Shareholders, Moratorium, Restructuring Exercise, Group Structure, General
and Statutory Information and information with respect to the name of and the number of the
Vendor Shares held and to be sold by the Vendors, and confirm, having made all reasonable
enquiries, that to the best knowledge and belief of the Vendors, there is no other material facts the
omission of which would make any statement herein (for which they are responsible) misleading.
STATEMENT BY DBS BANK
41. DBS Bank acknowledges that, to the best of its knowledge and belief, based on information
furnished to it by the KBCF Group, this Prospectus constitutes a full and true disclosure of all the
material facts about the Invitation and the Company and its subsidiaries and it is not aware of any
other facts the omission of which would make any statements herein misleading. It is also satisfied
that the profit forecast for the financial year ending 31 March 2000 has been stated by the Directors
after due and careful enquiry.
86
TERMS AND CONDITIONS AND PROCEDURES FOR APPLICATIONS
Applications are invited for the subscription and/or purchase of the Invitation Shares at the Issue Price
subject to the following terms and conditions:
1. Applications for the Offer Shares may be made by way of the printed Offer Shares Application Forms
or by way of Electronic Applications through ATMs of the Participating Banks. Applications for
Placement Shares may only be made by way of printed Placement Shares Application Forms.
Applicants may not use their CPF Funds to apply for the Invitation Shares.
2. Only one application may be made for the benefit of one person for either the Offer Shares
or the Placement Shares in his own name. A person submitting an application for the Offer
Shares by way of a printed Application FormMAY NOT submit a separate application for Offer
Shares by way of Electronic Application and vice versa. Such separate applications shall be
deemed to be multiple applications and shall be rejected.
A person, other than an approved nominee company, who is submitting an application in his
own name should not submit any other applications for Offer Shares, whether on a printed
Application Form or through an Electronic Application, for any other person. Such separate
applications shall be deemed to be a multiple applications and shall be rejected.
An applicant who has been procured by the Placement Agent to subscribe for and/or to
purchase Placement Shares shall not make any separate application for the Offer Shares
either through an Electronic Application or by way of a printed Application Form. Such
separate applications shall be deemed to be multiple applications and shall be rejected.
Conversely, an applicant who has made an application for the Offer Shares either through an
Electronic Application or by way of a printed Application Form shall not make any separate
application for the Placement Shares. Such separate applications shall be deemed to be
multiple applications and shall be rejected.
Joint or multiple applications will be rejected. Persons submitting or procuring submissions
of multiple share applications (whether for Offer Shares, Placement Shares or both Offer and
Placement Shares) may be deemed to have committed an offence under the Penal Code
(Chapter 224) of Singapore and the Securities Industry Act (Chapter 289) of Singapore. Such
applications may be referred to the relevant authorities for investigation. Multiple
applications or those appearing to be or suspected of being multiple applications will be
liable to be rejected at the discretion of the Company.
3. 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 holders of
CDP and applicants whose addresses (furnished in their printed Application Forms or, in the case of
Electronic Applications, contained in the records of the relevant Participating Banks, as the case may
be) bear post office box numbers.
4. The existence of a trust will not be recognised. Any application by a trustee or trustees must be made
in his/her/their own name(s) and without qualification or, where the application is made by way of a
printed Application Form, in the name(s) of a nominee or nominees after complying with paragraph
5 below.
5. Only approved nominee companies may make nominee applications. Approved nominee
companies are defined as banks, merchant banks, finance companies, insurance companies,
licensed securities dealers in Singapore and nominee companies controlled by them. Applications
made by persons acting as nominees other than approved nominee companies will be rejected.
87
6. For non-nominee applications, each applicant must maintain a Securities Account with CDP
in his own name at the time of the application. An applicant without an existing Securities
Account with CDP in his own name at the time of application will have his application rejected (in
the case of an application by way of an Application Form) or will not be able to complete his
Electronic Application (in the case of an Electronic Application). An applicant with an existing
Securities Account who fails to provide his Securities Account number or who provides an incorrect
Securities Account number in section B of the Application Form or in his Electronic Application, as
the case may be, is liable to have his application rejected. Subject to paragraph 7 below, an
application may be rejected if the applicants particulars such as his name, NRIC/passport number,
nationality and permanent residence status provided in his Application Form or in the records of the
relevant Participating Bank at the time of his Electronic Application, as the case may be, differ from
those particulars in his Securities Account as maintained with CDP. If the applicant possesses more
than one individual direct Securities Account, his application will be rejected.
7. If the address of an applicant stated on the Application Form or, in the case of an Electronic
Application, contained in the records of the relevant Participating Bank, as the case may be,
is different from the address registered with CDP, the applicant must inform CDP of his
updated address promptly, failing which the notification letter on successful allotment
and/or allocation will be sent to his address last registered with CDP.
8. The Company reserves the right to reject or accept, in whole or in part, or to scale down or ballot,
any application without assigning any reason therefor, and no enquiry and/or correspondence on
the decision of the Company will be entertained. This right applies to applications 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 be given to the desirability of allocating the
Invitation Shares to a reasonable number of successful applicants with a view to establishing an
adequate market for the Shares.
9. The Company reserves the right to reject any application which does not conform strictly to the
instructions set out in the Application Form and this Prospectus or which does not comply with the
instructions for Electronic Applications or with the terms and conditions of this Prospectus or, in the
case of applications by way of printed Application Forms, which is illegible, incomplete, incorrectly
completed or which is accompanied by an improperly drawn remittance. The Company further
reserves the right to treat as valid any applications not completed or submitted or effected in all
respects in accordance instructions set out in this printed Application Forms, the instructions for
Electronic Applications or the with the terms and conditions of this Prospectus and also to present
for payment or other processes all remittances at any time after receipt and to have full access to
all information relating to, or deriving from, such remittances or the processing thereof.
10. Share certificates will be registered in the name of CDP and will be forwarded only to CDP. It is
expected that CDP will send to each successful applicant at his own risk, within 15 Market Days
after the close of the Application List, a statement stating that the applicants Securities Account has
been credited with the number of Invitation Shares allotted and/or allocated to him. This will be the
only acknowledgement of application moneys received and is not an acknowledgement by the
Company or the Vendors.
11. Each applicant irrevocably authorises CDP to complete and sign on his behalf as transferee or
renouncee any instrument of transfer and/or other documents required for the issue or transfer of
the Invitation Shares allotted and/or allocated to the applicant. This authorisation applies for
applications made by way of printed Application Forms and by way of Electronic Applications.
88
12. By completing and delivering an Application Form and, in the case of an Electronic Application, by
pressing the Enter or OK or Confirm or Yes key on the ATM in accordance with the
provisions herein, each applicant:
(a) irrevocably offers to subscribe for and/or purchase the number of Invitation Shares specified
in his application (or such smaller number for which the application is accepted) at the Issue
Price and agrees that he will accept such Shares as may be allotted and/or allocated to him,
in each case on the terms of, and subject to the conditions set out in, this Prospectus and the
Memorandum of Association and Bye-laws of the Company; and
(b) warrants the truth and accuracy of the information in his application.
13. Applications must be made in lots of 1,000 Invitation Shares and integral multiples thereof.
Applications for any other number of Invitation Shares will be rejected.
14. No Shares will be allotted and/or allocated on the basis of this Prospectus later than six months
after the date of this Prospectus.
15. In the event of an under-subscription for the Offer Shares as at the close of the Application List, that
number of Offer Shares under-subscribed shall be made available to satisfy applications for the
Placement Shares to the extent there is an over-subscription for the Placement Shares as at the
close of the Application List.
16. In the event of an under-subscription for the Placement Shares as at the close of the Application
List, that number of Placement Shares under-subscribed shall be made available to satisfy
applications for the Offer Shares to the extent there is an over-subscription for the Offer Shares as
at the close of the Application List.
17. In the event of an over-subscription for the Offer Shares as at the close of the Application List and
the number of Placement Shares are fully subscribed or over-subscribed as at the close of the
Application List, the successful applications for Offer Shares will be determined by ballot, or
otherwise as determined by the Directors and approved by SESTL.
18. Acceptance of applications will be conditional upon the Company being satisfied that:
(a) permission has been granted by the SESTL to deal in, and quotation of, all the existing Shares
and the Invitation Shares on a when issued basis on the Official List of the SESTL; and
(b) the Management and Underwriting Agreement and Placement Agreement referred to on
page 83 of this Prospectus have become unconditional and have not been terminated.
19. Each applicant irrevocably authorises CDP to disclose the outcome of his application, including the
number of Invitation Shares allotted and/or allocated to the applicant pursuant to his application, to
authorised operators.
20. Any reference to the applicant in this section shall include a person applying for the Offer Shares
by way of Electronic Application or by way of printed Application Forms and applying for the
Placement Shares through the Placement Agent.
21. Additional terms and conditions for applications by way of printed Application Forms are set out on
pages 90 to 92 of this Prospectus.
22. Additional terms and conditions for Electronic Applications are set out on pages 92 to 97 of this
Prospectus.
23. No application will be held in reserve.
89
ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING PRINTED APPLICATION
FORMS
Applications by way of printed Application Forms shall be made on, and subject to, the terms and
conditions of this Prospectus, including but not limited to the terms and conditions appearing below and
those set out under the section on Terms and Conditions and Procedures for Application found on
pages 87 to 89 of this Prospectus, as well as the Memorandum of Association and Bye-laws of the
Company.
1. Applications for the Offer Shares must be made using the WHITE Application Forms and official
envelopes A and B and applications for the Placement Shares must be made using BLUE
Application Forms accompanying and forming part of this Prospectus. Care must be taken to follow
the instructions set out in the respective Application Forms and this Prospectus for the completion
of the respective Application Forms. Applications which do not conform strictly to these instructions
or to the terms and conditions of this Prospectus or which are illegible, incomplete, incorrectly
completed or which are accompanied by improperly drawn remittances may be rejected.
2. The Application Forms must be completed in English. Please type or write clearly in ink using
BLOCK LETTERS. All spaces in the Application Form except those under the heading FOR
OFFICIAL USE ONLY must be completed and the words NOT APPLICABLE or N.A. should be
written in any space that is not applicable.
3. Individuals, corporations, approved nominee companies and trustees must give their names in full.
Applications must be made, in the case of individuals, in their full names as appearing in their identity
cards (if applicants have such identification documents) or in their passports and, in the case of
corporations, in their full names as registered with a competent authority. Applicants, other than
individuals, completing the Application Form under the hand of an official must state the name and
capacity in which that official signs. Acorporation completing the Application Form is required to affix
its Common Seal (if any) in accordance with its Memorandum of Association and Bye-laws or the
equivalent constitutive documents of the corporation. If an application by a corporate applicant is
successful, a copy of its Memorandum of Association and Bye-laws or its equivalent constitutive
documents must be lodged with the Companys Share Registrar. The Company reserves the right to
require any applicant 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 Application
Form. Where paragraph 7(a) is deleted, the applicant must also complete Section C of the
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 case may
be) on page 1 of the Application Form are liable to have their applications rejected.
5. Applicants may apply for the Invitation Shares using cash only. In the case for an application for Offer
Shares, each application must be accompanied by a remittance in Singapore currency for the full
amount payable, in respect of the number of Invitation Shares applied for, in the form of a BANKERS
DRAFT, CASHIERS ORDER or POSB CASHIERS ORDER drawn on a bank in Singapore, made
out in favour of KBCF SHARE ISSUE ACCOUNT crossed A/C PAYEE ONLY, or in the form of
a DBSAUTOBANK CASHIERS ORDER EQUIVALENT, with the name and address of the applicant
written clearly on the reverse side. Applications not accompanied by any payment or accompanied
by any other form of payment will not be accepted. Remittances bearing Not Transferable or
Non Transferable crossings will be rejected. No acknowledgement of receipt will be issued by the
Company, the Vendors or the Manager for applications and application moneys received.
90
6. Individual applicants and corporate applicants, whether incorporated or unincorporated and
wherever incorporated or constituted, will be required to declare whether they are citizens or
permanent residents of Singapore or corporations in which citizens or permanent residents of
Singapore or any body corporate constituted by any statute of Singapore have an interest in the
aggregate of more than 50% of the issued share capital of or interests in such corporations.
Approved nominee companies are required to declare whether the beneficial owner of the Invitation
Shares is a citizen or permanent resident of Singapore or a corporation, whether incorporated or
unincorporated and wherever incorporated or constituted, in which citizens or permanent residents
of Singapore or any body corporate constituted by any statute of Singapore have an interest in the
aggregate of more than 50% of the issued share capital of or interests in such corporation.
7. It is expected that unsuccessful applications and those not successfully balloted or accepted will be
returned to the applicants by ordinary post at the risk of the applicants within three Market Days
after the close of the Application List without interest or any share of revenue or other benefit arising
therefrom. Where an application is rejected or accepted in part only, the full amount or the balance
of the application moneys, as the case may be, will be refunded to the applicant by ordinary post
at his own risk (without interest or any share of revenue or other benefit arising therefrom) within
14 days after the close of the Application List provided that the remittance accompanying such
application which has been presented for payment or other processes has been borrowed and the
application moneys received in the designated share issue account.
Unsuccessful applicants using DBS Autobank Cashiers Order Equivalent will have the full amount
of their application moneys (without interest or any share of revenue or other benefit arising
therefrom) automatically credited to their accounts maintained with DBS Bank.
8. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear the
meanings assigned to them in this Prospectus.
9. In consideration of the Company having distributed the Application Form to the applicant and
agreeing to close the Application List at 12.00 noon on 14 December 1999 or such later time or date
as the Directors may in their absolute discretion decide and by completing and delivering the
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 may be
held pending clearance of his payment and he will not be entitled to any interest or any share
of revenue or other benefit arising therefrom;
(c) in respect of the Invitation Shares for which his application has been received and not rejected,
acceptance of his application shall be constituted by written notification by or on behalf of the
Company 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 any time
after acceptance of his application; and
(e) all applications, acceptances and contracts resulting therefrom under the Invitation shall be
governed by and construed in accordance with the laws of Singapore and that he irrevocably
submits to the non-exclusive jurisdiction of the Singapore courts.
10. Applications for Offer Shares
(a) Applications for Offer Shares must be made using the WHITE Offer Shares Application Forms
and WHITE official envelopes A and B.
(b) The applicant must:
(i) enclose the Offer Shares Application Form, duly completed, together with the correct
remittance in the WHITE envelope A which is provided;
91
(ii) in the appropriate spaces on the WHITE envelope A:
(A) write his name and address;
(B) state the number of Offer Shares applied for;
(C) tick the box if cash payment is by DBS Autobank Cashiers Order Equivalent; and
(D) affix adequate Singapore postage;
(iii) SEAL WHITE ENVELOPE A;
(iv) write, in the special box provided on the larger WHITE envelope B addressed to
DBS BANK, 6 SHENTON WAY #28-00, DBS BUILDING TOWER ONE, SINGAPORE
068809, the number of Offer Shares for which the application is made; and
(v) insert WHITE envelope A into WHITE envelope B. The applicant must seal WHITE
envelope B, affix adequate Singapore postage on envelope B (if despatching by
ordinary post) and thereafter DESPATCH BY ORDINARY POST OR DELIVER BY
HAND at his own risk to DBS BANK, 6 SHENTON WAY #28,00, DBS BUILDING
TOWER ONE, SINGAPORE 068809, so as to arrive by 12.00 noon on 14 December
1999 or such later time or date as the Directors may, in their absolute discretion, decide.
Local Urgent Mail or Registered Post must NOT be used.
Applications that are illegible, incompleted or incorrectly completed or accompanied by an
improperly drawn remittance are liable to be rejected.
(c) ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgement of
receipt will be issued for any application or remittance received.
11. Applications for Placement Shares
(a) Applications for Placement Shares must be made using the BLUE Application Forms.
(b) The completed Placement Shares Application Form and the applicants remittance in
accordance with the terms of this Prospectus must be enclosed and sealed in any envelope
to be provided by the applicant. The sealed envelope must be despatched by ORDINARY
POST OR DELIVERED BY HAND at the applicants own risk to DBS BANK, 6 SHENTON
WAY #28-00, DBS BUILDING TOWER ONE, SINGAPORE 068809, so as to arrive by 12.00
noon on 14 December 1999 or such later time or date as the Directors may, in their absolute
discretion, decide. Local Urgent Mail or Registered Post must NOT be used.
(c) ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgement of
receipt will be issued for any application or remittance received.
ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS
The procedures for Electronic Applications at ATMs of the Participating Banks are set out on the ATM
screens of the relevant Participating Banks (the Steps). For illustration purposes, the procedure for
Electronic Applications at ATMs of DBS Bank is set out in the Steps for Electronic Applications
appearing on page 97 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 an Electronic
Application. Any reference to the Applicant in these terms and conditions for Electronic Applications
and the Steps shall mean the applicant who applies for the Offer Shares through an ATM of a
Participating Bank.
The Steps set out the actions that the Applicant must take at ATMs of DBS Bank to complete an
Electronic Application. The actions that the Applicant must take at the ATMs of the other Participating
Banks are set out on the ATM screens of the relevant Participating Banks. Upon the completion of his
Electronic Application transaction, the Applicant will receive an ATM transaction slip (Transaction
Record), confirming the details of his Electronic Application. The Transaction Record is for retention by
the Applicant and should not be submitted with any printed Application Form.
92
An Applicant must have an existing bank account with, and be an ATM cardholder of, one of the
Participating Banks before he can make an Electronic Application at an ATMs of that Participating
Bank. An ATMcard issued by one Participating Bank cannot be used to apply for the Offer Shares
at an ATM belonging to any of the other Participating Banks. An Applicant who fails to use his
own ATM card or who does not key in his own Securities Account number will have his
application rejected.
An Applicant, including one who has a joint bank account with a Participating Bank, must ensure
that he enters his own Securities Account number when using the ATM Card issued to him in his
own name. Using his own Securities Account number with an ATM Card which is not issued to
him in his own name will render his application liable to be rejected.
An Electronic Application shall be made on, and subject to, the terms and conditions of this Prospectus
including but not limited to the terms and conditions appearing below as well as those set out under the
section on Terms and Conditions and Procedures for Application found on pages 87 to 89 of this
Prospectus, as well as the Memorandum of Association and Bye-laws of the Company.
1. In connection with his Electronic Application for the Offer Shares, the Applicant is required to confirm
statements to the following effect in the course of activating the ATM for his Electronic Application:
(a) that he has received a copy of this Prospectus and has read, understood and agreed to
all the terms and conditions of application for the Offer Shares and this Prospectus prior
to effecting the Electronic Application and agrees to be bound by the same;
(b) that he consents to the disclosure of his name, NRIC/passport number, address,
nationality and permanent residence status, CDP Securities Account number, CPF
Investment Account number (if applicable) and share application amount (the Relevant
Particulars) from his account with that Participating Bank to the Share Registrars,
SCCS, CDP, CPF, the Company and the Manager (the Relevant Parties); and
(c) that this application is his only application for the Offer Shares and it is made in his name
and at his own risk.
His application will not be successfully completed and cannot be recorded as a completed
transaction in the ATM unless he presses the Enter or OK or Confirm or Yes key. By doing
so, the Applicant shall be treated as signifying his confirmation of each of the three statements. In
respect of statement 1(b) above, his confirmation, by pressing the Enter or OK or Confirm or
Yes key, shall signify and shall be treated as his written permission, given in accordance with the
relevant laws of Singapore, including Section 47(4) of the Banking Act (Chapter 19) of Singapore, to
the disclosure by that Participating Bank of the Relevant Particulars of his account(s) with that
Participating Bank to the Relevant Parties.
2. An applicant may make an Electronic Application at an ATM of any Participating Bank for the Offer
Shares using cash only by authorising such Participating Bank to deduct the full amount payable
from his account with such Participating Bank.
3. The Applicant irrevocably agrees and undertakes to subscribe for and/or purchase and to accept the
number of Offer Shares applied for as stated on the Transaction Record or any lesser number of
Offer Shares that may be allotted and/or allocated to him in respect of his Electronic Application. In
the event that the Company decides to allot any lesser number of such Offer Shares or not to allot
and/or allocate any Offer Shares to the Applicant, the Applicant agrees to accept the decision as
final. If the Applicants Electronic Application is successful, his confirmation (by his action of pressing
the Enter or OK or Confirm or Yes key on the ATM) of the number of Offer Shares applied for
shall signify and shall be treated as his acceptance of the number of Offer Shares that may be
allotted to him and his agreement to be bound by the Memorandum of Association and Bye-laws of
the Company.
93
4. The Applicant irrevocably requests and authorises the Company to:
(a) register the Offer Shares allotted and/or allocated to him in the name of CDP for deposit into his
Securities Account;
(b) send the relevant Share certificate(s) to CDP;
(c) return or refund (without interest or any share of revenue or other benefit arising therefrom) the
application moneys, should his Electronic Application not be accepted, by automatically
crediting the Applicants bank account with his Participating Bank with 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, should his Electronic Application be accepted in part only,
by automatically crediting the Applicants bank account with his Participating Bank with the
relevant amount within 14 days after the close of the Application List.
5. BY MAKING AN ELECTRONIC APPLICATION, THE APPLICANT CONFIRMS THAT HE IS NOT
APPLYING FOR THE OFFER SHARES AS NOMINEE OF ANY OTHER PERSONAND THAT ANY
ELECTRONIC APPLICATION THAT HE MAKES IS THE ONLY APPLICATION MADE BY HIMAS
BENEFICIAL OWNER.
THE APPLICANT SHALL MAKE ONLY ONE ELECTRONIC APPLICATION AND SHALL NOT
MAKE ANY OTHER APPLICATION FOR THE INVITATION SHARES WHETHER AT THE ATMs
OF ANY PARTICIPATING BANK OR ON THE PRESCRIBED PRINTED APPLICATION FORMS.
6. The Applicant irrevocably agrees and acknowledges that his Electronic Application is subject to risks
of electrical, electronic, technical and computer-related faults and breakdowns, fires, acts of God and
other events beyond the control of the Participating Banks, the Company, the Vendors and the
Manager and if, in any such event, the Participating Banks and/or the Company and/or the Vendors
and/or the Manager do not record or receive the Applicants Electronic Application, or data relating
to the Applicants Electronic Application or the tape containing such data is lost, corrupted, destroyed
or not otherwise accessible, whether wholly or partially for whatever reason, the Applicant shall be
deemed not to have made an Electronic Application and the Applicant shall have no claim
whatsoever against the Participating Banks, the Company, the Vendors or the Manager for the Offer
Shares applied for or for any compensation, loss or damage.
7. Electronic Applications shall close at 12.00 noon on 14 December 1999 or such other time as the
Directors may in their absolute discretion decide.
8. All particulars of the Applicant in the records of his Participating Bank at the time he makes his
Electronic Application shall be deemed to be true and correct and the relevant Participating Bank and
the Relevant Parties shall be entitled to rely on the accuracy thereof. If there has been any change
in the particulars of the Applicant after the time of the making of his Electronic Application, the
Applicant shall promptly notify his Participating Bank.
9. The Applicant must have sufficient funds in his bank account(s) with his Participating Bank at the
time he makes his Electronic Application, failing which his Electronic Application will not be
completed or accepted. Any Electronic Application made at ATMs of DBS Bank which does not
strictly conform to the instructions set out in the Steps will be rejected. Any Electronic Application
made at the ATMs of the other Participating Banks which does not strictly conform to the instructions
set out on the ATM screens of such Participating Banks will be rejected.
94
10. No reserve application will be kept. Where an Electronic Application is not accepted, it is
expected that the full amount of the application moneys will be refunded (without interest or any
share of revenue or other benefit arising therefrom) to the Applicant by being automatically credited
to the Applicants account with the relevant Participating Bank within three Market Days of the close
of the Application List. Trading on a when issued basis, if applicable, is expected to
commence after such refund has been made. Where an Electronic Application 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 by being automatically credited to the
Applicants account with his Participating Bank within 14 days after the close of the Application List.
If the Applicants Electronic Application is made through the ATMs of KTB or UOB Group and is
unsuccessful, it is expected that a computer-generated notice will be sent to the Applicant by the
relevant Participating Bank (at the address of the Applicant as stated in the records of the relevant
Participating Bank at the date of his Electronic Application) by ordinary post at the Applicants own
risk within three Market Days after the close of the Application List. If the applicants Electronic
Application is made through the ATMs of OCBC Group, OUB Group or DBS Bank (including
its POSBank Services division) and is unsuccessful, no notification will be sent by the
relevant Participating Bank.
Applicants who make Electronic Applications through the ATMs of the following banks may check
the provisional results of their Electronic Applications as follows:
Bank Telephone Available at ATM Operating Hours Service expected from
DBS
Bank
1800-222 2222
SPH Hotline
Internet Banking
or Internet Kiosk
24 hours a day 7.00 p.m. on the
balloting day
KTB 222 8228 ATM ATM 24 hours a day
Phone Banking
Mon-Fri 08002200
Sat 08001500
ATM Evening of the
balloting day
Phone Banking
8.00 a.m. on the day
after the balloting day
OCBC 1800-363 3333 ATM ATM 24 hours a day
Phone Banking
Mon-Fri 08002200
Sat 08001500
Evening of the balloting
day
OUB 1800-224 2000
www.oub2000.com.sg
Not Available Phone Banking/Internet
Banking 24 hours a
day
OUB Mobile Buzz*
24 hours a day
Evening of the balloting
day
UOB 1800-533 5533
1800-222 2121
ATM (Other
Transactions
IPO Enquiry)
ATM/Phone Banking
24 hours a day
6.00 p.m. on the
balloting day
*Application who make Electronic Applications through the ATMs of OUB and who have activated their
OUB Mobile Buzz services will be notified of the results of their Electronic Applications via their mobile
phones.
95
11. In consideration of the Company arranging for the Electronic Application facility through the ATMs
of the Participating Banks and agreeing to close the Application List at 12.00 noon on 14 December
1999 or such later time or date as the Directors may 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 of his Electronic Application by the Company and
the Vendors and the contract resulting therefrom under the Invitation shall be governed by and
construed in accordance with the laws of Singapore and he irrevocably submits to the
non-exclusive jurisdiction of the Singapore courts;
(c) neither the Company, the Vendors, 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 data relating to his Electronic Application to the Company or CDP or the Vendors due to a
breakdown or failure of transmission, delivery or communication facilities or any risks referred
to in paragraph 6 on page 94 of this Prospectus or to any cause beyond their respective
controls;
(d) he will not be entitled to exercise any remedy of rescission for misrepresentation at any time
after acceptance of his application; and
(e) in respect of the Offer Shares for which his Electronic Application has been successfully
completed and not rejected, acceptance of the Applicants Electronic Application shall be
constituted by written notification by or on behalf of the Company and the Vendors and not
otherwise, notwithstanding any payment received by or on behalf of the Company and the
Vendors.
12. The Applicant should ensure that his personal particulars as recorded by both CDP and the relevant
Participating Banks are correct and identical. Otherwise his Electronic Application may be liable to
be rejected. The Applicant should promptly inform CDP of any change in his address, failing which
the notification letter on successful allotment and/or allocation will be sent to his address last
registered with CDP.
13. The existence of a trust will not be recognised. Any electronic application by a trustee must be
made in his own name and without qualification. The Company will reject any application by any
person acting as nominee.
96
Steps for Electronic Applications through ATMs of DBS Bank (other than those of its POSBank
Services division)
Instructions for Electronic Applications will appear on the ATM screen of the Participating Banks. For
illustrative purposes, the steps for making an Electronic Application through a DBS Bank or POSBank
ATM are shown below. Certain words appearing on the screen are in abbreviated form (A/c, amt,
appln, &, I/C and No. refer to Account, amount, application, and, NRIC and Number,
respectively). Instructions for Electronic Applications on the ATM screens of Participating Banks (other
than DBS Bank) may differ slightly from those represented below.
Steps for Offer Shares Application
Step 1 : Insert your personal DBS or POSBank ATM Card
2 : Enter your Personal Identification Number
3 : Select CASH CARD & MORE SERVICES
4 : Select ESA IPO SHARE/BOND/RIGHTS
5 : Select ELECTRONIC SECURITY APPLN (IPO-SHARE/BOND) to KBCF
6 : Press the ENTER key again to confirm:
You have read, understood & agreed to all terms of appln & Prospectus
You consent to disclose your name, I/C/passport No., address, nationality, CDP
Securities A/c No., CPF Investment A/c No. & share appln amount from your
Bank Account(s) to share registrars, SCCS, CDP, CPF, issuer/vendor(s)
For FIXED price share appln, this is your only appln and it is made in your own
name and at your own risk
7 : Select the DBS Bank account (Autosave/Current/Savings/Savings Plus) or the POSBank
account (Current/Savings) from which to debit your application moneys
8 : Enter the number of securities you wish to apply for using cash
9 : Select your nationality
10 : Enter your own 12-digit CDP Securities Account number. (Note: This step will be omitted
automatically if your CDP Securities Account number has already been stored in DBS
Banks records)
11 : Check the details of your security application, your I/C/passport number, CDP A/c No. and
no. of securities on the screen and press ENTER key to confirm application
12 : Remove the Transaction Record for your reference and retention only
97
Appendix I
BACKGROUND INFORMATION ON THE KINGBOARD GROUP
PRODUCTS AND PRINCIPAL ACTIVITIES
The Kingboard Group is principally engaged in the manufacture and trading of industrial laminates, glass
cloth, formalin and, before the restructuring of the Kingboard Group involving the formation of the KBCF
Group (the Restructuring), copper foil. The laminates manufactured by the Kingboard Group are sold
mainly to manufacturers of PCBs and electrical and electronic products. The glass cloth produced is
mainly for the Kingboard Groups own use in its manufacture of laminates, as was the copper foil it
produced before the Restructuring. The Kingboard Group also trades in insulating and electroplating
materials.
The holding company of the Kingboard Group, Kingboard Chemical Holdings Limited (KCHL), was
incorporated in the Cayman Islands on 12 January 1993, and its shares have been listed on The Stock
Exchange of Hong Kong Limited since October 1993.
HISTORY AND DEVELOPMENT
The Kingboard Group was founded by Mr Cheung Kwok Wing and Dr Chan Wing Kwan in 1988 with the
establishment of a laminates manufacturing facility in Shenzhen, PRC. Mr Cheung and Dr Chan had
acquired extensive experience in the electronic and electrical components industries and recognized at
that time the potential which electrical components such as copper clad laminates had in a rapidly
expanding market. Whilst major overseas suppliers provided products of high and consistent quality,
delivery time and customer service, as well as quantities of available products were often inflexible owing
to the distances involved. Building on the extensive network of customers and the foundation established
through their trading experience, Mr Cheung and Dr Chan established a local manufacturing facility
which, under appropriate management control and production techniques, produced copper clad
laminates of high and consistent quality.
Since then, the Kingboard Group has rapidly expanded and its production capacity has increased to
meet the growing demand for its products. The Kingboard Group maintains its head office in Hong Kong
while all its production facilities are located in the PRC. Between 1991 to 1999, the Kingboard Group set
up further laminates production facilities in Shenzhen, Kunshan and Shanghai. Its glass cloth facilities
and formalin plants are located in Shenzhen, Panyu and Taicang respectively.
As part of its vertical integration plans, the Kingboard Group set up its copper foil facility in Fogang,
Guangdong, PRC. The Kingboard Group decided to adopt the vertical integration strategy in order to
keep its material costs at a competitive level and to ensure the availability and consistency in quality of
the copper foil used in its production of laminates. HKCF(BVI), FKI and CPG were the subsidiaries in the
Kingboard Group before the Restructuring which were involved in the manufacture and/or trading of
copper foil.
BUSINESS
The Kingboard Groups base of not less than 400 customers comprises foreign and international
companies as well as PRC state-owned enterprises. Sales of laminates, majority of which are made to
customers in the PRC, including Hong Kong, account for more than 90% of the Kingboard Groups sales
and operating profits. The laminates production plants of the Kingboard Group employ modern
production methods and equipment, and operate at very high utilisation levels. The Directors of KBCF
believe that the Kingboard Group is the largest manufacturer of laminates in the PRC, including Hong
Kong, supplying mainly to large scale PCB and electronics manufacturers located there.
98
The turnover and profit attributable to shareholders for the Kingboard Group for the financial year
ended 31 March 1999 were HK$975 million and HK$128 million respectively. These represent an
increase of 8.5% in turnover and 15.1% in profit attributable to shareholders over the previous
financial year. A comparison table on the Kingbaord Groups performance in FY1998 and FY1999 is
set out in Figure 1, and the charts showing its turnover and profits since establishment are set out in
Figure 2
(1)
.
Note:
(1) Source: Annual Report 1999 of KCHL.
PROSPECTS
According to the Annual Report 1999 of KCHL, with the relocation by many PCB manufacturers
(especially multi-layered PCB manufacturers) of their manufacturing facilities to PRC from countries like
Japan and Taiwan in the past decade and as a result of a growing demand for laminates in the worldwide
market, the monthly production of laminates increased from 12 million sq m in the early 1990s to
25 million sq m at present, with an annual increment of 12%. The Annual Report further stated that the
trend is expected to continue and the Kingboard Groups profit margin in the next few years is expected
to continue to increase.
99
DIRECTORS OF THE KINGBOARD GROUP
The current directors of KCHL are:
Executive directors
Cheung Kwok Wing
(2)
, Chairman
Chan Wing Kwan
(2)
, Managing Director
Lam Ka Po
Lam Gum Wun
Cheung Kwong Kwan
Cheung Kwok Wa
Cheung Kwok Ping
Cheung Kwok Keung
Chang Wing Yiu
(2)
Non-executive director
Fan Chor Wah, Vincent
Independent non-executive directors
Lee Peng Fei, Allen
Tsao Kwang Yung, Peter
Note:
(2) Messrs Cheung Kwok Wing, Chan Wing Kwan and Chang Wing Yiu are also directors of KBCF.
100
APPENDIX II
SELECTED BYE-LAWS OF THE COMPANY
The provisions in the Bye-laws relating to the Directors remuneration, voting rights on proposals and
contracts in which the Directors are interested, borrowing powers of the Directors, voting rights of the
Members, consents necessary for the variation of class rights and restrictions on transferability of shares
are as follows:
DIRECTORS REMUNERATION
Directors Fees and Expenses
Bye-law 95
The ordinary remuneration of the Directors shall from time to time be determined by the Company in
general meeting, shall not be increased except pursuant to an ordinary resolution passed at a general
meeting where notice of the proposed increase shall have been given in the notice convening the general
meeting, and shall (unless otherwise directed by the resolution by which it is voted) be divided amongst
the Board in such proportions and in such manner as the Board may agree or, failing agreement, equally,
except that any Director who shall hold office for part only of the period in respect of which such
remuneration is payable shall be entitled only to rank in such division for a proportion of remuneration
related to the period during which he has held office. Such remuneration shall be deemed to accrue from
day to day.
Bye-law 96
Each Director shall be entitled to be repaid or prepaid all travelling, hotel and incidental expenses
reasonably incurred or expected to be incurred by him in attending meetings of the Board or committees
of the Board or general meetings or separate meetings of any class of shares or of debentures of the
Company or otherwise in connection with the discharge of his duties as a Director.
Bye-law 97
(1) Any Director who, upon request by the Board, goes or resides abroad for any purpose of the
Company or who performs services which in the opinion of the Board go beyond the ordinary duties
of a Director may be paid such extra remuneration (whether by way of salary, commission,
participation in profits or otherwise) as the Board may determine and such extra remuneration shall
be in addition to or in substitution for any ordinary remuneration provided for by or pursuant to any
other Bye-law.
(2) The remuneration (including any remuneration under Bye-law 97(1) above) in the case of a Director
other than an executive Director shall be payable by a fixed sum and shall not at any time be by
commission on or percentage of the profits or turnover, and no director whether an executive
Director or otherwise shall be remunerated by a commission on or percentage of turnover.
Bye-law 98
The Board shall obtain the approval of the Company in general meeting before paying pensions or other
retirement, superannuation, death or disability benefits to (or to any person in respect of) any Director for
the time being holding any executive office or for the purpose of providing any such pensions or other
benefits, paying any sum in contribution to any scheme or fund or to pay premiums. The Board shall
obtain the approval of the Company in general meeting before making any payment to any Director or
past Director of the Company by way of compensation for loss of office, or as consideration for or in
connection with his retirement from office (not being payment to which the Director is contractually
entitled).
101
Bye-law 99
A Director may:
(a) hold any other office or place of profit with the Company (except that of Auditor) in conjunction with
his office of Director for such period and, subject to the relevant provisions of the Act and if
applicable any rules or regulations of the Designated Stock Exchange, upon such terms as the
Board may determine. Any remuneration (whether by way of salary, commission, participation in
profits or otherwise) paid to any Director in respect of any such other office or place of profit shall
be in addition to any remuneration provided for by or pursuant to any other Bye-law; and/or
(b) act by himself or his firm in a professional capacity for the Company (otherwise than as Auditor) and
he or his firm may be remunerated for professional services as if he were not a Director;
Executive Directors
Bye-law 90
Notwithstanding Bye-laws 95, 96, 97 and 98, an executive director appointed to an office under Bye-law
89 hereof shall receive such remuneration (whether by way of salary, commission, participation in profits
or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity
and/or other benefits on retirement) and allowances as the Board may from time to time determine, and
either in addition to or in lieu of his remuneration as a Director, but he shall not in any circumstances be
renumerated by a commission on or a percentage of turnover.
Alternate Directors
Bye-law 92
An alternate Director shall only be a Director for the purposes of the Act and shall only be subject to the
provisions of the Act insofar as they relate to the duties and obligations of a Director when performing
the functions of the Director for whom he is appointed in the alternative and shall alone be responsible
to the Company for his acts and defaults and shall not be deemed to be the agent of or for the Director
appointing him. An alternate Director shall be entitled to contract and be interested in and benefit from
contracts or arrangements or transactions and to be repaid expenses and to be indemnified by the
Company to the same extent mutatis mutandis as if he were a Director but he shall not be entitled to
receive from the Company any fee in his capacity as an alternate Director except only such part, if any,
of the remuneration otherwise payable to his appointor as such appointor may by Notice to the Company
from time to time direct.
Voting Rights on Proposals, Arrangements and Contracts in which the Directors are interested
Bye-law 102
(1) A Director shall not vote (nor be counted in the quorum) on any resolution of the Board in respect
of any contract or arrangement or any other proposal in which he is interested, but this prohibition
shall not apply to any of the following matters namely:
(a) any contract or arrangement for the giving to such Director any security or indemnity in respect
of money lent by him or obligations incurred or undertaken by him at the request of or for the
benefit of the Company or any of its subsidiaries;
(b) any contract or arrangement for the giving of any security or indemnity to a third party in
respect of a debt or obligation of the Company or any of its subsidiaries for which the Director
has himself assumed responsibility in whole or in part whether alone or jointly under a
guarantee or indemnity or by the giving of security;
(c) any contract or arrangement concerning an offer of shares or debentures or other securities of
or by the Company or any other company which the Company may promote or be interested
in for subscription or purchase, where the Director is or is to be interested as a participant in
the underwriting or sub-underwriting of the offer;
102
(d) any contract or arrangement in which he is interested in the same manner as other holders of
shares or debentures or other securities of the Company or any of its subsidiaries by virtue
only of his interest in shares or debentures or other securities of the Company;
(e) any contract or arrangement concerning any other company in which he is interested only,
whether directly or indirectly, as an officer or executive or a shareholder other than a company
in which the Director together with any of his associates (as defined by the rules, where
applicable, of the Designated Stock Exchange) is beneficially interested in (other than through
his interest (if any) in the Company) five (5) per cent or more of the issued shares or of the
voting rights of any class of shares of such company (or any third company through which his
interest is derived); or
(f) any proposal concerning the adoption, modification or operation of a share option scheme, a
pension fund or retirement, death or disability benefits scheme or other arrangement which
relates both to directors and employees of the Company or of any of its subsidiaries and does
not provide in respect of any Director as such any privilege or advantage not accorded to the
employees to which such scheme or fund relates.
(2) A company shall be deemed to be a company in which a Director owns five (5) per cent. or more
if and so long as (but only if and so long as) he and his associates (as defined by the rules, where
applicable, of the Designated Stock Exchange), (either directly or indirectly) are the holders of or
beneficially interested in (other than through his interest (if any) in the Company) five (5) per cent.
or more of any class of the equity share capital of such company or of the voting rights available to
members of such company (or of any third company through which his interest is derived). For the
purpose of this paragraph there shall be disregarded any shares held by a Director as bare or
custodian trustee and in which he has no beneficial interest, any shares comprised in a trust in
which the Directors interest is in reversion or remainder if and so long as some other person is
entitled to receive the income thereof, and any shares comprised in an authorised unit trust scheme
in which the Director is interested only as a unit holder.
(3) Where a company in which a Director together with his associates (as defined by the rules, where
applicable, of the Designated Stock Exchange) holds five (5) per cent. or more is materially
interested in a transaction, then that Director shall also be deemed materially interested in such
transaction.
(4) If any question shall arise at any meeting of the Board as to the materiality of the interest of a
Director (other than the chairman of the meeting) or as to the entitlement of any Director (other than
such chairman) to vote and such question is not resolved by his voluntarily agreeing to abstain from
voting, such question shall be referred to the chairman of the meeting and his ruling in relation to
such other Director shall be final and conclusive except in a case where the nature or extent of the
interest of the Director concerned as known to such Director has not been fairly disclosed to the
Board. If any question as aforesaid shall arise in respect of the chairman of the meeting such
question shall be decided by a resolution of the Board (for which purpose such chairman shall not
vote thereon) and such resolution shall be final and conclusive except in a case where the nature
or extent of the interest of such chairman as known to such chairman has not been fairly disclosed
to the Board.
Borrowing Powers
Bye-law 109
The Board may exercise all the powers of the Company to raise or borrow money and to mortgage or
charge all or any part of the undertaking, property and assets (present and future) and uncalled capital
of the Company and, subject to the Act, to issue debentures, bonds and other securities, whether outright
or as collateral security for any debt, liability or obligation of the Company or of any third party.
103
Voting rights of Members
Bye-law 65
Subject to any special rights or restrictions as to voting for the time being attached to any shares by or
in accordance with these Bye-laws, at any general meeting on a show of hands every Member present
in person (or being a corporation, is present by a representative duly authorised under Section 78 of the
Act), or by proxy shall have one vote, the chairman of the meeting to determine which proxy shall be
entitled to vote where a Member (other than the Depository) is represented by two proxies and on a poll
every Member present in person or by proxy or, in the case of a Member being a corporation, by its duly
authorised representative shall have one vote for every fully paid share of which he is the holder or which
he represents and in respect of which all calls due to the Company have been paid, but so that no
amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the
foregoing purposes as paid up on the share. A resolution put to the vote of a meeting shall be decided
on a show of hands unless (before or on the declaration of the result of the show of hands or on the
withdrawal of any other demand for a poll) a poll is demanded:
(a) by the chairman of such meeting; or
(b) by at least three Members present in person (or in the case of a Member being a corporation by its
duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(c) by a Member or Members present in person (or in the case of a Member being a corporation by its
duly authorised representative) or by proxy , or where such a Member has appointed two proxies
any one of such proxies, or any proxy appointed by the Depository, or any number or combination
of such Members or proxies, holding or representing as the case may be not less than one-tenth of
the total voting rights of all Members having the right to vote at the meeting; or
(d) by a Member or Members present in person (or in the case of a Member being a corporation by its
duly authorised representative) or by proxy, or where such a Member has appointed two proxies
any one of such proxies, or any proxy appointed by the Depository, or any number or combination
of such Members or proxies, holding or representing as the case may be shares in the Company
conferring a right to vote at the meeting being shares on which an aggregate sum has been paid
up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.
A demand by a person as proxy for a Member or in the case of a Member being a corporation by its duly
authorised representative shall be deemed to be the same as a demand by a Member.
Bye-law 66
Unless a poll is duly demanded and the demand is not withdrawn, a declaration by the chairman that a
resolution has been carried, or carried unanimously, or by a particular majority, or not carried by a
particular majority, or lost, and an entry to that effect made in the minute book of the Company, shall be
conclusive evidence of the fact without proof of the number or proportion of the votes recorded for or
against the resolution.
Bye-law 67
If a poll is duly demanded the result of the poll shall be deemed to be the resolution of the meeting at
which the poll was demanded.
Bye-law 68
Apoll demanded on the election of a chairman, or on a question of adjournment, shall be taken forthwith.
A poll demanded on any other question shall be taken in such manner (including the use of ballot or
voting papers or tickets) and either forthwith or at such time (being not later than thirty (30) days after the
date of the demand) and place as the chairman directs. It shall not be necessary (unless the chairman
otherwise directs) for notice to be given of a poll not taken immediately.
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Bye-law 69
The demand for a poll shall not prevent the continuance of a meeting or the transaction of any business
other than the question on which the poll has been demanded, and, with the consent of the chairman,
it may be withdrawn at any time before the close of the meeting or the taking of the poll, whichever is the
earlier.
Bye-law 70
On a poll votes may be given either personally or by proxy.
Bye-law 71
A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses
in the same way.
Bye-law 72
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of such meeting
shall be entitled to a second or casting vote in addition to any other vote he may have.
Bye-law 73
Where there are joint holders of any share any one of such joint holder may vote, either in person or by
proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint
holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by
proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose
seniority shall be determined by the order in which the names stand in the Register in respect of the joint
holding. Several executors or administrators of a deceased Member in whose name any share stands
shall for the purposes of this Bye-law be deemed joint holders thereof.
Bye-law 74
(1) A Member who is a patient for any purpose relating to mental health or in respect of whom an order
has been made by any court having jurisdiction for the protection or management of the affairs of
persons incapable of managing their own affairs may vote, whether on a show of hands or on a poll,
by his receiver, committee, curator bonis or other person in the nature of a receiver, committee or
curator bonis appointed by such court, and such receiver, committee, curator bonis or other person
may vote on a poll by proxy, and may otherwise act and be treated as if he were the registered
holder of such shares for the purposes of general meetings, provided that such evidence as the
Board may require of the authority of the person claiming to vote shall have been deposited at the
Office, head office or Registration Office, as appropriate, not less than forty-eight (48) hours before
the time appointed for holding the meeting, or adjourned meeting or poll, as the case may be.
(2) Any person entitled under Bye-law 53 to be registered as the holder of any shares may vote at any
general meeting in respect thereof in the same manner as if he were the registered holder of such
shares, provided that forty-eight (48) hours at least before the time of the holding of the meeting or
adjourned meeting, as the case may be, at which he proposes to vote, he shall satisfy the Board
of his entitlement to such shares, or the Board shall have previously admitted his right to vote at
such meeting in respect thereof.
Bye-law 75
No Member shall, unless the Board otherwise determines, be entitled to attend and vote and to be
reckoned in a quorum at any general meeting unless he is duly registered and all calls or other sums
presently payable by him in respect of shares in the Company have been paid.
105
Bye-law 76
If:
(a) any objection shall be raised to the qualification of any voter; or
(b) any votes have been counted which ought not to have been counted or which might have been
rejected; or
(c) any votes are not counted which ought to have been counted;
the objection or error shall not vitiate the decision of the meeting or adjourned meeting on any resolution
unless the same is raised or pointed out at the meeting or, as the case may be, the adjourned meeting
at which the vote objected to is given or tendered or at which the error occurs. Any objection or error shall
be referred to the chairman of the meeting and shall only vitiate the decision of the meeting on any
resolution if the chairman decides that the same may have affected the decision of the meeting. The
decision of the chairman on such matters shall be final and conclusive.
Bye-law 77
(1) Any Member entitled to attend and vote at a meeting of the Company who is the holder of two or
more shares shall be entitled to appoint not more than two proxies to attend and vote instead of him
at the same general meeting provided that if the Member is the Depository:
(a) the Depository may appoint more than two proxies to attend and vote at the same general
meeting and each proxy shall be entitled to exercise the same powers on behalf of the
Depository as the Depository could exercise, including, notwithstanding Bye-law 65, the right
to vote individually on a show of hands;
(b) the Company shall be entitled and bound:
(i) to reject any instrument of proxy lodged if the proxy first named in that instrument, being
the Depositor, is not shown in the records of the Depository as at a time not earlier than
forty-eight (48) hours prior to the time of the relevant general meeting supplied by the
Depository to the Company, to have any shares credited to a Securities Account; and
(ii) to accept as the maximum number of votes which in aggregate all the proxies appointed
by the Depository in respect of a particular Depositor are able to cast on a poll a number
which is the number of shares credited to the Securities Account of that Depositor, as
shown in the records of the Depository as at a time not earlier than forty-eight (48) hours
prior to the time of the relevant general meeting supplied by the Depository to the
Company, whether that number is greater or smaller than the number specified in any
instrument of proxy executed by or on behalf of the Depository; and
(iii) the Company shall accept as valid in all respects the form of proxy approved by the
Depository (the CDP Proxy Form) for use at the date relevant to the general meeting
in question notwithstanding that the same permits the Depositor concerned to nominate
a person or persons other than himself as the proxy or proxies appointed by the
Depository. The Company shall be entitled and bound, in determining rights to vote and
other matters in respect of a completed CDP Proxy Form submitted to it, to have regard
to the instructions given by and the notes (if any) set out in the CDP Proxy Form.
(2) In any case where a form of proxy appoints more than one proxy (including the case where such
appointment results from a nomination by a Depositor), the proportion of the shareholding
concerned to be represented by each proxy shall be specified in the form of proxy.
(3) A proxy need not be a Member. In addition, subject to sub-paragraph (1) of this Bye-law, a proxy
or proxies representing either a Member who is an individual or a Member which is a corporation
shall be entitled to exercise the same powers on behalf of the Member which he or they represent
as such Member could exercise.
106
Bye-law 78
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney
duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of
an officer, attorney or other person authorised to sign the same or, in the case of the Depository, signed
by its duly authorised officer by some method or system of mechanical signature as the Depository may
deem appropriate. In the case of an instrument of proxy purporting to be signed on behalf of a
corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer was
duly authorised to sign such instrument of proxy on behalf of the corporation without further evidence of
the fact.
Bye-law 79
The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority
(if any) under which it is signed on behalf of the appointer (which shall, for this purpose, include a
Depositor), or a certified copy of such power or authority, shall be delivered to 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 document
accompanying the notice convening the meeting (or, if no place is so specified at the Registration Office
or the Office, as may be appropriate) not less than forty-eight (48) hours before the time appointed for
holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote
or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less than
twenty-four (24) hours before the time appointed for the taking of the poll and in default the instrument
of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiration
of twelve (12) months from the date named in it as the date of its execution, except at an adjourned
meeting or on a poll demanded at a meeting or an adjourned meeting in cases where the meeting was
originally held within twelve (12) months from such date. Delivery of an instrument appointing a proxy
shall not preclude a Member from attending and voting in person at the meeting convened and in such
event, the instrument appointing a proxy shall be deemed to be revoked.
Bye-law 80
Instruments of proxy shall be in any usual or common form (including any form approved from time to
time by the Depository) or in such other form as the Board may approve (provided that this shall not
preclude the use of the two-way form) and the Board may, if it thinks fit, send out with the notice of any
meeting forms of instrument of proxy for use at the meeting. The instrument of proxy shall be deemed
to confer authority to demand or join in demanding a poll and to vote on any amendment of a resolution
put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall, unless the
contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which
it relates.
Bye-law 81
A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the
previous death or insanity of the principal, or revocation of the instrument of proxy or of the authority
under which it was executed, provided that no intimation in writing of such death, insanity or revocation
shall have been received by the Company at the Office or the Registration Office (or such other place
as may be specified for the delivery of instruments of proxy in the notice convening the meeting or other
document sent therewith) two (2) hours at least before the commencement of the meeting or adjourned
meeting, or the taking of the poll, at which the instrument of proxy is used.
Bye-law 82
Anything which under these Bye-laws a Member may do by proxy he may likewise do by his duly
appointed attorney and the provisions of these Bye-laws relating to proxies and instruments appointing
proxies shall apply mutatis mutandis in relation to any such attorney and the instrument under which
such attorney is appointed.
107
Bye-law 83
(1) Any corporation which is a Member may by resolution of its directors or other governing body
authorise such person as it thinks fit to act as its representative at any meeting of the Company or
at any meeting of any class of Members. The person so authorised shall be entitled to exercise the
same powers on behalf of such corporation as the corporation could exercise if it were an individual
Member and such corporation shall for the purposes of these Bye-laws be deemed to be present
in person at any such meeting if a person so authorised is present thereat.
(2) If permitted by the Act, where a Member is the Depository (or its nominee, in each case, being a
corporation), it may authorise such persons as it thinks fit to act as its representatives at any
meeting of the Company or at any meeting of any class of Members provided that the authorisation
shall specify the number and class of shares in respect of which each such representative is so
authorised. Each person so authorised under the provisions of this Bye-law shall be entitled to
exercise the same rights and powers as if such person was the registered holder of the shares of
the Company held by the Depository (or its nominee).
(3) Any reference in these Bye-laws to a duly authorised representative of a Member being a
corporation shall mean a representative authorised under the provisions of this Bye-law.
Variation of Rights
Bye-law 10
Whenever the share capital of the Company is divided into different classes of shares, subject to the
provisions of the Statutes, preference capital other than redeemable preference capital may be repaid
and the special rights attached to any class may be varied or abrogated either with the consent in writing
of the holders of three-quarters in nominal value of the issued shares of the class or with the sanction
of a special resolution passed at a separate general meeting of the holders of the shares of the class (but
not otherwise) and may be so repaid, varied or abrogated either whilst the Company is a going concern
or during or in contemplation of a winding-up. To every such separate general meeting and all
adjournments thereof all the provisions of these Bye-laws relating to general meetings of the Company
and to the proceedings thereat shall mutatis mutandis apply, except that the necessary quorum (other
than at an adjourned meeting) shall be two persons at least holding or representing by proxy at least
one-third in nominal value of the issued shares of the class and at any adjourned meeting of such holder,
two holders present in person or by proxy (whatever the number of shares held by them) shall be a
quorum and that any holder of shares of the class present in person or by proxy may demand a poll and
that every such holder shall on a poll have one vote for every share of the class held by him, provided
always that where the necessary majority for such a special resolution is not obtained at such general
meeting, consent in writing if obtained from the holders of three-quarters in nominal value of the issued
shares of the class concerned within two months of such general meeting shall be as valid and effectual
as a special resolution carried at such general meeting. The foregoing provisions of this Bye-law shall
apply to the variation or abrogation of the special rights attached to some only of the shares of any class
as if each group of shares of the class differently treated formed a separate class the special rights
whereof are to be varied.
Restrictions on Transferability of Shares
Bye-law 46
Subject to these Bye-laws, any Member may transfer all or any of his shares by an instrument of transfer
in the form for the time being approved by the Designated Stock Exchange or where the Company is no
longer listed on the Designated Stock Exchange, in any other form acceptable to the Board.
108
Bye-law 47
The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided
that an instrument of transfer in respect of which the transferee is the Depository shall be effective
although not signed or witnessed by or on behalf of the Depository and provided further that the Board
may dispense with the execution of the instrument of transfer by the transferee in any case which it thinks
fit in its discretion to do so. The Board may also resolve, either generally or in any particular case, upon
request by either the transferor or transferee, to accept mechanically executed transfers. The transferor
shall be deemed to remain the holder of the share until the name of the transferee is entered in the
Register in respect thereof. Nothing in these Bye-laws shall preclude the Board from recognising a
renunciation of the allotment or provisional allotment of any share by the allottee in favour of some other
person.
Bye-law 48
(1) The Board may, in its absolute discretion, refuse to register a transfer of any share (not being a fully
paid up share) to a person of whom it does not approve, or any share issued under any share
incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists,
and it may also, without prejudice to the foregoing generality, refuse to register a transfer of any
share to more than four (4) joint holders or a transfer of any share (not being a fully paid up share)
on which the Company has a lien.
(2) No transfer shall be made to an infant or to a person of unsound mind or under other legal disability.
(3) The Board in so far as permitted by any applicable law may, upon request by a shareholder and in
its absolute discretion, at any time and from time to time transfer any share upon the Register to any
branch register or any share on any branch register to the Register or any other branch register. In
the event of any such transfer, the shareholder requesting such transfer shall bear the cost of
effecting the transfer unless the Board otherwise determines.
(4) Unless the Board otherwise agrees (which agreement may be on such terms and subject to such
conditions as the Board in its absolute discretion may from time to time determine, and which
agreement the Board shall, without giving any reason therefor, be entitled in its absolute discretion
to give or withhold), no shares upon the Register shall be transferred to any branch register nor shall
shares on any branch register be transferred to the Register or any other branch register and all
transfers and other documents of title shall be lodged for registration, and registered, in the case of
any shares on a branch register, at the relevant Registration Office, and, in the case of any shares
on the Register, at the Office or such other place in Bermuda at which the Register is kept in
accordance with the Act.
(5) Save as provided in the Bye-laws, there shall be no restriction on the transfer of fully paid up shares
(except where required by law, or the listing rules of the Designated Stock Exchange).
Bye-law 49
Without limiting the generality of the last preceding Bye-law, the Board may decline to recognise any
instrument of transfer unless:
(a) a fee of such maximum sum as the Designated Stock Exchange may determine to be payable or
such lesser sum as the Board may from time to time require is paid to the Company in respect
thereof;
(b) the instrument of transfer is in respect of only one class of share;
(c) the instrument of transfer is lodged at the Office or such other place in Bermuda at which the
Register is kept in accordance with the Act or the Registration Office (as the case may be)
accompanied by the relevant share certificate(s) and such other evidence as the Board may
reasonably require to show the right of the transferor to make the transfer (and, if the instrument of
transfer is executed by some other person on his behalf, the authority of that person so to do); and
(d) if applicable, the instrument of transfer is duly and properly stamped.
109
Bye-law 50
If the Board refuses to register a transfer of any share, it shall, within one (1) month after the date on
which the transfer was lodged with the Company, send to each of the transferor and transferee notice of
the refusal, stating the facts which are considered to justify the refusal.
Bye-law 51
The registration of transfers of shares or of any class of shares may, after notice has been given by
advertisement in an appointed newspaper and, where applicable, any other newspapers in accordance
with the requirements of any Designated Stock Exchange to that effect, be suspended at such times and
for such periods (not exceeding in the whole thirty (30) days in any year) as the Board may determine.
110
APPENDIX III
SUMMARY OF BERMUDA COMPANY LAW
BERMUDA COMPANY LAW
The Company is incorporated in Bermuda and, therefore, operates subject to Bermuda law. The
following sets out a summary of certain provisions of Bermuda company law, although this does not
purport to contain all applicable qualifications and exceptions or to be a complete review of all matters
of Bermuda company law and taxation, which may differ from equivalent provisions in jurisdictions with
which interested parties may be more familiar. Prospective investors should consult their own
professional advisers as to consequences (legal, tax or otherwise) of the acquisition, ownership or
disposition of the Shares, including, in particular, the effect of any foreign state or local laws to which they
are subject.
The statements made herein are based on the laws of Bermuda in force as at the date of this Prospectus
and are subject to changes in such laws, or in the interpretation of these laws, occurring after such date,
which changes could be made on a retroactive basis.
(a) Share capital
The Companies Act provides that where a company issues shares at a premium, whether for cash
or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall
be transferred to an account, to be called the share premium account, to which the provisions of
the Companies Act relating to a reduction of share capital of a company shall apply as if the share
premium account were paid up share capital of the company except that the share premium
account may be applied by the company:
(i) in paying up unissued shares of the company to be issued to members of the company as fully
paid bonus shares;
(ii) in writing off:
(aa) the preliminary expenses of the company; or
(bb) the expenses of, or the commission paid or discount allowed on, any issue of shares or
debentures of the company; or
(iii) in providing for the premiums payable on redemption of any shares or of any debentures of
the company.
However, only premiums arising on the same class of shares can be used to pay up bonus shares
or in providing for the premiums payable on redemption of shares or debentures referred to in (i) and
(iii) above respectively.
In the case of an exchange of shares, the excess value of the shares acquired over the nominal
value of the shares being issued may be credited to a contributed surplus account of the issuing
company.
The Companies Act permits a company limited by shares or any other company having a share
capital to issue preference shares and subject to the conditions stipulated therein, to convert those
preference shares into redeemable preference shares.
111
The Companies Act includes certain protections for holders of special classes of shares, such as
requiring their consent to be obtained before their rights may be varied. Where provision is made
by the memorandum of association or bye-laws for authorising the variation of rights attached to
any class of shares in the company, the consent of the specified proportions of the holders of the
issued shares of that class or the sanction of a resolution passed at a separate meeting of the
holders of those shares is required, and where no provision for varying such rights is made in the
memorandum of association or bye-laws and nothing therein precludes a variation of such rights
(unless otherwise provided by the terms of the issue of the shares of that class), the written consent
of the holders of three-fourths of the issued shares of that class or the sanction of a resolution
passed as aforesaid is required.
(b) Financial assistance to purchase shares of a company or its holding company
A company is prohibited from providing financial assistance, directly or indirectly, for the purpose of
an acquisition of its own or its holding companys shares before or at the same time as the
acquisition takes place unless there are reasonable grounds for believing that the company is, and
would after the giving of such financial assistance be, able to pay its liabilities as they become due
and the realisable value of the companys assets, after the giving of such financial assistance, would
not thereby be less than the aggregate of its liabilities, issued share capital and share premium
accounts. However, in certain circumstances, the prohibition from giving financial assistance may
be excluded such as where the assistance is only an incidental part of a larger purpose and the
assistance is given in good faith in the interests of the company. In addition, the Companies Act
expressly permits the grant of financial assistance where (i) the financial assistance does not
reduce the companys net assets or, to the extent the net assets are reduced, such financial
assistance is provided for out of funds of the company which would otherwise be available for
dividend or distribution; (ii) before the date on which the financial assistance is to be given, an
affidavit of solvency is sworn by at least two the directors of the company declaring either that on
that date, after taking into account the giving if the financial assistance, the company will be solvent
or that all the creditors of the company on that date have expressed in writing their concurrence in
the giving of the financial assistance; and (iii) the financial assistance, is approved by resolution of
shareholders of the company.
(c) Purchase of securities by a company and its subsidiaries
A company limited by shares or any other company having a share capital may, if authorised by its
memorandum of association or bye-laws, purchase its own shares. Such purchases may only be
effected out of the capital paid up on the purchased shares or out of the funds of the company which
would otherwise be available for dividend or distribution or out of the proceeds of a fresh issue of
shares made for the purposes of such purchase. Any premium payable on a purchase over the par
value of the shares to be purchased must be provided for out of funds of the company otherwise
which would otherwise be available for dividend or distribution or out of the companys share
premium account. Any purchase by a company of its own shares may be authorised by its board of
directors or otherwise by or in accordance with the provisions of its bye-laws. Such purchase may
only be made if at least two directors of the company o the date on which the purchase is to be made
declare, by affidavit, declare that on the effective date of the purchase and taking into account the
purchase, the company is solvent or that all of the creditors of the company on that date have
consented in writing to the purchase. In the case where a company is listed on an appointed stock
exchange (as defined in the Companies Act), the affidavit may, at the option of the company, be
sworn within thirty days after the end of each calendar quarter giving details of the purchases made
during each quarter and the affidavit shall confirm that the company was solvent at all material times
during the quarter. The shares so purchased will be treated as cancelled and the companys issued,
but not its authorised, capital will be diminished by the nominal value of those shares accordingly.
In addition, a company may not purchase its own shares if, as a result of the purchase of shares
if, as a result of the purchase of shares in question, the issued share capital of the company would
be reduced below the minimum capital specified for the company in its memorandum of association.
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A company is not prohibited from purchasing and may purchase its own warrants subject to and in
accordance with the terms and conditions of the relevant warrant instrument or certificate. There is
no requirement under Bermuda law that a companys memorandum of association or its bye-laws
contain a specific provision enabling such purchases and the directors of a company may rely upon
the general power contained in its memorandum of association to buy and sell and deal in personal
property of all kinds.
Under Bermuda law, a subsidiary may hold shares in its holding company and in certain
circumstances, may acquire such shares. The holding company is, however, prohibited from giving
financial assistance for the purpose of the acquisition, subject to certain circumstances provided by
the Companies Act. A company, whether a subsidiary or a holding company, may only purchase its
own shares for cancellation if it is authorised to do so in its memorandum of association or bye-laws
pursuant to section 42A of the Companies Act.
(d) Dividends and distributions
Section 54 of the Companies Act provides that a company shall not declare or pay a dividend, or
make a distribution out of contributed surplus, if there are reasonable grounds for believing that (i)
the company is, or would after the payment be, unable to pay its liabilities as they become due; or
(ii) the realisable value of the companys assets would thereby be less than the aggregate of its
liabilities and its issued share capital and share premium accounts. Contributed surplus is defined
for purposes of section 54 of the Companies Act to include the proceeds arising from donated
shares, credits resulting from the redemption or conversion of shares at less than the amount set
up as nominal capital and donations of cash and other assets to the company.
(e) Protection of minorities
Class actions and derivative actions are generally not available to shareholders under the laws of
Bermuda. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to
commence an action in the name of a company to remedy a wrong done to the company where the
act complained of is alleged to be beyond the corporate power of the company or is illegal or would
result in the violation of the companys memorandum of association and bye-laws. Furthermore,
consideration would be given by the court to acts that are alleged to constitute a fraud against the
minority shareholders or, for instance, where an act requires the approval of a greater percentage
of the companys shareholders than actually approved it.
Any member of a company who complains that the affairs of the company are being conducted or
have been conducted in a manner oppressive or prejudicial to the interests of some part of the
members, including himself, may petition the court for an order under section 111 of the Companies
Act. If on any petition, the Court is of the opinion that the companys affairs are being conducted or
have been conducted or have been conducted as aforesaid and that to wind up the company would
unfairly prejudice that part of the members but that otherwise the facts would justify the making of
a winding up order on just and equitable grounds, the Court may, with a view to bringing an end the
matters complained of, make such order as it thinks fit, whether for regulating the conduct of the
companys affairs in future or for the purchase of shares of any members of the company by other
members of the company or by the company itself and in the case of a purchase by the company
itself, for the reduction accordingly of the companys capital, or otherwise. Bermuda law also
provides that the company may be wound up by the Bermuda court, if, inter alia, the court is of the
opinion that it is just and equitable to do so. Both these provisions are available to minority
shareholders seeking relief from the oppressive conduct of the majority, and the court has wide
discretion to make such orders as it thinks fit.
Except as mentioned above, claims against a company by its shareholders must be based on the
general laws of contract or tort applicable in Bermuda.
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A statutory right of action is conferred on subscribers of shares in a company against persons,
including directors and officers, responsible for the issue of a prospectus in respect of loss or
damage suffered by reason of an untrue statement therein, but this confers no right of action against
the company itself. In addition, a company, as opposed to its shareholders, may take action against
its officers including directors, for breach of their statutory and fiduciary duty to act honestly and in
good faith with a view to the best interests of the company.
(f) Management
The Companies Act contains no specific restrictions on the power of directors to dispose of assets
of a company, although it specifically requires that every officer of a company, which includes a
director, managing director and secretary, in exercising his powers and discharging his duties must
do so honestly and in good faith with a view to the best interests of the company and exercise the
care, diligence and skill that a reasonably prudent person would exercise in comparable
circumstances. Furthermore, the Companies Act requires that every officer should comply with the
Companies Act, regulations passed pursuant to the Companies Act and the bye-laws of the
company.
(g) Accounting and auditing requirements
The Companies Act requires a company to cause proper records of accounts to be kept with respect
to (i) all sums of money received and expended by the company and the matters in respect of which
the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company and
(iii) the assets and liabilities of the company.
Furthermore, it requires that a company keeps its records of account at the registered office of the
company or, subject to the Companies Act, at such other place as the directors think fit and that
such records shall at all times be open to inspection by the directors.
The Companies Act requires that the directors of the company must, at least once a year, lay before
the company in general meeting financial statements for the relevant accounting period. Further, the
companys auditor must audit the financial statements so as to enable him to report to the members.
Based on the results of his audit, which must be made in accordance with generally accepted
auditing standards, the auditor must then make a report to the members. The generally accepted
auditing standards may be those of Bermuda or a country or jurisdiction other than Bermuda or such
other generally accepted auditing standards as may be appointed by the Minister of Finance of
Bermuda under the Companies Act; and where the generally accepted auditing standards used are
other than those of Bermuda, the report of the auditor shall identify the generally accepted auditing
standards used. All members of the company are entitled to receive a copy of every financial
statement prepared in accordance with these requirements, at least seven days before the general
meeting of the company at which the financial statements are to be tabled.
(h) Exchange control
An exempted company is usually designated as non-resident for Bermuda exchange control
purposes by the Bermuda Monetary Authority. Where a company is so designated, it is free to deal
in currencies of countries outside the Bermuda exchange control area which are freely convertible
into currencies of any other country. The permission of the Bermuda Monetary Authority is required
for the issue of securities (including shares, warrants, debentures and bonds) by a company and the
subsequent transfer of such securities. In granting such permission, the Bermuda Monetary
Authority accepts no responsibility for the financial soundness of any proposals or for the
correctness of any statements made or opinions expressed in any document with regard to such
issue. Before a company can issue or transfer any further shares and warrants in excess of the
amounts already approved, it must obtain the prior written consent of the Bermuda Monetary
Authority.
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Permission of the Bermuda Monetary Authority will normally be granted for the issue and transfer
of securities to and between persons regarded as resident outside Bermuda for exchange control
purposes without specific consent for each issue or as the case may be, transfer for so long as the
securities are listed on an appointed stock exchange (as defined in the Companies Act). Issues to
and transfers involving persons regarded as resident for exchange control purposes in Bermuda
will be subject to specific exchange control authorisation.
(i) Taxation
Under present Bermuda law, no Bermuda withholding tax on dividends or other distributions, nor
any Bermuda tax computed on profits or income or on any capital asset, gain or appreciation will
be payable by an exempted company or its operations, nor is there any Bermuda tax in the nature
of estate duty or inheritance tax applicable to shares, debentures or other obligations of the
company held by non-residents of Bermuda. Furthermore, a company may apply to the Minister of
Finance of Bermuda for an assurance, under the Exempted Undertakings Tax Protection Act 1966
of Bermuda, that no such taxes shall be so applicable until 28th March 2016, although this
assurance will not prevent the imposition of any Bermuda tax payable in relation to any land in
Bermuda leased or let to the company or to persons ordinarily resident in Bermuda.
(j) Stamp duty
An exempted company is exempt from all stamp duties except on transactions involving Bermuda
property. This term relates, essentially, to real and personal property physically situated in
Bermuda, including shares in local companies (as opposed to exempted companies). Transfers of
securities in all exempted companies are exempt from Bermuda stamp duty.
(k) Loans to directors
Bermuda law prohibits the making of loans by a company to any of its directors or director of its
holding company or to (a) their spouse or children or (b) a company (other than a company which
is a holding company or a subsidiary of the company making the loan) which a director, his spouse
or children own or control directly or indirectly more than 20% of the capital or loan debt, without the
consent of any member or members holding in aggregate not less than nine-tenths of the total
voting rights of all members having the right to vote at any meeting of the members of the company.
These prohibitions do not apply to anything done to provide a director with funds to meet the
expenditure incurred or to be incurred by him for the purposes of the company, provided that the
company gives its prior approval at a general meeting at which the purposes of the expenditure and
the amount of the loan are disclosed or, if not, the loan is made on condition that it will be repaid
within six months of the next following annual general meeting if the loan is not approved at or
before such meeting. If the approval of the company is not given for a loan, the directors who
authorised it will be jointly and severally liable for any loss arising therefrom.
(l) Inspection of corporate records
Members of the general public have the right to inspect the public documents of a company
available at the office of the Registrar of Companies in Bermuda which will include the companys
certificate of incorporation, its memorandum of association (including its objects and powers) and
any alteration to the companys memorandum of association. The members of the company have
the additional right to inspect the bye-laws of a company, and the companys audited financial
statements, which must be presented to the annual general meeting. Minutes of general meetings
of a company are also open for inspection by the members or directors of the company without
charge for not less than two hours during business hours each day subject to such reasonable
restrictions as the company may impose. Except where the register of members is closed under the
provisions of the Companies Act, the register of members of a company shall during business hours
(subject to such reasonable restrictions as the company may impose, so that not less than 2 hours
in each day be allowed for inspection) be open for inspection by members without charge and to any
other person for a fee. The company is required to maintain its share register in Bermuda but may,
subject to the provisions of the Companies Act, establish a branch register outside Bermuda.
Bermuda law does not, however, provide a general right for members to inspect or obtain copies of
any other corporate records.
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Acompany is required to maintain a register of directors and officers at its registered office and such
register shall during business hours (subject to such reasonable restrictions as the company may
impose, so that not less than 2 hours in each day be allowed for inspection) be made available for
inspection by members of the public without charge.
(m) Winding up
Acompany may be wound up by the Bermuda court on application presented by the company itself,
its creditors or its contributors. The Bermuda court also has authority to order winding up in a
number of specified circumstances including where it is, in the opinion of the Bermuda court, just
and equitable that such company be wound up.
A company may be wound up voluntarily when the members so resolve in general meeting, or, in
the case of a limited duration company, when the period fixed for the duration of the company by
its memorandum expires, or the event occurs on the occurrence of which the memorandum
provides that the company is to be dissolved. In the case of a voluntary winding up, such company
is obliged to cease to carry on its business from the time of passing the resolution for voluntary
winding up or upon the expiry of the period or the occurrence of the event referred to above. Upon
the appointment of a liquidator, the responsibility for the companys affairs rests entirely in his hands
and no future executive action may be carried out without his approval.
Where, on a voluntary winding up, a majority of directors each make a statutory declaration to the
effect that they have formed the opinion that the company will be able to pay its debts in full within
such period not exceeding 12 months from the commencement of the winding up, the winding up
will be a members voluntary winding up. In any case where such declaration has not been made,
the winding up will be a creditors voluntary winding up.
In the case of a members voluntary winding up of a company, the company in general meeting must
appoint one or more liquidators within the period prescribed by the Companies Act for the purpose
of winding up the affairs of the company and distributing its assets. If the liquidator at any time forms
the opinion that such company will not be able to pay its debts in full within the period specified in
the director statutory declaration (referred to in the preceding paragraph), he shall forthwith
summon a meeting of creditors and shall lay before the meeting a statement of the assets and
liabilities of the company.
Subject to the Companies Act, as soon as the affairs of the company are fully wound up, the
liquidator must make up an account of the winding up, showing how the winding up has been
conducted and the property of the company has been disposed of, and thereupon call a general
meeting of the company for the purposes of laying before it the account and giving an explanation
thereof. This final general meeting requires at least one months notice and shall be called by the
advertisement in an appointed newspaper (as defined in the Companies Act) in Bermuda,
specifying the time, place and object thereof.
In the case of a creditors voluntary winding up of a company, the company must call a meeting of
creditors of the company to be summoned on the day or the next day following the day on which
the meeting of the members at which the resolution for winding up is to be proposed is held. Notice
of such meeting of creditors must be sent by post to the creditors at the same time as notice is sent
to the members of the company. In addition, such company must cause a notice to appear in an
appointed newspaper on at least two occasions.
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The creditors and the members at their respective meetings may nominate a person to be liquidator
for the purposes of winding up the affairs of the company provided that if the creditors or the
members nominate a different person, the person nominated by the creditors shall be the liquidator.
If no person is nominated by the creditors as the liquidator, the person nominated by the members
shall be the liquidator. The creditors at the creditors meeting may also appoint a committee of
inspection consisting of not more than five persons. If such a committee is appointed by the
creditors as the liquidator, the person nominated by the creditors, the members may, wither at the
meeting at which the resolution for voluntary winding up is passed or at any time subsequently in
general meeting, appoint such number of persons as they think fit to act as members of the
committee not exceeding 5 in number. However, the creditors may, if they think fit, resolve that all
or any of the persons so appointed by the members ought not be members of the committee of
inspection. If the creditors so resolve, the persons mentioned in the resolution shall not, unless the
Court otherwise directs, be qualified to act as members of the committee and on any application to
the Court under section 218 of the Companies Act, the Court may, if it thinks fit, appoint other
persons to act as such members in place of the persons mentioned in the resolution.
If a creditors winding up continues for more than one year, the liquidator is required to summon a
general meeting of the company and a meeting of the creditors at the end of each year to lay before
such meetings an account of his acts and dealings and of the conduct of the winding up during the
preceding year. As soon as the affairs of the company are fully wound up, the liquidator must make
an account of the winding up, showing how the winding up has been conducted and the property
of the company has been disposed of, and thereupon shall call a general meeting of the company
and a meeting of the creditors for the purposes of laying the account before such meetings and
giving an explanation thereof.
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