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Xyec Offer Document (Clean) PDF
Xyec Offer Document (Clean) PDF
(Company Registration Number: 0104-01-058968) (Incorporated in Japan as a stock corporation (kabushiki kaisha) with limited liability on 9 September 2005)
Placement of 25,000,000 Placement Shares at S$0.26 for each Placement Share, payable in full on application
OFFER DOCUMENT DATED 11 September 2013
(Registered by the Singapore Exchange Securities Trading Limited (the SGX-ST), acting as agent on behalf of the Monetary Authority of Singapore (the Authority) on 11 September 2013)
THIS OFFER IS MADE IN OR ACCOMPANIED BY AN OFFER DOCUMENT (THE OFFER DOCUMENT) THAT HAS BEEN REGISTERED BY THE SGX-ST, ACTING AS AGENT ON BEHALF OF THE AUTHORITY ON 11 september 2013. THE REGISTRATION OF THIS OFFER DOCUMENT BY THE SGX-ST ON BEHALF OF THE AUTHORITY DOES NOT IMPLY THAT THE SECURITIES AND FUTURES ACT (CHAPTER 289) OF SINGAPORE, OR ANY OTHER LEGAL OR REGULATORY REQUIREMENTS, OR REQUIREMENTS UNDER THE SGX-STS LISTING RULES, HAVE BEEN COMPLIED WITH. This document is important. If you are in any doubt as to the action you should take, you should consult your legal, financial, tax or other professional adviser(s). PrimePartners Corporate Finance Pte. Ltd. (the Sponsor) has made an application to the SGX-ST for permission to deal in, and for quotation of, all the ordinary shares (the Shares) in the capital of Xyec Holdings Co., Ltd. (the Company) already issued, the new Shares which are the subject of this Placement (the Placement Shares), the PPCF Shares (as defined herein) and the new Shares which may be issued upon the exercise of the options granted or to be granted under the Stock Option Scheme (the Option Shares) on Catalist (as defined herein). Acceptance of applications will be conditional upon, inter alia, issue of the Placement Shares and permission being granted by the SGX-ST for the listing and quotation of all our existing issued Shares, the Placement Shares, the PPCF Shares and the Option Shares on Catalist. Monies paid in respect of any application accepted will be returned if the admission and listing do not proceed. The dealing in and quotation of the Shares will be in Singapore dollars. Companies listed on Catalist may carry higher investment risk when compared with larger or more established companies listed on the Main Board of the SGX-ST. In particular, companies may list on Catalist without a track record of profitability and there is no assurance that there will be a liquid market in the Shares traded on Catalist. You should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with your professional adviser(s). Neither the Authority nor the SGX-ST has examined or approved the contents of this Offer Document. Neither the Authority nor the SGX-ST assumes any responsibility for the contents of this Offer Document, including the correctness of any of the statements or opinions made or reports contained in this Offer Document. The SGX-ST does not normally review the application for admission to Catalist but relies on the Sponsor confirming that our Company is suitable to be listed and complies with the Catalist Rules (as defined herein). Neither the Authority nor the SGX-ST has in any way considered the merits of the Shares being offered for investment. We have not lodged this Offer Document in any other jurisdiction. Investing in our Shares involves risks which are described in the section entitled Risk Factors of this Offer Document. After the expiration of six months from the date of registration of this Offer Document, no person shall make an offer of our Shares, or allot, issue or sell any of our Shares, on the basis of this Offer Document; and no officer or equivalent person or promoter of our Company will authorise or permit the offer of any of our Shares or the allotment, issue or sale of any of our Shares, on the basis of this Offer Document.
Manager, Sponsor and Placement Agent
4. We have developed strong relationships with our customers through service quality
Established close working relationships with customers. Keep ourselves updated on customers product, technological and business developments to better understand their requirements, in order to provide higher value-added services. Established operations and branch offices near to customers in locations such as the Aichi, Ishikawa, Okinawa, Osaka, Shizuoka, and Fukuoka Prefectures, in Japan, and Bangkok, Thailand. Sales from repeat customers accounted for approximately 87% of total sales in the Period Under Review.
2. We are able to provide a comprehensive range of services and ability to cross-sell services
Our wide range of business-related software development services for companies in a variety of industries, allow us to satisfy the IT requirements of our customers. Able to leverage one line of our business to cross-sell other lines of business and service offerings. Able to diversify our business across a wide variety of industries, enabling us to ride through different business cycles of different industries.
6. For each of our business segments, we have well-known and well-established MNCs as our customer base
Customers include affiliate companies of the Fujitsu group, the Hitachi group, and the Toyota group. Such reputable MNCs enable us to keep up-to-date with market trends and technological developments as well as testify to our high service and product standards.
en g i n eeri n g
serv ic es
ser vic es
it
solution s
it
ERP Consultancy Services to customers mainly in the technology and IT industries. In addition, we also sell and assist our customers in implementing our Elizea attendance management software Design, development and sale of our proprietary production and sales administration software, UNIMEX II and QuickOne
The machinery-related CAD/ CAM/CAE market in Japan is expected to grow 12% and 11% in 2014 and 2015, respectively.
GROWT H STRATEGIES
one
Take advantage of adjacent opportunities in each of our three business segments by sharing expertise across our Group, and cross-selling our business and service offerings.
PROPOSED DIVIDENDS
two
Provide higher value-added services and thereby enhance margins, by:
undertaking more complicated projects in Engineering Services and IT Services business segments; and increasing the portfolio for IT Solutions business segment where margins are relatively higher.
We intend to pay dividends of 20% of our net profit after tax to our Shareholders for FY2014, FY2015 and FY2016.
Revenue Gross profit Operating profit Net profit from continuing operations
Gross Profit
FY2011
FY2012
Gross Profit Margin
FY2013
(1) After deducting approximately JPY86 mil of listing expenses (2) After deducting approximately JPY53 mil of listing expenses net of tax. Note: Based on the average exchange rates of JPY64.31, JPY63.03, and JPY66.84 to S$1.00 for FY2011, FY2012, and FY2013 respectively.
900
f ut u r e pl a ns
Grow existing business segments
Expand Engineering Services business, including developing software for Automobile ECUs, CAE and CAD/CAM, and develop our proprietary software for Automobile ECUs for the local automobile makers in the PRC and in ASEAN countries. Diversify IT Services client portfolio to include SMEs and expand the range of our service offerings using new technologies, such as open source infrastructure services, cloud computing and thin client computing. Leverage on our growing customer base and growing market reputation and increase marketing efforts to target SMEs for our ERP Consultancy Services and other IT Solutions services. Upgrade our proprietary software UNIMEX II and Elizea, expand consultancy and implementation services for Two-Tier ERP to new markets and develop new business-related and CRM software.
Expand through new locations, mergers and acquisitions, joint ventures and/or strategic alliances
Establish an office in Singapore to support R&D initiatives and as a regional sales office for Southeast Asia. Invest in or acquire companies which have expertise in IT network services, web software development, information security, database, cloud computing and software engineering service providers. Through Kowamex (Thailand), expand customer base of Japanese automobile makers and other manufacturing companies operating in Thailand, and therefore expand into Southeast Asia.
TABLE OF CONTENTS
Page CORPORATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GLOSSARY OF TECHNICAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . SELLING RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DETAILS OF THE PLACEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LISTING ON CATALIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INDICATIVE TIMETABLE FOR LISTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTERESTS OF MANAGER, SPONSOR AND PLACEMENT AGENT . . . . . . . . . . . . . . OFFER DOCUMENT SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR COMPETITIVE STRENGTHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR PROSPECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR GROWTH STRATEGY AND FUTURE PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR CONTACT DETAILS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUMMARY OF OUR FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THE PLACEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXCHANGE RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RISKS RELATING TO OUR INDUSTRY AND OUR BUSINESS . . . . . . . . . . . . . . . . . . . RISKS RELATING TO OWNERSHIP OF OUR SHARES . . . . . . . . . . . . . . . . . . . . . . . . ISSUE STATISTICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USE OF PROCEEDS AND LISTING EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LISTING EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SHAREHOLDING AND OWNERSHIP STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . SIGNIFICANT CHANGES IN PERCENTAGE OF OWNERSHIP. . . . . . . . . . . . . . . . . . . MORATORIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 11 14 16 17 17 22 23 24 25 25 25 26 26 26 27 27 29 30 31 31 38 43 45 45 45 47 49 53 53 54 54
TABLE OF CONTENTS
CAPITALISATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WORKING CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GROUP STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SELECTED CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . RESULTS OF OPERATIONS OF OUR GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FINANCIAL POSITION OF OUR GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REVIEW OF PAST PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REVIEW OF FINANCIAL POSITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LIQUIDITY AND CAPITAL RESOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CAPITAL EXPENDITURES AND DIVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FOREIGN EXCHANGE MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INFLATION OR DEFLATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SIGNIFICANT CHANGES IN ACCOUNTING POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . GENERAL INFORMATION ON OUR GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BUSINESS OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR MAJOR CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR MAJOR SUPPLIERS AND/OR SUB-CONTRACTORS . . . . . . . . . . . . . . . . . . . . . . CREDIT POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INVENTORY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . QUALITY ASSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SALES AND MARKETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LICENCES AND PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . STAFF TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPETITIVE STRENGTHS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SEASONALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPERTIES AND FIXED ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 59 60 62 64 64 65 67 67 71 72 77 84 86 86 88 88 91 91 93 99 101 102 104 104 105 107 108 108 109 110 111 113 113
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TABLE OF CONTENTS
AWARDS AND CERTIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROSPECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR GROWTH STRATEGY AND FUTURE PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . ORDER BOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TREND INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTERESTED PERSON TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ON-GOING INTERESTED PERSON TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . GUIDELINES AND REVIEW PROCEDURES FOR ON-GOING AND FUTURE INTERESTED PERSON TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . POTENTIAL CONFLICT OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTERESTS OF EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTERESTS OF MANAGER, SPONSOR AND PLACEMENT AGENT . . . . . . . . . . . . . . DIRECTORS, MANAGEMENT AND STAFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MANAGEMENT REPORTING STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REMUNERATION OF DIRECTORS, EXECUTIVE OFFICERS AND RELATED EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SERVICE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XYEC EMPLOYEE STOCK SCHEMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SGX-ST REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RATIONALE FOR PARTICIPATION OF OUR NON-EXECUTIVE DIRECTORS . . . . . . . COST OF STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DISCLOSURES IN ANNUAL REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DESCRIPTION OF ORDINARY SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXCHANGE CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CLEARANCE AND SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TRADING, SETTLEMENT AND REGISTRATION OF SHARES . . . . . . . . . . . . . . . . . . VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VOTING INSTRUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CLEARING FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii 119 120 127 129 131 131 133 133 134 135 137 138 139 139 144 147 148 149 150 153 163 163 163 163 165 173 178 180 184 184 184 185 185
TABLE OF CONTENTS
GENERAL AND STATUTORY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLES OF INCORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MANAGEMENT AND PLACEMENT ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RESPONSIBILITY STATEMENT BY OUR DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . DOCUMENTS FOR INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013 . . . . . . . . . . . . . . . . . . . . . . . . COMPARISON BETWEEN SINGAPORE CORPORATE LAW AND JAPAN CORPORATE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUR ARTICLES OF INCORPORATION . . . . . . . . . . . . . . . . . . . . COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES . . . . . . . . . . . . . . RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 186 188 188 188 189 189 191 193 194 194
E-1 F-1
APPENDIX F
iv
CORPORATE INFORMATION
BOARD OF DIRECTORS : Manabu Kobayashi (Executive Chairman, President and CEO) Tatsushi Oshimi (Vice-President and Executive Director) Minoru Funakoshi (Non-Executive Director) Norio Ogiwara (Non-Executive Director) Susumu Hanada (Lead Independent Director) Yukihiro Shida (Independent Director) Tan Poh Chye Allan (Independent Director appointment subject to approval by Shareholders in a general meeting to be held by 16 September 2013) Kinji Adachi (Full time Statutory Auditor) Yuji Imai (Part time Outside Statutory Auditor) Junko Shirakawa (Part time Outside Statutory Auditor) Manabu Kobayashi Tatsushi Oshimi
4-15, Konan 2-chome Minato-ku, Tokyo Japan PrimePartners Corporate Finance Pte. Ltd. 20 Cecil Street #21-02 Equity Plaza Singapore 049705 Ernst & Young ShinNihon LLC Hibiya Kokusai Building, 2-2-3 Uchisaiwai-cho Chiyoda-ku, Tokyo 100-0011 Japan Partner-in-charge: Shinichiro Suzuki Certified Public Accountants, Japan
INDUSTRY EXPERT
Yano Research Institute Ltd. 2-46-2 Honcho Nakano-ku Tokyo, Japan RHTLaw Taylor Wessing LLP Six Battery Road #10-01 Singapore 049909
SOLICITORS TO THE PLACEMENT AND LEGAL ADVISER TO OUR COMPANY ON SINGAPORE LAW LEGAL ADVISER TO OUR COMPANY ON JAPAN LAW
Anderson Mori & Tomotsune Akasaka K-Tower, 2-7 Motoakasaka 1-chome Minato-ku, Tokyo 107-0051 Japan
CORPORATE INFORMATION
LEGAL ADVISER TO OUR COMPANY ON THAILAND LAW : Siam City Law Offices Limited Rajanakarn Building, 20th Floor 183 South Sathorn Road, Yannawa Sathorn, Bangkok 10120, Thailand Mitsubishi UFJ Trust and Banking Corporation 4-5 Marunouchi 1-chome Chiyoda-ku, Tokyo 100-8212 Japan Boardroom Corporate & Advisory Services Pte. Ltd. 50 Raffles Place #32-01 Singapore Land Tower Singapore 048623 Bank of Tokyo-Mitsubishi UFJ Yotsuya Commercial Banking Office 2-1, Yotsuya 3-chome Shinjuku-ku, Tokyo 160-0004, Japan The Bank of East Asia, Limited 60 Robinson Road BEA Building Singapore 068892
SINGAPORE SHARE REGISTRAR, TRANSFER AGENT AND COLLATION AGENT PRINCIPAL BANKER
RECEIVING BANKER
DEFINITIONS
In this Offer Document and the accompanying Application Forms, unless the context otherwise requires, the following definitions apply throughout where the context so admits: Companies within our Group ACLOX : ACLOX Co., Ltd., a company incorporated in Japan on 26 September 2007 and a wholly-owned subsidiary of our Company Xyec Holdings Co., Ltd., a company incorporated in Japan on 9 September 2005 em-kei Co., Ltd., a company incorporated in Japan on 8 July 1988 and a wholly-owned subsidiary of our Company Our Company and our Subsidiaries as at the date of this Offer Document Kowamex Co., Ltd., a company incorporated in Japan on 12 December 2006 and a wholly-owned subsidiary of our Company Kowamex (Thailand) Co., Ltd., a company incorporated in Thailand on 22 June 2012 in which Kowamex has a shareholding interest of 48.99% and also exercises management control Neutral Co., Ltd., a company incorporated in Japan on 24 March 2000 and a wholly-owned subsidiary of our Company NIHON UNITEC Co., Ltd., a company incorporated in Japan on 26 May 1984 and a wholly-owned subsidiary of our Company NT Solutions Co., Ltd., a company incorporated in Japan on 1 April 2009 and a wholly-owned subsidiary of our Company Sial System Co., Ltd., a company incorporated in Japan on 1 April 2001 and a wholly-owned subsidiary of our Company The subsidiaries of our Group, namely ACLOX, Kowamex, Kowamex (Thailand), em-kei, Neutral, NIHON UNITEC, NT Solutions and Sial System
Company
em-kei
Kowamex (Thailand)
Neutral
NIHON UNITEC
NT Solutions
Sial System
Subsidiaries
Other Companies, Organisations and Agencies Authority CDP or Depository City Soken : : : Monetary Authority of Singapore The Central Depository (Pte) Limited City Soken Co., Ltd.
DEFINITIONS
CPF Denso Techno : : Central Provident Fund Denso Techno Co., Ltd., a wholly-owned subsidiary of Denso Corporation Ltd, which in turn is 22.3% owned by Toyota Motor Corporation as at 31 March 2013 Xyec Holdings Employee Stock Holding Association, a partnership ( kumiai ) formed under the Civil Code of Japan, by the employees of the Company on 1 March 2007 FA Service Co., Ltd., a wholly-owned subsidiary of our Group which was disposed of on 30 September 2012 The Japanese company named Xyec Holdings Co., Ltd., formed in November 2005 in a merger of Neutral and three other Japanese companies, and merged with our Company in an Absorption-Type Merger in December 2006 Gifu Auto Body Co., Ltd. Kowa Sekkei Co., Ltd. Mamezou Holdings Co., Ltd., a company listed on the Tokyo Stock Exchange and our Controlling Shareholder. PrimePartners Corporate Finance Pte. Ltd.
ESHA
FA Service
: : :
Manager, Sponsor, Placement Agent or PPCF Receiving Bank SCCS SGX-ST Share Registrar General AGM Application Forms
: : : :
The Bank of East Asia, Limited Securities Clearing & Computer Services (Pte) Ltd Singapore Exchange Securities Trading Limited Boardroom Corporate & Advisory Services Pte. Ltd.
: :
Annual general meeting of Shareholders The official printed application forms to be used for the purpose of the Placement and which form part of this Offer Document The list of applications for the subscription of the Placement Shares The articles of incorporation of our Company, as amended, supplemented or modified from time to time
Application List
DEFINITIONS
Associate : (a) In relation to any director, chief executive officer, substantial shareholder or controlling shareholder (being an individual) means: (i) (ii) his immediate family; the trustees, acting in their capacity as such trustees, of any trust of which he or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; and
(iii) any company in which he and his immediate family together (directly or indirectly) have an interest of 30.0% or more of the total votes attached to all the voting shares; and (b) in relation to a substantial shareholder or a controlling shareholder (being a company) means any other company which is its subsidiary or holding company or is a fellow subsidiary of any such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have an interest of 30.0% or more
Associated Company
In relation to a corporation, means: (a) any corporation in which the corporation or its subsidiary has, or the corporation and its subsidiary together have, a direct interest of not less than 20.0% but not more than 50.0% of the aggregate of the total votes attached to all the voting shares; or any corporation, other than a subsidiary of the corporation or a corporation which is an associated company by virtue of paragraph (a), the policies of which the corporation or its subsidiary, or the corporation together with its subsidiary, is able to control or influence materially
(b)
Audit Committee
The audit committee of our Company as at the date of this Offer Document, unless otherwise stated The board of Directors of our Company as at the date of this Offer Document, unless otherwise stated Our Companys board of Statutory Auditors
DEFINITIONS
Catalist Rules : The rules in the SGX-ST Listing Manual Section B: Rules of Catalist, as amended, supplemented or modified from time to time Depositors holding Shares under a direct account with CDP or a securities sub-account with a Depository Agent (as defined in section 130A of the Singapore Companies Act) Chief executive officer In relation to a corporation, means: (a) a person who has an interest in the voting shares of a corporation and who exercises control over the corporation; or a person who has an interest of 15.0% or more of the aggregate of the total votes attached to all the voting shares in a corporation, unless he does not exercise control over the corporation
CDP Depositors
: :
(b)
Director
A director of our Company as at the date of this Offer Document (a) The Company; (b) a subsidiary of the Company that is not listed on the SGX-ST or an approved exchange; or (c) an Associated Company that is not listed on the SGX-ST or an approved exchange, provided that our Group or our Group and our Interested Person(s), has control over the Associated Company Earnings per Share The executive Directors of our Company as at the date of this Offer Document, unless otherwise stated The executive officers of our Company as at the date of this Offer Document, who are also key executives as defined under the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005, unless otherwise stated Financial year ended or, as the case may be, ending 31 March The independent Directors of our Company as at the date of this Offer Document, unless otherwise stated, including Tan Poh Chye Allan whose appointment is subject to approval by Shareholders in a general meeting to be held by 16 September 2013
Entity at Risk
: :
Executive Officers
FY Independent Directors
: :
DEFINITIONS
Interested Person : (a) A director, chief executive officer Shareholder of the Company; or or Controlling
(b)
Means a transaction between an Entity at Risk and an Interested Person Save where otherwise stated in this Offer Document, means the total number of Shares that is in issue but excludes treasury Shares The Companies Act of Japan, as amended, supplemented or modified from time to time 19 August 2013, being the latest practicable date before the lodgment of this Offer Document with the SGX-ST The listing of our Company and the quotation of our Shares on Catalist SGX-ST Listing Manual Section B: Rules of Catalist, as amended, supplemented or modified from time to time The full sponsorship and management agreement entered into between our Company and PPCF pursuant to which PPCF shall sponsor and manage the Listing, details as described in the sections entitled Plan of Distribution and General and Statutory Information Management and Placement Arrangements of this Offer Document A day on which the SGX-ST is open for trading in securities Multinational companies Net asset value The nominating committee of our Company as at the date of this Offer Document, unless otherwise stated The non-executive Directors of our Company (including the Independent Directors) as at the date of this Offer Document, unless otherwise stated Net tangible assets, calculated as total assets less total liabilities and any intangible assets This offer document dated 11 September 2013 issued by our Company in respect of the Placement
Listing Manual
Management Agreement
: : : :
Non-Executive Directors
NTA
Offer Document
DEFINITIONS
Option(s) : The option(s) which have been or which may be granted pursuant to the Stock Option Scheme The new Shares which may be allotted and issued upon exercise of the Options Price earnings ratio The period which comprises FY2011, FY2012 and FY2013 Peoples Republic of China The placement of the Placement Shares by the Placement Agent on behalf of our Company for subscription at the Placement Price subject to and on the terms and conditions as set out in this Offer Document The placement agreement between our Company and PPCF pursuant to which PPCF agreed to procure subscriptions for the Placement Shares at the Placement Price as described in the sections entitled Plan of Distribution and General and Statutory Information Management and Placement Arrangements of this Offer Document S$0.26 for each Placement Share The 25,000,000 new Shares for which our Company invites applications to subscribe for pursuant to the Placement, subject to and on the terms and conditions set out in this Offer Document The 1,150,000 new Shares to be issued and allotted to PPCF by our Company as part of PPCFs fees as the Manager and Sponsor (a) Controlling Shareholders and their Associates; and (b) Executive Directors with an interest of 5.0% or more of the Issued Share Capital of our Company at the time of listing The period which comprises FY2011, FY2012, FY2013, and from 1 April 2013 to the Latest Practicable Date The remuneration committee of our Company as at the date of this Offer Document, unless otherwise stated Research and development The securities account maintained by a Depositor with CDP but does not include a securities sub-account The Securities and Futures Act (Chapter 289) of Singapore, as amended, supplemented or modified from time to time
Option Shares
: : : :
Placement Agreement
: :
PPCF Shares
Promoters
Relevant Period
Remuneration Committee
: :
DEFINITIONS
Service Agreements : The service agreements entered into between our Company and each of Manabu Kobayashi, Tatsushi Oshimi and Takeshi Hosaka, as described in the section entitled Directors, Management and Staff Service Agreements of this Offer Document The Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore, as amended, supplemented or modified from time to time Ordinary share(s) in the capital of our Company Registered holders of Shares, except where the registered holder is CDP, the term Shareholder shall, in relation to such Shares mean the Depositors whose Securities Accounts are credited with Shares The Republic of Singapore The Companies Act (Chapter 50) of Singapore, as amended, supplemented or modified from time to time The Xyec Employee Stock Option Scheme, first implemented in 2006, as approved by our Shareholders, and amended to be compliant with Chapter 8 Part VIII of the Catalist Rules, approved by a majority of our Shareholders on 25 June 2013. Please refer to Appendix E Rules of the Stock Option Scheme and Compliance Checklist for the Original Rules of Xyec Employee Stock Option Scheme and Rules of the Stock Option Scheme for more details Sub-division of each Share into 3,000 Shares, approved by our Board of Directors in April 2013 and effected on 16 May 2013 with a record date of 31 March 2013 A company in which shares of an amount exceeding 50.0% of its paid-up capital are held directly or indirectly by our Company, or a company in which we hold less than 50.0% of its paid-up capital but in which we exercise management control Persons who have an interest in one or more voting shares, and the total votes attaching to that share or those shares representing not less than 5.0% of the total votes attaching to all the voting shares in our Company
SFR
Share(s) Shareholder(s)
: :
: :
Sub-Division
Subsidiary
Substantial Shareholders
Currencies, Units and Others JPY SGD, S$ and cents : : Japanese yen Singapore dollars and cents respectively
DEFINITIONS
THB USD % or per cent. : : : Thai baht United States dollars Per centum
Certain Japanese names and terms have been translated into English. Such translations are provided solely for the convenience of Singapore-based investors, may not have been registered with the relevant Japanese authorities and should not be construed as representations that the English names and terms actually represent the Japanese names and terms. The expression business trust has the same meaning ascribed to it in Section 2 of the Business Trusts Act (Chapter 31A) of Singapore. The expression Entity includes a corporation, an unincorporated association, a partnership and the government of any state, but does not include a trust. The expressions Depositor, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Singapore Companies Act. References in this Offer Document to Appendix or Appendices are references to an appendix or appendices respectively in this Offer Document. Any discrepancies in tables included herein between the total sum of amounts listed and the totals shown thereof are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. 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 Offer Document and the Application Forms to any statute or enactment is a reference to that statute or enactment as for the time being amended or re-enacted. Any word defined under the Singapore Companies Act, the SFA, SFR or any statutory modification thereof and used in this Offer Document and the Application Forms shall, where applicable, have the meaning ascribed to it under the Singapore Companies Act, the SFA, SFR or any statutory modification thereto, as the case may be. Any reference in this Offer Document and the Application Forms to Shares being allotted to an applicant includes allotment to CDP for the account of that applicant. Any reference to a time of day in this Offer Document and the Application Forms is a reference to Singapore time unless otherwise stated. Any reference in this Offer Document to the Group, we, our, us or their other grammatical variations is a reference to our Company, or Group, or any member of our Group, as the context requires. Unless we indicate otherwise, all information in this Offer Document is presented on the basis of our Group.
10
Automobile ECUs
CAD/CAM
CAE
Cloud computing
CRM
Engineering Services
11
IT Infrastructure
IT Services
IT Solutions
OEM
OES
12
Representative Director
SAP
The management of a network of interconnected businesses involved in the provision of product and service packages required by end customers in a supply chain. Supply chain management spans across all movement and storage of raw materials, inventory and finished goods from point of origin to point of consumption A relatively low-cost form of computing that takes place in a client-server environment, which main or sole function is to process keyboard input and screen output and which accesses most or all application programmes and data from a central server via a network. Thin client computing is generally preferred in large establishments where a low total cost of ownership is desirable Enterprise Resource Planning software comprising software and hardware that allows companies to run the equivalent of two ERP systems at the same time: one at the corporate level, and the other one at the division or subsidiary level Voice Ordering Communication Service
Two-Tier ERP
VOCS
13
are only predictions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expected, expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include, among others: (a) changes in political, social and economic conditions and the regulatory environment in Japan in which we conduct the main bulk of our business; the risk that we may be unable to realise our anticipated growth strategies and expected internal growth; changes in the availability and prices of human resource, materials and equipment which we require for the operation of our business; changes in customers preferences; changes in competitive conditions and our ability to compete under such conditions; changes in our future capital needs and the availability of financing and capital to fund such needs; changes in currency exchange rates; and other factors beyond our control.
(b)
(c)
(g) (h)
Some of these risk factors are discussed in more detail in this Offer Document, in particular, but not limited to, the discussions in the sections entitled Risk Factors and Managements Discussion and Analysis of Results of Operations and Financial Position of this Offer Document.
14
15
SELLING RESTRICTIONS
This Offer Document does not constitute an offer, solicitation or invitation to subscribe for the Placement 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 requirements of, any jurisdiction, except for the lodgement and/or registration of this Offer Document in Singapore in order to permit a public offering of the Placement Shares and the public distribution of this Offer Document in Singapore. The distribution of this Offer Document and the offering of the Placement Shares in certain jurisdictions may be restricted by the relevant laws in such jurisdictions. Persons who may come into possession of this Offer Document are required by our Company and the Manager, Sponsor and Placement Agent to inform themselves about, and to observe and comply with, any such restrictions at their own expense and without liability to our Company and the Manager, Sponsor and Placement Agent.
16
that is materially adverse from the point of view of an investor, we may lodge a supplementary or replacement offer document with the SGX-ST, acting as agent on behalf of the Authority. In the event that a supplementary or replacement offer document is lodged with the SGX-ST, the Placement shall be kept open for at least 14 days after the lodgement of such supplementary or replacement offer document. Where prior to the lodgement of the supplementary or replacement offer document, applications have been made under this Offer Document to subscribe for the Placement Shares and: (a) where the Placement Shares have not been issued to the applicants, our Company shall: (i) within two days (excluding any Saturday, Sunday or public holiday) from the date of lodgement of the supplementary or replacement offer document, give the applicants notice in writing of how to obtain, or arrange to receive, a copy of the supplementary or replacement offer document, and provide the applicants with an option to withdraw their applications and take all reasonable steps to make available within a reasonable period the supplementary or replacement offer document to the applicants who have indicated that they wish to obtain, or have arranged to receive, a copy of the supplementary or replacement offer document; within seven days from the date of lodgement of the supplementary or replacement offer document, give the applicants the supplementary or replacement offer document, as the case may be, and provide the applicants with an option to withdraw their applications; or
(ii)
(iii) treat the applications as withdrawn and cancelled, in which case the applications shall be deemed to have been withdrawn and cancelled, and our Company shall return all monies paid in respect of any application, without interest or any share of revenue or other benefit arising therefrom and at the applicants own risk; or (b) where the Placement Shares have been issued to the applicants, our Company shall: (i) within two days (excluding any Saturday, Sunday or public holiday) from the date of lodgement of the supplementary or replacement offer document, give the applicants notice in writing of how to obtain, or arrange to receive, a copy of the supplementary or replacement offer document, and provide the applicants with an option to return to our Company the Placement Shares which they do not wish to retain title in, and take all reasonable steps to make available within a reasonable period the supplementary or replacement offer document to the applicants who have indicated that they wish to obtain, or have arranged to receive, a copy of the supplementary or replacement offer document; within seven days from the date of lodgement of the supplementary or replacement offer document, give the applicants the supplementary or replacement offer document, as the case may be, and provide the applicants with an option to return to our Company the Placement Shares, which they do not wish to retain title in; or
(ii)
18
(b)
Such monies paid in respect of an application will be returned to the applicants at their own risk, without interest or any share of revenue or other benefit arising therefrom, and they will not have any claims against our Company or the Manager, Sponsor and Placement Agent. If our Company is required by applicable Singapore laws to cancel issued Placement Shares and repay application monies to applicants (including instances where a stop order under the SFA is issued), subject to compliance with the Japan Companies Act, our Company will purchase the Placement Shares at the Placement Price.
19
20
21
The above timetable is only indicative as it assumes that the date of closing of the Application List will be on 16 September 2013, the date of admission of our Company to Catalist will be 18 September 2013, the SGX-ST shareholding spread requirement will be complied with and the Placement Shares will be issued and fully paid-up prior to 18 September 2013. The above timetable and procedures may be subject to such modification(s) as the SGX-ST may, in its absolute discretion, decide, including the commencement of trading on a ready basis and the commencement date of such trading. In the event of any changes in the closure of the Application List or the time period during which the Placement is open, we will publicly announce the same: (a) through a SGXNET announcement to be posted on the Internet at the SGX-ST website http://www.sgx.com; and in a local English language newspaper(s) such as The Straits Times or The Business Times in Singapore.
(b)
We will publicly announce the level of subscription and the results of the distribution of the Placement Shares pursuant to the Placement, as soon as it is practicable after the close of the Application List through channels in (a) and (b) above. You should consult the SGX-STs announcement on the ready trading date released on the Internet (at the SGX-ST website http://www.sgx.com) or the local newspapers, or check with your brokers on the date on which trading on a ready basis will commence.
22
PLAN OF DISTRIBUTION
The Placement is for 25,000,000 Placement Shares offered in Singapore and the Listing is managed and sponsored by PPCF. Prior to the Placement, there has been no public market for our Shares. The Placement Price is determined by us in consultation with the Manager, Sponsor and Placement Agent, taking into account, inter alia , prevailing market conditions and the estimated market demand for the Placement Shares determined through a book-building process. The Placement Price is the same for all Placement Shares and is payable in full on application. Pursuant to the Management Agreement entered into between us and PPCF as set out in the section entitled General and Statutory Information Management and Placement Arrangements of this Offer Document, we have appointed PPCF, and PPCF has agreed, to manage and to act as full sponsor for the Listing. The Manager, Sponsor and Placement Agent will receive a management fee for its services rendered in connection with the Placement Placement Shares The Placement Shares are made available to retail and institutional investors in Singapore who may apply through their brokers or financial institutions by way of the Application Forms. Application for the Placement Shares may only be made by way of the printed Application Forms as described in Appendix F of this Offer Document. The terms, conditions and procedures for application and acceptance are set out in Appendix F Terms, Conditions and Procedures for Application and Acceptance of this Offer Document. Pursuant to the Placement Agreement entered into between us and the Placement Agent as set out in the section entitled General and Statutory Information Management and Placement Arrangement of this Offer Document, we have appointed PPCF as the Placement Agent and PPCF has agreed to procure subscriptions for the Placement Shares for a placement commission of 5.0% of the aggregate Placement Price payable by our Company pursuant to the Placement. Subject to any applicable laws and regulations, our Company agrees that PPCF may, at its absolute discretion, appoint one or more sub-placement agents for the Placement Shares upon such terms and conditions as the Placement Agent may deem fit. Subscription for Placement Shares Other than our Controlling Shareholder Mamezou, none of our Directors, Substantial Shareholders or our Statutory Auditors intends to subscribe for the Placement Shares pursuant to the Placement. As far as we are aware, none of our Independent Directors, our Statutory Auditors, the members of our Companys management or employees intends to subscribe for more than 5.0% of the Placement Shares in the Placement. To the best of our knowledge and belief, as at the date of this Offer Document, we are not aware of any person who intends to subscribe for more than 5.0% of the Placement Shares in the Placement, save for our Controlling Shareholder Mamezou. However, through a book-building process to assess market demand for our Shares, there may be person(s) who may indicate an interest to subscribe for Shares amounting to more than 5.0% of the Placement Shares. If such person(s) were to make an application for more than 5.0% of the Placement Shares pursuant to the Placement and are subsequently allotted such number of Shares, we will make the necessary announcements at an appropriate time. The final allotment of Shares will be in accordance with the shareholding spread and distribution guidelines as set out in Rule 406 of the Catalist Rules.
23
PLAN OF DISTRIBUTION
No Shares shall be issued and allotted on the basis of this Offer Document later than six months after the date of registration of this Offer Document by SGX-ST, acting as agent on behalf of the Authority. INTERESTS OF MANAGER, SPONSOR AND PLACEMENT AGENT In the reasonable opinion of our Directors, PPCF does not have a material relationship with our Company save as disclosed below and in the section entitled General and Statutory Information Management and Placement Arrangements of this Offer Document: (a) (b) PPCF is the Manager, Sponsor and Placement Agent in relation to the Listing; PPCF will be the continuing Sponsor of our Company for a period of three years from the date our Company is admitted and listed on the Catalist; and Pursuant to the Management Agreement and as part of PPCFs fees as the Manager and Sponsor, our Company issued and allotted to PPCF 1,150,000 new Shares, representing 1.35% of the Issued Share Capital of our Company immediately prior to the Placement, at the Placement Price. Upon the completion of the relevant moratorium period as set out in the section entitled Shareholders Moratorium of this Offer Document, PPCF will dispose its shareholding interest in our Company at its own discretion.
(c)
24
(b)
(c)
A detailed discussion of our business and the products and services we provide is set out in the section entitled General Information on Our Group Business Overview of this Offer Document.
25
A detailed discussion of our competitive strengths is set out in the section entitled General Information on Our Group Competitive Strengths of this Offer Document. OUR PROSPECTS Our Directors believe that we will continue to enjoy growth in the foreseeable future while the engineering and IT services industries continue to develop for the following reasons: (a) (b) (c) (d) Outlook for growth of software embedded in automobiles; Growth in machinery-related CAD/CAM/CAE market in Japan; Growth in the global CAE market; and Growth in the ERP package market.
OUR GROWTH STRATEGY AND FUTURE PLANS We aim to be a leading integrated engineering and IT services provider for major manufacturing industries, such as the automobile, machinery, telecommunications and electronics industries. We aim to grow our business mainly in two ways, namely: (a) by taking advantage of adjacent opportunities in each of our three business segments. Our Groups comprehensive service offerings allow us to share expertise across our Group, and we will leverage one line of our business to cross-sell our other lines of business and service offerings; and by providing higher value-added services and thereby enhancing our margins. To this end, we intend to: (i) undertake more complicated projects from customers in our Engineering Services and IT Services business segments; and increase the portfolio for our IT Solutions business segment where margins are relatively higher.
(b)
(ii)
26
A detailed discussion of our prospects, business strategies and future plans is set out in the sections entitled General Information on Our Group Prospects and General Information on Our Group Our Growth Strategy and Future Plans of this Offer Document. OUR CONTACT DETAILS Our Companys registered office and principal place of business is located at 4-15, Konan 2-chome, Minato-ku, Tokyo, Japan. Our Companys telephone number is +81 35781 9195 and our facsimile number is +81 35781 9196. Our internet address is http://www.xyec.co.jp. Information contained in our website does not constitute part of this Offer Document. SUMMARY OF OUR FINANCIAL INFORMATION The following summary of our financial information should be read in conjunction with the full text of this Offer Document, including the sections entitled Managements Discussion and Analysis of Results of Operations and Financial Position of this Offer Document, and Appendix A Independent Auditors Report on the Consolidated Financial Statements of Xyec Holdings Co., Ltd. and its Subsidiaries for the Financial Years Ended 31 March 2011, 2012 and 2013 of this Offer Document. Selected items on the operating results of our Group
Audited Consolidated FY2012 FY2013 5,582,591 1,162,124 222,987 162,488 1.91 1.48 6,225,279 1,366,650 175,677 81,726 0.96 0.74
(JPY000) Revenue Gross profit Profit before tax from continuing operations(1) Profit for the year from continuing operations Unaudited EPS (JPY)(2) Unaudited Adjusted EPS (JPY) (1)(3)
Notes: (1)
(1)
Had the Service Agreements (set out in the section entitled Directors, Executive Officers and Staff Service Agreements of this Offer Document) been in place since 1 April 2012, our consolidated profit before tax from continuing operations, profit for the year from continuing operations and EPS computed based on our postPlacement Issued Share Capital of 110,024,000 Shares for FY2013 would have been JPY167 million, JPY77 million and JPY0.70 respectively. For comparative purposes, the EPS for the Period Under Review has been computed based on the profit for the year from continuing operations and the pre-Placement Issued Share Capital of 85,024,000 Shares. For comparative purposes, the adjusted EPS for the Period Under Review has been computed based on the profit for the year from continuing operations and the post-Placement Issued Share Capital of 110,024,000 Shares.
(2) (3)
27
Unaudited Consolidated FY2011 (2) FY2012(3) FY2013 (4) 75,237 14,195 1,166 1,295 0.02 0.01 88,570 18,438 3,538 2,578 0.03 0.02 93,137 20,447 2,628 1,223 0.01 0.01
Selected items on the financial position of our Group as at 31 March 2013 Audited Consolidated (JPY000) Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets Total equity Unaudited NTA per Share
Notes: (1) (2) Based on the exchange rate of JPY75.73 to S$1.00 as at 31 March 2013. NTA per Share is computed based on the NTA value and our pre-Placement Issued Share Capital of 85,024,000 Shares.
(2)
Unaudited Consolidated (S$000) (1) 12,135 42,538 54,672 2,785 32,968 35,753 18.919 18,919 S$0.13
28
THE PLACEMENT
Placement Price : S$0.26 for each Placement Share, payable in full on application. 25,000,000 new Shares. The new Shares, upon issue and allotment, will rank pari passu in all respects with our existing issued Shares. The Placement : The Placement comprises a placement of 25,000,000 Placement Shares at the Placement Price by way of placement, subject to and on the terms and conditions of this Offer Document. The purpose of the Placement is to secure the admission of our Company to Catalist. Our Directors consider that the listing and quotation of our Shares on Catalist will enhance our public image locally and overseas and enable us to tap the capital markets for the expansion of our business operations. The Placement will also provide the members of the public with an opportunity to participate in the equity of our Company. In addition, the proceeds from the issue of the Placement Shares will also provide us with, inter alia , additional working capital to finance our business expansion. Listing Status : Prior to the Placement, there had been no public market for our Shares. Our Shares will be quoted in Singapore dollars on Catalist, subject to admission of our Company to Catalist and permission for dealing in, and for quotation of, our Shares being granted by the SGX-ST. Investing in our Shares involves risks which are described in the section entitled Risk Factors of this Offer Document. Please refer to the section entitled Use of Proceeds and Listing Expenses of this Offer Document for more details.
Placement Size
Risk Factors
Use of Proceeds
29
EXCHANGE RATES
The following table below shows the highest, lowest, average and year-end exchange rates between Singapore dollar and Japanese yen (in JPY per Singapore dollar). These exchange rates have been presented solely for information only. We do not make any representations that the Japanese yen or Singapore dollar amounts set forth below and referred to elsewhere in this Offer Document could have been or could be converted into any of the respective other currencies at the rate indicated or at any other rate or at all. Japanese yen per Singapore dollar (1) February 2013 March 2013 April 2013 May 2013 June 2013 July 2013 1 August 2013 to the Latest Practicable Date Japanese yen per Singapore dollar (1) FY2011 FY2012 FY2013 Highest 75.90 77.43 80.66 82.23 80.12 79.17 77.87 Average 64.31 63.03 66.84 Lowest 73.96 74.88 75.02 78.91 75.24 77.04 76.53 Closing 65.58 65.27 75.73
The exchange rate (1) between JPY and S$ as at the Latest Practicable Date was JPY76.59 to S$1.00.
Note: (1) Source: The Authority. The Authority has not provided its consent, for the purposes of Section 249 of the SFA, to the inclusion of the information extracted from the relevant reports and is therefore not liable for such information under Section 253 and 254 of the SFA. While we have taken reasonable actions to ensure that the information from the relevant reports issued by the Authority is reproduced in its proper form and context, and that the information is extracted accurately and fairly from such reports, neither we nor any party has conducted an independent review of the information contained in such reported nor verified the accuracy of the contents of the relevant information.
Fluctuations in the exchange rate between the Singapore dollar and the Japanese yen will affect the Japanese yen equivalent of the Singapore dollar price of our Shares on the SGX-ST and the Japanese yen value of the cash dividends paid by us in the Singapore dollar.
30
RISK FACTORS
You should carefully evaluate each of the following risk factors and all of the other information set forth in this Offer Document before deciding to invest in our Shares. Some of the following considerations relate principally to the industry in which we operate and our business in general. Other considerations relate principally to general social, economic, political and regulatory conditions, the securities market and ownership of our Shares, including possible future dilution in the value of our Shares. You should also note that certain statements set forth below constitute forward-looking statements that involve risks and uncertainties. If any of the following risk factors and uncertainties develops into actual events, our business, financial condition or results of operations or cash flows could be materially and adversely affected. In such circumstances, the trading price of our Shares could decline due to any of these risk factors, and you may lose all or part of your investment. To the best of our Directors belief and knowledge, all the risk factors that are material to investors in making an informed judgement have been set out below. RISKS RELATING TO OUR INDUSTRY AND OUR BUSINESS We depend on one major customer who contributed a significant part of our revenue for the Period Under Review For the Period Under Review, we had one major customer, namely Denso Techno, which is part of the Denso group of companies which collectively contributed approximately 34.7%, 34.1% and 35.3% of our total revenue. Please refer to the section entitled General Information on Our Group Our Major Customers of this Offer Document for more details. Although we have not experienced any significant problems with Denso Techno and the Denso group of companies and have maintained good business relationships with them, there can be no assurance that our business relationships will remain cordial or that we will be able to continue obtaining orders from them on terms which are acceptable to us, or at all. Our agreements with Denso Techno are renewable on a yearly basis, and Denso Techno is entitled to terminate the agreements in certain events, such as our non-compliance with contractual obligations, and our infringement of any intellectual property rights. There can be no assurance that we will be able to successfully renew the agreements with Denso Techno on terms acceptable to us, or at all, or that Denso Techno will not terminate the existing agreement. If Denso Techno decides to terminate or not to renew their existing agreements with us on current terms or at all, cancel or reduce their orders, or make any claims against us for whatever reasons, our business, results of operations and prospects may be materially and adversely affected. We are reliant on the Japanese market for our business For the Period Under Review, approximately 100.0%, 100.0%, and 99.8% of our revenue were derived from the Japanese market, respectively. Our Directors anticipate that the provision of our Engineering Services, IT Services and IT Solutions to the Japanese market will continue to represent a significant portion of the total revenue of our Group in the near future. Any adverse change in the economic, political, social and legal environment in Japan and any adverse change in the Japanese domestic demand for our Engineering Services, IT Services and IT Solutions may have a material and adverse effect on our business, results of operations and prospects.
31
RISK FACTORS
We do not have long-term commitments from our customers and may not be able to retain our existing customers Our customers do not commit to definite and long-term arrangements for the various services provided by us. Our customers, mainly automobile-related manufacturers and large IT companies, may decide to engage the services of other Engineering Services providers, IT Services providers and IT Solutions providers. In such an event, our business, results of operations and prospects may be adversely affected. In addition, while we have good business relationships with our customers, there can be no assurance that they will not significantly reduce their orders with us or will continue to place orders with us in the future. In such an event, if we are unable to secure alternative orders of comparable size, whether from new or existing customers, our business, results of operations and prospects may be adversely affected. Challenges that affect the automobile industry may also adversely affect our business Our business, results of operations and prospects may be adversely affected by our failure to effectively manage any of the factors affecting the Japanese automobile industry, including: (a) general economic and business conditions at local, national, regional and international levels, including inflation, stagflation and employment levels; demographic changes, such as an aging population which may result in a decreased demand for automobiles; changes in consumer preferences, such as a trend towards using public transport or car-sharing or car-pooling arrangements which may result in a decrease in personal ownership of automobiles; and improvements in the quality of automobiles in the automobile industries of neighbouring countries, such as the PRC and Korea, that may affect the demand for Japanese automobiles.
(b)
(c)
(d)
Our business is affected by technological changes As a technology company, we are affected by rapid changes in technology, changing market trends and evolving industry standards across all areas of our business. The risks we face include: (a) not being able to anticipate and adapt to new technology and developing trends in Engineering Services and IT Services; not being able to expand our IT resources quickly enough to keep up with increasing demand; and the market for business-related software engineering services and IT Solutions business including ERP Consultancy Services not developing according to our expectations.
(b)
(c)
If these or other risks materialise, the growth in the demand for our products and services may be inhibited and this may adversely affect our business, results of operations and prospects.
32
RISK FACTORS
Our plans to grow our existing markets and to expand into new markets may not be successful In order to grow our business, we plan to expand our existing operations in Japan and Thailand and to enter or establish ourselves in new markets, such as the PRC and other countries within Southeast Asia. If the markets for our Engineering Services, IT Services and IT Solutions business segments do not develop, or develop slower than we expect them to, our business will be adversely affected. The expansion of our business into overseas markets involves numerous risks, such as political, economic, regulatory and social conditions, as well as the costs of setting up overseas operations. There can be no assurance that our expansion plans will be successful. In the event that our expansion plans do not succeed, our business, results of operations and prospects may be adversely affected. Our plans to form strategic partnerships may not be successful Much of our Groups growth and expansion have been created out of strategic acquisitions and partnerships. Acquisitions and the formation of strategic relationships such as joint ventures form an important strategy of our business. Please refer to the section entitled General Information on Our Group History of this Offer Document for more details. If we fail to establish these relationships or if these relationships are terminated or do not function as we intend, our business may suffer. Participation in strategic alliances, acquisitions or investments similarly involves risks, including, but not limited to, difficulties in integrating management, operations, services, products and personnel. The successful execution of such growth strategies depends on our ability to identify suitable partners and the successful integration of our respective operations. There can be no assurance that we will be able to execute such growth strategies successfully. Our continued success is dependent on our key management Our success to date has been largely due to the contributions of our management team, comprising our Executive Chairman, President and CEO, Manabu Kobayashi, our Vice-President and Executive Director, Tatsushi Oshimi, and our Executive Officers. In particular, Mr Kobayashi and Mr Oshimi have made key contributions in the formulation of our Groups overall business strategies and they, together with certain members of our Executive Officers, are responsible for our marketing efforts. Our continued success is dependent to a large extent on our ability to retain the services of our management team. The loss of our management team, without suitable replacement, or our inability to attract, train and retain qualified management personnel may have a material adverse effect on our business, results of operations and prospects. Please refer to the section entitled Directors, Management and Staff of this Offer Document for more details on our Directors and Executive Officers. We are reliant on our skilled employees and professionals Our continued success depends largely on our ability to attract, hire and retain suitably skilled executive, managerial and technical employees and professionals. Due to the specialised nature of our services, we are required to maintain a skilled technical workforce. Skilled personnel with the appropriate experience in Engineering Services, IT Services and IT Solutions are limited and 33
RISK FACTORS
the recruitment and retention of such skilled personnel is highly competitive. We may have to offer substantial wages in order to attract and retain the required personnel and this may have an adverse impact on our operating margins. There is no assurance that we will be able to continue to retain the skilled personnel whom we have trained, or that suitable and timely replacements can be found for the skilled personnel who leave us. If we are unable to continue to attract and retain skilled employees, the quality and timeliness of our projects and services to our customers, and consequently, our ability to compete effectively may be adversely affected. Consequently, our business, results of operations and prospects may be adversely affected. Our business operations may be adversely affected by a failure to obtain, or to secure the renewal of our licences, permits and/or certificates applicable to our businesses, as well as by changes to rules and regulations applicable to our businesses which require us to obtain additional permits, licences and/or certificates Most of our licences and permits, in particular, our Licence for Fee-Charging Employment Placement Business, Licence for General Worker Dispatching Business, and Licence for Machinery and Appliance Installation and our certificates, such as ISO/IEC 27001 Management System Certificate, Microsoft Solution Provider Certificate and ISO9001:2008 Quality Management System Certificate are subject to periodic review and/or renewal by the relevant authorities and organisations, and the criteria for compliance or renewal may vary from time to time. Non-renewal of or rejection of new applications for our permits, licenses and/or certificates may have a material adverse effect on our business, results of operations and prospects. Furthermore, changes in our business operations or to the rules and regulations relating to our business operations or the implementation thereof may require us to obtain additional permits, licences and/or certificates from the relevant government authorities or organisations for the conduct of our operations from time to time. In such an event we may need to incur additional expenses in order to comply with such requirements. This will, in turn, affect our financial performance as our business costs will increase. There can also be no assurance that such permits, licences and/or certificates will be granted to us promptly, or at all. If we experience delays in obtaining or are unable to obtain such required permits, licences and/or certificates, our business, results of operations and prospects may be adversely affected. We may be affected by project cost overruns In submitting our proposals for our fixed-fee projects, we carry out internal costing and budgeting estimates based on the scope of work, labour and third-party costs. The accuracy of the internal costing and budgeting estimates is based on our experience and expertise in understanding and assessing the complexity and challenges of each project. Omissions in estimation in our internal costing may arise. As these circumstances may require additional costs and work which were not factored in our fee mandate, they may lead to cost overruns which may erode our profit margin for the project. If we are unable to manage such cost overruns or negotiate revised fees with our customers, our business, results of operations and prospects may be adversely affected.
34
RISK FACTORS
We operate in a highly competitive environment and face competition from existing competitors and new market entrants We operate in a highly competitive environment. We generally compete with our competitors on, among other things, competitive pricing, good customer relationship management and good service delivery and the quality of our products and services. There is no assurance that we can continue to compete against our competitors successfully in the future. We may face more intense competition in the future from existing competitors and new market entrants. Our competitors or potential competitors may be in a better position to expand their market share, due to their longer operating histories, larger customer base, greater access to suppliers, wider range of products and services, greater financial resources or otherwise. Increased competition may result in lower demand for our products and/or services, lower profit margins and/or loss of market share. If we fail to compete effectively, and to maintain or grow our market share, our business, results of operations and prospects will be adversely affected. Please refer to the section entitled General Information on Our Group Competition of this Offer Document for more details. We are exposed to the risks of intellectual property infringement or may face litigation suits for intellectual property infringement We are not aware of any violations or infringements of our intellectual property rights over the Period Under Review and as at the Latest Practicable Date. However, there is no assurance that third parties will not infringe our intellectual property rights in ways that will have negative repercussions on our reputation, business, results of operations and prospects or that measures taken by us will be effective in protecting our intellectual property rights. In the event third parties unlawfully infringe on our intellectual property rights, we may face considerable difficulties and costly litigation in order to fully protect our intellectual property rights, which may in turn adversely affect our reputation, business, results of operations and prospects. Please refer to the section entitled General Information on Our Group Intellectual Property of this Offer Document for more details on our intellectual property. We may also receive allegations from third parties asserting the infringement of their intellectual property rights in relation to our business and operations. Any claim or litigation against us in respect of the infringement of intellectual property rights of third parties, whether with or without merit, could divert a significant amount of our management, financial and other resources, and could also affect our reputation with our customers and suppliers which may in turn, have a material and adverse effect on our business, results of operations and prospects. We may be affected by any adverse impact on our reputation and goodwill Any negative publicity about the Japanese automobile industry, our Company, our Subsidiaries, our Directors, our Executive Officers or our Substantial Shareholders, whether founded or unfounded, may tarnish our reputation and goodwill with our customers and suppliers. Such negative publicity or announcements may include, inter alia , product liability claims on or, reports of product recall by, automobile manufacturers (whether or not related to the Automobile ECUs that our Group works on), our unsuccessful attempts in joint ventures or acquisitions, or our involvement in litigation or insolvency proceedings.
35
RISK FACTORS
Under these circumstances, our customers and suppliers may lose confidence in our business, our Directors, our Executive Officers or our Substantial Shareholders, and this could affect our business relationships with them and their referral of new business opportunities. This may have a material and adverse impact on our business, results of operations, prospects and the Share price performance of our Company. We may require additional funding for our future growth Although we have identified our future growth plans, as set out in the section entitled General Information on Our Group Our Growth Strategy and Future Plans of this Offer Document, the proceeds from the Placement may not be sufficient to cover the estimated costs of implementing all of these plans. We may also find future opportunities to grow through acquisitions, which we have yet to identify at this juncture, and may need to obtain additional debt or equity financing to take advantage of such growth opportunities. There is no assurance that we will be able to obtain the additional debt and/or equity financing on terms that are acceptable to us, or at all. Any inability to secure additional debt and/or equity financing may materially and adversely affect our business strategies and/or future plans and financial position. Debt financing, if available, may also involve restrictive covenants, which may limit our operating flexibility. If additional funds are raised through the issuance of equity or equity-linked instruments, our Shareholders may suffer dilution in their shareholdings. Further, if such financing does not generate a commensurate increase in earnings, our EPS will be diluted and this could lead to a decline in our Share price. Additional debt financing may, apart from increasing our interest expense and gearing also: (a) (b) (c) limit our ability to pay dividends; increase our vulnerability to general adverse economic and industry conditions; require us to dedicate a substantial portion of our cash flow from operations to payments towards our debt, thereby reducing available cash flow to fund capital expenditure, working capital and other requirements; and/or limit our flexibility in planning for, or reacting to, changes in our business and industry.
(d)
We are exposed to the credit risks of our customers We extend credit terms ranging from 30 to 90 days to our customers, depending on their credit worthiness, length and quality of relationship with our Group. We are exposed to the risk of bad debts should our customers face financial difficulties, or if they decline, neglect or fail to fulfil their payment obligations to us. In the event that we are unable to collect payments due to us from our customers, we will have to make allowance for doubtful or bad debts or incur debt write-offs, all of which will have an adverse effect on our business, results of operations and prospects. Please refer to the section entitled General Information of Our Group Credit Policy for more details.
36
RISK FACTORS
We may be affected by disruptions in the global financial markets and the sovereign debt markets During the global financial crisis between 2008 and 2011, disruptions in the global financial markets coupled with the repricing of credit risks, the deterioration of the housing markets in the western countries and a slowdown in the global economy had resulted in historic volatility, tight liquidity, widening of credit spreads and a lack of price transparency in certain markets. These conditions had resulted in the failures of a number of financial institutions and unprecedented action by government authorities and central banks around the world. Rising sovereign debt levels coupled with the downgrading of sovereign debts in certain western countries had made it difficult or close to impossible for these countries to refinance their debts and resulted in the sovereign debt crisis in these economies. Due to the interconnectedness of the worlds economy, the extended downturn in the West had reverberated across other economies elsewhere and this has caused increasingly difficult and volatile economic and financial conditions in the global markets. Although government authorities and central banks have introduced stimulus measures to support the economies, it is difficult to predict how long these conditions will persist, whether conditions will normalise without the stimulus measures, what structural and/or regulatory changes may result from these conditions or how frequently such crises will recur in the future. Such conditions are outside of our control and may have a material adverse effect on our ability and cost to access the financial markets, our business, results of operations and prospects. Our business may be adversely affected by natural disasters such as earthquakes and tsunamis On 11 March 2011, the Great East Japan Earthquake occurred off the eastern coast of Japan and was followed shortly thereafter by a tsunami that struck a part of Japans pacific coast. The earthquake and tsunami resulted in over 15,000 deaths and significant property damage in Japan, particularly in the Tohoku region, and contributed to the collapse of the nuclear power plants in Fukushima Prefecture. In addition, the damage caused by the earthquake, tsunami and nuclear power plant collapse resulted in electricity shortages and related rolling blackouts through much of the Tohoku and Kanto regions, including Tokyo. In the immediate aftermath of the earthquake and tsunami, there was significant short-term negative impact on the Japanese economy and some of Japans key industries such as automobile and electronics. Many manufacturers had to close, suspend or relocate their manufacturing operations and experienced slowdowns or halts in production. Japan remains at risk of experiencing such natural disasters and the nuclear accidents that may follow such natural disasters. The occurrence of such events may cause significant and unforeseeable adverse effects on the Japanese economy and, by the same token, on our business, results of operations and prospects.
37
RISK FACTORS
An outbreak of communicable diseases, severe weather conditions, or other incidents may affect us, our customers and our suppliers which if uncontrolled, would affect our financial performance and prospects An outbreak of the H7N9 influenza and/or other communicable diseases, if uncontrolled, can affect our operations, as well as the operations of our customers. Further, in the event that any of our employees are infected with such communicable diseases, we may be required to quarantine our employees or shut down part of our operations to prevent the spread of the disease. This will result in longer lead-time for the completion of our projects and the delivery of our services. Failure to meet our customers expectations can damage our reputation and may lead to loss of business and affect our ability to attract new business. Severe weather conditions such as typhoons, and other incidents such as terrorist attacks, armed conflicts or riots also may from time to time disrupt business operations and cause widespread destruction. If any of these occurrences were to happen to any of our major customers, major suppliers or their employees or to us or our employees, our business, results of operations, and prospects will be materially and adversely affected. RISKS RELATING TO OWNERSHIP OF OUR SHARES Rights and protection accorded to our Shareholders may be different from those applicable to shareholders of a Singapore incorporated company. For example, Shareholders right to vote is based on one vote per one share unit (tangen) (1,000 Shares). Shareholders with less than 1,000 Shares will not have rights to vote nor to attend Shareholders meetings We are registered as a stock company ( kabushiki kaisha ) under the Japan Companies Act. If you invest in our Shares, you may or may not be accorded the same level of shareholder rights and protection that a shareholder of a Singapore-incorporated company may be accorded under the Singapore Companies Act. For example, under Article 188 of the Japan Companies Act, a company may provide in its articles of incorporation a number of shares that constitutes a share unit (tangen) , which entitles the shareholder to cast one vote. One share unit (tangen) may not exceed 1,000 shares nor one two-hundredth (1/200) of the total number of the issued shares of a company (including treasury shares). Holders of shares comprising less than one share unit have the right to receive dividends when declared and paid, but do not have the right to attend shareholders meeting nor the right to vote. Pursuant to Article 10 of our Companys Articles of Incorporation, 1,000 Shares in the capital of our Company constitutes one share unit (tangen) . One share unit (tangen) or 1,000 Shares entitles a Shareholder to one vote. Shareholders who hold less than 1,000 Shares have no right to attend Shareholders meetings or to exercise their right to vote in respect of such Shares. Shareholders who hold more than 1,000 Shares but in odd lots that are not in multiples of 1,000 have the right to vote according to their number of share units (tangen) but have no right to vote in respect of the odd lot Shares. For example, a Shareholder with 800 Shares has no right to attend our shareholders meetings or to vote; a Shareholder with 2,999 Shares has a right to attend our shareholders meetings and is entitled to two votes. Although Article 192 of the Japan Companies Act provides that a holder of shares that constitute less than one share unit (tangen) has the right to require the company to purchase his shares that constitute less than one share unit (tangen) , such right is available only to a registered shareholder, which is, in the case of our Company, not available to the CDP Depositors.
38
RISK FACTORS
For more details on the nature of Shares in a stock company ( kabushiki kaisha ) under the Japan Companies Act, a comparison between the corporate laws in Singapore and Japan, our Articles of Incorporation and its comparison with Appendix 4C of the Catalist Rules, please refer to the sections Description of Ordinary Shares, Appendix B Comparison between Singapore Corporate Law and Japan Corporate Law, Appendix C Our Articles of Incorporation, and Appendix D Comparison between Our Articles of Incorporation and Appendix 4C of the Catalist Rules of this Offer Document, respectively. Each of the summaries and explanatory statements is not intended to be and does not constitute legal advice, and any person wishing to have advice on the differences between the Japan Companies Act and the Singapore Companies Act and/or the laws of any jurisdiction with which he is not familiar is recommended to seek independent legal advice. CDP Depositors will not be considered as Shareholders of our Company Under Japan law and our Articles of Incorporation, persons holding our Shares in a Securities Account with CDP and whose names appear in the depository register of CDP will not be considered as our Shareholders. Only Shareholders whose names appear on our shareholders register are entitled to attend meetings of Shareholders and exercise their voting rights under their own names with regard to Shares directly owned by them. Depositors who subscribe for Shares in the Placement and those who trade in the Shares listed on the Catalist will hold their Shares through the CDP system. Accordingly, CDP will be the only registered holder on our shareholders register and accordingly, CDP will be the only person or entity recognised as Shareholder and legally entitled to vote on any matter to be submitted to the vote of our Shareholders at a general meeting of Shareholders. Further to the amendments of our Articles of Incorporation on 22 July 2013, our Articles of Incorporation provide that the Depository may appoint multiple proxies to attend and vote at the same general shareholders meeting. The Company shall also accept as valid in all respects the form of proxy approved by the Depository for use at the date relevant to the general shareholders meeting in question notwithstanding that the same permits the CDP 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 to and bound, in determining rights to vote and other matters in respect of the said form of proxy submitted to it, to have regard to the instructions given by and the notes (if any) set out in the said form of proxy. Please see the section entitled Clearance and Settlement Voting Instructions of this Offer Document for more details. We are incorporated in Japan and most of our Directors named in this Offer Document are residents of Japan We are incorporated in Japan and most of our Directors named in this Offer Document are residents of Japan. Additionally, most of our assets and the assets of our Directors are located in Japan. As a result, you may not be able to: (a) effect services of process of a writ issued in Japan upon us or these persons outside Japan without leave of the Japanese courts; or enforce against us judgements obtained in courts outside of Japan, unless it is a final judgement, the foreign court had jurisdiction over the subject matter, the defendant in the proceedings in the foreign court received notice of the proceedings in sufficient time 39
(b)
RISK FACTORS
(excluding by public notice) or has appeared before such foreign court to enable it to defend against claims made, the cause of action on which the judgement was based is not repugnant to the due process, natural justice or public policy of Japan and reciprocity exists between the jurisdiction in which the judgement was rendered and Japan in relation to the enforcement of a foreign judgement. Singapore has no reciprocal arrangement with Japan for the enforcement of judgements obtained in the Singapore courts. Investments in securities quoted on Catalist involve a higher degree of risk and can be less liquid than shares quoted on the Main Board of the SGX-ST We have made an application for our Shares to be admitted to Catalist, a listing platform primarily designed for fast growing and emerging or smaller companies to which a higher investment risk tends to be attached as compared to larger or more established companies listed on the Main Board of the SGX-ST. An investment in shares quoted on Catalist may carry a higher risk than an investment in shares quoted on the Main Board of the SGX-ST and the future success and liquidity in the market of our Shares cannot be guaranteed. Pursuant to the Listing Manual, we are required to, inter alia, retain a sponsor at all times after the admission of our Company to Catalist. In particular, unless approved by the SGX-ST, the Sponsor must act as our continuing sponsor for at least three years after the admission of our Company to Catalist. In addition, we may be delisted in the event that we do not have a sponsor for more than three continuous months. There is no guarantee that following the expiration of the three-year period, the Sponsor will continue to act as our sponsor or that we are able to find a replacement sponsor within the three-month period. Should such risks materialise, we may be delisted. There has been no prior market for our Shares and the Placement may not result in an active or liquid market Prior to the Placement, there has been no public market for our Shares. Although we have made an application to the SGX-ST to list our Shares on Catalist, there is no assurance that an active trading market for our Shares will develop, or if it develops, be sustained. The rules of the Listing Manual require that companies applying for listing of their equity securities on Catalist meet certain minimum shareholding spread and distribution requirements. While we will need to meet these requirements in order to list our Shares on Catalist, these requirements are only minimum requirements and our shareholding distribution in the Placement and our post-Placement shareholding spread may not substantially exceed these limits or may even fall below these limits after the Placement. In the case where the percentage of our post-Placement share capital held by public shareholders is less than 10.0%, the SGX-ST may suspend trading of our Shares. As a result, liquidity of our Shares can be materially curtailed and there may be no or limited trading in our Shares, and you may not be able to acquire Shares or sell your Shares in our Company, either at a favourable price or at all. In addition, if shares, such as our Shares, have only limited liquidity, the price of such shares can fluctuate significantly as a result of only one or a small number of trades in these shares. Control by our Controlling Shareholder and Directors may limit your ability to influence the outcome of decisions requiring the approval of Shareholders Upon completion of the Placement, our Controlling Shareholder and Directors will collectively own approximately 36.9% of our post-Placement Issued Share Capital (assuming our Controlling Shareholder subscribes for 7,064,000 Placement Shares). By virtue of their controlling ownership 40
RISK FACTORS
of our share capital, our Controlling Shareholder and Directors will be able to exert significant influence over our business and otherwise on matters of significance to us and other Shareholders by voting at our Companys general meetings of Shareholders (except where they are required by the relevant laws, rules and regulations to abstain from voting), including: (a) (b) (c) (d) (e) (f) election of directors; amount and timing of dividend payments and other distributions; acquisition of or merger with another entity; overall strategic and investment decisions; issuance of securities and adjustment to our capital structure; and amendments to our Articles of Incorporation.
Investors in our Shares will face immediate and substantial dilution in our NTA per Share and may experience future dilution Our Placement Price of S$0.26 per Share is substantially higher than our unaudited NTA per Share as at 31 March 2013 of S$0.16 based on the post-Placement Issued Share Capital after adjusting for the estimated gross proceeds from the Placement. If we were liquidated for NTA immediately following the Placement, each Shareholder subscribing to the Placement would receive less than the Placement Price they paid for their Shares. Details of the immediate dilution of our Shares incurred by new investors are described in the section entitled Dilution of this Offer Document. Further, if we were to raise funds in the future by way of a placement of Shares, rights issue, or other equity-linked securities for our future equity or equity linked growth, investments, capital expenditure, and working capital, and if any Shareholder is not entitled, unable or unwilling to participate in such fund-raising, such Shareholder, will suffer dilution in their shareholdings in our Company. Further, an issue of our Shares below the then prevailing market price will also affect the value of our Shares then held by an investor. Dilution may occur in shareholding terms even if the issue of Shares is at a premium to the market price. Future sales or issuance of our Shares by our Company or future sales of our Shares by Shareholders could materially and adversely affect our Share price Any future sale or issuance or availability of a large number of our Shares in the public market after the Placement or perception thereof can have a downward pressure on our Share price. These factors could also affect our ability to sell additional equity securities in the future, at a time and price we deem appropriate. In addition, our Share price may come under downward pressure if certain of our Shareholders sell their Shares upon the expiry of their moratorium periods. Save as disclosed under the section entitled Shareholders Moratorium of this Offer Document, there is no other restriction on the ability of our Shareholders to dispose of their shareholdings. Investors may not be able to participate in future issues of our Shares In the event that we issue new Shares, we will be under no obligation to offer those Shares to our existing Shareholders at the time of issue, except where we elect to conduct a rights issue. If we offer to our Shareholders rights to subscribe for additional Shares or any rights of any other nature 41
RISK FACTORS
or other equity issues, we will have the discretion and be subject to the relevant laws, rules and regulations as to the procedures to be followed in making such rights offering available to our existing Shareholders or in disposing of such rights for the benefit of such Shareholders and making the net proceeds available to them. We may choose not to offer the rights or other equity issues to our Shareholders or investors having an address outside Singapore, hence overseas Shareholders or investors may be unable to participate in future offerings of our Shares and may experience dilution of their interests in our Company. Our Share price may be volatile in future which could result in substantial losses for investors purchasing Shares pursuant to the Placement The trading price of our Shares may fluctuate significantly and rapidly after the Placement as a result of, among others, the following factors, some of which are beyond our control: (a) (b) (c) variations of our operating results; changes in analysts recommendations or estimates of our financial performance; changes in market valuations and share prices of companies with business similar to that of our Group that may be listed in Singapore or elsewhere; announcements by us of significant acquisitions, strategic alliances or joint ventures; fluctuations in stock market prices and volume; our involvement in material litigation; additions or departures of our key management personnel; material changes or uncertainty in the political, economic and regulatory environment in the markets that we operate or have business relationships with; success or failure of our efforts in implementing business and growth strategies; and changes in conditions affecting the industry in which we operate, the general economic conditions or stock market sentiments or other events or factors.
(i) (j)
There is also no assurance that the market price for our Shares will not decline below the Placement Price. The Placement Price may not be indicative of prices that may prevail in the trading market after the Placement. Investors may not be able to sell their Shares at or above the Placement Price. The market price of our Shares could be subject to significant fluctuations due to various external factors and events beyond our control and may be unrelated or disproportionate to our financial results, including the liquidity of our Shares in the market, difference between our actual financial or operating results and those expected by investors and analysts, the general market conditions and broad market fluctuations.
42
ISSUE STATISTICS
Placement Price NTA per Share (1) NTA per Share based on the audited consolidated balance sheet of our Group as at 31 March 2013: (a) before adjusting for the estimated net proceeds from the issue of Placement Shares and based on the pre-Placement Issued Share Capital of 85,024,000 Shares after adjusting for the estimated net proceeds from the issue of Placement Shares and based on the post-Placement Issued Share Capital of 110,024,000 Shares 13.46 cents S$0.26
(b)
16.31 cents
Premium of Placement Price over the NTA per Share as at 31 March 2013: (a) before adjusting for the estimated net proceeds from the issue of Placement Shares and based on the pre-Placement Issued Share Capital of 85,024,000 Shares after adjusting for the estimated net proceeds from the issue of Placement Shares and based on the post-Placement Issued Share Capital of 110,024,000 Shares 93.16%
(b)
59.41%
EPS (2) Historical net EPS of our Group for FY2013 adjusted for listing expenses based on our Companys pre-Placement Issued Share Capital of 85,024,000 Shares ( Adjusted EPS ) Adjusted EPS assuming that the Service Agreements had been in place from the beginning of FY2013 PER Historical PER based on the Placement Price and the Adjusted EPS Historical PER based on the Placement Price and the Adjusted EPS, assuming that the Service Agreements had been in place from the beginning of FY2013 Net Operating Cash Flow (1)(3) Historical net operating cash flow per Share of our Group for FY2013 based on the pre-Placement Issued Share Capital of 85,024,000 Shares 4.56 cents 10.97 times 11.40 times 2.37 cents
2.28 cents
43
ISSUE STATISTICS
Historical net operating cash flow per Share of our Group for FY2013 based on the pre-Placement Issued Share Capital of 85,024,000 Shares, assuming that the Service Agreements had been in place from the beginning of FY2013 Price to Net Operating Cash Flow Ratio Ratio of Placement Price to historical net operating cash flow per Share of our Group for FY2013 based on the pre-Placement Issued Share Capital of 85,024,000 Shares Ratio of Placement Price to historical net operating cash flow per Share of our Group for FY2013 based on the pre-Placement Issued Share Capital of 85,024,000 Shares, assuming that the Service Agreements had been in place from the beginning of FY2013 Market Capitalisation Market capitalisation based on the Placement Price and post-Placement Issued Share Capital of 110,024,000 Shares
Notes: (1) (2) (3) Based on the exchange rate of JPY75.73 to S$1.00 as at 31 March 2013. Based on the average exchange rate of JPY66.84 to S$1.00 for FY2013. Net operating cash flow refers to net cash inflows from operating activities.
4.47 cents
5.70 times
5.81 times
S$28.61 million
44
Expanding existing business segments Developing new capabilities and new business areas Establishment of new offices, expansion of operations overseas Mergers and acquisitions Total
Further details of our use of proceeds may be found in the section entitled General Information on Our Group Our Growth Strategy and Future Plans of this Offer Document. The foregoing table represents our Companys best estimate of its allocation of the net proceeds of the Placement based on our current plans and estimates regarding our anticipated expenditures. Actual expenditures may vary from these estimates and our Company may find it necessary or advisable to reallocate the net proceeds within the categories described above or to use portions of the net proceeds for other purposes. In the event that our Company decides to reallocate the net proceeds of the Placement for other purposes, our Company will publicly announce its intention to do so through a SGXNET announcement on the internet at the SGX-ST website, http://www.sgx.com. In addition, our Company will make periodic announcements on the use of the proceeds from the Placement as and when the proceeds from the Placement are materially disbursed, and provide a status report on the use of the proceeds from the Placement in our annual reports. Pending the deployment of the net proceeds from the issue of Placement Shares as aforesaid, the funds will be placed in short-term deposits or money market instruments as our Directors may, in their absolute discretion, deem fit. In the reasonable opinion of our Directors, there is no minimum amount which must be raised by the Placement. None of the proceeds of the Placement will be used to discharge, reduce or retire any indebtedness of our Group. LISTING EXPENSES The estimated amount of expenses of the Placement and of the application for Listing, including the placement commission, management fees, legal and audit fees, fees payable to the SGX-ST and all other incidental expenses in relation to this Placement is approximately S$3.00 million. 45
Of the total estimated listing expenses of approximately of S$3.00 million to be borne by our Company, approximately S$0.16 million will be deducted from capital surplus in FY2014 and the balance of the estimated listing expenses will be charged to the profit or loss. The professional fees include the management fee of S$300,000, which is part of the fee payable to the Manager and Sponsor pursuant to the Management Agreement which has been satisfied in part by the issuance and allotment of 1,150,000 new Shares to PPCF, representing 1.35% of the Issued Share Capital of our Company immediately prior to the Placement, at the Placement Price. Please refer to the section entitled Shareholders of this Offer Document for more details. The amount of placement commission per Placement Share, agreed upon between the Placement Agent and our Company is 5.0% of the Placement Price payable for each Placement Share. Please refer to the section entitled General and Statutory Information Management and Placement Arrangements of this Offer Document for more details.
(2)
(3)
46
DIVIDEND POLICY
In accordance with the Japan Companies Act and our Articles of Incorporation, through a resolution of our Shareholders in a general meeting, we may declare dividends to our Shareholders (as of the record date of 31 March each year) subject to a limit equal to the Distributable Amount (as defined herein) then existing. Our Articles of Incorporation further provide that we may distribute half-yearly interim dividends (subject to a limit equal to the Distributable Amount) to Shareholders by a resolution of our Board of Directors (as of the record date of 30 September each year). As set out in our Articles of Incorporation, the record date to determine dividend entitlement is 31 March for full-year dividends and 30 September for half-yearly interim dividends. Pursuant to the Japan Companies Act and the relevant Ordinance of the Ministry of Justice of Japan, our Companys distributable amount is calculated based on the retained earnings ( joyo kin ) recorded in our Companys non-consolidated financial statements prepared in accordance with JGAAP (rather than IFRS) with certain adjustments (including the deduction of the book value of any treasury Shares held by our Company) ( Distributable Amount ). If dividends are declared by our Company while we do not have a Distributable Amount, our Directors are responsible for the payment of the dividends and are under an obligation to reimburse our Company for the amount paid out as dividends, unless such person proves that he was not negligent in carrying out his duties. Cash dividends on our Shares, if any, will be declared and paid in Japanese yen. CDP, as our Shareholder, will also receive dividends in Japanese yen. CDP will make the necessary arrangements to pay CDP Depositors dividends in Singapore dollars at such foreign exchange rate as CDP may determine. As a result, CDP Depositors may receive their dividends later than our Shareholders. The equivalent of any dividends in Singapore dollars will also be affected by changes in the exchange rate between the Japanese yen and the Singapore dollar. Neither our Company nor CDP will be liable for any loss whatsoever arising from the conversion of the dividend entitlement of CDP Depositors holding their Shares through CDP from the Japanese yen into the Singapore dollar equivalent. Other distributions, if any, will be paid to our Shareholders by any means which our Directors consider legal, fair and practicable. Dividends paid by our Company to our Shareholders (other than Shareholders holding 3.0% or greater of our Shares) who are non-resident individuals of Japan or that are non-Japanese corporations without a permanent establishment in Japan were generally subject to a withholding tax in Japan of 7.0% until 31 December 2012. Dividends payable to a beneficial owner of shares who is a non-resident individual of Japan or non-Japanese corporation without a permanent establishment in Japan are subject to a Special Measures Tax for Reconstruction and the withholding tax rate will be 7.147% from 1 January 2013 to 31 December 2013, and 15.315% from 1 January 2014 until 31 December 2037. However, if the Agreement between the Government of the Republic of Singapore and the Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income ( Treaty ) is applicable (it is necessary to file an application in the designated form in order for the Treaty to be applied), the withholding tax rate for residents in Singapore is reduced to 15.0% in case it exceeds 15.0%. In addition, if the Treaty is applicable and the beneficial owner is a company that has directly or indirectly owned, for the six-month period ending on the date on which entitlement to the dividend is determined, at least 25.0% of the outstanding voting shares of the Japanese company that is paying the dividends, the tax rate will be reduced to 5.0%. We are required under Japan law to withhold such tax prior to the payment of dividends. Our Company was incorporated on 9 September 2005 and has not distributed any dividend on our Shares since incorporation.
47
DIVIDEND POLICY
The form, frequency and amount of future dividends on our Shares will depend on our earnings, general financial condition, results of operations, capital requirements, cash flow, general business condition, our development plans and other factors as our Directors may deem appropriate ( Dividend Factors ). Our Directors intend to recommend at least 20.0% of our net profit after tax attributable to Shareholders for the three financial years after our Listing. All dividends are paid pro-rata among the Shareholders, unless the rights attaching to any class of Shares provides otherwise. Notwithstanding the foregoing, the payment by our Company to CDP of any dividend payable to a Shareholder whose name is entered in the Depository Register shall, to the extent of payment made to CDP, discharge our Company from any liability to that Shareholder in respect of that payment. Investors should note that all foregoing statements are merely statements of our present intention and shall not constitute legally binding statements in respect of our future dividends, which may be subject to modification (including reduction or non-declaration thereof) in our Directors sole and absolute discretion. Investors should not treat the foregoing statements as an indication of our Groups future dividend policy. No inference should or can be made from any of the foregoing statements as to our actual future profitability or ability to pay dividends in any of the periods discussed. The form, frequency and amount of dividends will depend on the Dividend Factors. Please refer to the section entitled Taxation of this Offer Document for more details relating to taxes payable on dividends.
48
SHARE CAPITAL
Our Company (registration number: 0104-01-058968) was incorporated in Japan on 9 September 2005 under the Japan Companies Act as a stock corporation ( kabushiki kaisha ) under the name of UFD Holdings Co., Ltd.. On 26 December 2006, our Company changed its name to Xyec Holdings Co., Ltd.. As at the Latest Practicable Date, after the Sub-Division, our issued and paid-up share capital was JPY396,900,000 comprising 91,659,000 Shares (including 7,785,000 treasury Shares). Pursuant to our AGM held on 25 June 2013, our Shareholders approved, inter alia , the following: (a) (b) the election of each of our Directors; and the amendments to the terms of the Stock Option Scheme, for purposes of compliance with Chapter 8 Part VIII of the Catalist Rules.
Pursuant to an extraordinary general meeting held on 22 July 2013, our Shareholders approved, inter alia , (a) our adoption of a new set of Articles of Incorporation. Please refer to Appendix C Our Articles of Incorporation and Appendix D Comparison between Our Articles of Incorporation and Appendix 4C of the Catalist Rules for more details; the election of each of our Directors (necessitated by our adoption of the new set of Articles of Incorporation); the issue of PPCF Shares to PPCF in part satisfaction of their management fee as Manager and Sponsor; the issue of the Placement Shares which are the subject of the Placement on the basis that the Placement Shares, when allotted, issued and fully paid, will rank pari passu in all respects with the existing issued Shares; and the authority shall be given to our Directors, pursuant to the Catalist Rules, to: (i) (ii) issue Shares; and/or issue stock acquisition rights, bonds with stock acquisition rights, or offers, agreements or options with other rights to issue Shares,
(b)
(c)
(d)
(e)
provided that, (i) the aggregate number of Shares to be issued pursuant to the ordinary resolutions shall be subject to the limitations prescribed by the relevant exchange; in exercising the authority pursuant to the ordinary resolution of general shareholders meeting, the Company shall comply with the relevant Catalist Rules; and
(ii)
(iii) the effective period pursuant to the ordinary resolution shall not exceed whichever the earlier of either the first anniversary of such ordinary resolution or the date of the next annual general shareholders meeting (the date on which such shareholders meeting required by law to be held, in case that the next annual general shareholders meeting does not take place by such date). 49
SHARE CAPITAL
Pursuant to a meeting of our Board of Directors held on 30 July 2013, our Board approved, inter alia , the approval of the listing and quotation of all the issued Shares (including the Placement Shares to be issued and allotted pursuant to the Placement) and the Option Shares on Catalist. As at the date of this Offer Document, there is only one class of Shares in the capital of our Company, being the Shares. A summary of the Articles of Incorporation of our Company relating to, among others, the voting rights of our Shareholders are set out in Appendix C Our Articles of Incorporation of this Offer Document. There are no founder, management, deferred or unissued Shares reserved for issuance for any purpose. Save for the options which are granted under the Stock Option Scheme, no person has, or has the right to be given, an option to subscribe for or purchase any securities of our Company or our Subsidiaries. As at the Latest Practicable Date, our Directors and Executive Officers have been granted (but have not exercised) the following options to subscribe for Shares in our Company. With the Sub-Division, each Option is exercisable into 3,000 Shares at a Strike Price of JPY25 per Share:
Name No. of Stock Options Exercise price of each Stock Option (JPY) Option Purchase price Exercise Period Expiration date of Options
Directors Manabu Kobayashi Tatsushi Oshimi 300 75,000 0 5 December 2013 to 27 September 2021 5 December 2013 to 27 September 2021 5 December 2013 to 27 September 2021 5 December 2013 to 27 September 2021 27 September 2021
300
75,000
27 September 2021
Minoru Funakoshi
300
75,000
27 September 2021
Norio Ogiwara
400
75,000
27 September 2021
Executive Officers Akihiro Inukai 30 75,000 0 5 December 2013 to 27 September 2021 5 December 2013 to 27 September 2021 5 December 2013 to 27 September 2021 5 December 2013 to 27 September 2021 27 September 2021
Masanori Itomi
30
75,000
27 September 2021
Shinji Sakaida
300
75,000
27 September 2021
Takashi Morimoto
150
75,000
27 September 2021
50
SHARE CAPITAL
Details of the changes in the issued and paid-up share capital (including 7,785,000 treasury Shares) of our Company as at the Latest Practicable Date and immediately after the Placement are set out below: Issued and paid-up share capital (JPY000)
Number of Shares
Issued and fully paid Shares as at the Latest Practicable Date Issue of 1,150,000 new Shares to PPCF in part satisfaction of management fee payable to PPCF as Manager and Sponsor Pre-Placement issued and paid-up share capital Placement Shares issued pursuant to the Placement Post-Placement issued and paid-up share capital
Note: (1)
91,659,000
396,900
1,150,000 92,809,000
25,000,000 117,809,000
At the Placement Price and at the exchange rate between JPY and S$ as at the Latest Practicable Date, being JPY76.59 to S$1.00.
The issued and paid-up share capital (including 7,785,000 treasury Shares) and the shareholders equity of our Company as at 31 March 2013 after adjustments to reflect the Sub-Division, the issue of 1,150,000 new Shares to PPCF and the issue and allotment of the Placement Shares pursuant to the Placement, are set forth below. This should be read in conjunction with Appendix A Independent Auditors Report on the Consolidated Financial Statements of Xyec Holdings Co., Ltd. and its Subsidiaries for the Financial Years Ended 31 March 2011, 2012 and 2013 of this Offer Document. (JPY000) As at 31 March 2013 After the SubDivision, and the issue of 1,150,000 new Shares to PPCF After the Placement
Issued and fully paid-up shares (number of shares) Issued capital Capital surplus Treasury Shares Retained earnings Other components of equity Equity attributable to equity holders of the parent
Notes: (1) (2) (3)
117,809,000 657,268 1,331,524 (1) (161,703) 26,773 (2) 32,596 1,886,457 (3)
Includes an approximate JPY12.6 million of listing expenses which will be set off against capital surplus in FY2014. Based on the unaudited consolidated management accounts of our Group as at 30 June 2013. Figure does not add up due to rounding differences.
51
SHARE CAPITAL
Save as disclosed above, there have been no other changes in the issued and paid-up share capital of our Company since 31 March 2013. Save as set out in this section and in the following table, there were no changes in the issued and paid-up share capital or the number and classes of shares of each of our Subsidiaries, within the three years preceding the Latest Practicable Date: NT Solutions Co., Ltd.
Date of issue Number of shares issued Subscription price per share Purpose of issue or investment Resultant paid-up share capital JPY55,000,000 Resultant paid-up share capital JPY10,000,000
28 March 2011
N/A
JPY45,000,000
31 May 2011
N/A
JPY55,500,000
15 November 2012
700
Unchanged
1 July 2012
40,000
THB100
Capital injection
Save as disclosed in this section, no share in or debenture of our Company or our Subsidiaries has been issued, or is proposed to be issued, as fully or partly paid-up for cash, or for a consideration other than cash, for the period of three years preceding the Latest Practicable Date.
52
SHAREHOLDERS
SHAREHOLDING AND OWNERSHIP STRUCTURE Our Directors and Substantial Shareholders and their respective shareholdings immediately before and after the Placement are summarised below:
Before the Placement Direct Interest Number of Shares Directors Manabu Kobayashi Tatsushi Oshimi Minoru Funakoshi Norio Ogiwara
(1)
After the Placement Direct Interest Number of Shares % Deemed Interest Number of Shares %
90,000
0.11
90,000
0.08
Substantial Shareholders (other than Directors) Mamezou Holdings Co., Ltd.(2) ESHA(3) Hiroshi Nomura(4) Masahiro Sato Other Shareholders Employees and associates PPCF
(5)
1,683,000
1.98
1,683,000
1.53
16,734,000 1,150,000
19.68 1.35
16,734,000 1,150,000
15.21 1.05
12,069,000 85,024,000
14.19 100
Notes: (1) (2) (3) (4) (5) Norio Ogiwara has a deemed interest in the 90,000 Shares held by his spouse Naoko Ogiwara. Assuming Mamezou subscribes for 7,064,000 Placement Shares. Please refer to the section entitled Xyec Employee Stock Schemes (A) Xyec Holdings Employee Stock Holding Association of this Offer Document for more details. Hiroshi Nomura is deemed interested in the 891,000 Shares held by his spouse, Kyoko Nomura and the 792,000 Shares held by his daughter, Yasuko Ohno. Pursuant to the Management Agreement and as part of PPCFs fees as the Manager and Sponsor, our Company issued and allotted 1,150,000 new Shares to PPCF, representing 1.35% of the Issued Share Capital of our Company immediately prior to the Placement. Upon the completion of the relevant moratorium period as set out in the section entitled Shareholders Moratorium of this Offer Document, PPCF will dispose its shareholding interests in our Company at its own discretion. Excludes 7,785,000 treasury Shares.
(6)
53
SHAREHOLDERS
Save as disclosed above and in the section entitled Directors, Management and Staff of this Offer Document, there are no other relationships among our Directors, Substantial Shareholders and Executive Officers. The Shares held by our Directors and Substantial Shareholders do not carry voting rights that are different from the Placement Shares. Our Directors are not aware of any arrangement, the operation of which may, at a subsequent date, result in a change in control of our Company. As at the Latest Practicable Date, our Company has only one class of shares, being our Shares. Under the amended Articles approved by shareholders in the extraordinary general meeting on 22 July 2013, there is no restriction on the transfer of fully paid ordinary shares in scripless form except where required by law or the Catalist Rules. There has not been any public take-over offer by a third party in respect of our Shares or by our Company in respect of the shares of another corporation or units of business trust which has occurred between the date of its incorporation to the Latest Practicable Date. Save as disclosed above, our Company is not directly or indirectly owned or controlled, whether severally or jointly by any other corporation, any government or person. Other than our treasury Shares, there are no Shares in our Company that are held by or on behalf of our Company or by our Subsidiaries. SIGNIFICANT CHANGES IN PERCENTAGE OF OWNERSHIP Save as disclosed in the section entitled Share Capital of this Offer Document, there was no significant change in the percentage ownership of Shares held by our Directors and Substantial Shareholders in the last three years prior to the Latest Practicable Date. MORATORIUM To demonstrate their commitment to our Group, the following persons have undertaken to the Manager and Sponsor not to, among others, sell, contract to sell, transfer, assign, pledge, dispose of, realise, grant any option to or enter into any agreement that will directly or indirectly constitute or will be deemed as a disposal of any part of their shareholding interests in our Company immediately after the Placement in respect of 100.0% of their Shares, and for the respective periods set out in the table below:
Period of Moratorium Three months commencing from our Companys date of admission to Catalist Shareholder Hiroshi Nomura, Sumio Soga and his associates (Hiroshi Nomura and Sumio Soga are currently employed as the advisers to our Group) No. of Shares 10,050,000
54
SHAREHOLDERS
Period of Moratorium One year commencing from our Companys date of admission to Catalist Shareholder Our Controlling Shareholder Mamezou Our Substantial Shareholders: ESHA; and Masahiro Sato Our Directors and Executive Officers: Manabu Kobayashi, Tatsushi Oshimi, Minoru Funakoshi, Akihiro Inukai, Masanori Itomi, Shinji Sakaida, Takashi Morimoto Pre-Placement investors: Kyoko Nomura, Yasuko Ohno, Ryo Ohno, Kou Ohno, Masaki Amano Our employees and associates Our Company (treasury Shares) No. of Shares 29,729,000(1) 15,039,000 12,813,000
2,328,000
7,332,000 7,785,000
Pursuant to the Management Agreement and as part of PPCFs fees as the Manager and Sponsor, our Company issued and allotted to PPCF 1,150,000 new Shares, representing 1.35% of the Issued Share Capital of our Company immediately prior to the Placement, at the Placement Price. PPCF has undertaken not to, among others, sell, contract to sell, transfer, assign, pledge, dispose of, realise, grant any option to or enter into any agreement that will directly or indirectly constitute or will be deemed as a disposal of any part of its shareholding interest in our Company immediately after the Placement for a period of six months commencing from the date of our admission to Catalist and for a period of six months thereafter not to sell, contract to sell, transfer, assign, pledge, dispose of, realise, grant any option to or enter into any agreement that will directly or indirectly constitute or will be deemed as a disposal of any part of their interests in our Company to below 50.0% of its original shareholdings in our Company. Upon completion of the aforesaid relevant moratorium period, PPCF will dispose its shareholding interest in our Company at its own discretion.
55
(c)
Cash and cash equivalents Indebtedness Current Borrowings Obligations under finance leases
2,079,585
1,875,378
Non-current Borrowings Obligations under finance leases 139,240 4,471 143,711 Total Indebtedness Total shareholders equity(1) Total capitalisation and indebtedness
Notes: (1) (2) (3) Includes issued capital, retained earnings, capital surplus, treasury Shares and other component of equity, which are attributable to equity holders of the parent. Based on the exchange rate of JPY76.59 to S$1.00 as at the Latest Practicable Date. Includes an approximate JPY12.6 million of listing expenses which will be set off against capital surplus in FY2014.
56
Bank of TokyoMitsubishi UFJ The Tokyo Tomin Bank, Limited The Juroku Bank, Limited
Total
Save as disclosed above, we do not have any committed borrowing facilities. As at the Latest Practicable Date, we had utilised JPY979 million of our banking facilities, which comprise overdraft and loan facilities for general working capital purposes. As at the Latest Practicable Date, our borrowings were not secured by deed of guarantee and indemnities, nor by any joint and several personal guarantees provided by our Executive Directors. To the best of our Directors knowledge and belief, we are not in breach of any of the terms and conditions or covenants associated with any credit arrangement or bank loan which could materially affect our Groups financial position and results of business operations, or the investments by our Shareholders, and our Controlling Shareholders Shares have not been pledged, charged or mortgaged as collateral to secure any credit or banking facilities.
57
Capital Commitments Our Group did not have any material capital commitments as at the Latest Practicable Date. Contingent Liabilities As at the Latest Practicable Date, to the best of our Directors knowledge, information and belief, we are not aware of any contingent liabilities which may have a material effect on the financial position and profitability of our Group.
58
WORKING CAPITAL
Our Group financed its operations through both internal and external sources. Our internal sources of funds comprised of cash generated from our operating activities. Our external sources of funds comprised mainly of banking facilities from financial institutions, credit granted by suppliers and capital investment from Shareholders. Please refer to the section entitled Capitalisation and Indebtedness of this Offer Document for more details. Our Group had positive cash and cash equivalents of JPY863 million, JPY1,139 million and JPY2,080 million as at 31 March 2011, 2012 and 2013, respectively. In FY2013, our Group generated net cash of JPY294 million from our operating activities. As at 31 March 2013, our Group also recorded positive working capital of JPY725 million. Our Directors are of the reasonable opinion that, after having made due and careful enquiry and after taking into account our Groups net positive working capital position as at 31 March 2013, positive cash flows generated from our Groups operations in FY2013, our Groups existing banking facilities and cash and cash equivalents, the working capital available to us as at the date of lodgement of this Offer Document is sufficient for our present requirements and for at least 12 months after the listing of our Company on Catalist. The Sponsor is of the reasonable opinion that, after having made due and careful enquiry and after taking into account our Groups net positive working capital position as at 31 March 2013, positive cash flows generated from our Groups operations in FY2013, our Groups existing banking facilities and cash equivalents, the working capital available to our Group as at the date of lodgement of this Offer Document is sufficient for our present requirements and for at least 12 months after the listing of our Company on Catalist.
59
DILUTION
Dilution is the amount by which the Placement Price paid by the subscribers of our Shares in this Placement exceeds our NTA per Share immediately after the Placement. Our NTA per Share as at 31 March 2013, before adjusting for the estimated gross proceeds due to our Company from the Placement and based on our Companys pre-Placement Issued Share Capital of 85,024,000 Shares was approximately 13.46 cents per Share. Pursuant to the Placement in respect of 25,000,000 Placement Shares at the Placement Price, our NTA per Share as at 31 March 2013 after adjusting for the estimated gross proceeds due to our Company from the Placement and based on our Companys post-Placement Issued Share Capital of 110,024,000 Shares would have been approximately 16.31 cents. This represents an immediate increase in NTA per Share of approximately 2.85 cents to our existing Shareholders and an immediate dilution in NTA per Share of approximately 9.69 cents or approximately 37.27% to our new public investors. The following table illustrates the dilution on a per Share basis as at 31 March 2013:
Cents Placement Price per Share NTA per Share based on the pre-Placement Issued Share Capital of 85,024,000 Shares Increase in NTA per Share attributable to existing Shareholders NTA per Share after the issue of Placement Shares based on the post-Placement Issued Share Capital of 110,024,000 Shares Dilution in NTA per Share to new public investors Dilution in NTA per Share to new public investors (%) 26.00
13.46 2.85
Our Company has not issued any Shares during the last three years prior to the date of lodgement of this Offer Document. Save as disclosed below, to the best of our knowledge, none of our Directors, Statutory Auditors or their Associates have acquired any Shares in the three years prior to the date of lodgement of this Offer Document.
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DILUTION
The following table summarises the total number of Shares (as adjusted for the the Sub-Division) acquired by our existing Shareholders for the last three financial years preceding the date of lodgement of this Offer Document, the total consideration paid by them and the effective cash cost per Share to them and to the public Shareholders who subscribe for the Placement Shares at the Placement Price pursuant to the Placement:
Number of Shares Total consideration (S$) (1) Effective cash cost per Share (cents)
Directors Minoru Funakoshi Substantial Shareholders (other than Directors) Mamezou(2) ESHA Treasury Shares Hiroshi Nomura Masahiro Sato Other Shareholders Employees and associates PPCF
(3)
15,000
4,570
30.47
1,374,000 1,150,000
242,316 299,000
17.64 26.00
795,000 17,936,000
141,262 4,663,360
17.77 26.00
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GROUP STRUCTURE
100%
100%
100%
100%
62
48.99%
GROUP STRUCTURE
Company Date and place of incorporation 26 September 2007, Japan 8 July 1988, Japan 26 December 2006, Japan 22 June 2012, Thailand 24 March 2000, Japan 1 October 1991, Japan 1 April 2009, Japan 2 April 2001, Japan Principal business Effective interest of our Group 100% 100% 100% 48.99% (1) 100% 100%
IT Services Engineering Services Engineering Services Engineering Services IT Services IT Solutions (Design, development and sale of proprietary software) IT Solutions (ERP Consultancy Services) IT Services
100% 100%
Note: (1) Kowamex owns 19,597 shares (48.9925%). Two officers from our Group and one unrelated local Japanese each owns 1 share (each 0.0025%). Kyoritsu Engineering Thailand Co. Ltd, an unrelated third party and our business associate, owns 9,600 shares (24.0%). Soontree Klinjew, an unrelated third party and a local resident, owns 7,000 shares (17.5%). Kanda Associates Limited, an unrelated third party and our business associate, owns 3,800 shares (9.5%).
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(JPY000) Continuing operations Revenue Cost of sales Gross profit Other operating income Selling, general and administrative expenses Other operating expenses Operating profit Finance costs Finance income Profit before tax from continuing operations Income tax expenses Profit for the year from continuing operations Discontinued operations(1) Profit after tax for the year from discontinued operations Profit for the year Attributable to: Equity holders of the parent Non-controlling interests
FY2011
FY2013
4,838,473 (3,925,611) 912,862 12,293 (830,687) (2,880) 91,588 (20,495) 3,881 74,974 8,324 83,298
5,582,591 (4,420,467) 1,162,124 17,625 (941,313) (3,609) 234,827 (14,516) 2,676 222,987 (60,499) 162,488
6,225,279 (4,858,629) 1,366,650 15,708 (1,194,031) (1,580) 186,747 (13,790) 2,720 175,677 (93,951) 81,726
52,775 136,073
58,248 220,736
313,686 395,412
0.98 0.76
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(2) (3)
(4)
(JPY000) Assets Non-current assets Property, plant and equipment Goodwill Intangible assets Other non-current assets Other non-current financial assets Deferred tax assets
2011
250,563 57,820 29,927 679 239,342 246,364 824,695 20,570 1,247,297 834 54,757 3,460 1,139,499 2,466,417 3,291,112
161,169 165,256 105,229 230 191,250 295,815 918,949 1,104,862 840 35,951 140 2,079,585 3,221,378 4,140,327
Current assets Inventories Trade and other receivables Income tax receivable Other current assets Other current financial assets Cash and short-term deposits
Total assets Equity and liabilities Equity Issued capital Capital surplus Treasury shares Retained earnings Other components of equity Equity attributable to equity holders of the parent Non-controlling interests Total equity
2,875,980
65
(JPY000) Non-current liabilities Borrowings Other non-current financial liabilities Provisions Other non-current liabilities Deferred tax liabilities
2011
4,292 14,752 45,105 29,672 175 93,996 165,724 937,374 6,023 1,009,569 67,331 3,787 2,189,808 2,283,804 3,291,112 7.92
139,240 4,353 43,398 17,199 6,686 210,876 208,654 861,780 3,358 1,003,916 416,655 2,325 2,496,688 2,707,564 4,140,327 10.19
Current Liabilities Trade and other payables Borrowings Other current financial liabilities Other current liabilities Income tax payable Provisions
Total liabilities Total equity and liabilities Unaudited NTA per Share (JPY)(1)
Note: (1)
NTA per Share is computed based on the NTA value and our pre-Placement Issued Share Capital of 85,024,000 Shares.
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(b)
(c)
Our revenue is recognised to the extent that it is probable for economic benefits to flow to our Group and the revenue can be reliably measured, regardless of when payment is made. Revenue from rendering of services is recognised by reference to the stage of completion, which is measured by reference to costs incurred to date as a percentage of total estimated cost for each contract (mainly in terms of hours spent). Our Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. When the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered.
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Please refer to the section entitled Risk Factors of this Offer Document for other factors which may affect our revenue. Cost of Sales Our Group recognises the cost of sales in the period in which they are incurred. Our cost of sales was 81.1%, 79.2% and 78.0% of our revenue for FY2011, FY2012 and FY2013, respectively. Our cost of sales comprises mainly employee benefits expenses for our engineers, which include salaries and bonuses, legal welfare expenses and share-based payment expenses, outsourcing expenses, and travel expenses. Due to the nature of our business, a large portion of our cost of sales arises from the employment of engineers and employee benefits expenses arising from their employment. Legal welfare expenses comprise mainly welfare pension insurance, under which our Group has no further obligation, health insurance and unemployment insurance. The employee benefits expenses portion in the cost of sales was JPY3,544 million, JPY3,968 million and JPY4,452 million for FY2011, FY2012 and FY2013, respectively and accounted for 90.3%, 89.8% and 91.6% of our total cost of sales for FY2011, FY2012 and FY2013, respectively. Our cost of sales is mainly dependent on the following factors: (a) Changes in engineers compensations due to factors such as fixed wage levels, variable components of the compensation packages and qualifications of the engineers and employees hired; Our ability to hire and retain experienced and qualified engineers; Our ability to control the efficiency in the utilisation of our engineers;
(b) (c)
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(e)
Please refer to the section entitled Risk Factors of this Offer Document for other factors which may affect our cost of sales. Gross profit and gross profit margin Our gross profit is determined after deducting the cost of sales from our revenue. Accordingly, the key determinants of gross profit are the revenue generated from our Engineering Services, IT Services and IT Solutions business segments and our cost of sales. Our gross profit margin for FY2011, FY2012 and FY2013 was 18.9%, 20.8% and 22.0%, respectively. Other operating income Our other operating income comprised mainly government grants and other income. Other operating income was JPY12 million, JPY18 million and JPY16 million for FY2011, FY2012 and FY2013, respectively and accounted for 0.2%, 0.3% and 0.3% of our revenue for FY2011, FY2012 and FY2013, respectively. Government grants have been received mainly as compensation to maintain employment and as incentives for employees training and hiring. Our Group records certain government grants in other operating income. However, if the grants have specific characteristics of cost compensation, they are deducted from the related expenses within cost of sales and selling, general and administrative expenses. There are no unfulfilled conditions or contingencies attached to these grants. Selling, general and administrative expenses Our selling, general and administrative expenses comprised mainly employee benefits expenses for administrative and head office personnel, rent, recruiting fees and travel expenses. Administrative and head office personnel expenses comprised mainly salaries and bonuses paid to our non-engineers, legal welfare expenses, share-based payment expenses and others. The legal welfare expenses included employee welfare pension insurance, health insurance and unemployment insurance. Rent comprised rental expenses arising from the rental of our office spaces, mostly in Tokyo and Nagoya. Recruiting fees comprised mainly recruitment fees such as agency fees and career fairs incurred in the course of recruiting our engineers. Travel expenses comprised mainly expenses relating to transportation costs and accommodation for our employees during business trips. Our total selling, general and administrative expenses were JPY831 million, JPY941 million and JPY1,194 million for FY2011, FY2012 and FY2013, respectively, and accounted for 17.2%, 16.9% and 19.2% of our revenue for FY2011, FY2012 and FY2013, respectively.
69
70
Profit before tax from continuing operations Segment profit before tax from continuing operations includes inter-segment transactions and transfers.
FY2011 JPY000 Segment profit Engineering Services IT Services IT Solutions Total segment profit Adjustments and eliminations Finance income Finance costs Total 66,260 9,833 24,417 100,510 (8,922) 3,881 (20,495) 74,974 88.4 13.1 32.6 134.1 (11.9) 5.1 (27.3) 100.0 103,143 784 61,632 165,559 69,268 2,676 (14,516) 222,987 46.3 0.4 27.6 74.2 31.1 1.2 (6.5) 100.0 5,433 113,318 81,739 200,490 (13,743) 2,720 (13,790) 175,677 3.1 64.5 46.5 114.1 (7.8) 1.5 (7.8) 100.0 FY2012 JPY000 FY2013 JPY000
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Breakdown of our revenue by geographical markets A breakdown of our revenue by geographical markets for the Period Under Review is summarised as follows:
FY2011 JPY000 Japan Thailand Total 4,838,473 4,838,473 FY2012 JPY000 5,582,591 5,582,591 FY2013 JPY000 6,210,443 14,836 6,225,279
% 100.0 100.0
% 100.0 100.0
REVIEW OF PAST PERFORMANCE FY2012 compared to FY2011 Revenue Our total revenue increased by JPY745 million or 15.4% from JPY4,838 million in FY2011 to JPY5,583 million in FY2012 as we enjoyed revenue growth in all three business segments of our Group in FY2012. (a) Engineering Services Revenue derived from Engineering Services business segment increased by JPY424 million or 21.1% from JPY2,006 million in FY2011 to JPY2,430 million in FY2012. Share of revenue from Engineering Services increased from 41.5% in FY2011 to 43.5% in FY2012. There was an increase in demand for our Engineering Services in FY2012 as the economy in Japan improved from FY2011. In addition, our Group acquired em-kei in FY2012, which contributed JPY107 million to the increase in revenue for Engineering Services in FY2012. (b) IT Services Our IT Services revenue increased by JPY177 million or 8.3% from JPY2,129 million in FY2011 to JPY2,306 million in FY2012. IT Services business segment accounted for 41.3% of our Groups revenue in FY2012 as compared to 44.0% in FY2011. Even though IT Services enjoyed revenue growth in FY2012, its revenue contribution to our Group declined as we expanded Engineering Services and IT Solutions through acquisitions in FY2012.
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73
74
75
76
(b)
(c)
77
(e)
Current assets As at 31 March 2011, current assets amounted to JPY2,021 million, which accounted for 70.3% of our total assets and comprised mainly the following: (a) Trade and other receivables amounted to JPY1,040 million and accounted for 51.5% of our total current assets. Trade and other receivables comprised accounts receivable, notes receivable, other receivable and allowance for doubtful accounts of JPY1,044 million, JPY3 million, JPY4 million and JPY(11 million) respectively; Cash and short term deposits amounted to JPY863 million and accounted for 42.7% of our total current assets; Other current assets amounted to JPY51 million and accounted for 2.5% of our total current assets. Other current assets comprised mainly prepaid expenses; Inventories amounted to JPY45 million and accounted for 2.2% of our total current assets. Inventories comprised mainly merchandise and raw materials and supplies for the business conducted by FA Service; and Other current financial assets amounted to JPY12 million and accounted for 0.6% of our total current assets.
(b)
(c)
(d)
(e)
Non-current liabilities As at 31 March 2011, our non-current liabilities were JPY145 million, which represented 7.0% of our total liabilities and comprised mainly the following: (a) Asset retirement provisions amounted to JPY45 million and accounted for 31.0% of our total non-current liabilities; Long term borrowings amounted to JPY42 million and accounted for 29.0% of our total non-current liabilities; Other non-current liabilities amounted to JPY40 million and accounted for 27.6% of our total non-current liabilities. Other non-current liabilities comprised mainly deposits received and other non-current liabilities; and Other non-current financial liabilities which comprised mainly non-current obligations under finance leases amounted to JPY18 million and accounted for 12.4% of our total non-current liabilities.
(b)
(c)
(d)
78
(b)
(c)
(d)
(e)
Equity attributable to equity holders of the parent Our equity attributable to equity holders of the parent comprised issued capital, capital surplus, treasury shares and retained earnings. As at 31 March 2011, our equity attributable to equity holders of the parent amounted to JPY799 million. As at 31 March 2012 Non-current assets As at 31 March 2012, our non-current assets of JPY825 million accounted for 25.1% of our total assets and comprised mainly the following: (a) Property, plant and equipment, which comprised mainly land, buildings and structure and equipment and vehicles, amounted to JPY251 million and accounted for 30.4% of our total non-current assets; Deferred tax assets, which arose mainly from temporary differences on non-deductible items such as unused vacation accrual and provision for bonuses, amounted to JPY246 million and accounted for 29.8% of our total non-current assets;
(b)
79
(d)
(e)
Current assets As at 31 March 2012, our current assets amounted to JPY2,466 million, which accounted for 74.9% of our total assets and comprised mainly the following: (a) Trade and other receivables amounted to JPY1,247 million and accounted for 50.6% of our total current assets. Trade and other receivables comprised mainly accounts receivable, notes receivable, other receivable and allowance for doubtful accounts of JPY1,246 million, JPY7 million, JPY2 million and JPY(8 million), respectively; Cash and short term deposits of JPY1,139 million and accounted for 46.2% of our total current assets; Other current assets amounted to JPY55 million and accounted for 2.2% of our total current assets. Other current assets comprised mainly prepaid expenses; and Inventories amounted to JPY21 million and accounted for 0.9% of our total current assets. Inventories comprised mainly merchandise and raw materials and supplies for the business conducted by FA Service.
(b)
(c)
(e)
Non-current liabilities As at 31 March 2012, our non-current liabilities were JPY94 million, which represented 4.1% of our total liabilities and comprised mainly the following: (a) Asset retirement provisions amounted to JPY45 million and accounted for 47.9% of our total non-current liabilities; Other non-current liabilities amounted to JPY30 million and accounted for 31.9% of our total non-current liabilities. Other non-current liabilities comprised mainly deposits received and other non-current liabilities; Other non-current financial liabilities, which comprised mainly non-current obligations under finance leases, amounted to JPY15 million and accounted for 15.9% of our total non-current liabilities; and Long term borrowings amounted to JPY4 million and accounted for 4.3% of our total non-current liabilities.
(b)
(c)
(d)
80
(b)
(c)
(d)
(e)
Equity attributable to equity holders of the parent Our equity attributable to equity holders of the parent comprised issued capital, capital surplus, treasury shares, retained earnings and other components of equity including share options. As at 31 March 2012, our equity attributable to equity holders of the parent amounted to JPY1,007 million. Our equity attributable to equity holders of the parent increased by JPY208 million from JPY799 million as at 31 March 2011 to JPY1,007 million as at 31 March 2012 due to the profit for the year of FY2012, which increased our retained earnings by JPY221 million and share-based payment of JPY8 million, offset partially by the increase in treasury shares of JPY21 million. As at 31 March 2013 Non-current assets As at 31 March 2013, our non-current assets of JPY919 million accounted for 22.2% of our total assets and comprised mainly the following: (a) Deferred tax assets, which arose from temporary differences on non-deductible items such as unused vacation accrual and provision for bonuses, amounted to JPY296 million and accounted for 32.2% of our total non-current assets;
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(c)
(d)
(e)
Current assets As at 31 March 2013, our current assets amounted to JPY3,221 million, which accounted for 77.8% of our total assets and comprised mainly the following: (a) Cash and short term deposits amounted to JPY2,080 million and accounted for 64.6% of our total current assets; Trade and other receivables amounted to JPY1,105 million and accounted for 34.3% of our total current assets. Trade and other receivables comprised mainly accounts receivable, notes receivable, other receivable and allowance for doubtful accounts of JPY1,102 million, JPY3 million, JPY5 million and JPY(5 million), respectively; and Other current assets amounted to JPY36 million and accounted for 1.1% of our total current assets. Other current assets comprised mainly prepaid expenses.
(b)
(c)
Non-current liabilities As at 31 March 2013, our non-current liabilities were JPY211 million, which represented 7.8% of our total liabilities and comprised the following: (a) Long term borrowings amounted to JPY139 million and accounted for 65.9% of our total non-current liabilities; Asset retirement provisions amounted to JPY44 million and accounted for 20.8% of our total non-current liabilities; Other non-current liabilities amounted to JPY17 million and accounted for 8.1% of our total non-current liabilities. Other non-current liabilities comprised mainly deposits received and other non-current liabilities; Deferred tax liabilities amounted to JPY7 million and accounted for 3.3% of our total non-current liabilities; and
(b)
(c)
(d)
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Current liabilities As at 31 March 2013, our current liabilities amounted to JPY2,497 million and accounted for 92.2% of our total liabilities and comprised mainly the following: (a) Other current liabilities amounted to JPY1,004 million and accounted for 40.2% of our total current liabilities. Other current liabilities comprised mainly accrued salaries and bonuses, unused vacation accrual, deposits received, consumption tax payables, accrued expenses and unearned revenue; Borrowings amounted to JPY862 million and accounted for 34.5% of our total current liabilities. Borrowings comprised short-term borrowings for working capital purposes and current portion of long-term borrowings of JPY800 million and JPY62 million, respectively; Income tax payable amounted to JPY417 million and accounted for 16.7% of our total current liabilities; Trade and other payables amounted to JPY209 million and accounted for 8.4% of our total current liabilities. Trade and other payable comprised trade payables of JPY111 million and other payables of JPY98 million; and Provisions and other current financial liabilities of JPY2 million and JPY3 million, respectively.
(b)
(c)
(d)
(e)
Equity attributable to equity holders of the parent Our equity attributable to equity holders of the parent comprised issued capital, capital surplus, treasury shares, retained earnings and other components of equity including share options and foreign currency translation reserve. As at 31 March 2013, our equity attributable to equity holders of the parent amounted to JPY1,436 million. Our equity attributable to equity holders of the parent increased by JPY429 million from JPY1,007 million as at 31 March 2012 to JPY1,436 million as at 31 March 2013 mainly due to the profit for the year of FY2013, which increased our retained earnings by JPY404 million, the share-based payment of JPY25 million and the increase in non-controlling interest arising on the establishment of a subsidiary of JPY5 million.
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Net cash flows from operating activities Net cash flows from/(used in) investing activities Net cash flows from/(used in) financing activities Net increase in cash and cash equivalents Effect of a loss of control of a subsidiary Net foreign exchange difference Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year
FY2011 In FY2011, we recorded net cash flows from operating activities of JPY447 million, which was a result of profit before tax of JPY122 million, adjustments to reconcile profit before tax to net cash flows of JPY119 million, working capital adjustments of JPY229 million, interest and dividends received of JPY1 million, interest paid of JPY17 million and income tax paid of JPY7 million. Our working capital adjustments comprised a decrease in trade and other receivables of JPY23 million, an increase in inventories of JPY 12 million, a decrease in trade and other payables of JPY11 million and other working capital adjustments of JPY229 million. Our net cash flows from investing activities amounted to JPY25 million, which was attributable to the acquisition of a subsidiary, net of cash acquired of JPY15 million and other proceeds of JPY69 million, offset by the purchase of property, plant and equipment of JPY20 million, purchase of intangible assets of JPY9 million, payment of loans receivables of JPY10 million and other payments of JPY20 million. Our net cash flows used in financing activities amounted to JPY139 million, which was attributable to a net decrease in short-term borrowings of JPY90 million, repayment of long-term borrowings of JPY330 million and payment of finance lease liabilities of JPY19 million, offset by the proceeds from long-term borrowings of JPY300 million. As at 31 March 2011, our cash and cash equivalents were JPY863 million.
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85
Divestments
(JPY000) FY2011 FY2012 FY2013 From 1 April 2013 up to the Latest Practicable Date 1,571 579 2,150
33,492 33,492
123,373(1) 100,507
(1)
223,880(1)
The increase from FY2012 to FY2013 was due to the disposal of FA Service, which included properties and equipment.
The above capital expenditures were primarily financed by internally generated cash resources save for various items of equipment and machinery which were financed by finance leases. FOREIGN EXCHANGE MANAGEMENT Accounting treatment of foreign currencies Our Groups reporting currency is JPY. Our Thai subsidiary, Kowamex (Thailand), maintains its books and records in THB. Most of our Groups transactions are denominated in JPY. Whenever possible, our Group will use its functional currency to deal with its trading partners to minimise foreign currency risk. Transactions and balances Foreign currency transactions are initially recorded at each entitys respective functional currency spot rates (hereinafter, spot rates) at the dates of the transactions or an approximation of that rate. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rates of exchange at the reporting date.
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JPY THB
JPY THB
87
To the extent that our revenue and expenses are not naturally matched in the same currency and to the extent that there are timing differences between invoicing and collection/payment, we will be exposed to adverse fluctuations of the various currencies against the JPY, which will adversely affect our earnings. Our net foreign exchange exposures for the Period Under Review were as follows:
FY2011 Net foreign exchange gain/(loss) in JPY000 As a percentage of revenue (%) As a percentage of profit before income tax (%) FY2012 (1) 0.0 (0.0) FY2013 1,336 0.0 0.8
We currently do not have a formal hedging policy although we may, subject to the approval of our Board, enter into relevant transactions when necessary, to hedge our exposures to foreign currency fluctuations. We will also put in place, where necessary, procedures to hedge our exposures to foreign currency fluctuations. Such procedures will be reviewed and approved by our Audit Committee and our Board. INFLATION OR DEFLATION Our financial performance for the Period Under Review was not materially affected by inflation or deflation. SIGNIFICANT CHANGES IN ACCOUNTING POLICIES The accounting policies have been consistently applied by our Group during the Period Under Review, except for the changes in accounting policies and related notes as discussed in Appendix A Independent Auditors Report on the Consolidated Financial Statements of Xyec Holdings Co., Ltd. and its Subsidiaries for the Financial Years Ended 31 March 2011, 2012, 2013 of this Offer Document. Standards and interpretations issued, but not yet effective, up to the date of issuance of our Groups financial statements are listed below. Our Group intends to adopt these standards, if applicable, when they become effective. The impact of adoption of these standards and interpretations has been assessed by our Group and our Group evaluates that they will not have a material impact on its operating results and financial condition.
88
89
90
91
93
(b)
(c)
(A)
94
(2)
Our CAE services involve the design, analysis and testing of the load condition, material fatigue and damage tolerance of the components of automobile and aerospace hardware. The illustration below shows the analyses and testing that we carry out:
Our Subsidiary, em-kei, is engaged in designing, manufacturing, installing and selling production support facilities, aimed at enhancing production efficiency, to customers in the manufacturing industries. Our key customer in this business segment is Denso Techno, a technology company that specialises in the design and development of automobile electronic systems and parts, which is a wholly-owned subsidiary of Denso Corporation Ltd. Other customers include automobile makers and other manufacturing companies in Japan such as Mitsubishi Heavy Industries, Ltd., Mitsubishi Aircraft Corporation and Yamaha Motor Co., Ltd. As at the Latest Practicable Date, our Group employed 466 staff in the Engineering Services business segment, of whom 414 were outsourced to and stationed at our customers sites. For the Period Under Review, sales generated from the Engineering Services business segment accounted for 41.5%, 43.5% and 43.2% of the sales of our Group, respectively. 95
Designing
Logistics
Automation in warehouse Plan of assigning vehicle such as truck and delivery. Route simulator of delivery vehicle
Request
Programming Check
Hospital
Electronic medical chart Examination system Ordering system (Information propagation relating to exam and prescription)
Clients Needs
Other than the customers stated in the section entitled General Information on Our Group Our Major Customers, our customers in this business segment also include Itochu Techno-Solution Corporation, Oki Proserve Co., Ltd., Oki Software Co., Ltd., TRI Information Systems, Ltd., Mitsubishi Electric Mechatronics Software Corporation, Yamaha Motor Solutions Co., Ltd., and Nihon Unisys, Ltd.. As at the Latest Practicable Date, our Group employed 437 staff in the IT Services business segment, of whom 345 were outsourced to and stationed at our customers sites. For the Period Under Review, sales generated from the IT Services business segment accounted for 44.0%, 41.3% and 43.3% of the sales of our Group, respectively. Modes of Engagement For both our Engineering Services and IT Services business segments, the work scope for different projects may vary, depending on each customers requirements and can encompass the full range of software development, including carrying out the design, programming and testing of software. Members of a project team normally number between two and 20, depending on the project requirements, and typically comprise programmers, systems analysts and project managers.
96
As at the Latest Practicable Date, our Group had 50 employees, certified by SAP and/or Microsoft and specialising in ERP in the SAP and/or Microsoft ERP software as the case may be. In addition to SAP and Microsoft ERP projects, we also sell and assist our customers in implementing our Elizea attendance management software. The Elizea attendance management software is designed to assist companies in their human resource management. It generates information and analysis on the attendance record, work-load, working hours and productivity of the personnel in an organisation. The software can be customised according to the specifications and requirements of our customers. (ii) Design, Development and Sale of our proprietary software Through our Subsidiary, NIHON UNITEC, we provide one-stop services in the consultation, design, development and maintenance of our proprietary software, UNIMEX II and QuickOne. UNIMEX II is an integrated production and sales administration software designed to assist companies in integrated sales management and production control. It generates information on sales forecasts for production planning, on inventory control, job-order production and other aspects of material requirements planning (MRP). The software is scalable, in that our customers can select modules that are relevant for their operations. It can be customised according to our customers specifications and according to the production systems and processes for different industries, such as the manufacturing, chemical, pharmaceuticals and food industries. 98
Notes: (1) (2) Denso group of companies includes Denso Techno, Denso Wave Incorporated and Denso Create Inc. Fujitsu group of companies includes Fujitsu Limited, Fujitsu FIP Corporation, Fujitsu Systems West Limited, Fujitsu Systems East Limited, Fujitsu FSAS Inc., Fujitsu FIP Systems Corporation, Fujitsu Broad Solution & Consulting Inc., Fujitsu Leasing Co., Ltd, Fujitsu Yamaguchi Information Co., Ltd., and Fujitsu Shikoku Infortec Limited. Hitachi group of companies includes Hitachi Appliances, Inc., Hitachi Capital Corporation, Hitachi Systems, Ltd., Hitachi High-Tech Solutions Corporation, Hitachi High-Tech Trading Corporation, Hitachi High-Technologies Corporation, Hitachi Chemical Company, Ltd, Hitachi Metals, Ltd., and Hitachi Construction Machinery Co., Ltd. Toyota group of companies includes Toyota Caelum Incorporated, Toyota Communications Systems Co., Ltd., Toyota Digital Cruise Inc., Toyota Fleet Leasing Co., Ltd., Toyota Rental & Leasing Co., Ltd., Toyota Motor Corporation, Toyota Motor East Japan, Inc., Toyota Auto Body Co., Ltd., Toyota Body Research & Development Co., Ltd., Kanto Auto Works, Ltd., Gifu Auto Body Co., Ltd., and Toyoda Gosei Co., Ltd.
(3)
(4)
99
100
Our purchases
Hitachi Systems Engineering Sub-contract of IT and Solutions, Ltd. Solutions IDEA Systems Corporation IMG Japan Microsoft Japan Co., Ltd. OAS Corporation T and Fellows Techno Boy Corporation Sub-contract of IT Solutions Sub-contract of IT Solutions Purchase of Microsoft Dynamics AX licence Sub-contract of IT Solutions Sub-contract of IT Solutions Sub-contract of Engineering Services
Save as disclosed above, none of our suppliers and/or sub-contractors accounted for 5.0% or more of our Groups total purchases for each of FY2011, FY2012 and FY2013. Our Subsidiary, em-kei, purchased machines and machine parts from Aichikikai Techno System Co., Ltd. ( Aichikikai ) to meet orders from Gifu Auto Body. em-kei designed, manufactured and installed power and labour saving facilities and devices to enhance production efficiency at Gifu Auto Bodys assembly factory. The purchases from Aichikikai increased from 2.4% in FY2012 to 6.2% in FY2013, as em-kei received a large order from Gifu Auto Body in FY2013. As a certified Microsoft Solution Provider, NT Solutions is authorised to resell Microsoft Dynamics AX licences to third party customers. However, the reselling of Microsoft Dynamics AX licences is not the main business of NT Solutions, which provides mainly ERP Consultancy Services. For the Period Under Review, NT Solutions only made a one-time purchase from Microsoft Japan Co., Ltd. ( Microsoft Japan ), due to a bulk order from Yahoo Japan Corporation in FY2011. 101
FY2012 65
FY2013 65
67
102
Total 1,110,117
31 to 60 days 2,406
61 to 90 days
Others(1) 1,091,681
(5,255) 1,104,862
8,470
2,406
7,560
(5,255) 1,086,426
We monitor all trade receivables closely and make specific provisions in the event the recovery of any trade receivables appears doubtful. The quantum of such provision depends on the duration of which the trade receivables are overdue as well as our assessment of the likelihood of whether such trade receivables are unrecoverable. For the Period Under Review, we did not encounter any material default by our customers and have not made any significant specific provisions for doubtful trade debts or bad debts written-off that had significantly affected our financial performance. The charges relating to our allowance for doubtful trade receivables for the Period Under Review were as follows:
(JPY000) Allowance for doubtful accounts FY2011 10,760 FY2012 7,607 FY2013 5,255
Credit Terms Granted by Our Suppliers and/or Sub-contractors Credit terms are granted to us depending on, inter alia , our relationship with our suppliers and/or sub-contractors as well as the size and duration of the contracts. The credit terms generally granted by our suppliers and/or sub-contractors range between 30 and 90 days. Trade payables turnover days Our average trade payables turnover days for the Period Under Review were as follows:
FY2011 Average trade payables turnover days
Note: (1) Trade payables turnover days is computed as follows: Average trade payables balances Cost of sales Where: Average trade payables balances is the average of the opening and closing trade payables, other payables and accrued expenses balances for the relevant financial year. Cost of sales exclude employee benefit expense. Number of days is defined as the number of calendar days in the relevant financial year. X Number of days
(1)
FY2012 66
FY2013 68
62
103
FY2012 43
FY2013 30
61
QUALITY ASSURANCE Our Groups commitment to quality services and implementation of comprehensive quality assurance procedures are principal factors contributing to our growth over the past years. As a testimony to our commitment to quality service, we have received various ISO certifications, details of which are set out in the section entitled General Information on Our Group Awards and Certifications of this Offer Document. Our engineers are important in consistently delivering quality services to our customers. We seek to hire, train and retain suitably qualified engineers to keep pace with our growth while maintaining consistent service quality to customers in all our business segments. 104
105
106
(b)
(c)
In addition to the above, we participate in industry seminars, exhibitions and trade shows to enhance our Groups profile and the brand recognition of our products and services. Our participation to-date includes the following: (a) the Design Engineering & Manufacturing Solutions Expo (which we attended in Tokyo in 2012); the Tokyo International Industry Exhibition (which we attended in 2012); the Microsoft Dynamics Forum in Tokyo (which we attended in 2012); and various seminars and fairs organised by Ricoh in the Aichi and Mie Prefectures, Japan (which we attended in 2012).
INSURANCE As at the Latest Practicable Date, our Group had in place the following insurance policies: (a) (b) (c) fire insurance; mutual aid insurance to cover the damage on equipments in the office; and car insurance on the automobiles owned by our Subsidiaries.
As disclosed in the section entitled Risk Factors, we may suffer substantial losses in the event of a natural disaster such as an earthquake, terrorist attacks or other casualty events in Japan. However, we do not carry insurance that covers losses that are due to natural disasters such as earthquakes as the cost of procuring such insurance coverage is prohibitive in Japan. In addition, we are not insured against loss of key personnel and business interruption.
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Xyec
Japan
35 (1)
5274519
NT Solutions
Japan
9 (2)
4644063
NT Solution
Notes: (1) (2)
Japan
9 (2)
4565340
Class 35 covers accounting work and preparation of financial statements. Class 9 covers computer programmes, electric circuits (not including those recorded with computer programmes), electrical machines, apparatus and apparatus parts.
Our Group has the copyrights to the following programmes: Copyrighted work UNIMEX UNIMEX II Quick View Type of copyright Computer programme Computer programme Computer programme Expiry date 30 March 2044 30 September 2057 28 February 2061
To the best of our Directors knowledge and belief, our Company is not aware of any third party that is currently using a trademark similar to the foregoing trademark(s) in the country in which such trademark(s) is registered or for which registration has been applied. Save as disclosed above, our Group does not own or use any trademark, patent or other intellectual property which are material to our business or profitability. LICENCES AND PERMITS Our Group has obtained all necessary licences and permits required for our business and operations. As at the Latest Practicable Date, except as disclosed herein and in the section entitled Risk Factors of this Offer Document, our business and operations were not subject to any special legislation or regulatory controls which have a material impact on our business operations other than those generally applicable to companies and businesses operating in Japan.
108
Neutral Kowamex
As at the Latest Practicable Date, none of the aforesaid licences and permits had been suspended, revoked or cancelled, and to the best of our Directors knowledge and belief, we are not aware of any facts or circumstances which would cause such licences and permits to be suspended, revoked or cancelled, as the case may be, or any applications for, or renewal of, any of these licences and permits to be rejected by the relevant authorities. Save as disclosed above and in the section entitled Risk Factors of this Offer Document, there are no other government regulations that have a material impact on our business operations. STAFF TRAINING We recognise staff training as a critical part of our quality assurance commitment to our customers. We inculcate a learning culture within our Group through training and development programmes, to enable our staff to keep abreast of changes in technology and advances in management methods. Our training and development programmes for our staff include sponsoring our key engineering staff for training to acquire new technical skills and knowledge. We also rotate our engineers within our Group and involve key engineers in certain management functions, so that our engineers can improve on both their technical and business management skills. We believe that through these activities, we are able to build a more cohesive and productive workforce that contributes to the effective corporate governance and success of our Group.
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(b)
External training includes: (a) soft skills training, positive thinking workshops, business skills, administration skills and management (including project management) skills training; and IT skills training and engineering skills training.
(b)
The amount of expenses in relation to staff training for the Period Under Review was not significant since most of the training was conducted in-house. COMPETITION The main competitive factors relevant to our Groups business include the level of expertise, service quality, compliance with strict technical specifications, competency and availability of suitably qualified personnel, customer base, length of customer relationship, track record, size, and the availability of capital resources. For each of our business segments, our Directors consider the following to be our main competitors: Engineering Services (a) (b) (c) Meitec Fielders Inc, a subsidiary of Meitec Corporation; Tecseed Co., Ltd.; and Atec Co., Ltd.
IT Services (a) (b) (c) System Research Co., Ltd.; Ivis Co., Ltd.; and SCSK Co., Ltd.
IT Solutions (a) (b) Yokogawa Solutions Corporation, a subsidiary of Yokogawa Electric Corporation Ltd; JFE Systems Co., Ltd., a company listed on the Tokyo Stock Exchange and a subsidiary of JFE Steel Corporation;
110
Nonetheless, we believe that our competitive strengths, as set out in the section entitled General Information on Our Group Competitive Strengths of this Offer Document, set us apart from our existing and potential competitors. To the best of our Directors knowledge, none of our Directors or Substantial Shareholders or their respective Associates has any interest, direct or indirect, in any of our competitors listed above. COMPETITIVE STRENGTHS We have an experienced management team with a strong track record of working together in previous successful ventures The majority of our management team members each have more than 20 years of experience in the Engineering Services industry and IT industry. They have also worked together for more than 20 years. Please refer to the section entitled General Information on Our Group History of this Offer Document for more details. Their extensive experience in the Engineering Services and IT industries, long term teamwork and the close relationships and networks which they have forged and cultivated over the years, are key to the continued growth of our Group. We are able to provide a comprehensive range of services and to cross-sell our services Other than Engineering Services, our Group offers a wide range of business-related software development services for companies in a variety of industries. In our IT Services business segment, we are able to construct IT Infrastructure and develop programmes according to our customers specifications and requirements. In our IT Solutions business segment, we are able to provide ERP Consultancy Services. We also design and develop our own proprietary production and sales control UNIMEX II and QuickOne software, which we can customise according to our customers needs. Further, to companies and organisations operating on multiple working shifts and with more than 1,000 employees, we offer the functionalities of our attendance administration system Elizea. Our business-related IT expertise allows us to satisfy the IT requirements of our customers and to leverage one line of our business to cross-sell our other lines of business and service offerings. Such IT expertise also equips us to diversify our business and service offerings across a wide variety of industries. This means that we are not dependent on a single or a few industries, which in turn enables us to ride through the different business cycles of different industries. Our Groups comprehensive service offerings allow us to share expertise across our Group. For example, our IT Services business segment is built on the foundation of our Engineering Services expertise. In developing our IT Services business segment, we have also acquired the technical and business know-how to expand into our IT Solutions business segment. For more information, please refer to the section entitled General Information on Our Group Business Overview of this Offer Document.
111
112
Company
3-46-2, Sakuramachi, Kariya City, Aichi Prefecture, Japan 1-3-5, Kuretake-cho, Takahama-shi, Aichi Prefecture, Japan
Nil
Kowamex
789.8
Nil
113
Company
4-15, Konan 2-Chome, Minato-ku, Tokyo, Japan 305, 5-16-5, Shiba, Minato-ku, Tokyo, Japan 506, 1-1-7, Haruoka, Chikusa-ku, Nagoya-shi, Aichi Prefecture, Japan 4F, 4-5-11, Masaki Naka-ku, Nagoya-shi, Aichi Prefecture, Japan 501, Glass City Sakae, 3-11-31, Sakae, Naka-ku, Nagoya-shi, Aichi Prefecture, Japan 3-1-23 Sakae, Naka-ku, Nagoya-shi, Aichi Prefecture, Japan 5F, Kanayama Centre Place, 1-14-18, Kanayama, Naka-ku, Nagoya-shi, Aichi Prefecture, Japan 4F, Advance Square Kariya, 1-1-1, Aioi-cho, Kariya-shi, Aichi Prefecture, Japan 3-152-7, Onda-cho, Kariya-shi, Aichi Prefecture, Japan
JPY2,168,745
Office
Company
35.0
JPY143,000
Staff lodging for Manabu Kobayashi Staff lodging for Mr Isayama of the Company
Company
29.6
JPY45,000
Junko Kato
Company
22.3
JPY106,587
ACLOX
232.5
JPY843,840
ACLOX
1 unit
JPY38,000
Taiseisha Ltd.
Parking
Kowamex
373.3
JPY1,215,026
Office
Kowamex
378.8
JPY1,374,840
Office
Kowamex
190.5
JPY110,000
Masahiro Okamoto
Business office
114
Kowamex
26F, Hamamatsu Act Tower, 111-2, Itaya-machi, Naka-ku, Hamamatsu-shi, Shizuoka Prefecture, Japan. 1-3-4, 5, 7, Kuretake-cho, Takahama-shi, Aichi Prefecture, Japan Nos. 27, 28, Kanayama Centre Place, 1-14-18, Kanayama, Naka-ku, Nagoya-shi, Aichi Prefecture 4F, Advance Square Kariya, 1-1-1, Aioi-cho, Kariya-shi, Aichi Prefecture, Japan 142-2, 3-12-1, Chuou, Naka-ku, Hamamatsu-shi, Shizuoka Prefecture, Japan 9-106 H, Shinmei-cho, Takahama-shi, Aichi Prefecture, Japan Nos. 5, 5-115, Shinmei-cho, Takahama-shi, Aichi Prefecture, Japan Nos. 22, 4-212, Shinmei-cho, Takahama-shi, Aichi Prefecture, Japan
JPY270,481
Business office
Kowamex
1087.0
JPY147,900
Takami Kato
Kowamex
(2 units)
JPY70,000
Parking
Kowamex
(2 units)
JPY27,300
Parking
Kowamex
(1 unit)
JPY18,000
Parking
Kowamex
(1 unit)
JPY6,000
Kiyotaka Watnaabe
Parking
Kowamex
(1 unit)
JPY6,300
Takahisa Ishihara
Parking
Kowamex
(1 unit)
JPY6,000
Fumi Miura
Parking
115
Kowamex
Nos. 11, 3-401.402, Shinmei-cho, Takahama-shi, Aichi Prefecture, Japan Nos. 48, 3-25, Sakura-machi, Kariya-shi, Aichi Prefecture, Japan 2122/53 Moo 7 Srinakarin Road Tambol Teparak Amphur Samutprakarn City Samutprakarn Province, Thailand 181, Minamiyama, Akadoji-cho, Kounan-shi, Aichi Prefecture, Japan 181, Minamiyama, Akadoji-cho, Kounan-shi, Aichi Prefecture, Japan 6F, MK Building, 3-9-13, Meieki, Nakamura-ku, Nagoya-shi, Aichi Prefecture, Japan 2-25-11 Noritake, Nakamura-ku, Nagoya-shi, Aichi Prefecture, Japan Sunny Building, 2-9-1 Kumoji, Naha-shi Okinawa Prefecture, Japan
JPY6,000
Yoshiyuki Fukaya
Parking
Kowamex
(1 unit)
JPY10,000
Parking
Kowamex (Thailand)(1)
48.0
THB16,000
Vicha Kaewkanokvijit
Business Office
em-kei
39.6
JPY60,000
Maruki Ltd.
Office
em-kei
39.6
JPY50,000
Maruki Ltd.
Conference room
NIHON UNITEC
201.5
JPY640,080
Tetsuo Oyama
Office
NIHON UNITEC
17.6
JPY38,000
Masayuki Takigami
NT Solutions
29.1
JPY85,000
Office
116
Neutral
12F, Sakae3chomeBuilding, 3-6-1, Sakae, Naka-ku, Nagoya-shi, Aichi Prefecture, Japan 3F, Nagahorichuo Building, 1-20-16, HigashiShinsaibashi, Chuo-ku, Osaka-shi, Osaka Prefecture, Japan 5F, EkinishiFirst-Building, 1-1-10, Hirooka, Kanazawa-shi, Ishikawa Prefecture, Japan 10F, AioiSonpoShizuokaDaiichi-Building, 3-1, Sakae-cho, Aoi-ku, Shizuoka-shi, Shizuoka Prefecture, Japan 802, AjiliaKurokawa, 53-1, Kurokawahondori, Kita-ku, Nagoyashi, Aichi Prefecture, Japan 2C, LilaWistaria, 1-31-3, Tsuyuhashi, Nakagawa-ku, Nagoya-shi, Aichi Prefecture, Japan
JPY2,641,260
Office
Neutral
207.3
JPY313,450
Office
Neutral
37.2
JPY115,000
Atsuko Konishi
Office
Neutral
60.7
JPY192,989
Office
Neutral
24.8
JPY63,525
ABLE Hosho.Inc
Neutral
25.0
JPY57,300
117
Neutral
2C, ArmsTohata, 2-30-1, Tohata-cho, Showa-ku, Nagoya-shi, Aichi Prefecture, Japan B-102, TownHirokoji, 4-89, Hirokoji, Kariya-shi, Aichi Prefecture, Japan 402, Parkavenue, 1-9-37, Ritsurin-cho, Takamatsu-shi, Kagawa Prefecture, Japan 2-17-55, Akasaka, Minato-ku, Tokyo, Japan
JPY60,000
Neutral
21.2
JPY40,000
Neutral
32.7
JPY61,000
Yoshiaki Sawayama
Sial System
112.6
JPY553,350
Chiyoko Matsushima
Office
Note: (1) Currently leased under the name of an employee of Kowamex (Thailand).
To the best of our Directors knowledge and belief, there are no regulatory requirements that may materially affect our Groups utilisation of tangible fixed assets.
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This certificate shows that we have met the requirements of the standards in the operation of our Information Security Management System for software development, consulting service related to software development and related maintenance services, and information management for managing our subsidiary companies An SAP services partner can work with SAP sales teams to provide consultation to and help customers to design, implement, and integrate solutions A partner can support marketing and customer service for clients by using web application provided by Salesforce.com A Microsoft Solution Provider is authorised to resell Microsoft Dynamics ERP software licenses This certificate shows that Kowamex has met the specific standards for operating in the aerospace industry set by Mitsubishi Heavy Industries Ltd and Nagoya Aerospace Systems This certificate shows that Kowamex, as a company, has met the standards for staffing services for design, testing and research of aircraft structures and aircraft equipment, automotive parts and industrial equipment; labour provision for design, development and testing of automotive parts Privacy Mark system assesses private enterprises on the measures they take to protect personal information. Such private enterprises are granted the right to display PrivacyMark in the course of their business activities. Sial System is in compliance with Japan Industrial Standards (JIS Q 15001:2006 Personal Information Protection Management System Requirements)
NT Solutions
ACLOX
Salesforce.com Co.,Ltd.
NT Solutions
Kowamex
Kowamex
Privacy Mark
Sial System
IPDEC (Japan Institute for Promotion of Digital Economy and Community) (10821082(04))
119
Sial System
This certificate shows that Sial System has met the requirements of the standards in the operation of its Information Security Management System for software development, consulting service related to software development and related maintenance services
INDUSTRY OVERVIEW Unless expressly stated below, all the information and data presented in this section and the section entitled General Information on Our Group Prospects are extracted from the research report (the Industry Report ) dated 2 August 2013 prepared by the Industry Expert. The Industry Expert has been commissioned by our Company to prepare the report for the purposes of providing information for incorporation into this Offer Document. The following Industry Overview section has been extracted from the Industry Report. While our Directors have taken reasonable care and due diligence to ensure that statements from the Industry Report have been extracted in their proper form and context, and that such statements have been extracted accurately and fairly from the Industry Report, none of our Company, the Manager, Sponsor and Placement Agent or their respective officers, agents, employees and advisers has conducted an independent review of the content or independently verified the accuracy thereof. You should be aware that since the date of the Industry Report, there may have been changes in the engineering and IT services industries and the various sectors therein which can affect the accuracy or completeness of the information in this section. Engineering Services CAE market CAE (Computer Aided Engineering) is the system to support design and development process, including an analysis system to calculate features, such as strength and heat resistance, by making use of a model of the designed product and simulation systems to confirm the product function and performance. CAD (Computer Aided Design) is the system for design by making use of computers. It is aimed at enhancing the efficiency of designing works, which used to be conducted by human hand, through the support of a computer. CAM (Computer Aided Manufacturing) is the system to support manufacturing works by making use of computers. This is the system for total production preparation on computers by utilising drawings made by CAD systems. The global CAE market was estimated to be US$2.35 billion and US$2.60 billion for 2011 and 2012, respectively, at an increase of 13.0% and 10.6% from each of its preceding year due to an increase in capital expenditure after the Lehman crisis.
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2008 1,817
According to the Industry Report, the domestic CAE market had also grown steadily from 2010 to 2012, similar to the trend for the global CAE market. Table 2: Development of Domestic CAE Market (2008 to 2012) (1) (Unit: JPY million) Domestic CAE market Compared with the previous year (%)
Notes: (1) (2) Manufacturers shipping price basis Figures for years 2011 and 2012 are forecasted figures
2008 47,339
Machinery-related CAD/CAM/CAE market in Japan The machinery-related CAD/CAM/CAE market in Japan had also shown recovery from the damage caused by the Lehman crisis and the Great East Japan Earthquake with a growth of 6.3% in 2011 from 2010. In particular, the active capital expenditure by the automobile industry in 2012 was expected to contribute to the continued recovery of the machinery-related CAD/CAM/CAE market in Japan in 2012 with a growth of 7.8% in 2012 from 2011. According to the Industry Report, the automobile and electric appliance industries occupied slightly less than 60% of the machinery-related CAD market in Japan. Table 3: Domestic Machinery-related CAD/CAM/CAE Market (2010 to 2012) (Unit: JPY million) Machinery CAD/CAM/CAE Market Compared with previous year (%)
Note: (1) The figure for year 2012 is a forecasted figure
2010 169,737
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2008 12,396
IT Solutions ERP market in Japan ERP (Enterprise Resource Planning) is the package for building the information system to integrate operation data for core business functions, such as finance and accounting, personnel and salary administration, sales control, production control, inventory control and logistics control. The ERP market in Japan was JPY109.1 billion in 2012, which represented an increase of 12.6% from the previous year, and was the first significant growth since 2007. The slowdown of the ERP market started in 2008, due to the Lehman crisis, where the ERP market decreased by 15.8% in 2009 as compared to the previous year. Following that and the Great East Japan Earthquake, companies experienced recovery in their business in 2012, which was in tandem to the recovery of the ERP market in 2012. Table 5: Development of ERP Market (2010 to 2012) (1) (Unit: JPY million) ERP Package Compared with the previous year (%) Notes:
(1) (2) Based on the price for delivery to end users. The figure for year 2012 is a forecasted figure
2010 91,600 _
(1)
This includes companies dealing in the business of hardware products, software products and providing IT related services, but excludes small sized businesses and those that are involved in the public sectors.
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Use of ECU and Embedded Software in the Automobile Industry Increasing proportion of car electronics in the cost of an automobile body In the 1980s, the car electronics system was only an ancillary function for automobile bodies, constituting 3.0% of the automobile body cost. In 2005, car electronics system came to constitute 20.0% of the automobile body cost, and in 2015, it is expected to constitute 40.0% of the automobile body cost.
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Electronics 3%
Electronics 20%
Electronics 40%
Others 97%
Others 80%
Others 60%
Developments in the use of ECU and embedded software in the automobile industry Automobile ECU evolved from a standalone type at the initial stage of development, to a network type, and has subsequently come to be controlled in an integrated manner and in a networked environment with links to external infrastructure from 2010 onwards. Attention to development by model based design Since late 2010, the automobile manufacturers have started focusing on model based design due to the increasing importance of software as a component of an automobile. The aim is to improve the quality and shorten the time for product development by increasing the portion of simulation in the early stage of product development. Until now, hardware engineers have been in a strong position to influence design. However, with the increasing importance of software as a component of an automobile and the introduction of model base design, simulation being conducted together between software and hardware development has become common. The market trend has also evolved such that the design and development of automobiles cannot be conducted without the knowledge of software designers. However, many automobile companies still employ tools that are not adequate to carry out model based design, with many advanced companies developing software based on model based design. Such software may come to be regarded as the de facto standard in the industry and form a core part in manufacturing.
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Processing
Data communication Access To exchange the variable number information through communication path
Network system
ECU System
Standalone
Code Based Development Development method of software Component Based Development Model Based Development Platform Based Development
Expansion of the Japanese Manufacturing Industry into Overseas Markets Following the Lehman crisis, the Great East Japan Earthquake, the depreciation of the Japanese yen from 2013, contraction of domestic market due to recession and the falling birth rate, manufacturing companies in Japan have accelerated business expansion into overseas markets. Between 1980 and 2000, many manufacturing companies have shifted their production to other parts of Asia, in particular South East Asia and the PRC. Large companies are focusing on expanding their existing businesses in new geographical regions, with medium-sized companies also expanding overseas to support the large companies who are their business partners and in an effort to expand into these markets for themselves. This trend is supported by data and according to the Report on Questionnaire Investigation in relation to corporate activity for the FY ending March 2012, which was conducted by the Cabinet Office of Japan, and manufacturing companies have increased productions overseas, from a ratio of 4.6% in 1990 to 17.2% in 2011, and is expected to grow to 21.3% in 2016. The manufacturing industry in Japan is also shifting the function of design and development of products overseas. Software development, which is inextricably linked to the manufacturing industry, is now expected to respond to demands globally as manufacturing companies in Japan expand into overseas markets, and therefore Japanese companies involved in the business of software development have space for growth in overseas markets. The table below shows the increase in the ratio of overseas productions for Japanese manufacturing companies.
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29.1
17.7
19.1
11.4
9.3
In addition, the manufacturing industry has been actively promoting the usage of information systems overseas. The Industry Report further noted that the ERP market will also receive a boost from the expansion to overseas markets by Japanese manufacturers, as the number of companies in Japan implementing EPR systems for their overseas operation is increasing rapidly. The supply chain will become more complicated in line with overseas expansion and the importance of overseas business will be increased. As companies are concerned that they would not be able to control the business with the current existing information systems, the number of companies considering the implementation of a new ERP system, which can cover their domestic and international businesses, has increased. Use of Software to Achieve Efficiencies Adoption of Front Loading Development According to the Industry Report, CAE was previously used in highly specialised fields by analysis engineers. However, the manufacturing industry has been conducting various processes in product development at the same time, ranging from concept design to detail design, production preparation and production planning, in an effort to improve quality, shorten the delivery period and reduce cost. The Front Loading Development is one such method adopted by the manufacturing industry in which the manufacturers emphasise on the initial stage in the product development process to achieve the results above. Manufacturers undertake Front Loading Development through a simulation by making use of the CAE prior to making the prototype. Recognising this, 3D CAD makers have acquired CAE makers. These CAD makers started to sell CAE embedded in 3D CAD, which enabled the designers to use CAE easily with same screen and same menu. As a result, designers could conduct CAE by themselves. The emergence of the use of CAE by designers has therefore expanded the base of CAE market.
126
127
128
(b)
(ii)
Our Future Plans Our future plans focus on three areas: growing our existing business segments, developing new capabilities and new business segments, and expanding through new locations, mergers, acquisitions, joint ventures and/or strategic alliances. Growing our existing business segments We believe that strong software development capability is essential to the profitability and success of our Group. We intend to capitalise on our accumulated know-how in each of our three business segments and expand our service and product portfolio: (a) Engineering Services We believe that our capabilities and experience in a wide range of IT services, including developing software for Automobile ECUs, CAE and CAD/CAM will enable us to expand our Engineering Services business segment to other companies in the automobile and aerospace industries, and to companies in other industries, such as the machinery industry. We also plan to develop our proprietary software for Automobile ECUs for the local automobile makers in the PRC and in ASEAN countries. We believe that there is potential for our Group to do so, as more of these automobile makers seek to improve their own technological capabilities and look towards Japanese Automobile ECU software developers such as our Group for such technological capabilities.
129
(iii) develop new business-related and CRM software. We will also recruit more experienced information technology personnel and train our staff to improve our technical and management skills in order to further improve our service quality. We intend to use 25.0% of the gross proceeds from the Placement for the above purposes. Developing new capabilities and new business segments We believe that building our core competence in engineering and IT services is important to our Groups growth. We plan to establish a research and development function within our Group to focus on (a) improving our existing services and products, (b) identifying technological and engineering trends, and (c) developing new services and products that we can offer to our customers. We plan to invest in a research and development facility and allocate or recruit suitable personnel for this purpose. We also plan to establish our own data centre from which we can host IT systems, networks and servers to aid in the delivery of our cloud computing and information security services to our customers. We intend to use 25.0% of the gross proceeds from the Placement for the above purposes. Expanding through new locations, mergers and acquisitions, joint ventures and/or strategic alliances As more Japanese manufacturers and businesses expand their operations into other parts of Asia, we will expand our base in Asia to better serve the IT needs of these manufacturers and businesses operating in the region. To this end, we intend to establish an office in Singapore to 130
(b)
In the current financial year, we expect the price of our services to increase marginally and costs of operations to remain relatively stable. 131
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Provision of project management support services: (a) for Denso Create Inc (b) for FineFit Design Co., Ltd Payment of annual fees to Mamezou (777) (1,155) 4,480 1,682 (840) 3,426
The payment of fees to Mamezou related to our Companys use of Mamezous proprietary tax calculation software programme Tax Saver, which calculates and produces our Companys group consolidated tax returns. Mamezou provides the same services to other customers on similar terms of business. The provision of services from our Group to Mamezou, and the payment of annual fees to Mamezou were conducted on an arms length basis and on normal commercial terms. It is envisaged that transactions with Mamezou will continue in future. After the listing of our Company on the Catalist, any transactions between our Group and Mamezou will be subject to such guidelines as described in the section entitled Interested Person Transactions Guidelines and Review Procedures for On-going and Future Interested Person Transactions of this Offer Document and Chapter 9 of the Catalist Rules.
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(b)
(c)
(d)
(e)
(ii)
134
135
(b)
Based on the above, even though Mamezou is also in the IT industry, our Board is of the opinion that the current business of Mamezou does not pose any conflict that is material against the interests of our Group. Notwithstanding the above, Mamezou may in future expand into businesses that may compete with our Group. Conversely, our Group may expand into businesses that compete with Mamezou. In this regard, our Board believes that any potential conflict of interests arising from the relationship between Mamezou and our Group is mitigated by the following: (a) Save for Norio Ogiwara, who is the Non-Executive Director of our Company and an executive director of Mamezou, respectively, our Group and Mamezou have separate management team and Board of Directors; Norio Ogiwara has given an undertaking to our Company and our Sponsor: (i) to abstain from giving any recommendation in respect of or approving any proposed transactions or dealings between the Group and Mamezou, both in his capacity as a Non-Executive Director of our Company and as the president and representative director of Mamezou; to abstain from voting on any directors resolutions to be passed by our Company or Mamezou from time to time in relation to transactions which may result in a conflict of interests between our Group and Mamezou;
(b)
(ii)
(iii) not to disclose to any third party including Mamezou any confidential or trade information that comes into his possession in his capacity as the Non-Executive Director of our Company; and
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(2)
(c)
Norio Ogiwara, as president and Representative Director of Mamezou, has given an undertaking to our Company and our Sponsor to inform our Board of Directors in writing as soon as reasonably practicable, of the following events: (i) any material change in the business and operations of the Mamezou group of companies that may have a material adverse effect on the business and operations of our Group; any change in the Controlling Shareholder(s) of Mamezou; and
(ii)
(iii) any event that may be material in the interests of our Group, including but not limited to any material change in the size and nature of transactions between the Mamezou group of companies and our Group; and (d) The functions of our Audit Committee include the review and approval of interested person transactions and review procedures thereof.
Accordingly, save for Mamezou being our Controlling Shareholder, our Group and Mamezou will each be a separate listed group, which is managed by separate and distinct management teams. Save as disclosed above and in the section entitled Interested Person Transactions of this Offer Document, none of our Directors, Executive Officers, Controlling Shareholders or any of their Associates has an interest, direct or indirect: (a) (b) in any transaction to which our Group was or is to be a party; in any entity carrying on the same business or dealing in similar services which competes materially and directly with the existing business of our Group; and in any enterprise or company that is our Groups customer or supplier of goods and services.
(c)
Save as disclosed in the sections entitled Interested Person Transactions and Directors, Management and Staff Service Agreements of this Offer Document, none of our Directors has any interest in any existing contract or arrangement which is significant in relation to the business of our Company and our Subsidiaries, taken as a whole. INTERESTS OF EXPERTS No expert is interested, directly or indirectly, in the promotion of, or in any property or assets which have, within the two years preceding the date of this Offer Document, been acquired or disposed of by or leased to our Company or our Subsidiaries or are proposed to be acquired or disposed of by or leased to our Company or our Subsidiaries.
137
(c)
138
Manabu Kobayashi
48
Tatsushi Oshimi
57
c/o 5F, Kanayama Centre Place, 1-14-18 Kanayama, Naka-ku Nagoya-shi Aichi Prefecture Japan c/o 4-15 Konan 2-chome Minato-ku Tokyo, Japan c/o 4-15 Konan 2-chome Minato-ku Tokyo, Japan c/o 4-15 Konan 2-chome Minato-ku Tokyo, Japan c/o 65 Chulia Street #39-07 OCBC Centre Singapore 049513 760 Bedok Reservoir Road #11-13 Singapore 479245
Japan
Minoru Funakoshi
64
Japan
Non-Executive Director
Norio Ogiwara
55
Japan
Non-Executive Director
Susumu Hanada
61
Japan
Yukihiro Shida
48
Singapore
Independent Director
48
Singapore
Independent Director
139
140
142
Group Companies Other Companies Group Companies Other Companies AAA Consulting Service Pte. Ltd.
143
Akihiro Inukai
52
c/o 5F Glass City Sakae Building, 3-11-31 Sakae, Naka-ku, Nagoya, Aichi, Japan c/o 12F Sakae 3-chome Building 3-6-1 Sakae, Naka-ku, Nagoya, Aichi, Japan c/o 1-14-18 Kanayama, Naka-ku Nagoya, Aichi, Japan c/o 4-15 Konan 2-chome, Minato-ku Tokyo, Japan c/o 4-15 Konan 2-chome Minato-ku Tokyo, Japan
President of ACLOX
Masanori Itomi
65
Japan
President of Neutral
Shinji Sakaida
56
Japan
President of Kowamex
Takashi Morimoto
52
Japan
President of NT Solutions
Takeshi Hosaka
49
Japan
Financial Controller
144
145
146
Past Directorships Group Companies NIHON UNITEC ACLOX Other Companies Group Companies Kowamex (Thailand) Other Companies Group Companies Neutral NT Solutions Other Companies Group Companies Other Companies ODL Japan Co., Ltd.
Management Committee
Administrative Headquarter
Finance Headquarter
Takeshi Hosaka
IPO Office
Administrative Dept.
Finance Dept.
Accounting Dept.
147
40
53
72
75
The number of full-time staff that we employ is not subject to any significant seasonal fluctuation. Currently, Kowamex (Thailand) hires between 100 to 150 temporary factory workers, mostly on a daily basis to carry out non-engineering functions. Our employees are not covered by any collective bargaining agreements and are not unionised. The relationship and co-operation between the management and staff have been good and are expected to continue and remain as such in the future. There have not been any incidents of work stoppages or labour disputes which affected our operations. Other than amounts set aside or accrued in respect of mandatory employee funds, we have not set aside or accrued any amount of money to provide for pension, retirement or similar benefits to our employees. Our Groups average staff turnover for our engineers is relatively low as we provide good benefits and a good working environment. Information of the average number of years of employment of our engineers within our Group and the average turnover ratio for the last three years is as follows:
Average no. of years of employment within our Group 10.0 7.2 5.1
148
Our Group is committed to investing in its people through both internal and external training for skills development. Please refer to the section entitled Staff Training of this Offer Document for more details. Our Group believes in promoting teamwork and togetherness where interdepartmental collaboration and cooperation is the standard. A culture that promotes teamwork is encouraged by senior management, and ensures the success of our Group as a whole. REMUNERATION OF DIRECTORS, EXECUTIVE OFFICERS AND RELATED EMPLOYEES Directors and Executive Officers The remuneration paid to our Directors and our Executive Officers by our Group for FY2012 and FY2013, and the estimated remuneration to be paid to our Directors and our Executive Officers for FY2014 by our Group (on an aggregate basis and in remuneration bands (1)(2)) are as follows: (JPY) FY2012 FY2013 FY2014 (Estimated)
Directors Manabu Kobayashi Tatsushi Oshimi Minoru Funakoshi Norio Ogiwara Susumu Hanada Yukihiro Shida Tan Poh Chye Allan Executive Officers Akihiro Inukai Masanori Itomi Shinji Sakaida Takashi Morimoto Takeshi Hosaka
Notes: (1) For the purpose of this estimation, no account is made for the bonuses or profit sharing that our Executive Directors and Executive Officer are entitled under their respective service agreements, the details of which are set out under the section entitled Directors, Management and Staff Service Agreements of this Offer Document. Band A Remuneration up to S$250,000. Band B Remuneration from S$250,001 to S$500,000. Based on an exchange rate of JPY76.59 to S$1.00 as at the Latest Practicable Date.
A A B A
A A A A
A A A A (3) A A A
A A A A
A A A A A
A A A A A
(2)
149
SERVICE AGREEMENTS On 20 August 2013, our Company entered into separate service agreements (collectively, the Service Agreements and individually, the Service Agreement ) with our Executive Chairman, President and CEO Manabu Kobayashi, our Vice-President and Executive Director Tatsushi Oshimi, and our Financial Controller Takeshi Hosaka (collectively, the Executives and individually, the Executive ). The Service Agreements shall take effect from the date of admission of our Company to Catalist (the Commencement Date ) and shall continue for an initial period of three years (the Initial Term ). Subsequently, the Service Agreements are automatically renewed annually unless either party gives notice of its intention to terminate in the manner set out below. Upon the expiry of the Initial Term, the employment of the Executives may be extended for such further period on the terms and subject to the conditions to be agreed between the Executives and our Company unless otherwise terminated by either party giving not less than six months notice in writing or an amount equal to six months salary in lieu of notice. During the Initial Term, either party may only terminate the Service Agreements by giving to the other party not less than six months notice or an amount equal to six months salary in lieu of notice. Notwithstanding the other provisions of the Service Agreement, our Company shall be entitled to terminate the appointment, but without prejudice to the rights and remedies of our Company for any breach of the Service Agreement and to the Executives continuing obligations under the Service Agreement, in any of the following cases: (a) if the Executive is convicted or otherwise found guilty by any court of any offence involving fraud or dishonesty; if the Executive is convicted of any criminal offence (save for an offence under any road traffic legislation for which he is not sentenced to any term of immediate or suspended imprisonment); if the Executive becomes bankrupt or has a receiving order made against him or makes any general composition with his creditors; if the Executive is guilty of any act or thing which may bring serious discredit on our Company or on our Group; if the Executive neglects or refuses, without reasonable cause, to attend to the business of our Company; if the Executive flagrantly or persistently fails to observe and perform any of the duties and obligations imposed by the Service Agreement or which are imposed by law; if the Executive otherwise acts in breach of the Service Agreement so as to materially prejudice the business of our Company;
(b)
(c)
(d)
(e)
(f)
(g)
150
(i)
The Service Agreements provided for, inter alia , the salary payable to the Executives, annual leave, medical benefits, grounds of termination and certain restrictive covenants (including non-compete obligation). Pursuant to the terms of the Service Agreements, the Executives are entitled to their monthly salaries as set out below. In addition, each of the Executives is also entitled to receive an annual wage supplement of one months salary per annum. The remuneration of the Executives is subject to review by our Board at the end of each financial year of our Company. The relevant Executive shall abstain from voting in respect of any resolution or decision to be made by our Board in relation to the terms and renewal of his Service Agreement.
Executives Monthly Salary (JPY) 1,500,000 1,500,000 800,000
Save as disclosed above, there are no bonus or profit-sharing plans or any other profit-linked agreements or arrangements between our Company and any of our Directors, Executive Officers or employees. The Executives shall not be entitled to further Directors fees under the Service Agreements. Subject to the approvals of the Shareholders of our Company, the SGX-ST and other regulatory authorities, where necessary, the Executives shall be eligible to participate in any other employee scheme or plan implemented by our Company on such terms as may be determined by our Remuneration Committee at its sole and absolute discretion. Pursuant to their respective Service Agreements, each Executive shall not, at any time during the period of his employment with our Company and for a period of two years after the termination of his employment with our Company, within Singapore and any other jurisdiction where our Group operates directly or indirectly carry on or be engaged or interested in any capacity in any other business, trade or occupation whatsoever, except, in a business, trade or occupation which does not compete with the business of our Company or any member of our Group or as disclosed in this Offer Document; either solely or jointly with or on behalf of any person, firm or corporation directly or indirectly carry on or be engaged or interested in any business competing with the business of our Company or any member of our Group; or solicit the customer of any person who is or has been at any time during the period of his employment a customer of our Company for the purpose of offering to such customer goods or services similar to or competing with those of the business of our Company or our Group; or cause or permit any person or company directly or indirectly under his control or in which he has any beneficial interests to do any of the foregoing acts or things.
151
152
Details of the above schemes are set out below. (A) Xyec Holdings Employee Stock Holding Association (ESHA) On 1 March 2007, the Groups employees established a partnership ( kumiai ) known as Xyec Holdings Employee Stock Holding Association ( ESHA ), under the Civil Code of Japan, as an incentive to the employees of our Group, aligning the interests of our employees to the interests of our Shareholders, to support our future growth. The administrative board of the ESHA, headed by Kazuo Miwata, head of our Companys administration department, administers the ESHA and is assisted by Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., an independent third party. The ESHA is a shareholder of our Company. Membership of the ESHA is confined to the current employees of our Group who have been employed in any of our Group companies for not less than a year. The participation in the ESHA is voluntary. The members of the ESHA make a monthly contribution ranging from JPY1,000 to JPY30,000, deducted directly from their salary. A certain percentage of their bonuses are also deducted and contributed to the ESHA. The Company in turn contributes an amount equivalent to 2.0% of the members contribution. Extraordinary capital contribution will be made when our Company distributes dividends (such dividends shall be treated as extraordinary capital contribution) or make a shareholders allotment. Members are granted the rights to receive cash upon withdrawal from the ESHA, pro-rata to the aggregate amount of their capital contribution ( Entitlement Right ). These rights enable them to benefit from the appreciation in the value of the Shares in our Company. The Entitlement Rights confer solely a claim of payment in cash, not a right to claim to purchase Shares in our Company. None of the Entitlement Rights granted by the ESHA are convertible into Shares or any other form of securities in our Company. In exceptional cases, for example where the employees had contributed their Shares to the ESHA, we have allowed such employees to withdraw their Shares upon their resignation from our Group. As at the Latest Practicable Date, the ESHA had granted the Entitlement Rights corresponding to 10,140,000 Shares in our Company, to 142 current employees of our Group (collectively, the ESHA Grantees , each an ESHA Grantee ). The Shares held by the ESHA are subscribed from the Company or purchased from existing Shareholders by making use of the contribution from the ESHA Grantees. Dividends associated with such Shares are not distributed to the ESHA Grantees but kept by the ESHA as extraordinary capital contribution as stated above to invest in additional Shares in our Company.
153
(b)
(c)
(d)
(e)
The Stock Option Scheme will provide eligible participants with an opportunity to participate in the equity of our Company and to motivate them towards better performance through increased dedication and loyalty. The Stock Option Scheme, which forms an integral and important component of our employee compensation plan, is designed to primarily reward and retain directors (including our Non-Executive Directors) and employees whose services are vital to our well-being and success. This would enable our Company to give recognition to past contributions and services as well as motivating participants generally to contribute towards the long-term growth of our Group. 2. 2.1. ELIGIBILITY An Eligible Participant is one of the following: (a) Group Employees who have attained the age of 21 years as at the date of the allotment agreement of the Stock Option; and Group Directors,
(b)
provided always that such Eligible Participant shall cease to be eligible to participate in the Stock Option Scheme or to exercise its Stock Options in the following circumstance: (i) (ii) dismissal pursuant to the employee work handbook; violation of the allotment agreement;
(iii) any cases similar to the above (i) or (ii); (iv) charged or found guilty of any offence punishable by imprisonment with work; (v) resignation from our Group; or
(vi) expression of his intent to give up the Stock Option in written notice to the Company.
155
2.3.
2.4.
3. 3.1.
3.2.
4. 4.1.
In the case of Rule 16.1, the number of allotment for the remaining Stock Option (the Stock Option not exercised yet) is to be adjusted in accordance with the following formula; provided, however, that fractional portion less than 1 share shall be rounded down. Adjusted number of shares = Number of shares before the adjustment times ratio of stock split/consolidation 4.2. The aggregate number of shares over which Stock Options may be granted under the Stock Option Scheme and any other share-based incentive schemes of the Company, will be limited to twenty five per cent. (25.0%) of the total number of the issued shares of the company (excluding treasury shares) from time to time. The size of the Stock Option Scheme is intended to support the long-term use of stock options as part of our Groups overall compensation strategy. In particular, the Stock Option Scheme will provide our Company with greater flexibility to use stock options as a part of the participants remuneration package to acknowledge the participants achievements and provide an incentive for ongoing performance. 156
4.3.
5.2.
5.3.
(b)
6. 6.1.
STRIKE PRICE The Strike Price per share is JPY25, subject to adjustments according to the terms of the Stock Option Scheme. (With the Sub-Division, each Option is exercisable into 3,000 Shares at a Strike Price of JPY25 per Share.) The exercise price of one Stock Option shall be the Strike Price multiplied by the number of shares to be issued by the exercise of one Stock Option.
6.2.
If the Strike Price of the Stock Option granted is at a discount to the Market Price of a share of the Company at the time of grant, the discount must be approved by the Companys Shareholders in a separate resolution. The maximum discount must not exceed twenty per cent. (20.0%). EXERCISE PERIOD The Exercise Period of #1 Stock Option is as follows: (a) Any Stock Options granted at a discount to the Market Price of a share of the Company at the time of grant will only be exercisable only in the period commencing two years from the date of grant (two years from 27 April 2006) until 26 April 2016. Other Stock Options will only be exercisable in the period commencing two years from the date of grant (two years from 27 April 2006) until 26 April 2016.
7. 7.1.
(b)
157
(b)
7.3.
The Exercise Period of #5 Stock Option is as follows: (a) Any Stock Options granted at a discount to the Market Price of a share of the Company at the time of grant will only be exercisable only in the period commencing two years from the date of grant (two years from 5 December 2011) until 27 September 2021. Other Stock Options will only be exercisable in the period commencing two years from the date of grant (two years from 5 December 2011) until 27 September 2021.
(b)
7.4.
Shares allotted and issued pursuant to the exercise of Stock Options offered under the Stock Option Scheme shall be subject to the Articles of Incorporation of the Company, and will rank pari passu in all respects (including the voting, dividend, transfer and other rights, including those arising on a liquidation of the Company, attached thereto) with the then existing issued Shares, save for any dividend or other distribution where the record date precedes the date of exercise of the Stock Option. The exercise of Stock Options shall be subject to the following conditions: (a) The total of the Strike Price of the Stock Options (including other Stock Options granted as tax qualified Stock Options, if any) during a year (from 1 January to 31 December) shall not exceed JPY12,000,000. The shares which are allotted on the exercise of Stock Option shall be kept in the account in the name of the Eligible Participant at a securities company designated by the Company (the Designated Securities Company ). A written oath shall be submitted to the Company that the Eligible Participant is not the Shareholder having one-third of the existing shares of the Company nor having relationship with such Shareholder. The Strike Price shall be higher than market price at the time of grant. The shares which are allotted on the exercise of the Stock Option (including the issue of new shares and transfer or assignment of shares) shall be delivered in accordance with Paragraph 1 of Article 238 of the Japan Companies Act, which are approved in the resolution for the issue of Stock Options.
7.5.
(b)
(c)
(d) (e)
158
(b)
(c)
(d)
9. 9.1.
GRANT OF STOCK OPTION Under the rules of the Stock Option Scheme, there are no fixed periods for the grant of Stock Options. As such, offers for the grant of Stock Options may be made at any time at the discretion of the Committee. However, no Stock Option shall be granted during the period of 30 days immediately preceding the date of announcement of our Companys interim or final results (as the case may be). In addition, in the event that an announcement on any matter of exceptional nature involving unpublished price sensitive information is imminent, offers may only be made after the second market day from the date on which aforesaid announcement is made. ACQUISITION OF THE STOCK OPTION BY THE COMPANY
9.2.
10.
10.1. If the Eligible Participant does not meet the exercise requirement in Rule 8, the Company can acquire the Stock Option without any compensation. 10.2. If the Shareholders meeting approves below (a) to (c), the Company can acquire the Stock Option without compensation (if Shareholders meeting is not required, when the Companys Board of Directors Meeting or the companys CEOs decision is made): (a) (b) Approval on merger contract where the Company is merged by a company; Approval on company split agreement or company split plan where the Company is split; and Approval on Share exchange ( kabushiki kokan ) agreement or Share transfer ( kabushiki iten ) where the Company becomes another companys subsidiary.
(c)
159
12.1. No cash is required to be paid in exchange for the subscription of the Stock Options. 12.2. An offer of a Stock Option made to an Eligible Participant under the Stock Option Scheme, if not accepted by the Eligible Participants within 30 days from the date of offer, will lapse. 12.3. The Eligible Participant shall not transfer, create any securities on, nor make any disposal of the Stock Option. 12.4. The fractions less than one share arisen from the exercise of the Stock Options shall be rounded down. 13. RIGHTS OF SHARES ARISING FROM THE EXERCISE OF THE STOCK OPTION Shares arising from the exercise of Stock Options are subject to the provisions of the Articles of Incorporation of our Company. The Shares so allotted will upon issue rank pari passu in all respects with the then existing issued Shares, save for any dividend, rights, allotments or distributions, for which the record date is prior to the relevant exercise date of the Stock Options. For such purposes, record date means the date as at the close of business on which our Shareholders must be registered in order to participate in any dividends, rights, allotments or other distributions (as the case may be). 14. DURATION OF THE STOCK OPTION SCHEME The Stock Option Scheme shall continue in operation until the expiration of the Options granted thereunder, and may be continued for any further period thereafter with the approval of our Shareholders, holders of the Options, and any relevant authorities which may then be required. 15. ABSTENTION FROM VOTING Group Employees and Group Directors who are also Shareholders, should abstain from voting at the Shareholders meeting in respect of the resolutions related to the Stock Option Scheme, in particular the following resolutions: (a) (b) (c) modification of the existing scheme and implementation of the Stock Option Scheme; discount quantum; participation by and Stock Option grant to Controlling Shareholders and their Associates; and
160
16.1. After the allotment of the Stock Option is made, if the Company makes stock split or stock consolidation, the Strike Price is to be adjusted as below in accordance with the following formula; provided however, that any fractional portion less than JPY1 shall be rounded up. Strike Price after adjustment = Strike Price before adjustment divided by ratio of stock split/consolidation 16.2. For any other variation in the issued ordinary share capital of the Company (whether by way of a capitalisation of profits or reserves or rights issue, reduction or distribution), the board of directors of the Company may determine whether the subscription price or the number or amount of Stock Options shall be adjusted and, if so, the manner in which such adjustment shall be made, provided that such adjustment shall satisfy the requirement set out in Rule 849 of the Catalist Rules. 16.3. Any adjustment under Rule 16 should be made in such a way that (a) an Eligible Participant will not receive a benefit that a Shareholder does not receive; and (b) accords an Eligible Participant the same proportion of the equity share capital of the Company as that to which such Eligible Participant would be entitled to if such variation of the Companys Issued Share Capital did not take place. 16.4. Any other adjustments other than on a capitalisation issue must be confirmed in writing by the Companys auditors to be fair and reasonable. 17. MODIFICATIONS TO THE STOCK OPTION SCHEME
17.1. Subject to the prior approval of the SGX-ST and such other regulatory authorities as may be necessary, the Detailed Rules of the Stock Option Scheme may be modified and/or altered by a resolution of the board of directors of the Company provided that no modification and/or alteration shall adversely affect the rights attached to Stock Options granted prior to such modification and/or alteration except with the consent in writing of the Eligible Participants, nor shall any modification and/or alteration be made to the Stock Option Scheme under Rules 843 to 848, and Rules 852 and 853 of the Catalist Rules to the advantage of Eligible Participants except with the prior approval of the Shareholders in general meeting. No modifications and/or alterations shall be made to the Stock Option Scheme if, as a result the Eligible Participant receives a benefit that a Shareholder does not receive. For any modifications and/or alterations regarding any adjustment (except in relation to a capitalisation issue), it must be confirmed in writing by the Companys auditors (acting only as experts and not as arbitrators), in their opinion, to be fair and reasonable.
161
(b)
19.
RESTRICTION OF ACQUISITION OF STOCK OPTION BY TRANSFER The approval of the board of directors is necessary for the acquisition of Stock Options by transfer.
20.
TAXES All taxes arising from the subscription of the Stock Option, the exercise of any Stock Option and the acquisition of shares due to the exercise of the Stock Option shall be borne by that Eligible Participant.
21.
DETAILED RULES
21.1. The Company stipulates the detailed rules on Stock Option Scheme (the Detailed Rules) and may revise it when necessary. 21.2. The Company shall show the Detailed Rules when the Eligible Participant requests during office hours.
162
163
(iii) participants, other than those in paragraphs (i) and (ii) above, who receive 5.0% or more of the total number of options available under the Stock Option Scheme; the following information: (1) (2) name of the participant; and the aggregate number of Shares comprised in Stock Options granted to such participant under the Stock Option Scheme during the financial year under review; the aggregate number of Shares comprised in Stock Options granted to such participant under the Stock Option Scheme since the commencement of the Stock Option Scheme to the end of the financial year under review; the aggregate number of Shares comprised in Stock Options granted to such participant under the Stock Option Scheme which have vested during the financial year under review; and the aggregate number of Shares comprised in Stock Options granted to such participant under the Stock Option Scheme which have not been exercised as at the end of the financial year under review.
(3)
(4)
(5)
(c)
In relation to the Stock Option Scheme, the following particulars: (1) the aggregate number of Shares comprised in Stock Options vested since the commencement of the Stock Option Scheme to the end of the financial year under review; the aggregate number of Shares issued which are comprised in Stock Options vested during the financial year under review; and the aggregate number of Shares comprised in Stock Options which have not been exercised as at the end of the financial year under review.
(2)
(3)
(d)
164
CORPORATE GOVERNANCE
Corporate governance refers to the processes and structure by which the business and affairs of a company are directed and managed, in order to enhance long-term shareholder value through enhancing corporate performance and accountability. Good corporate governance therefore embodies both enterprise (performance) and accountability (conformance). Our Directors recognise the importance of corporate governance and the offering of high standards of accountability to our Shareholders, and will endeavour to comply with the recommendations set out in the Code of Corporate Governance issued on 2 May 2012. Our Board of Directors has formed three committees: (a) the Nominating Committee, (b) the Remuneration Committee, and (c) the Audit Committee. In addition, the Japan Companies Act requires at least three statutory auditors to form a board of statutory auditors or establish three statutory committees (as to the difference with our three committees, please see below) and an (external) accounting auditor for a company (a) all or a part of whose shares are freely transferable and (b) whose amount of capital at the end of the latest financial year is not less than JPY500 million or whose amount liability at the end of the latest financial year is not less than JPY20 billion. Since our Companys capital amount is expected to exceed JPY500 million due to this Placement, it will have to appoint its accounting auditor at its next AGM. (Our Company has already appointed Ernst & Young ShinNihon LLC as its Independent Auditors and Reporting Accountants, but it has not been appointed as an accounting auditor under the Japan Companies Act). Under the regime of the Japan Companies Act, the primary decision making body of our Company is our Board of Directors, which is supervised by the Statutory Auditors, each of whom independently audits the executive actions of our Directors in the proper execution of their duties. Under the Japan Companies Act, statutory auditors cannot be current directors or employees of a company or its subsidiary. There are no professional qualification requirements for a statutory auditor but whether the statutory auditor has knowledge about financial and accounting affairs has to be disclosed in our annual reports ( jigyo hokoku ). Our Shareholders elect our Statutory Auditors at our general meetings of shareholders, usually from a list of persons recommended by the Board of Directors and approved by the incumbent Board of Statutory Auditors. Our Articles of Incorporation have stipulated a limit of no less than three but no more than five statutory auditors.
Audit Committee
Remuneration Committee
Nominating Committee
Based on the above, our Directors are of the view that there are sufficient safeguards and checks to ensure that the process of decision-making by our Board is independent and based on collective decision-making without an individual or small group of individuals being able to exercise considerable power or influence.
165
CORPORATE GOVERNANCE
Board of Directors, Representative Directors, and Outside Directors Board of Directors Our Articles of Incorporation provide that our Board will consist of not less than three but not more than 20 Directors. We currently have six Directors on our Board, comprising two Executive Directors, who are also Representative Directors, two Non-Executive Directors and two Independent Directors. Subject to Shareholders approval at a general meeting to be held by 16 September 2013, Tan Poh Chye Allan will be appointed as our Independent Director. Our Non-Executive Director, Norio Ogiwara and three Independent Directors are outside directors under the Japan Companies Act. Representative Directors Under the Japan Companies Act, at least one Representative Director is required to be elected by the Board of Directors from among our Directors. Our Representative Director has the authority to do all acts pertaining to the business of our Company on behalf of and in the name of our Company. Our Board of Directors may by resolution of the Board appoint or remove a Representative Director. A Representative Director who has been removed from his position will remain as a Director of our Company. If a stock corporation ( kabushiki kaisha ) has a board of directors, the board of directors must appoint at least one Representative Director from among its directors. Outside Directors Outside directors under the Japan Companies Act are Directors who have not been any of executive directors, executive officers or employees of our Company or its Subsidiaries. Although the role and responsibilities of an outside director are not materially different from other Directors under the Japan Companies Act, in practice, the role and responsibilities of outside directors include monitoring management and ensuring that the management runs the company in a way that serves the interests of shareholders rather than their own, and outside directors are generally not directly involved in the management or operations of our Company. In addition, under the Japan Companies Act, a company can enter into agreements with its outside directors to limit their liability towards our Company for damages to a company where a breach of duty has occurred, except in cases of willful misconduct or gross negligence, if the relevant provision is included in the articles of incorporation of such a company. The relevant provision is Article 33 of our Articles of Incorporation. Under our Articles of Incorporation, our Directors term of office expires at the close of our AGM, convened in respect of the last financial year ending within one year from such election. Directors who retire are eligible to stand for re-election. Audit Committee Our Audit Committee, represented in the chart above, comprises Susumu Hanada, Yukihiro Shida, Norio Ogiwara and (subject to Shareholders approval at a general meeting to be held by 16 September 2013) Tan Poh Chye Allan. The Chairman of our Audit Committee is Susumu Hanada.
166
CORPORATE GOVERNANCE
Our business and operations are presently under the management of our Executive Directors who are assisted by our Executive Officers, and who are under the supervision of our Board of Directors and Board of Statutory Auditors. After our listing on Catalist, our Executive Directors and Executive Officers will manage the business and operations of our Group. The Audit Committee will assist our Board of Directors in discharging its responsibility to safeguard our Companys assets, maintain adequate accounting records, and develop and maintain effective systems of internal controls with an overall objective to ensure that our management has created and maintained an effective control environment in our Company, and that our management demonstrates and stimulates the necessary aspects of our Groups internal control structure among all parties. Our Directors recognise the importance of corporate governance and the offering of high standards of accountability to the Shareholders of our Company. Our Audit Committee will meet periodically to discuss and review the following (non-exhaustive) functions where applicable: (a) review with the external auditors the audit plan, their evaluation of the system of internal controls, their audit report, their management letter and our managements response; review with the internal audit department the internal audit plan and evaluate the adequacy of our internal control and accounting system in our annual report; review the financial statements before submission to our Board for approval, focusing in particular, on changes in accounting policies and practices, significant adjustments resulting from the audit, the going concern statement, compliance with accounting standards as well as compliance with any stock exchange and statutory/regulatory requirements; review the internal control and procedures, ensure co-ordination between the external auditors and our management, review the assistance given by our management to the auditors, and discuss problems and concerns, if any, arising from the interim and final audits, and any matters which the auditors may wish to discuss (in the absence of our management where necessary); review any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on our Groups operating results or financial position, and our managements response; review, where applicable, the role and effectiveness of the internal audit procedures; review and approve interested person transactions and review procedures thereof; consider the appointment or re-appointment of the external auditors and matters relating to resignation or dismissal of the external auditors and the head of the internal audit department; review our Groups compliance with such functions and duties as may be required under the relevant statutes or the Catalist Rules, including such amendments made thereto from time to time; undertake such other reviews and projects as may be requested by our Board of Directors and report to our Board its findings from time to time on matters arising and requiring the attention of our Audit Committee; 167
(b)
(c)
(d)
(e)
(i)
(j)
CORPORATE GOVERNANCE
(k) review at least annually our Groups key financial risk areas, with a view to provide an independent oversight on our Groups financial reporting, the outcome of such review to be disclosed in the annual reports of our Company or, where the findings are material, to announce such material findings immediately via SGXNET; and generally to undertake such other functions and duties as may be required by statute or the Catalist Rules, and by such amendments made thereto from time to time.
(l)
Our Audit Committee shall also commission at least an annual internal controls audit until such time as our Audit Committee is satisfied that our Groups internal controls are robust and effective enough to mitigate our Groups internal control weaknesses (if any). Prior to the decommissioning of such annual internal controls audit, our Board is required to report to the SGX-ST and the Sponsor on how the key internal control weaknesses have been rectified, and the basis for the Audit Committees decision to decommission the annual internal controls audit. Thereafter, such audits may be initiated by our Audit Committee as and when it deems fit to satisfy itself that our Groups internal controls remain robust and effective. Upon completion of the internal controls audit, appropriate disclosure must be made via SGXNET on any material, price-sensitive internal controls weaknesses and any follow-up actions to be taken by the Board. Currently, based on the internal controls established and maintained by our Group, work performed by the internal auditors, and reviews performed by our management and our Board, our Board, with the concurrence of our Audit Committee, is of the opinion that our internal controls are adequate to address financial, operational and compliance risks of our Group. The Audit Committee and PPCF having (a) conducted an interview with Takeshi Hosaka; (b) considered the qualifications and past working experience of Takeshi Hosaka (as described in the section entitled Directors, Management and Staff Executive Officers of this Offer Document); (c) observed his abilities, familiarity and diligence in relation to the financial matters and information of our Group, and (d) noted the absence of any negative feedback from Ernst & Young ShinNihon LLC, are of the view that Takeshi Hosaka is suitable for the position of Financial Controller. Apart from the duties listed above, our Audit Committee will also commission and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls, or infringement of any Singapore law, rule or regulation which has or is likely to have a material impact on our Companys operating results or financial position. In the event that a member of our Audit Committee is interested in any matter being considered by our Audit Committee, he will abstain from reviewing that particular transaction or voting on that particular transaction. In addition, all future transactions with related parties shall comply with the requirements of the Catalist Rules. Our Directors shall also abstain from voting in any contract or arrangement or proposed contract/arrangement in which he has a personal material interest.
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Remuneration Committee Our Remuneration Committee represented above comprises Yukihiro Shida, Susumu Hanada, Minoru Funakoshi and (subject to Shareholders approval at a general meeting to be held by 16 September 2013) Tan Poh Chye Allan. The Chairman of our Remuneration Committee is Yukihiro Shida. Our Remuneration Committee is responsible for the following: (a) to recommend to our Board a framework of remuneration for our Directors and Executive Officers, and to determine specific remuneration packages for each Executive Director and any Chief Executive Officer (or executive of equivalent rank) and key management personnel, if such Chief Executive Officer and key management personnel is not an Executive Director, such recommendations to be submitted for endorsement by our entire Board and should cover all aspects of remuneration, including but not limited to directors fees, salaries, allowances, bonuses, options, benefits in kind; in the case of service contracts (if any) for any Director or Executive Officer, to consider what compensation commitments the Directors or Executive Officers contracts of service, if any, would entail in the event of early termination with a view to be fair and avoid rewarding poor performance; and in respect of any long-term incentive schemes including share schemes as may be implemented, to consider whether any Director should be eligible for benefits under such long-term incentive schemes.
(b)
(c)
Each member of our Remuneration Committee shall abstain from voting on any resolution and making any recommendations and/or participating in any deliberations of our Remuneration Committee in respect of matters in which he is interested. The recommendations of our Remuneration Committee on remuneration of Directors and our key management personnel should be submitted for endorsement by our entire Board. All aspects of remuneration, including but not limited to Directors Fees, salaries, allowances, bonuses, and benefits in kind shall be covered by our Remuneration Committee. Nominating Committee Our Nominating Committee represented above comprises Yukihiro Shida, Susumu Hanada, Minoru Funakoshi and (subject to Shareholders approval at a general meeting to be held by 16 September 2013) Tan Poh Chye Allan. The Chairman of our Nominating Committee is Yukihiro Shida. The Nominating Committee is responsible for the following: (a) to make recommendations to the Board on all board appointments, including re-nominations, having regard to the directors contribution and performance (for example, attendance, preparedness, participation and candour) including, if applicable, as an independent director; All directors should be required to submit themselves for re-nomination and re-election at regular intervals and at least every three years; (b) to determine annually whether or not a director is independent;
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(c) in respect of a director who has multiple board representations on various companies, to decide whether or not such director is able to and has been adequately carrying out his/her duties as director, having regard to the competing time commitments that are faced when serving on multiple boards; and to decide how the Boards performance is to be evaluated and propose objective performance criteria, subject to the approval by the Board, which address how the Board has enhanced long term shareholders value. The Board will also implement a process to be proposed by the Nominating Committee for assessing the effectiveness of the Board as a whole and for assessing the contribution of each individual Director to the effectiveness of the Board (if applicable).
(d)
Each member of the Nominating Committee shall abstain from voting on any resolution and making any recommendations and/or participating in any deliberations of our Nominating Committee in respect of the assessment of his performance or re-nomination as Director. In the event that any member of the Nominating Committee has an interest in a matter being deliberated upon by the Nominating Committee, he will abstain from participating in the review and approval process relating to that matter. Board Practices Our Directors are appointed by our Shareholders at a general meeting and an election of Directors takes place annually. Each Director shall retire from office once a year. A retiring Director shall be eligible for re-election at the meeting at which he retires. Please refer to Appendix C Our Articles of Incorporation of this Offer Document for more details on the appointment and retirement of Directors. Board of Statutory Auditors The particulars of each of our Statutory Auditors are set out below: Name Age Address Country of principal residence Japan Designation/ Principal occupation Full-time Statutory Auditor
Kinji Adachi
60
c/o 5F, Kanayama Centre Place, 1-14-18, Kanayama, Naka-ku, Nagoya-shi, Aichi Prefecture, Japan c/o 4-15, Konan 2-chome, Minato-ku, Tokyo, Japan 4 th Floor, Nittochi Bldg., 1-4-1, Kasumigaseki, Chiyoda-ku, Tokyo, 100-0013, Japan
Yuji Imai
70
Japan
Junko Shirakawa
48
Japan
170
CORPORATE GOVERNANCE
The three members of our Board of Statutory Auditors are all proficient in financial affairs, and two of them are Outside Statutory Auditors. Of the three Statutory Auditors, one is a full-time Statutory Auditor and two are part-time Statutory Auditors. The Board of Statutory Auditors coordinates the audits performed by each Statutory Auditor, who has to independently audit the Company in an effort to maintain an appropriate standard of corporate governance. The constitution and operation of our Board of Statutory Auditors are set out in our Articles of Incorporation and the Japan Companies Act while the roles and responsibilities of our Board of Statutory Auditors are set out in the Japan Companies Act. Statutory Auditors appointed by our Shareholders are not salaried employees of our Company. A statutory auditor receives compensation from a company (similar to a service agreement between a director and a company), which is different from salaries for employees. Notwithstanding this, a full-time statutory auditor shall work for a company as a statutory auditor full-time and therefore will not be able to be a full-time employee of another company. Accordingly, our full-time Statutory Auditors cannot engage in any other full-time employment. Each of the Statutory Auditors and the Board of Statutory Auditors as a whole are only accountable to our Shareholders. The Statutory Auditors will each prepare an annual Statutory Auditors Report, based on which a Board of Statutory Auditors Report is prepared. The Board of Statutory Auditors Report is attached to the notice to our Shareholders in respect of our AGM. The Board of Statutory Auditors is responsible for auditing the executive actions of our Directors, including ensuring the continuance of a sound corporate governance system, and it has a broad authority to oversee our Companys audit functions, including: (a) (b) independently reviewing corporate documentation and financial statements; and dealing with any issues arising from our Companys audit.
In order to fulfill such responsibilities, the Statutory Auditors are given various powers, such as the right to: (a) request Directors and employees of our internal audit department or other relevant persons to report to them regarding our Companys business; investigate our Companys business and assets (Article 381 of the Japan Companies Act); and demand that Directors cease certain acts which are outside the scope or the purpose of our Company or in violation of laws and regulations or the Articles where such an act is likely to cause substantial detriment to the Company (Article 385 of the Japan Companies Act).
(b)
(c)
Further, pursuant to Article 390 of the Japan Companies Act, the Board of Statutory Auditors has the power to request our Statutory Auditors to provide it with reports on the status of their execution of duties. A Statutory Auditor can also request that any Director suspend or cease his action if such action is not in compliance with applicable law or our Articles of Incorporation and may seriously harm us. If our Directors ignore such a request, the Statutory Auditor may go to court for enforcement of such a request.
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CORPORATE GOVERNANCE
The Statutory Auditors have an obligation to attend meetings of the Board of Directors and to state their opinions if they find it necessary. Such meetings of the Board of Directors take place at least once a month according to the Companys internal rules and are also attended by the Outside Directors. Whilst Statutory Auditors are unable to vote on resolutions of the Board of Directors, they attend such meetings of the Board of Directors to provide their views. In addition, they attend other meetings, including monthly management meetings (with our executive and senior officers), and monthly meetings of the Board of Statutory Auditors and corporate governance meetings. The Board of Statutory Auditors also review key decisions of the Board of Directors and observe the proper execution of any duties by Directors. The Statutory Auditors must also: (a) (b) (c) (d) (e) (f) (g) exchange opinions with the Representative Director, Directors and other relevant personnel; formulate and develop audit policies and plans; review business reports; review and audit financial statements; communicate with our internal audit department; review the system of internal controls established by the Board of Directors; and prepare audit reports and submit these to the Board of Statutory Auditors in accordance with the Japan Companies Act.
After the introduction of an accounting auditor into our Company next year, the Board of Statutory Auditors function shall include review and consent to the appointment, removal and the remuneration of, and the coordination with, the accounting auditor if our Company continues to have the Board of Statutory Auditors. Under the Japan Companies Act, a company where (a) all or a part of whose shares are freely transferable and (b) whose amount of capital at the end of the latest financial year is not less than JPY500 million or whose amount liability at the end of the latest financial year is not less than JPY20 billion is required to have (a) the Board of Statutory Auditors or (b) three statutory committees and (c) the accounting auditor. The three statutory committees consist of the audit committee, the nomination committee and the remuneration committee, whose titles are the same as our three committees. However, their functions and authorities are stipulated by the Japan Companies Act and to a certain extent different from those required for the committees under the Code of Corporate Governance of the SGX-ST. For example, at a company with three statutory committees under the Japan Companies Act, the nomination committee shall propose the candidates of Directors to the shareholders meeting while the Nomination Committee under the rules of the SGX-ST shall only recommend the candidates of Directors and the Board of Directors shall propose such candidates to the shareholders meeting. In addition, at a company with three statutory committees under the Japan Companies Act, the remuneration committee shall completely decide the content of the remuneration for Directors and even the shareholders cannot vote to approve such remuneration at all. Accordingly, we chose to establish our three committees as non-statutory voluntary committees, not as statutory committees stipulated under the Japan Companies Act and continue to have the Board of Statutory Auditors. While there are some overlaps between the terms of references of the Audit Committee and the Board of Statutory Auditors as explained above, such overlaps are unavoidable as the Audit Committee is required to discharge its duties under the rules of the SGX-ST, while the Board of Statutory Auditors is required to discharge its duties under the Japan Companies Act. 172
173
177
EXCHANGE CONTROLS
Singapore Currently, there are no exchange control regulations or currency restrictions in Singapore. Japan The Foreign Exchange and Foreign Trade Act governs certain matters relating to the issuance of equity-related securities by us and the acquisition and holding of shares of common stock by exchange non-residents and by foreign investors as hereinafter defined. Exchange non-residents are defined under the Foreign Exchange and Foreign Trade Act as individuals who are not resident in Japan and corporations whose offices or branches are located outside Japan regardless whether their principal offices are located in Japan or not. More precisely, branches and other offices of Japanese corporations located outside Japan are regarded as exchange non-residents, but branches and other offices located within Japan of non-resident corporations are regarded as residents of Japan. Foreign investors are defined to be (a) individuals not resident in Japan, (b) corporations which are organised under the laws of foreign countries or whose principal offices are located outside Japan (including whose branches located within Japan), (c) corporations of which 50.0% or more of the shares are held directly or indirectly by (a) and/or (b) above, corporations (i) whose majority of officers consists of non-resident individuals or (ii) a majority of the officers having the power of representation consists of non-resident individuals. Under the Foreign Exchange and Foreign Trade Act, dividends paid on, and the proceeds of sales in Japan of, shares held by exchange non-residents in general may be converted into any foreign currency and repatriated abroad. Under the Foreign Exchange and Foreign Trade Act, an acquisition of shares of a Japanese company not listed on any Japanese stock exchange or traded on the over-the-counter market in Japan, by an exchange non-resident from a resident of Japan is generally not subject to a prior filing requirement. In the case of a foreign investor acquiring the shares not listed on any Japanese stock exchange (from those other than another foreign investor) and as a result of such acquisition the number of shares held directly or indirectly by such foreign investor (including shares held by persons who agree to act in concert with such foreign investor in connection with the exercise of shareholders rights) would become 10.0% or more of our total issued shares, such acquisition constitutes a direct inward investment and the foreign investor is required to make a subsequent report on such acquisition to the Minister of Finance and other Ministers having jurisdiction over the business of the subject company, or to the competent ministers by the 15th day of the month following the month containing the date of acquisition. If a foreign investor has failed to make a subsequent report or makes a false subsequent report, the foreign investor shall be punished by imprisonment for not more than 6 months or a fine of not more than JPY500,000. Also, in the case of a company, if the representative person of the company such as a director, or an agent, employee, or other worker of the company has failed to make a subsequent report or makes a false subsequent report with regard to the business or property of the company, the offender shall be punished by imprisonment for not more than six months or by a fine of not more than JPY500,000, and the company is liable to be punished by a fine of not more than JPY500,000. In certain exceptional cases, a prior filing is required and the competent ministers may recommend the modification or abandonment of the proposed acquisition and, if the foreign investor does not accept the recommendation, order its modification or prohibition. If a foreign investor, without the prior filing, has made a share acquisition or has made any misstatements in the prior filing, the foreign investor shall be punished by imprisonment for not more than three years or by a fine of not more than JPY1 million, or both. Also, in the case of a company, if the representative person of the 178
EXCHANGE CONTROLS
company such as a director, or an agent, employee, or other worker of the company, without the prior filing, has made a share acquisition or made any misstatements in the prior filing regarding the business or property of the company, the offender shall be punished by imprisonment for not more than three years or by a fine of not more than JPY1 million, or both, and the company is liable to be punished by a fine of not more than JPY1 million.
179
TAXATION
The statements made herein regarding Singapore and Japanese taxation are based on the laws in force in Singapore and Japan as at the date of this Offer Document and are subject to any changes in law occurring after such date, which changes could be made on a retrospective basis. The following summary is not intended to be and does not constitute legal or tax advice. It also does not purport to be a comprehensive description of all of the Singapore and Japanese tax considerations that may be relevant to a decision to purchase, own or dispose of the Shares and does not purport to deal with the tax consequences applicable to all categories of investors, some of which may be subject to special rules. Shareholders should consult their own tax advisors regarding Singapore and Japanese tax and other consequences of owning and disposing of the Shares. It is emphasised that neither our Company, the Directors nor any other persons involved in this Placement accepts responsibility for any tax effects or liabilities resulting from the subscription, purchase, holding or disposal of our Shares. Singapore Taxation Singapore Income Tax Corporate income tax A Singapore tax resident corporate taxpayer is subject to Singapore income tax on: income accrued in or derived from Singapore; and foreign sourced income received or deemed received in Singapore, unless otherwise exempted.
Foreign income in the form of branch profits, dividends and service fee income ( specified foreign income ) received or deemed received in Singapore by a Singapore tax resident corporate taxpayer are exempted from Singapore tax subject to meeting the qualifying conditions. A non-Singapore tax resident corporate taxpayer, subject to certain exceptions, is subject to Singapore income tax on income accrued in or derived from Singapore, and on foreign income received or deemed received in Singapore. A company is regarded as tax resident in Singapore if the control and management of the companys business is exercised in Singapore. Normally, control and management of the company is vested in its board of directors and therefore if the board of directors meets and conducts the companys business in Singapore, the company will be regarded as tax resident in Singapore. The corporate tax rate in Singapore is 17.0% with effect from the Year of Assessment 2010 after allowing partial tax exemption on the first S$300,000 of a companys chargeable income. Individual income tax An individual taxpayer (both resident and non-resident) is subject to Singapore income tax on income accrued in or derived from Singapore, subject to certain exceptions. Foreign-sourced income received or deemed received by individual taxpayers, regardless of whether they are resident or non-resident of Singapore, are generally exempt from income tax in Singapore except for such income received through a partnership in Singapore. Certain Singapore-sourced investment income received or deemed received by individuals is also exempt from tax.
180
TAXATION
Currently, a Singapore tax resident individual is subject to tax at the progressive rates, ranging from 0% to 20.0%. A non-Singapore tax resident individual is normally taxed at the tax rate of 20.0% except for certain specified income that may be taxable at lower rates. An individual is regarded as a tax resident in Singapore if in the calendar year preceding the year of assessment, he was physically present in Singapore or exercised an employment in Singapore (other than as a director of a company) for 183 days or more, or if he ordinarily resides in Singapore. Dividend Distributions Under the one-tier corporate tax system, the tax paid by a resident company is a final tax and the distributable profits of the company can be paid to shareholders as tax exempt dividends. Dividends paid by our Company will be exempt from tax in the hands of Shareholders, regardless of the tax residence status or the legal form of the Shareholders. However, foreign Shareholders are advised to consult their own tax advisors to take into account the tax laws of their respective countries of residence and the existence of any double taxation agreement which their country of residence may have with Singapore. Capital Gains Tax Singapore currently does not impose tax on capital gains. However, there are no specific laws or regulations which deal with the characterisation of capital gains. In general, gains or profits derived from the disposal of our Shares acquired for long-term investment purposes are considered as capital gains and not subject to Singapore tax. On the other hand, where such gains or profits arise from activities which the Comptroller of Income Tax regards as the carrying on of a trade or business of dealing in shares in Singapore, gains or profits will ordinarily be taxed as income. Bonus Shares Any bonus shares received by our Shareholders are not taxable. Stamp Duty There is no stamp duty payable in Singapore on the subscription, allotment or holding of our Shares. The purchaser is liable for stamp duty, unless there is an agreement to the contrary. No stamp duty is payable if no instrument of transfer is executed (such as in the case of scripless shares, the transfer of which does not require instruments of transfer to be executed) or if the instrument of transfer is executed outside Singapore. However, stamp duty may be payable if the instrument of transfer which is executed outside Singapore is subsequently received in Singapore. However, as our Shares will be listed on Catalist and their transfers will be scripless transfers via the CDP, no stamp duty will be imposed on the transfers of our Shares via the CDP.
181
TAXATION
Goods and Services Tax (GST) The sale of our Shares by an investor belonging in Singapore to another person belonging in Singapore is an exempt supply not subject to GST. Where our Shares are sold by a GST-registered investor in the course of a business to a person belonging outside Singapore, and that person is outside Singapore when the sale is executed, the sale should generally, subject to satisfaction of certain conditions, be considered a taxable supply subject to GST at zero-rate. Any input GST incurred by a GST-registered investor in the making of this supply in the course of or furtherance of a business carried on by him is recoverable from the Comptroller of GST. Services such as brokerage, handling and clearing services rendered by a GST-registered person to an investor belonging in Singapore in connection with the investors purchase, sale or holding of our Shares will be subject to GST at the current rate of 7.0%. Similar services rendered to an investor belonging outside Singapore is generally subject to GST at zero-rate, provided that the investor is outside Singapore when the services are performed and the services provided do not benefit any Singapore persons. Estate duty With effect from 15 February 2008, Singapore estate duty has been abolished. Japan Taxation A non-resident shareholder is generally subject to a Japanese withholding tax on cash dividends. Split-up of shares and allotment of shares without consideration, in general, are not subject to Japanese withholding tax since they are characterised merely as an increase in the number of shares (as opposed to an increase in the value of the shares) from a Japanese tax perspective. In the absence of any applicable treaty or agreement reducing the maximum rate of withholding tax, the standard rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to non-resident shareholders (inclusive of individuals and entities) is generally 20.0%. However, with respect to dividends paid on shares issued by a Japanese corporation to non-resident shareholders, except for any individual shareholder who holds 3.0% or more of the shares issued by the relevant Japanese corporation, the withholding tax rate is reduced to 7.0% (effective until 31 December 2013) and 15.0% (effective from 1 January 2014). Japan has income tax treaties, conventions or agreements whereby the above-mentioned withholding tax rate is reduced. For Japanese tax purposes, a treaty rate generally supersedes the tax rate under domestic tax law. However, due to the preservation doctrine under the respective tax treaties, and/or due to the Act on Special Measurement for the Income Tax Act, Corporation Tax Act and Local Taxes Act with respect to the Implementation of Tax Treaties (sozei-jouyaku-no-jisshi-nitomonaushotokuzeihou, houjinzeihou-oyobi-chihouzeihou-no-tokureitou-ni-kansuru-houritsu) (Act No. 46 of 1969, as amended), if the tax rate under domestic tax law is lower than the treaty rate (which is currently the case with respect to the respective tax treaties), the domestic tax rate applies. An Agreement between the Government of the Republic of Singapore and the Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Treaty) became effective on 1 January 1996 and was revised on 14 July 2010.
182
TAXATION
Under the Treaty and the relevant tax laws as mentioned above, dividends paid by our Company to our Shareholders (other than Shareholders holding 3.0% or greater of our Shares) who are non-resident individuals of Japan or that are non-Japanese corporations without a permanent establishment in Japan were generally subject to a withholding tax in Japan of 7.0% until 31 December 2012. This tax rate was further qualified by the Special Measures Tax for Reconstruction, which introduced, among other measures, a surplus tax of 2.1% on current income tax rates. This surplus tax took effect on 1 January 2013 and will be effective till 31 December 2037. As a result of this surplus tax, for the period between 1 January 2013 and 31 December 2013, dividends payable to a beneficial owner of shares who is a Singapore resident and does not hold 3.0% or more of the shares issued by the relevant Japanese corporation will be subject to a withholding tax rate of 7.147% (being 102.1% of 7.0%) and for the period between 1 January 2014 and 31 December 2037, dividends payable to such a beneficial owner of shares will be subject to a withholding tax rate of 15.315% (being 102.1% of 15.0%). On the other hand, for the period between 1 January 2013 and 31 December 2037, dividends payable to a beneficial owner of shares who is a Singapore resident and holds 3.0% or more of the shares issued by the relevant Japanese corporation will be subject to a withholding tax rate of 20.42% (being 102.1% of 20.0%). However, if the Treaty is applicable (it is necessary to file an application in the designated form in order for the Treaty to be applied as stated below), the withholding tax rate for residents in Singapore is reduced to 15.0% in case it exceeds 15.0%. In addition, if the Treaty is applicable and the beneficial owner is a company that has directly or indirectly owned, for the six-month period ending on the date on which entitlement to the dividend is determined, at least 25.0% of the outstanding voting shares of the Japanese company that is paying the dividends, the tax rate will be reduced to 5.0%. As a general rule, a beneficial owner who is entitled to a reduced rate of Japanese withholding tax on payments of dividends is required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax on Dividends (together with other required forms and documents) in advance, through the withholding agent to the relevant tax authority before the payment of dividends. A beneficial owner who does not submit an application in advance will be entitled to claim a refund of withholding taxes withheld in excess of the rate under an applicable tax treaty, from the relevant Japanese tax authority by complying with certain subsequent filing procedures. A standing proxy for the beneficial owner may provide the application. The Treaty applies to a non-resident shareholder who is a resident of Singapore. Gains derived from the sale of our Shares outside Japan by a non-resident Shareholder are in general not subject to Japanese income or corporation taxes, except for any Shareholder who (a) substantially holds 25.0% or more of the shares issued by the relevant Japanese corporation at any time during the taxable year of the sale or during two preceding years and (b) transfers of 5.0% or more of the outstanding Shares within one taxable year. Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired Shares as a legatee, heir or donee even though neither the individual nor the deceased nor the donor is a resident of Japan.
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(b)
(c) (d)
(e)
(f)
(g)
(h)
(i)
(j)
(iii) any business trust which has been investigated for a breach of any law or regulatory requirement governing business trusts in Singapore or elsewhere; or (iv) any entity or business trust which has been investigated for a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, in connection with any matter occurring or arising during the period when he was so concerned with the corporation or partnership entity or business trust; and (k) has ever been the subject of any current or past investigation or disciplinary proceedings, or has been reprimanded or issued any warning, by the Authority or any other regulatory authority, exchange, professional body or government agency, whether in Singapore or elsewhere.
2.
The aggregate remuneration paid to our Directors for services rendered in all capacities to our Group for FY2013 was approximately JPY43 million. There is no shareholding qualification for Directors under the Articles of Incorporation of our Company. Save as disclosed in the sections entitled Interested Person Transactions of this Offer Document, none of our Directors is interested, directly or indirectly, in the promotion of, or in any property or assets which have, within the two years preceding the date of this Offer Document, been acquired or disposed of by or leased to, our Company or our subsidiaries. No sum or benefit has been paid or is agreed to be paid to any Director or expert, or to any firm in which such Director or expert is a partner or any corporation in which such Director or expert holds shares or debentures, in cash or shares or otherwise, by any person to induce him to become, or to qualify him as, a Director, or otherwise for services rendered by him or by such firm or corporation in connection with the promotion or formation of our Company. Save as disclosed above and in the section entitled Interested Person Transactions of this Offer Document: (a) None of our Directors, Executive Officers, Substantial Shareholders or any of their Associates has had any interest, direct or indirect, in any transactions to which our Group was or is to be a party; None of our Directors, Executive Officers, Substantial Shareholders or any of their Associates has any interest, direct or indirect, in any company carrying on the same business or a similar trade which competes materially and directly with the existing business of our Group; None of our Directors, Executive Officers, Substantial Shareholders or any of their Associates has any interest, direct or indirect, in any company that is our customer or supplier of goods and services; and 187
3.
4.
5.
6.
(b)
(c)
SHARE CAPITAL 7. As at the Latest Practicable Date, there is only one class of shares in the capital of our Company. There are no founder, management or deferred shares. The rights attached to our Shares are stated in the Articles of Incorporation of our Company. Save as disclosed in the section entitled Share Capital of this Offer Document, there are no changes in the issued and paid-up share capital of our Company and our subsidiaries within the last three years preceding the date of lodgement this Offer Document. Save as disclosed in the section entitled Share Capital of this Offer Document, no shares in, or debentures of, our Company or any of our subsidiaries has been issued, or are proposed to be issued, as fully or partially paid for cash or for a consideration other than cash, during the last three years preceding the date of lodgement of this Offer Document.
8.
9.
10. Save as disclosed in the sections entitled Share Capital and Xyec Employee Stock Schemes of this Offer Document, no option to subscribe for shares in, or debentures of, our Company or our subsidiaries has been granted to, or was exercised by, any of our Directors or Executive Officers within the last two financial years. 11. Apart from the Stock Option Scheme, our Company does not have any arrangement that involves the issue or grant of shares to the employees of our Group.
ARTICLES OF INCORPORATION 12. The Articles of Incorporation of our Company state, among others, that the Company is a stock corporation (kabushiki kaisha ), which means the liability of members of our Company is limited. The principal purpose of our Company is investment holding. Our Companys objects and purposes are set out in full in the Articles of Incorporation which are available for inspection at our registered office as stated in the section entitled General and Statutory Information Documents for Inspection of this Offer Document. 13. The complete Articles of Incorporation of our Company are set out in Appendix C Our Articles of Incorporation of this Offer Document and available for inspection by Shareholders at our registered office as stated in the section entitled General and Statutory Information Documents for Inspection of this Offer Document. MATERIAL CONTRACTS 14. The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by our Company and our Subsidiaries within the two years preceding the date of lodgement of this Offer Document and are or may be material: (a) a share purchase agreement dated 24 September 2012 entered into between our Company and TRUMPF Pte. Ltd., pursuant to which our Company disposed of the entire issued share capital of FA Service for a consideration of JPY655,000,000; and 188
Save as disclosed above, our Group have not entered into any material contracts, not being contracts entered into in the ordinary course of business, within the two years preceding the date of this Offer Document. LITIGATION 15. To the best of our knowledge and belief, having made all reasonable enquiries, neither our Company nor any of our Subsidiaries is engaged in any legal or arbitration proceedings as plaintiff or defendant, including those which are pending or known to be contemplated, which may have or which have had in the 12 months immediately preceding the date of lodgement of the Offer Document, a material effect on our Groups financial position or profitability of our Company or our Subsidiaries or associated companies. MANAGEMENT AND PLACEMENT ARRANGEMENTS 16. Pursuant to the Management Agreement dated 11 September 2013 entered into between our Company and PPCF as the Manager and Sponsor, our Company appointed PPCF to manage and sponsor the Listing. PPCF will receive a management fee for such services rendered. 17. Pursuant to the Placement Agreement dated 11 September 2013 entered into between our Company and PPCF as the Placement Agent, the Placement Agent has agreed to procure subscriptions for the Placement Shares for a placement commission of 5.0% of the aggregate Placement Price for each Placement Share, to be paid by our Company. PPCF may, at its absolute discretion, appoint one or more sub-placement agents for the Placement Shares. 18. Other than pursuant to the Placement Agreement, there are no contracts, agreements or understandings between our Company and any person or entity that would give rise to any claim for brokerage commission, finders fees or other payments in connection with the subscription of the Placement Shares. 19. Subject to the consent of the SGX-ST being obtained, the Management Agreement may be terminated by PPCF at any time before the close of the Application List on the occurrence of certain events including but not limited to, the following: (a) PPCF becomes aware of any breach by our Company and/or its agent(s) of any warranties, representations, covenants or undertakings given by our Company to PPCF in the Management Agreement; or there shall have been, since the date of the Management Agreement any change or prospective change in or any introduction or prospective introduction of any legislation, regulation, policy, directive, guideline, rule or byelaw by any relevant government or regulatory body, whether or not having the force of law, or any other occurrence of similar nature that would materially change the scope of work, responsibility or liability required of PPCF; or
(b)
189
20. The Placement Agreement and the obligations of the Placement Agent under the Placement Agreement are conditional upon, amongst others, the following: (a) the Offer Document having been registered by the SGX-ST, acting as agent on behalf of the Authority, on the Issue Date (as defined in the Placement Agreement) in accordance with the Catalist Rules and the SFA; the registration notice being issued or granted by the SGX-ST, acting as agent on behalf of the Authority and such registration notice not being revoked or withdrawn on or prior to the Closing Date (as defined in the Placement Agreement); the compliance by our Company to the satisfaction of the SGX-ST with all the conditions imposed by the SGX-ST in issuing or granting the registration notice (if any), where such conditions are required to be complied with by the Closing Date; the SGX-ST not having withdrawn or changed the terms and conditions of its letter of eligibility for Admission (as defined in the Placement Agreement) and our Company having complied with any conditions contained therein required to be complied with prior to the Admission; such approvals as may be required for the transactions described in the Placement Agreement and in the Offer Document in relation to the Admission and the Placement being obtained and not withdrawn or amended, on or before the date on which our Company is admitted to Catalist (or such other date as our Company the Placement Agent may agree in writing); there having been, in the reasonable opinion of the Placement Agent, no material adverse change or any development likely to result in a material adverse change in the financial or other condition of our Group between the date of the Placement Agreement and the Closing Date nor the occurrence of any event nor the discovery of any fact rendering untrue or incorrect in any material respect, as at the Closing Date, any of the warranties or representations nor any breach by our Company of any of our obligations; the compliance by our Company with all applicable laws and regulations concerning the Listing, admission to Catalist and the transactions contemplated in the Placement Agreement and the Offer Document and no new laws, regulations and directives having been promulgated, published and/or issued and/or having taken effect or any other similar matter having occurred which, in the reasonable opinion of the Placement Agent, has or may have a material adverse effect on the Placement and the Listing; the delivery by our Company to the Placement Agent on the Closing Date of a certificate, in the form set out in the Placement Agreement, signed by the authorised signatories; the delivery to the Placement Agent of all due diligence reports in relation to the Listing and the Placement Agent being satisfied with the results, findings, advice, opinions and/or conclusions set out in such report;
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
190
(k)
21. In the reasonable opinion of our Directors, PPCF does not have a material relationship with our Company, save as disclosed below: (a) (b) PPCF is the Manager, Sponsor and Placement Agent in relation to the Listing; and Pursuant to the Management Agreement and as part of PPCFs fees as the Manager and Sponsor, our Company issued and allotted to PPCF 1,150,000 new Shares, representing 1.35% of the Issued Share Capital of our Company immediately prior to the Placement at the Placement Price. Upon the completion of the relevant moratorium period as set out in the section entitled Shareholders Moratorium of this Offer Document, PPCF will dispose its shareholding interest in our Company at its own discretion.
MISCELLANEOUS 22. The nature of the business of our Company has been stated earlier in this Offer Document. The corporations which are deemed to be related to our Company are set out in the section entitled Group Structure of this Offer Document. 23. There has been no previous issue of Shares by our Company or offer for sale of our Shares to the public within the two years preceding the date of this Offer Document. 24. There has not been any public takeover offer by a third party in respect of our Shares or by our Company in respect of shares of another corporation or units of a business trust which had occurred between FY2012 and the Latest Practicable Date. 25. No expert is employed on a contingent basis by our Company or our Subsidiaries, or has an interest, whether direct or indirect, in the shares of our Company or our Subsidiaries, or has a material economic interest, whether direct or indirect, in our Company, including an interest in the success of the Placement. 26. No amount of cash or securities or benefit has been paid or given to any promoter within the two years preceding the Latest Practicable Date or is proposed or intended to be paid or given to any promoter at any time. 27. Save as disclosed in the section entitled General and Statutory Information Management and Placement Agreements of this Offer Document, no commission, discount or brokerage has been paid or other special terms granted within the two years preceding the Latest Practicable Date 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, our Company or our subsidiaries.
191
(b) (c)
(d)
31. Save as disclosed in this Offer Document, our Directors are not aware of any event which has occurred since the end of FY2013 to the Latest Practicable Date which may have a material effect on the financial position and results of our Group or the financial information provided in this Offer Document. 32. Details, including the name, address and professional qualifications including membership in a professional body of the auditors of our Company for the Period Under Review are as follows: Period Name and Address Professional Body Partner-in-charge/ Professional Qualification Shinichiro Suzuki Certified Public Accountant, Japan
FY2011 to FY2013
Ernst & Young ShinNihon LLC Hibiya Kokusai Building, 2-2-3 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100-0011, Japan
192
193
(c) (d)
(e)
(f) (g)
194
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Independent Auditors Report 27 August 2013 The Board of Directors Xyec Holdings Co., Ltd. 4-15, Konan 2-chome Minato-ku, Tokyo Japan Dear Sirs: We have audited the accompanying consolidated financial statements of Xyec Holdings Co., Ltd. and its subsidiaries (collectively, the Group), which comprise the consolidated statements of financial position as at 31 March 2011, 2012 and 2013 and 1 April 2010, and the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years ended 31 March 2011, 2012 and 2013, and a summary of significant accounting policies and other explanatory information. Managements responsibility for the consolidated financial statements Management is responsible for the preparation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 March 2011, 2012 and 2013 and 1 April 2010, and its financial performance and cash flows for the years ended on 31 March 2011, 2012 and 2013 in accordance with International Financial Reporting Standards. Other matter This report has been prepared solely for inclusion in the Offer Document in connection with the proposed listing of the Companys shares on the Catalist Board of Singapore Exchange Securities Trading Limited.
Ernst & Young ShinNihon LLC Certified Public Accountants Tokyo, Japan Partner in charge: Shinichiro Suzuki
A-2
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Consolidated income statements For the years ended 31 March 2013, 2012 and 2011 Notes Continuing operations Revenue Cost of sales Gross profit Other operating income Selling, general and administrative expenses Other operating expenses Operating profit Finance costs Finance income Profit before tax from continuing operations Income tax expense Profit for the year from continuing operations Discontinued operations Profit after tax for the year from discontinued operations Profit for the year Attributable to: Equity holders of the parent Non-controlling interests 2013 JPY000 6,225,279 (4,858,629) 1,366,650 15,708 (1,194,031) (1,580) 186,747 (13,790) 2,720 175,677 (93,951) 81,726 2012 JPY000 5,582,591 (4,420,467) 1,162,124 17,625 (941,313) (3,609) 234,827 (14,516) 2,676 222,987 (60,499) 162,488 2011 JPY000 4,838,473 (3,925,611) 912,862 12,293 (830,687) (2,880) 91,588 (20,495) 3,881 74,974 8,324 83,298
8.1
8.2
8.3 8.3
10
313,686 395,412
58,248 220,736
52,775 136,073
220,736 220,736
Earnings per share Basic, profit for the year attributable to ordinary equity holders of the parent Diluted, profit for the year attributable to ordinary equity holders of the parent Earnings per share for continuing operations Basic, profit from continuing operations attributable to ordinary equity holders of the parent Diluted, profit from continuing operations attributable to ordinary equity holders of the parent
1.08JPY
1.93JPY
0.98JPY
1.08JPY A-3
1.93JPY
0.98JPY
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Consolidated statements of comprehensive income For the years ended 31 March 2013, 2012 and 2011 Notes Profit for the year Other comprehensive income Exchange differences on translation of foreign operations Income tax effect 202 202 Other comprehensive income for the year, net of tax Total comprehensive income for the year, net of tax Attributable to: Equity holders of the parent Non-controlling interests 404,291 (8,677) 395,614 220,736 220,736 137,149 (1,076) 136,073 202 2013 JPY000 395,412 2012 JPY000 220,736 2011 JPY000 136,073
395,614
220,736
136,073
A-4
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Consolidated statements of financial position as at 31 March 2013, 2012, 2011 and 1 April 2010
As at 1 April 2010 JPY000
Notes Assets Non-current assets Property, plant and equipment Goodwill Intangible assets Other non-current assets Other non-current financial assets Deferred tax assets Current assets Inventories Trade and other receivables Income tax receivable Other current assets Other current financial assets Cash and short-term deposits
2013 JPY000
2012 JPY000
2011 JPY000
12 13 13 18 14 9
250,563 57,820 29,927 679 239,342 246,364 824,695 20,570 1,247,297 834 54,757 3,460 1,139,499 2,466,417 3,291,112
256,994 57,820 70,214 737 248,349 220,839 854,953 44,930 1,040,087 9,323 51,446 12,365 862,876 2,021,027 2,875,980
249,522 57,820 110,823 281,448 177,467 877,080 35,066 1,037,871 15,151 104,685 531,607 1,724,380 2,601,460
16 17 18 14 19
Total assets Equity and liabilities Equity Issued capital Capital surplus Treasury shares Retained earnings Other components of equity Equity attributable to equity holders of the parent Non-controlling interests Total equity Non-current liabilities Borrowings Other non-current financial liabilities Provisions Other non-current liabilities Deferred tax liabilities Current liabilities Trade and other payables Borrowings Other current financial liabilities Other current liabilities Income tax payable Provisions 14 14 22 26 9
4,140,327
20 20 20 20
396,900 1,083,745 (161,703) 84,658 32,596 1,436,196 (3,433) 1,432,763 139,240 4,353 43,398 17,199 6,686 210,876
396,900 1,083,745 (161,703) (319,534) 7,900 1,007,308 1,007,308 4,292 14,752 45,105 29,672 175 93,996 165,724 937,374 6,023 1,009,569 67,331 3,787 2,189,808 2,283,804 3,291,112
396,900 1,083,745 (141,011) (540,270) 799,364 799,364 41,666 17,947 45,071 40,307 144,991 121,079 937,468 9,237 834,129 27,545 2,167 1,931,625 2,076,616 2,875,980
396,900 1,083,745 (141,011) (677,419) 662,215 (802) 661,413 60,000 13,786 35,064 18,364 378 127,592 123,761 1,020,000 19,352 628,306 12,607 8,429 1,812,455 1,940,047 2,601,460
25 14 14 26 22
2,707,564 4,140,327
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Consolidated statements of changes in equity For the year ended 31 March 2013 Attributable to the equity holders of the parent Foreign currency Issued Capital Treasury Share translation Noncapital surplus shares Retained options reserve controlling Total (Note 20) (Note 20) (Note 20) earnings (Note 20) (Note 20) Total interests equity JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 396,900 404,192 99 404,192 24,597 99 1,083,745 (161,703) (319,534) 7,900 1,007,308 404,192 99 404,291 24,597 5,244 396,900 1,083,745 (161,703) 84,658 32,497 99 1,436,196 (3,433) (8,780) 103 (8,677) 1,007,308 395,412 202 395,614 24,597 5,244 1,432,763
As at 1 April 2012
A-6
At 31 March 2013
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
For the year ended 31 March 2012 Attributable to the equity holders of the parent Foreign Issued Capital Treasury Share currency Noncapital surplus shares Retained options translation controlling Total (Note 20) (Note 20) (Note 20) earnings (Note 20) reserve Total interests equity JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 396,900 7,900 396,900 1,083,745 (161,703) (319,534) (20,692) 7,900 220,736 220,736 1,083,745 (141,011) (540,270) 799,364 220,736 220,736 7,900 (20,692) 1,007,308 799,364 220,736 220,736 7,900 (20,692) 1,007,308
As at 1 April 2011
A-7
At 31 March 2012
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Issued capital (Note 20) JPY000 396,900 396,900 1,083,745 (141,011) (540,270) 137,149 137,149 1,083,745 (141,011) (677,419) 662,215 137,149 137,149 799,364
Attributable to the equity holders of the parent Foreign Capital Treasury currency surplus shares Retained Share translation (Note 20) (Note 20) earnings options reserve JPY000 JPY000 JPY000 JPY000 JPY000 Total JPY000
As at 1 April 2010
A-8
At 31 March 2011
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Consolidated statements of cash flows For the years ended 31 March 2013, 2012 and 2011
Notes Operating activities Profit before tax from continuing operations Profit before tax from discontinued operations Profit before tax Adjustments to reconcile profit before tax to net cash flows: Depreciation and amortisation Impairment of intangible assets Loss (gain) on disposal of property, plant and equipment and intangible assets Share-based payment expense Finance income Finance costs Gain on disposal of subsidiaries Other Working capital adjustments: Decrease (increase) in trade and other receivables Decrease (increase) in inventories Increase (decrease) in trade and other payables Other Cash flows from operating activities Interest and dividends received Interest paid Income tax paid Net cash flows from operating activities Investing activities Purchase of property, plant and equipment Purchase of intangible assets Acquisition of subsidiaries, net of cash acquired Proceeds from disposal of subsidiaries Payments of loans receivable Collection of loans receivable Other proceeds Other payments Net cash flows from/(used in) investing activities Financing activities Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayment of long-term borrowings Payment of finance lease liabilities Proceeds from stock issuance to non-controlling interests Purchase of treasury shares Net cash flows from/(used in) financing activities Net increase in cash and cash equivalents Effect of a loss of control of a subsidiary Net foreign exchange difference Cash and cash equivalents at 1 April Cash and cash equivalents at 31 March 2013 JPY000 175,677 611,499 787,176 12, 13 13 24 40,400 1,661 24,597 (2,095) 15,521 (609,062) (1,490) 90,521 (3,463) 28,993 57,402 430,161 383 (13,866) (122,939) 293,739 (12,963) (4,580) (88,632) 549,643 (100) 207,540 19,262 (18,432) 651,738 2012 JPY000 222,987 66,397 289,384 69,660 14,512 5,490 7,900 (3,162) 18,987 2,742 (153,806) 21,506 32,958 112,254 418,425 422 (14,374) (52,372) 352,101 (21,294) (14,177) 7,661 (100) 13,359 18,410 (2,530) 1,329 2011 JPY000 74,974 47,058 122,032 87,770 3,922 (4,609) 26,888 5,098 23,117 (12,020) (11,414) 229,295 470,079 970 (17,138) (6,618) 447,293 (20,427) (8,845) 14,713 (10,000) 69,232 (19,948) 24,725
10
5 27
(100,000) 230,000 (137,412) (4,544) 5,244 (6,712) 938,765 1,321 1,139,499 2,079,585
19 19
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Notes to the consolidated financial statements 1. Corporate information The consolidated financial statements of Xyec Holdings Co., Ltd. and its subsidiaries (collectively, the Group) for the years ended 31 March 2013, 2012 and 2011, and the consolidated statement of financial position and related notes as at 1 April 2010, were authorised for issue in accordance with a resolution of the Board of Directors on 26 August 2013. Xyec Holdings Co., Ltd. (the Company) is a limited liability company incorporated in accordance with the Japan Companies Act and is domiciled in Japan. The registered office is located at 4-15, Konan 2-chome, Minato-ku, Tokyo, Japan. The principal business activities of the Group are stated in Note 6. 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). For all periods up to and including the year ended 31 March 2010, the Group prepared its consolidated financial statements in accordance with generally accepted accounting principles in Japan (Japanese GAAP). These consolidated financial statements for the three years ended 31 March 2013, together with the consolidated statement of financial position and related notes as at 1 April 2010, are the first the Group has prepared in accordance with IFRS. The effect of transition to IFRS on the Groups financial position, operating results, and cash flows is stated in Note 32. First-time Adoption of International Financial Reporting Standards. The Groups consolidated financial statements are prepared on the historical cost basis, except for certain financial instruments which are measured at fair value. The consolidated financial statements are presented in Japanese yen (JPY) and all values are rounded to the nearest thousand (JPY000), except when otherwise indicated. 2.2 Basis of consolidation Consolidation is based on the concept of control. Control is presumed when the parent acquires more than half of the voting rights of the entity, unless those rights are not substantive. Further, even when the Company owns half or less of the voting rights, control may exist in certain situations, such as where the Company has power; over more than one half of the voting rights by virtue of an agreement with other investor, to govern the financial and operating policies of the entity under a statute or an agreement, to appoint or remove the majority of the members of the board of directors, or to cast the majority of votes at a meeting of the Board of Directors. The consolidated financial statements comprise the financial statements of the Group and its subsidiaries. A-10
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. Total comprehensive income of subsidiaries is attributed to the relevant non-controlling interest even if that results in a deficit balance. 2.3 Summary of significant accounting policies (a) Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group measures the non-controlling interest in the acquiree at the proportionate share of the acquirees identifiable net assets. Acquisition-related costs are expensed as incurred and included in selling, general and administrative expenses. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognised in profit or loss. (b) Foreign currencies The Groups consolidated financial statements are presented in JPY, which is also the Companys functional currency. Each entity in the Group specifies its own functional currency and items included in the financial statements of each entity are measured using that functional currency. (i) Transactions and balances Foreign currency transactions are initially recorded at each entities respective functional currency spot rates (hereinafter spot rates) at the dates of the transactions or an approximation of that rate. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rates of exchange at the reporting date. Differences arising on settlement or retranslation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Groups net investment of a foreign operation. These are recognised in other comprehensive income until the net
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively). (ii) Foreign operations The assets and liabilities of foreign operations are translated into JPY at the spot rates of exchange at the reporting date, while income and expenses of foreign operations are translated into JPY at their respective spot rates at the dates of the transactions or an approximation to that rate. The resulting translation differences are recognised as other comprehensive income. When foreign operations are disposed of, such amounts of other comprehensive income related to the foreign operations are recognised as profit or loss in the consolidated income statement. (c) Revenue recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured, regardless of the timing of the payment. The Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The specific recognition criteria described below must also be met before revenue is recognised. Rendering of services Revenue from the staff services, system engineering services and system integration services is recognised by reference to the stage of completion. Stage of completion is measured by reference to costs incurred to date as a percentage of total estimated costs for each contract (mainly hours). When the contract outcome cannot be measured reliably, revenue is recognised only to the extent of recoverable costs incurred. Sale of goods Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Interest income For all financial instruments measured at amortised cost, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the income statement. Dividends Revenue is recognised when the Groups right to receive the payment is established. (d) Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income as the related costs are incurred. (e) Taxes Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity or other comprehensive income is recognised in equity or other comprehensive income and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except: When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss In respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Consumption tax Revenue and expenses are recognised net of the amount of consumption tax. (f) Discontinued operations Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the income statement.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
(g) Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The Group has elected the cost model for entire classes of property, plant and equipment. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows: Buildings and structures Equipment and vehicles 3 to 50 years 2 to 15 years
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. (h) Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Group as a lessee Finance leases that transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group, are capitalised at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the income statement. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an operating expense in the income statement on a straight-line basis over the lease term.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
(i) Intangible assets The Group has elected the cost model for intangible assets and intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in profit and loss in the period in which the expenditure is incurred. Intangible assets with finite lives are amortised over their useful economic lives and the amortisation period and the amortisation method are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. On the derecognition of an intangible asset, gains or losses arising from the derecognition are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement. A summary of the policies applied to the Groups intangible assets is as follows: Customer relationships 8 years Straight-line method Acquired
Software Useful lives Amortisation method used Internally generated or acquired (j) 3 to 5 years Straight-line method Acquired
Financial instruments initial recognition and subsequent measurement (i) Financial assets The Group has early adopted IFRS 9 Financial Instruments (issued in November 2009, revised in October 2010, hereinafter referred to as IFRS 9) for financial assets and liabilities. Initial recognition and measurement Financial assets are classified into financial assets measured at fair value through profit or loss, fair value through other comprehensive income, and amortised cost. The Group determines the classification at initial recognition. Financial assets are classified as financial assets measured at amortised cost if both of the following conditions are met, otherwise, they are classified as financial assets measured at fair value: the objective, in the Groups business model, is to hold the assets in order to collect contractual cash flows
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding
For financial assets measured at fair value, equity instruments are designated as measured at fair value through profit or loss or as measured at fair value through other comprehensive income, except for equity instruments held for trading purposes. Such designations are applied consistently. Financial assets are measured at fair value plus attributive transaction costs, unless classified as financial assets measured at fair value through profit or loss. Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below: Financial Assets Measured at Amortised Cost Financial assets measured at amortised cost are measured at amortised cost using the effective interest method. Other Financial Assets Financial assets other than those measured at amortised cost are measured at fair value. Changes in the fair value of financial assets measured at fair value through profit or loss are recognised as profit or loss. However, changes in the fair value of equity instruments designated as measured at fair value through other comprehensive income are recognised as other comprehensive income and the amount in other comprehensive income is not recognised in profit or loss but is transferred to retained earnings when the equity instruments are derecognised. Dividends on the financial assets are recognised in profit or loss for the year. Derecognition Financial assets are derecognised when the rights to receive cash flows from the asset expire or are transferred, or when substantially all the risks and rewards of the ownership are transferred. (ii) Impairment of financial assets The Group assesses at the end of each reporting period whether there is any objective evidence that financial assets measured at amortised cost are impaired. Evidence of impairment includes significant financial difficulty, bankruptcy or similar indications of the borrower or issuer, or default or delinquency in interest or principal payments. A-17
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
The Group assesses whether objective evidence of impairment exists individually for financial assets that are individually significant and collectively for financial assets that are not individually significant. If there is objective evidence that impairment losses on financial assets have been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows. When impairment is recognised, the carrying amount of the financial asset is reduced through the allowance for doubtful accounts and the related impairment losses are recognised in the income statement. The carrying amount of financial assets is directly written off for impairment when there is no realistic prospect of future recovery and all available collateral has been utilised or transferred to the Group. If, in a subsequent period, the amount of the impairment loss provided changes due to an event occurring after the impairment was recognised, the previously recognised impairment losses are adjusted through the allowance for doubtful accounts and the effect is recognised in the income statement. (iii) Financial liabilities Initial recognition and measurement Financial liabilities are classified into financial liabilities measured at fair value through profit or loss and financial liabilities measured at amortised cost. The Group determines the classification at initial recognition. Subsequent measurement After initial recognition, financial liabilities are measured based on their classification as follows: Financial Liabilities Measured at Fair Value through Profit or Loss Financial liabilities measured at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated as measured at fair value through profit or loss at initial recognition. Financial Liabilities Measured at Amortised Cost After initial recognition, financial liabilities measured at amortised cost are measured at amortised cost using the effective interest method. Amortisation under the effective interest method and gains or losses on derecognition are recognised in the income statement. Derecognition Financial liabilities are derecognised when the obligation is discharged, canceled or expired.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
(iv) Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. (v) Fair value of financial instruments Fair value of financial instruments that are traded in active financial markets at each reporting date refers to quoted prices or dealer quotations. If there is no active market, fair value of financial instruments is determined using appropriate valuation models. (k) Inventories Inventories are valued at the lower of cost and net realisable value. Costs of raw materials and supplies, and merchandise are accounted for on a first in, first out basis. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale. (l) Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash-generating units (CGU) fair value less costs to sell and its value in use. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Groups CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. For assets excluding goodwill, an assessment is made to determine whether there is any indication that previously recognised impairment losses may no longer exist or have decreased. If such indication exists, the Group estimates the assets or CGUs recoverable amount. A previously recognised impairment loss is reversed only if there A-19
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
has been a change in the assumptions used to determine recoverable amount since the last impairment was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Goodwill After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually as at 31 March and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. (m) Cash and short-term deposits Cash and short-term deposits comprise cash on hand, cash at banks and short-term deposits with a maturity of three months or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above. (n) Treasury shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Groups own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in capital surplus. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them. (o) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the effect of the time value of money is material, provisions are measured at the present value of the estimated expenditures. In calculating the present value, the Group uses the pretax discount rate reflecting the risks specific to the liability. Changes in the present value due to the passage of time are recognised as a finance costs.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Asset Retirement Provision Provision for the restoration of properties leased is made by estimating the probable amount to be paid in future periods considering the expected lives of the properties based on past experience, contract periods and the useful lives of related assets. The pre-tax discount rate applied to the future estimated amount approximately ranges from 1.6% to 2.4%. (p) Share-based payments The Group has a share option plan as an equity-settled sharebased payment plan for its employees, directors and statutory auditors. Share options are estimated at fair value at grant date and are recognised as an expense over the vesting period in the income statement after considering the number of share options that are expected to be eventually vested. The corresponding amount is recognised as an increase in equity in the consolidated statement of financial position. 3. Significant accounting judgements, estimates and assumptions The preparation of the Groups consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities. Such estimates and assumptions are based on historical experience and available information, however given their nature, actual outcomes may differ. Estimates and assumptions are continuously reviewed by management. Effects of changes in estimates and assumptions are recognised in the period of the change, or the period of the change and future periods. The following judgements may have a material effect on the consolidated financial statements of the Group: Impairment of non-financial assets (Notes 13 and 15) The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets fair value less costs to sell and its value in use, which is mainly calculated based on the discounted cash flow model. Certain assumptions are made for the future cash flows of the assets, growth rates and discount rates. These assumptions are used on the best estimates and judgments made by management; however, there is a possibility that these assumptions may be affected by occurrence of unexpected events or changes in market, which may have a material impact on the consolidated financial statements.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Provisions (Note 22) The Group recognises various provisions, including provision for asset retirement obligations, in the consolidated statements of financial position. Such provisions are recognised based on the estimation of the expenditures required to settle the obligations at the reporting date and utilise assumptions concerning the estimated future costs or discount rates. Management makes its best estimates, however, such assumptions may be affected by occurrence of unexpected events or changes in market. Share-based payments (Note 24) The Group has a share option plan as an equity-settled sharebased payment plan for its employees, directors and statutory auditors. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs including the expected life of the share option, volatility and dividend yield. Income Taxes (Note 9) The Group recognises current tax liabilities and income taxes based on estimations in accordance with the laws and regulations in countries where it operates business activities. If an audit takes place by the tax authorities in the future, there may be differences in the interpretation of tax regulations and recalculation of income taxes may be needed. In addition, in recognising deferred tax assets, the Group reasonably estimates the timing and amount of future taxable income and it recognises deferred tax assets to the extent that it is probable that taxable income will be available. The timing of when taxable income arises and the amount of such income may be affected by changes in uncertain future economic conditions or revision of tax laws. Fair value of financial instruments (Notes 14 and 30) When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Business combination (Note 5) When a business is acquired in a business combination, we determine the fair values of assets acquired and liabilities assumed and allocate the purchase price of an acquired company accordingly. The purchase price allocation process requires the Group to use significant estimates and assumptions, including fair value estimates, as of the business combination date. When the fair value of assets acquired and liabilities assumed cannot be derived from active markets, their fair values are determined using valuation techniques including the discounted cash flow model. Certain assumptions are made for the future cash flows of the assets, growth rates and discount rates. These assumptions are based on the best estimates and judgments made by management. 4. Standards issued but not yet effective Standards and interpretations issued, but not yet effective, up to the date of issuance of the Groups financial statements are listed below. The Group intends to adopt these standards, if applicable, when they become effective. The impact of adoption of these standards and interpretations has been assessed by the Group and the Group evaluates that they will not have a material impact on its operating results and financial condition. IAS 1 Presentation of Items of Other Comprehensive Income The amendments to IAS 1 change the grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time would be presented separately from items that will never be reclassified. The amendment becomes effective for annual periods beginning on or after 1 July 2012. IAS 19 Employee Benefits (as revised in 2011) The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The amendment becomes effective for annual periods beginning on or after 1 January 2013. IAS 27 Consolidated and Separate Financial Statements (as revised in 2011) IFRS 10 and IFRS 12 have been issued, and what remains in IAS 27 is limited to accounting for investments in subsidiaries, joint ventures and associates in separate financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013. On October 2012, IFRS 10 and IAS 27 have been amended to provide an exception to the consolidation requirement for entities that meet the definition of an investment entity. This exception requires investment entities to account for subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments in consolidated financial statements as well as in separate financial statements. The Group does not disclose its separate financial statements and does not meet the definition of an investment entity. The amendment becomes effective for annual periods beginning on or after 1 January 2014.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
IAS 32 Offsetting Financial Assets and Financial Liabilities These amendments clarify the meaning of currently has a legally enforceable right to set-off. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments become effective for annual periods beginning on or after 1 January 2014. IFRS 7 Disclosures Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). These amendments become effective for annual periods beginning on or after 1 January 2013. IFRS 10 Consolidated Financial Statements IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also addresses the issues raised in SIC-12 Consolidation Special Purpose Entities . IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 12 Disclosure of Interests in Other Entities IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entitys interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after 1 January 2013. On October 2012, in addition to the amendments to IFRS 10, IFRS 12 has also been amended to require additional disclosures for investment entities. The amendment becomes effective for annual periods beginning on or after 1 January 2014. IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. This standard becomes effective for annual periods beginning on or after 1 January 2013.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Annual Improvements to IFRSs 2009 to 2011 Cycle On May 2012, Annual improvements were issued mainly to clarify the standards. These improvements are effective for annual periods beginning on or after 1 January 2013. IFRS 1 First-time Adoption of International Financial Reporting Standards (Reapplication of IFRS 1 and borrowing costs) IAS 1 Presentation of Financial Statements (Clarification of provision for comparative information) IAS 16 Property Plant and Equipment (Clarification of treatment related to servicing equipment) IAS 32 Financial Instruments, Presentation (Effect of income taxes related to dividend paid to the equity financial instruments holder) IAS 34 Interim Financial Reporting (Disclosure requirements for total segment assets with total segment liabilities in interim financial statements) 5. Business combinations and acquisition of non-controlling interests Acquisitions in the year ended 31 March 2013 Acquisition of Sial System Co., Ltd. On 28 December 2012, the Company acquired in cash 100% of the voting shares of Sial System Co., Ltd., an unlisted company based in Japan and operating in the IT service business. The Company acquired Sial System Co., Ltd. aiming to strengthen the foundations of the Group and expand its revenue base. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of Sial System Co., Ltd. as at the date of acquisition were: Fair value recognised on acquisition JPY000 Assets Property, plant and equipment (Note 12) Intangible assets (Note 13) Other non-current assets Other non-current financial assets Deferred tax assets (Note 9) Trade and other receivables Other current assets Cash and cash equivalents 896 92,535 1,721 6,362 39,815 88,415 847 96,368 326,959 A-25
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Fair value recognised on acquisition JPY000 Liabilities Long-term borrowings Provisions (Note 22) Trade and other payables Other current liabilities Income tax payable (66,766) (1,617) (81,970) (42,374) (56,668) (249,395) Total identifiable net assets at fair value Goodwill arising on acquisition (Note 13) Purchase consideration transferred 77,564 107,436 185,000
The contractual amount of the trade and other receivables is JPY88,915,000, the balance was written down to fair value at acquisition date. The goodwill of JPY107,436,000 comprises human resources and the value of expected synergies arising from the acquisition, which are not separately recognised. Goodwill is allocated entirely to the IT service segment. Certain of the goodwill recognised is not expected to be deductible for income tax purposes. Transaction costs of JPY1,628,000 were expensed as incurred and recognised in Selling, general and administrative expenses. Sial System Co., Ltd. has contributed JPY140,761,000 of revenue and JPY11,960,000 to profit before tax from continuing operations for the year ended 31 March 2013. If the combination had taken place at the beginning of the year, revenue from continuing operations would have been JPY6,770,877,000 and the profit before tax from continuing operations for the Group would have been JPY169,309,000. Cash flows on acquisition: JPY000 Net cash acquired with the subsidiary Purchase consideration paid in cash Net cash flow on acquisition 96,368 (185,000) (88,632)
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Acquisitions in the year ended 31 March 2012 Acquisition of em-kei Co., Ltd. On 1 April 2011, the Company acquired in cash 100% of the voting shares of em-kei Co., Ltd., an unlisted company based in Japan and operating in the engineering service business. The Company acquired em-kei Co., Ltd. aiming to strengthen the foundations of the Group and expand its revenue base. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of em-kei Co., Ltd. as at the date of acquisition were: Fair value recognised on acquisition JPY000 Assets Other non-current financial assets Inventories Trade and other receivables Other current assets Other current financial assets Cash and cash equivalents 3,257 6 54,376 123 7,106 7,661 72,529 Liabilities Other non-current liabilities Deferred tax liabilities (Note 9) Trade and other payables Short-term borrowings Other current liabilities Income tax payable (11,800) (136) (1,925) (9,604) (48,514) (582) (72,561) Total identifiable net assets at fair value Gain on a bargain purchase Purchase consideration transferred (32) (32) *
The contractual amount of the trade and other receivables is JPY54,814,000, the balance was written down to fair value at acquisition date.
* Purchase consideration transferred was less than JPY1,000.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
em-kei Co., Ltd. contributed JPY107,389,000 of revenue and JPY2,399,000 to the profit before tax from continuing operations for the year ended 31 March 2012. Cash flows on acquisition: JPY000 Net cash acquired with the subsidiary Purchase consideration paid in cash Net cash flow on acquisition Acquisitions in the year ended 31 March 2011 Acquisition of NIHON UNITEC Co., Ltd. On 31 March 2011, the Company acquired in cash 100% of the voting shares of NIHON UNITEC Co., Ltd., an unlisted company based in Japan and operating in the IT solution business. The Company acquired NIHON UNITEC Co., Ltd. aiming to strengthen the foundations of the Group and expand its revenue base. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of NIHON UNITEC Co., Ltd. as at the date of acquisition were: Fair value recognised on acquisition JPY000 Assets Other non-current assets Other non-current financial assets Deferred tax assets (Note 9) Trade and other receivables Other current assets Cash and cash equivalents 305 11,690 4,268 31,677 1,601 94,713 144,254 7,661 (0) 7,661
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Fair value recognised on acquisition JPY000 Liabilities Long-term borrowings Other non-current liabilities Trade and other payables Short-term borrowings Other current liabilities Income tax payable Provisions (Note 22) (9,166) (12,430) (4,621) (81,968) (25,273) (280) (2,713) (136,451) Total identifiable net assets at fair value Goodwill arising on acquisition Purchase consideration transferred 7,803 197 8,000
The contractual amount of the trade and other receivables is JPY31,793,000, the balance was written down to fair value at the acquisition date. The goodwill of JPY197,000 comprises the value of expected synergies arising from the acquisition, which is not separately recognised. Transaction costs of JPY1,450,000 were expensed as incurred and recognised in Selling, general and administrative expenses. NIHON UNITEC Co., Ltd. did not contribute to revenue and profit before tax from continuing operations for the year ended 31 March 2011 as the acquisition took place on 31 March 2011. If the combination had taken place at the beginning of the year, revenue from continuing operations would have been JPY5,000,911,000 and the profit before tax from continuing operations for the Group would have been JPY73,818,000. Cash flows on acquisition: JPY000 Net cash acquired with the subsidiary Purchase consideration paid in cash Repayment of borrowings of NIHON UNITEC Co., Ltd. Net cash flow on acquisition 94,713 (8,000) (72,000) 14,713
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
6. Segment information The Group has three reportable segments determined based on the operating segments that are components of the Group about which separate financial information is available and is evaluated regularly by the Board of Directors in deciding how to allocate resources and in assessing the Groups performance. As a parent company, the Company makes decisions for the entire group by setting strategy and medium-term management plans. Each subsidiary operates its business based on the decisions made by the Company. For management purposes, the Group is organised into business units based on its products and services with respective legal entities and has three reportable segments. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, Group financing (including finance costs and finance income) and income taxes are managed on a Group basis and are not allocated to operating segments. The three reportable segments as follows: Engineering Service Business, conducted by Kowamex Co., Ltd., em-kei Co., Ltd. and Kowamex (Thailand) CO.,LTD, mainly provides physical support services for a wide variety of product development activities, such as design, development, CAE, evaluation and testing for each process of the engineering chain in manufacturing, and also provides design services for production equipment. CAE: CAE, abbreviation of Computer Aided Engineering, is a system which can analyze strength and heat resistance by using a computer, or confirm function and performance before manufacture of the actual product throughout simulation to determine whether or not designed products can meet required specifications. CAE achieves a reduction of trial manufacturing and testing costs, and shortens the development period.
IT Service Business, conducted by Neutral Co., Ltd., ACLOX Co., Ltd. and Sial System Co., Ltd., develops operation/control systems to meet the needs of each customer, specialised systems for medical and public institutions and CAD/CAM. In addition, it provides design/operation services for infrastructure for open systems. IT Solution Business, conducted by NT Solutions Co., Ltd. and NIHON UNITEC Co., Ltd., mainly provides consulting services related to implementation of ERP from Fit & Gap to development and implementation by certified consultants from SAP and Microsoft. It also provides a one-stop service including distribution, development and maintenance service for its own package production and sales administration integration package UNIMEX II. Fit & Gap: In introducing ERP package software which performs resources management, to assess the needs of business processes and for the systematization of the enterprise, an investigation and analysis is conducted to evaluate how much the package software is to be fit or gap.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
The Group classifies the Metal Processing Specialization Solution Business, conducted by FA Service Corporation and its subsidiary, LATEC Corporation, as a discontinued operation since the Company sold all the shares of FA Service Corporation in September 2012. Therefore, the Groups segment information for the years ended 31 March 2012 and 2011 includes information in relation to the discontinued operations although the Groups segment information for the year ended 31 March 2013 does not. Transfer prices between operating segments are on the same basis as transactions with third parties. Inter-segment transactions are eliminated upon consolidation and reflected in Adjustments and eliminations below. For the year ended 31 March 2013
Adjustments and eliminations Consolidated JPY000 (24,805) (24,805) (13,743) JPY000 6,225,279 6,225,279 186,747 2,720 (13,790) 175,677
Engineering Service JPY000 Revenue External customers Inter-segment and transfers Total revenue Segment profit (loss) Finance income Finance costs Profit before tax from continuing operations Other items Depreciation and amortisation
Notes: 1.
IT Total Solution segments JPY000 839,112 17,470 856,582 81,739 JPY000 6,225,279 24,805 6,250,084 200,490
15,566
8,492
5,074
29,132
6,764
35,896
Adjustments for segment profit (loss) of JPY(13,743,000) include inter-segment transactions of JPY426,452,000 and corporate expenses of JPY(440,195,000). Corporate expenses are mainly administrative expenses of the Company, which are not allocable to the reportable segments. Adjustments for depreciation and amortisation of JPY6,764,000 include inter-segment transactions of JPY(4,000) and the Companys depreciation and amortisation expenses of JPY6,768,000, which are not allocable to the reportable segments.
2.
A-31
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
For the year ended 31 March 2012
Metal Processing Specialization Solution (Discontinued operations) JPY000
Engineering Service JPY000 Revenue External customers Inter-segment and transfers Total revenue Segment profit (loss) Finance income Finance costs Profit before tax from continuing operations Other items Depreciation and amortisation Impairment of fixed assets 2,429,693
IT Service JPY000
IT Solution JPY000
2,306,147
846,751
885,125
6,467,716
(885,125)
5,582,591
222,987
14,909
19,209
5,592
8,448
48,158
13,054
61,212
10,000
4,512
14,512
14,512
Notes: 1. Adjustments for segment profit (loss) of JPY(1,114,000) include inter-segment transactions of JPY381,909,000, segment profit and adjustments from discontinued operations of JPY(70,382,000) and corporate expenses of JPY(312,641,000). Corporate expenses are mainly administrative expenses of the Company, which are not allocable to the reportable segments. Adjustments for depreciation and amortisation of JPY13,054,000 include inter-segment transactions of JPY(653,000), depreciation and amortisation expenses of discontinued operations of JPY(8,448,000) and the Companys depreciation and amortisation expenses of JPY22,155,000, which are not allocable to the reportable segments.
2.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
For the year ended 31 March 2011
Metal Processing Specialization Solution (Discontinued operations) JPY000
Engineering Service JPY000 Revenue External customers Inter-segment and transfers Total revenue Segment profit (loss) Finance income Finance costs Profit before tax from continuing operations Other items Depreciation and amortisation 2,005,714
IT Service JPY000
IT Solution JPY000
2,129,509
703,250
840,549
5,679,022
(840,549)
4,838,473
2,005,714 66,260
74,974
17,825
35,258
3,365
5,844
62,292
19,634
81,926
Notes: 1. Adjustments for segment profit (loss) of JPY(61,645,000) include inter-segment transactions of JPY246,620,000, segment profit and adjustments from discontinued operations of JPY(52,722,000) and corporate expenses of JPY(255,543,000). Corporate expenses are mainly administrative expenses of the Company, which are not allocable to the reportable segments. Adjustments for depreciation and amortisation of JPY19,634,000 include inter-segment transactions of JPY(910,000), depreciation and amortisation expenses of discontinued operations of JPY(5,844,000) and the Companys depreciation and amortisation expenses of JPY26,388,000, which are not allocable to the reportable segments.
2.
Geographic information Revenues from external customers for the years ended 31 March for 2013, 2012, and 2011 are as follows: 2013 JPY000 Japan Thailand Total revenue per consolidated income statements 6,210,443 14,836 2012 JPY000 5,582,591 2011 JPY000 4,838,473
6,225,279
5,582,591
4,838,473
The revenue information above is based on the locations of the customers. A-33
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Revenue from one major customer amounted to JPY2,174,258,000 (2012: JPY1,899,519,000, 2011: JPY1,669,654,000), arising from sales by the engineering service segment. Non-current assets as at 31 March 3013, 2012, 2011 and 1 April 2010 are follows: As at 1 April 2010 JPY000 418,165 418,165
Non-current assets for this purpose consist of property, plant and equipment, goodwill, intangible assets and other non-current assets. 7. Revenue Revenues for the years ended 31 March for 2013, 2012, and 2011 are as follows: 2013 JPY000 Service revenue Sales of goods 6,178,083 47,196 6,225,279 8. Other income/expenses Other income/expenses for the years ended 31 March for 2013, 2012, and 2011 are as follows: 8.1 Other operating income 2013 JPY000 Government grants (Note 23) Gain on disposals of non-current assets Other 6,780 8,928 15,708 2012 JPY000 9,981 57 7,587 17,625 2011 JPY000 3,195 9,098 12,293 2012 JPY000 5,553,982 28,609 5,582,591 2011 JPY000 4,820,186 18,287 4,838,473
Government grants have been received mainly as incentives for employees training and hiring.
A-34
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
8.2 Other operating expenses 2013 JPY000 Loss on disposals of non-current assets Other (1,580) (1,580) 8.3 Finance income and finance costs 2013 JPY000 Finance income Interest income on financial assets carried at amortised cost Dividends income from financial assets at fair value through profit or loss Other Total finance income Finance costs Interest on financial liabilities carried at amortised cost Net loss on financial instruments at fair value through profit or loss Other Total finance costs 8.4 Employee benefits expense 2013 JPY000 Salaries and bonuses Legal welfare expenses Share-based payment expense (Note 24) Other Total employee benefits expense Cost of sales Selling, general and administrative expenses 4,125,889 593,493 24,597 215,172 4,959,151 4,452,347 506,804 4,959,151 2012 JPY000 3,602,491 503,913 7,900 248,469 4,362,773 3,967,892 394,881 4,362,773 2011 JPY000 3,226,986 445,266 212,269 3,884,521 3,544,200 340,321 3,884,521 2012 JPY000 2011 JPY000 2012 JPY000 (665) (2,944) (3,609) 2011 JPY000 (2,880) (2,880)
Legal welfare expenses mainly comprise welfare pension insurance, under which the Group has no further obligation, health insurance and unemployment insurance. A-35
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
8.5 Other major expenses included in cost of sales and selling, general and administrative expenses 2013 JPY000 Included in cost of sales: Depreciation Amortisation of intangible assets Impairment of intangible assets Costs of inventories recognised as an expense Minimum lease payments recognised as an operating lease expense Included in selling, general and administrative expenses: Depreciation Amortisation of intangible assets Minimum lease payments recognised as an operating lease expense 9. Income tax The major components of income tax expense for the years ended 31 March 2013, 2012 and 2011 are: Consolidated income statement 2013 JPY000 Current income tax: Current income tax charge Deferred tax: Relating to origination and reversal of temporary differences Income tax expense reported in the income statement
Notes: (i) Current tax expense includes previously unrecognised tax benefits from tax loss carryforwards, tax credits and deductible temporary differences. These benefits are JPY11,780,000 (2012: JPY52,975,000, 2011: JPY55,236,000).
2012 JPY000
2011 JPY000
2012 JPY000
2011 JPY000
99,280
77,961
29,079
(5,329)
(17,462)
(37,403)
93,951
60,499
(8,324)
A-36
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
(ii) Deferred tax expense includes previously unrecognised tax benefits from tax loss carryforwards, tax credits, deductible temporary differences, and expenses or benefits arising from write-downs of deferred tax assets or the reversal of previous write-downs of deferred tax assets. These effects decrease the deferred tax expense by JPY8,342,000 (2012: JPY1,202,000, 2011: JPY7,786,000). Japans statutory income tax rate was changed from 40.68% for the year ended 31 March 2012 to 38.01% for the year ended 31 March 2013. Accordingly, the tax rate used to calculate deferred tax assets and liabilities of the Company and its subsidiaries in Japan as of 31 March 2012 was changed from 40.68% to 38.01% for temporary differences expected to reverse from 1 April 2012 to 31 March 2015, and 35.63% for those expected to reverse after 1 April 2015, because of the amendments to Japanese tax laws enacted in December 2011. These effects decrease the current income tax by JPY6,974,000 for the year ended 31 March 2013, and increase the deferred tax expense by JPY22,516,000 for the year ended 31 March 2012.
(iii)
A reconciliation between tax expense and the accounting profit multiplied by Japans domestic tax rate for the years ended 31 March 2013, 2012 and 2011 is as follows: 2013 JPY000 Accounting profit before tax from continuing operations Profit before tax from discontinued operations (Note 10) Accounting profit before income tax At Japans statutory income tax rate of 38.01% (2012: 40.68%, 2011: 40.68%) Permanent differences not deductible for tax purposes Changes of previously unrecognised tax losses and other temporary differences Effect of a reversal of temporary differences associated with the investments in the disposed subsidiaries Effect of the change in the statutory tax rates Other At the effective income tax rate of 49.77% (2012: 23.72%, 2011: (11.51)%) Income tax expense reported in the consolidated income statement Income tax attributable to discontinued operations 175,677 611,499 787,176 2012 JPY000 222,987 66,397 289,384 2011 JPY000 74,974 47,058 122,032
87,165 8,191
27,615 2,681
(10,157)
391,764
68,648
(14,041)
A-37
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Deferred tax Deferred tax as at/for the years ended 31 March 2013, 2012 and 2011 relates to the following:
Consolidated statement of financial position As at 1 April 2010 Consolidated income statement
2013 JPY000 Other payables and accrued expenses Provision for bonuses Tax loss carryforwards Unused vacation accrual Depreciation Other Deferred tax expense/(income) Net deferred tax assets/(liabilities) Reflected in the statement of financial position as follows: Deferred tax assets Deferred tax liabilities Deferred tax assets, net 295,815 (6,686) 289,129 4,988 106,247 1,414 136,499 7,314 32,667
2011
2013
2012
2011
JPY000 JPY000 JPY000 JPY000 JPY000 5,801 81,115 8,223 117,281 2,104 6,315 7,302 57,914 6,052 99,927 4,576 1,318 6,677 (20,907) 1,288 2,304 11,869 (6,560) (6,023) 1,667
289,129
246,189
220,839
177,089
220,839 220,839
Reconciliation of deferred tax assets, net 2013 JPY000 At 1 April Recognised in profit or loss Deferred taxes acquired in business combinations (Note 5) Decrease due to disposal of subsidiaries At 31 March 246,189 20,256 39,815 (17,131) 289,129 2012 JPY000 220,839 25,486 (136) 246,189 2011 JPY000 177,089 39,482 4,268 220,839
The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority. A-38
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Deferred tax assets are recognised by taking taxable temporary differences, future taxable profits and tax planning into account. As a result, deferred tax assets have not been recognised in respect of certain of tax loss carryforwards and deductible temporary differences. Tax loss carryforwards and deductible temporary differences for which deferred tax assets have not been recognised as at 31 March 2013, 2012, 2011 and 1 April 2010 are as follows: As at 1 April 2010 JPY000 480,634 348,051 828,685
2013 JPY000 Tax loss carryforwards Deductible temporary differences Total 34,486 233,849 268,335
The expiration date and amounts of tax loss carryforwards for which deferred tax assets are not recognised as at 31 March 2013, 2012, 2011 and 1 April 2010 are as follows; As at 1 April 2010 JPY000 37,330 52,854 390,450 480,634 38,023 31,138 196,586 265,747
2013 JPY000 Year 1 Year 2 Year 3 Year 4 Year 5 or later Total 34,486 34,486
2011 JPY000
Tax loss carryforwards are available for offsetting against future taxable profits of the companies in which the losses arose. Taxable temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognised as at 31 March 2013, 2012, 2011 and 1 April 2010 are as follows; As at 1 April 2010 JPY000 401,988
There are no income tax consequences attached to the payment of dividends in either 2013, 2012 or 2011 by the Group to its shareholders.
A-39
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
10. Discontinued operations The Company disposed all the shares of a subsidiary, FA Service Corporation on 30 September 2012. For the years ended 31 March 2013, 2012 and 2011, the business of FA Service Corporation and its subsidiary, LATEC Corporation was classified as discontinued operations. The results of discontinued operations for the years ended 31 March 2013, 2012 and 2011 are presented below: 2013 JPY000 Revenue, expenses and profit or loss of discontinued operations: Revenue Cost of sales Gross profit Selling, general and administrative expenses Other operating income Other operating expenses Operating profit Finance income Finance costs Profit before tax Income tax expense Profit after tax Gain on the disposal of the discontinued operations: Gain on disposal (Note 27) Income tax expense related to gain on disposal Gain on disposal of subsidiaries, net of tax Profit for the year from discontinued operations 609,062 (288,444) 320,618 407,856 (259,722) 148,134 (143,316) 832 (857) 4,793 186 (2,542) 2,437 (9,369) (6,932) 885,296 (530,058) 355,238 (284,853) 233 (236) 70,382 533 (4,518) 66,397 (8,149) 58,248 840,720 (523,545) 317,175 (264,634) 1,024 (1,206) 52,359 1,266 (6,567) 47,058 5,717 52,775 2012 JPY000 2011 JPY000
313,686
58,248
52,775
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
The net cash flows of the discontinued operations for the years ended 31 March 2013, 2012 and 2011 are, as follows: 2013 JPY000 Operating Investing Financing Net cash inflow of the discontinued operations 117,345 (9,901) (1,300) 106,144 2012 JPY000 32,296 (17,796) (5,094) 9,406 2011 JPY000 57,272 755 (12,206) 45,821
Net cash inflow of the discontinued operations excludes the proceeds from disposal of subsidiaries, FA Service Corporation and its subsidiary, LATEC Corporation, of JPY549,643,000 (Note 27). Earnings per share: (Note 11) Basic, profit for the year from discontinued operations Diluted, profit for the year from discontinued operations 11. Earnings per share Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. The Group has granted stock options, but we do not expect dilution because the exercise price of those stock options is higher than the fair value of the common stocks. So the Group presents same amount for the Diluted Earnings per Share with Basic Earnings per Share. The following reflects the income and share data used in the basic earnings per share computations for the years ended 31 March 2013, 2012 and 2011: 2013 JPY000 Net profit attributable to ordinary equity holders of the parent from continuing operations Profit attributable to ordinary equity holders of the parent from discontinued operations Net profit attributable to ordinary equity holders of the parent for basic earnings 90,506 313,686 2012 JPY000 162,488 58,248 2011 JPY000 84,374 52,775 3.74JPY 3.74JPY 0.69JPY 0.69JPY 0.61JPY 0.61JPY
404,192
220,736
137,149
A-41
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
2013 Thousands Weighted average number of ordinary shares for basic earnings per share 83,876 2012 Thousands 84,019 2011 Thousands 86,091
The weighted average number of shares takes into account the weighted average effect of changes in treasury share transactions during the year and the stock split described below. Stock split The Group resolved to conduct a stock split at the board of directors meetings held on 23 April 2013 as follows. Method of the split Ordinary shares held by shareholders listed in the final registry of shareholders as of the record date of 15 May 2013 have been split at a ratio of 3,000 shares to one share effective on 16 May 2013. Increase in shares resulting from the stock split Total number of shares issued prior to the share split: Number of shares to be increased resulting from the share split: Total number of shares issued following the share split: Total number of authorised shares following the share split:
shares (including treasury shares) shares shares (including treasury shares) shares
Earnings per share are calculated retrospectively by taking into consideration the above stock split.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
12. Property, plant and equipment Land, buildings and structures JPY000 Cost At 1 April 2010 Additions Disposals At 31 March 2011 Additions Disposals At 31 March 2012 Additions Acquisition of subsidiaries (Note 5) Disposal of subsidiaries Disposals Exchange differences At 31 March 2013 Depreciation and impairment At 1 April 2010 Depreciation charge for the year Disposals At 31 March 2011 Depreciation charge for the year Disposals At 31 March 2012 Depreciation charge for the year Disposal of subsidiaries Disposals Exchange differences At 31 March 2013 Net book value At 1 April 2010 At 31 March 2011 At 31 March 2012 At 31 March 2013 300,450 19,498 (4,180) 315,768 4,126 319,894 5,606 896 (122,884) (489) 180 203,203 97,072 10,938 (2,610) 105,400 11,254 (561) 116,093 11,991 (66,645) (159) 7 61,287 203,378 210,368 203,801 141,916
Equipment and vehicles JPY000 174,875 28,418 (30,853) 172,440 21,945 (33,492) 160,893 14,146 (94,411) (6,096) 537 75,069 128,731 25,223 (28,140) 125,814 16,226 (27,909) 114,131 10,017 (63,609) (4,765) 42 55,816 46,144 46,626 46,762 19,253
Total JPY000 475,325 47,916 (35,033) 488,208 26,071 (33,492) 480,787 19,752 896 (217,295) (6,585) 717 278,272 225,803 36,161 (30,750) 231,214 27,480 (28,470) 230,224 22,008 (130,254) (4,924) 49 117,103 249,522 256,994 250,563 161,169
Finance leases The carrying value of equipment and vehicles held under finance leases at 31 March 2013 was JPY7,364,000 (2012: JPY19,878,000, 2011: JPY23,830,000, 1 April 2010: JPY18,826,000). A-43
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
13. Goodwill and Intangible assets Goodwill Software JPY000 Cost At 1 April 2010 Additions Disposals At 31 March 2011 Additions At 31 March 2012 Additions Acquisition of subsidiaries (Note 5) Disposals Disposal of subsidiaries At 31 March 2013 Amortisation and impairment At 1 April 2010 Amortisation Disposals At 31 March 2011 Amortisation Impairment At 31 March 2012 Amortisation Disposals Disposal of subsidiaries At 31 March 2013 Net book value At 1 April 2010 At 31 March 2011 At 31 March 2012 At 31 March 2013 57,820 57,820 57,820 165,256 110,823 70,214 29,927 16,555 88,674 110,823 70,214 29,927 105,229 117,119 51,609 (693) 168,035 42,180 14,512 224,727 15,531 (26,380) (2,083) 211,795 2,861 2,861 117,119 51,609 (693) 168,035 42,180 14,512 224,727 18,392 (26,380) (2,083) 214,656 57,820 57,820 57,820 107,436 165,256 227,942 11,000 (693) 238,249 16,405 254,654 3,956 1,000 (26,380) (4,880) 228,350 91,535 91,535 227,942 11,000 (693) 238,249 16,405 254,654 3,956 92,535 (26,380) (4,880) 319,885 JPY000 Intangible assets Customer relationships JPY000 Total JPY000
A-44
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Acquisition during the year Goodwill, software and customer relationships include goodwill and intangible assets acquired through business combinations. During the year ended 31 March 2013, the Company purchased shares of a subsidiary, Sial System Co., Ltd., which resulted in an increase in goodwill, software and customer relationships of JPY107,436,000, JPY1,000,000 and JPY91,535,000, respectively. As at 31 March 2013, goodwill was tested for impairment (Note 15). Impairment Losses Impairment losses recognised in the year ended 31 March 2012 represent the reduction to recoverable amounts of the carrying amounts of certain software due to the expected deterioration of its economic performance. The recoverable amounts of these assets are based on value in use, which is estimated to be zero. 14. Other financial assets and financial liabilities 14.1 Other financial assets Other financial assets as at 31 March 2013, 2012, 2011 and 1 April 2010 are as follows: As at 1 April 2010 JPY000 72,733 166,194 42,521
2013 JPY000 Equity instruments and investments in fund Receivables Other Allowance for doubtful accounts Total other financial assets Total non-current Total current 43,649 127,892 27,402 (7,553)
281,448 281,448
Equity instruments and investments in fund, and Receivables are classified as financial assets measured at fair value through profit or loss and financial assets measured at amortised cost, respectively.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Other consists of financial assets measured at fair value of JPY 27,182,000 (2012: JPY39,089,000, 2011: JPY36,961,000, 1 April 2010: JPY42,521,000) and financial assets measured at amortised cost of JPY220,000 as of 31 March 2013 (2012: JPY97,000). Receivables consist of loans and deposits. 14.2 Other financial liabilities Other financial liabilities as at 31 March 2013, 2012, 2011 and 1 April 2010 are as follows:
Interest rate % Short-term borrowings Obligations under finance leases Current portion of long-term borrowings Long-term borrowings Other Total other financial liabilities Total non-current Total current 1.20 2.42 As at 1 April 2010 JPY000 990,000 33,033
Maturity
Feb 2018
1.22 1.27
Mar 2017
143,593 865,138
19,044 943,397
59,613 946,705
73,786 1,039,352
Financial liabilities are classified as financial liabilities measured at amortised cost excluding Other, which is classified as financial liabilities measured at fair value. Interest rate is the weighted average interest rate at 31 March 2013. Short-term borrowings and Long-term borrowings Short-term borrowings and Long-term borrowings are from financial institutions and are unsecured. 14.3 Fair values Set out below is a table by class of the fair value of the Groups financial instruments that are carried in the financial statements as at 31 March 2013, 2012, 2011 and 1 April 2010.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
The fair values of cash and short-term deposits, trade and other receivables, other current financial assets, trade payables and other payables, short-term borrowings, other current financial liabilities (excluding liabilities measured at fair value), approximate their carrying amounts due to the short-term maturities of these instruments. As the carrying amounts reasonably approximate the fair values of these instruments, they are excluded from the below table. As at 31 March 2013 As at 31 March 2012 JPY000 JPY000 Carrying Carrying amount Fair value amount Fair value Financial assets Other financial assets Equity instruments and investments in fund Other Total
Financial liabilities Obligations under finance leases (7,657) (7,779) Long-term borrowings (including current portion of long-term borrowings) (201,020) (200,786) Total (208,677) (208,565) As at 31 March 2011 JPY000 Carrying amount Fair value Financial assets Other financial assets Equity instruments and investments in fund Other Total Financial liabilities Obligations under finance leases Long-term borrowings (including current portion of long-term borrowings) Other Total (27,184) (28,675) 67,862 36,961 104,823 67,862 36,961 104,823
(33,033)
(33,996)
(79,134) (106,318)
(79,197) (107,872)
A-47
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
The fair value of financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: Fair value of long-term borrowings and obligations under finance leases is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. Fair value of other financial assets is derived from quoted market prices in active markets. If they are not available, the fair value is estimated using appropriate valuation techniques.
Fair value hierarchy for financial instruments measured at fair value recorded in the statement of financial position The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques Level 1: Level 2: Fair value measured at the quoted price in active markets Fair value that is based on inputs, that have a significant effect on the recorded fair value, that are observable directly or indirectly. Fair value that is calculated based on valuation techniques which include inputs that are not based on observable market data
Level 3:
Assets and liabilities measured at fair value As at 31 March 2013 Level 1 JPY000 Financial assets Equity instruments and investments in fund Other Total As at 31 March 2012 Level 1 JPY000 Financial assets Equity instruments and investments in fund Other Total 1,124 1,124 Level 2 JPY000 1,400 5,600 7,000 Level 3 JPY000 59,668 33,489 93,157 Total JPY000 62,192 39,089 101,281 Level 2 JPY000 1,200 4,700 5,900 Level 3 JPY000 42,449 22,482 64,931 Total JPY000 43,649 27,182 70,831
A-48
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
As at 31 March 2011 Level 1 JPY000 Financial assets Equity instruments and investments in fund Other Total As at 1 April 2010 Level 1 JPY000 Financial assets Equity instruments and investments in fund Other Total Financial liabilities Other Total Level 2 JPY000 Level 3 JPY000 Total JPY000 Level 2 JPY000 Level 3 JPY000 Total JPY000
A reconciliation of financial instruments classified as Level 3 is as follows: For the years ended 31 March 2013 2012 2011 JPY000 JPY000 JPY000 93,157 98,173 108,014 149 (2,436) (4,467) 484 1,678 1,447 4,237 825 5,782 (10,854) (2,083) (11,103) (8,800) (3,000) (1,500) (13,442) 64,931 93,157 98,173
At 1 April Total gain (loss)* Purchases Acquisition of subsidiaries Sales Other Disposal of subsidiaries At 31 March
*
Gains and losses are included in the income statement and relate to financial assets measured at fair value through profit or loss. These gains and losses are included in Finance income and Finance costs.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
15. Impairment testing of goodwill Goodwill was recognised on business combinations; the transfer of the Elizea business and the acquisition of shares of Sial System Co., Ltd. The Group has allocated goodwill to two Cash Generating Units (CGU)s, the Elizea business and Sial System Co., Ltd. (Sial system), for the purposes of the goodwill impairment test. The Elizea business is operated by NT Solutions Co., Ltd. It comprises of sales, development and maintenance of package software for attendance control, and is included in the IT Solution segment. Sial System engages in designing, construction, administration and maintenance of networks, and also development of various systems, and is included in the IT Service segment. Carrying amount of goodwill allocated to each of the CGUs as at 31 March 2013, 2012, 2011 and 1 April 2010:
IT Service Sial System IT Solution Elizea business As at 1 April 2010 Total As at 1 April 2010 57,820
2013 57,820
2012 57,820
2011 57,820
2013
2012 57,820
2011 57,820
JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 JPY000 57,820 165,256
If there is any indication that the recoverable amount of the CGU, together with the allocated goodwill, declines below their carrying amounts, the Group recognises an impairment charge and reduces the recoverable amounts of the assets, reducing goodwill before other assets in the CGU are reduced. The Group performed its annual impairment test at 31 March 2013, 2012 and 2011 and did not recognise any impairment loss. Sial System The recoverable amount has been determined based on a value in use calculation using cash flow projections from forecasts approved by senior management, which are discounted by the pre-tax discount rate of the CGU of 12%. Cash flows beyond the forecasts period are estimated using a 0% growth rate. Elizea Business The recoverable amount has been determined based on a value in use calculation using cash flow projections from forecasts approved by senior management, which are discounted by the pre-tax discount rate of the CGU of 12% (2012: 11%, 2011: 10%). Cash flows beyond the forecasts period are estimated using a 0% growth rate.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Key assumptions used in value in use calculations The assumptions which has most impact to the calculation of value in use for impairment testing is as follows: Revenue Discount rates
Revenue Revenue is based on forecasts for the next three years for the Sial System and the following years forecasts for the Elizea business, which are achievable reasonable forecasts based on performance in prior reporting periods. The estimated growth rates of revenue for these businesses are as follows: Sial system 6%, 10% and 10% for the next three years and zero growth rate for period following the forecast period considering the actual growth rate of year 2013 and external factors on economy. Elizea Business 17% for the next year and zero growth rate for period following the forecast period considering the actual growth rate of year 2013 and external factors on economy. Discount rates Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration on the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its pre-tax weighted average cost of capital (WACC). Sensitivity to changes in assumptions With regard to the assessment of value in use of goodwill, sensitivity to changes in key assumptions is discussed below: Sial System With regard to the assessment of value in use of goodwill of Sial System, with all other assumptions held constant, if the growth rate of revenue in the forecasts period falls by around 3%, then the Group may have an impairment. With regard to the assessment of value in use of goodwill of the Sial System, with all other assumptions held constant, if the discount rate rises by around 4%, then the Group may have an impairment. Elizea Business Management believes that no reasonably possible change in any of the key assumptions would cause the carrying value of goodwill to materially exceed its recoverable amount. A-51
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
16. Inventories Inventories as at 31 March 2013, 2012, 2011, and 1 April 2010 are as follows: As at 1 April 2010 JPY000 5,938 29,128 35,066
During 2013, JPY402,000 (2012: JPY257,000, 2011: JPY12,000,000) was recognised as cost of sales. 17. Trade and other receivables (current) Trade and other receivables (current) as at 31 March 2013, 2012, 2011, and 1 April 2010 are as follows:
2013 JPY000 Notes receivable Accounts receivable Other receivable Allowance for doubtful accounts 2,857 1,102,548 4,712 (5,255) 1,104,862
Trade receivables are non-interest bearing and are generally on terms of 1 to 3 months. Trade and other receivables are classified as financial assets measured at amortized cost.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
18. Other assets The breakdown of Other current assets and Other non-current assets as at 31 March 2013, 2012, 2011 and 1 April 2010 is as follows: As at 1 April 2010 JPY000 39,518 35,258 29,909 104,685 104,685 104,685
2013 JPY000 Prepaid expenses Consumption tax receivables Other 33,159 203 2,819 36,181 Non-current assets Current assets 230 35,951 36,181 19. Cash and short-term deposits
Cash and short-term deposits as at 31 March 2013, 2012, 2011 and 1 April 2010 are as follows: As at 1 April 2010 JPY000 531,607 531,607
Cash at banks and short-term deposits earn interest at floating rates based on daily bank deposit rates and at fixed rates. They vary depending on the immediate cash requirements of the Group, and earn interest at the respective rates. Cash and short-term deposits are classified as financial assets measured at amortised cost. For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 31 March: As at 1 April 2010 JPY000 531,607 531,607
Cash at banks and on hand Short-term deposits Cash and cash equivalents
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
20. Issued capital and Capital surplus Ordinary shares authorised and issued and fully paid The number of authorised and issued shares and the amount of issued capital as 31 March 2013, 2012, 2011 and 1 April 2010 is as follows: Ordinary shares Issued Share 30,553 30,553 30,553 30,553
Authorised Share At 1 April 2010 At 31 March 2011 At 31 March 2012 At 31 March 2013 100,000 100,000 100,000 100,000
All the issued shares are non-par value ordinary shares with no right restrictions. Capital surplus as at 31 March 2013, 2012, 2011 and 1 April 2010 is as follows: Capital reserves JPY000 683,745 (350,000) 333,745 333,745 333,745 Other Capital surplus JPY000 400,000 350,000 750,000 750,000 750,000 Total capital surplus JPY000 1,083,745 1,083,745 1,083,745 1,083,745
At 1 April 2010 Transfer from Capital reserves to other capital surplus At 31 March 2011 At 31 March 2012 At 31 March 2013
Under the Japan Companies Act, in principle, at least 50% of the proceeds of certain issues of ordinary shares is credited to Issued capital, and the remainder of such proceeds is credited to Capital reserves. Other Capital surplus arises due to the transfer from Capital reserves on approval at a meeting of the shareholders. Other Capital surplus is distributable. In addition, the Japan Companies Act requires that on payment of a dividend, 10% of the amount paid be transferred to certain reserves until those reserves equal 25% of Issued capital. The above Capital reserves balance satisfies that requirement and consequently, the entire amount of Other Capital surplus, after considering the impact of treasury shares, represents distributable reserves.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Treasury shares Number of shares Share At 1 April 2010 At 31 March 2011 Increase on 25 April 2011 due to purchase of treasury shares At 31 March 2012 At 31 March 2013 1,856 1,856 Amount JPY000 141,011 141,011
Effective on 16 May 2013, the Group resolved a stock split at the ratio of 3,000 shares to one share at the board of director meeting held on 23 April 2013, and please refer to Note 11 for the summary of the effect of the stock split. Other components of equity Share options The Company adopts share option plans and recognises the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to Note 24 for further details of these plans. Exchange differences on translation of foreign operations This is the foreign currency translation difference that occurs when consolidating financial statements of a foreign subsidiary prepared in a foreign currency. 21. Dividends paid and proposed No dividends have been paid or proposed in any of the years ended 31 March 2013, 2012 and 2011.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
22. Provisions Asset retirement provisions JPY000 35,064 2,713 6,643 651 45,071
At 1 April 2010 Acquisition of a subsidiary (Note 5) Arising during the year Interest cost associated with passage of time Utilised Unused amounts reversed At 31 March 2011 Arising during the year Interest cost associated with passage of time Utilised Unused amounts reversed At 31 March 2012 Acquisition of a subsidiary (Note 5) Arising during the year Interest cost associated with passage of time Disposal of subsidiaries Utilised Unused amounts reversed At 31 March 2013 Non-current Current At 1 April 2010 Non-current Current At 31 March 2011 Non-current Current At 31 March 2012 Non-current Current At 31 March 2013
Other JPY000 8,429 254 (3,658) (2,858) 2,167 1,874 (254) 3,787 9 (1,297) (174) 2,325 8,429 8,429 2,167 2,167 3,787 3,787 2,325 2,325
Total JPY000 43,493 2,713 6,897 651 (3,658) (2,858) 47,238 1,874 784 (750) (254) 48,892 1,617 1,516 759 (5,590) (1,297) (174) 45,723 35,064 8,429 43,493 45,071 2,167 47,238 45,105 3,787 48,892 43,398 2,325 45,723
784 (750) 45,105 1,617 1,507 759 (5,590) 43,398 35,064 35,064 45,071 45,071 45,105 45,105 43,398 43,398
A-56
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
23. Government grants 2013 JPY000 At 1 April Received during the years Released to the income statement during the years as follows: Cost of sales Selling, general and administrative expenses Other operating income At 31 March 1,524 6,982 6,780 22,400 14 9,981 114,213 3,195 15,286 2012 JPY000 32,395 2011 JPY000 117,408
Government grants have been received mainly as compensation to maintain employment and as incentives for employees training and hiring. The Group records certain government grants in other operating income; however, if the grants have specific characteristics of cost compensation, they are deducted from the related expenses within cost of sales and selling, general and administrative expenses. There are no unfulfilled conditions or contingencies attached to these grants. 24. Share-based payments Under the Companys share option plans, share options are granted by resolution of the Board of Directors based on the approval at the Annual Shareholders Meeting. The contractual life of the share options is defined in the allotment contract and the share options can be exercisable within the contractual life. The contractual life of the share options is ten years from the date of grant and the share options vest if and when the employees remain employed in principle two years from the date of grant. One ordinary share is allocated to one subscription right to shares. All share options are granted with the exercise price of JPY75,000. The expense recognised for employee services received during the year is shown in the following table: For the years ended 31 March 2013 2012 2011 JPY000 JPY000 JPY000 Expense arising from equity-settled sharebased payment transactions Total expense arising from share-based payment transactions 24,597 24,597 7,900 7,900
There were no cancellations or modifications to the awards in 2013, 2012 or 2011. A-57
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Movements during the year The following table illustrates the number of, and movements in, share options during the year: 2013 Share Outstanding at 1 April Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at 31 March Exercisable at 31 March 6,237 (50) 6,187 275 2012 Share 7,930 6,037 (7,730) 6,237 275 2011 Share 7,930 7,930 4,912
In principle share options are forfeited when a holder of a subscription right to shares leaves the Company. The weighted average remaining contractual life for the share options outstanding as at 31 March 2013 was 8.30 years (2012: 9.30 years, 2011: 5.58 years). The fair value of share options granted during the year is JPY8,335 (2012). Fair value of share options is measured using the black-scholes model based on the following assumptions: 2012 Expected dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected exercise period (years) Fair value of ordinary shares (JPY) 3.35 27.53 0.125 2 73,581
The expected life of the share options is based on current expectations and is not necessarily indicative of exercise patterns that may occur. The expected dividend yield and expected volatility reflect those of similar industries, which may not necessarily be the actual outcome. Stock options to which IFRS 2 is not applied The following are details of the stock options vested before 1 April 2010, the date of transition to IFRSs, resulting in IFRS 2 not being applied; Number of shares 4,000 3,580 Exercise price JPY 75,000 75,000 Fair value at grant date JPY 9,127 9,211
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Effective on 16 May 2013, the Group resolved a stock split at the ratio of 3,000 shares to one share at the board of director meeting held on 23 April 2013. Following the allotment contract of the stock option, the allotted common shares per one subscription right and the exercise price is adjusted to 3,000 shares and JPY25, respectively. The summary of the stock split is shown in Note 11. 25. Trade and other payables (current) Trade and other payables (current) as at 31 March 2013, 2012, 2011, and 1 April 2010 are as follows: As at 1 April 2010 JPY000 83,636 40,125 123,761
Trade payables are non-interest bearing and are settled on approximately 1 to 2 month terms. Trade and other payables are classified as financial liabilities measured at amortised cost. 26. Other liabilities The breakdown of Other current liabilities and Other non-current liabilities as at 31 March 2013, 2012, 2011 and 1 April 2010 is as follows: As at 1 April 2010 JPY000 216,652 246,334 31,572 17,526 45,630 71,114 17,842 646,670 18,364 628,306 646,670
2013 JPY000 Accrued salaries and bonuses Unused vacation accrual Deposits received Consumption tax payables Accrued expenses Unearned revenue Other 377,767 360,719 59,316 71,733 108,760 26,222 16,598 1,021,115 Non-current liabilities Current liabilities 17,199 1,003,916 1,021,115
2012 JPY000 312,106 344,106 62,890 78,215 92,743 87,632 61,549 1,039,241 29,672 1,009,569 1,039,241
2011 JPY000 283,914 289,136 54,448 61,071 58,704 88,651 38,512 874,436 40,307 834,129 874,436
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
27. Proceeds from disposal of subsidiaries FA Service Corporation and its subsidiary, LATEC Corporation, were disposed in the year ended 31 March 2013 (Note 10). 2013 JPY000 Consideration received Cash and cash equivalents Assets and liabilities transferred Non-current assets Current assets Non-current liabilities Current liabilities Gain on disposal of subsidiaries Net cash and cash equivalents received Consideration transferred Cash and cash equivalents balances possessed by the company transferred Proceeds from disposal of subsidiaries 28. Related party disclosures Xyec Holdings Co., Ltd. is the ultimate parent of the Group based in Japan. The consolidated financial statements of the Group include the subsidiaries listed in the below table: % equity interest at 31 March Company name Kowamex Co., Ltd. Neutral Co., Ltd. ACLOX Co., Ltd. NT Solutions Co., Ltd. NIHON UNITEC Co., Ltd. em-kei Co., Ltd. Sial System Co., Ltd. Kowamex(Thailand) CO., LTD Xyec Rays Solution Co., Ltd. FA Service Corporation LATEC Corporation Country of incorporation Japan Japan Japan Japan Japan Japan Japan Thailand Japan Japan Japan 2013 100.0 100.0 100.0 100.0 100.0 100.0 100.0 49.0 2012 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 2011 100.0 100.0 100.0 100.0 100.0 97.5 100.0 100.0 652,297 (139,961) (315,235) 22,621 389,340 609,062
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
The Company acquired 100% of the voting shares of NIHON UNITEC Co., Ltd. on 31 March 2011. The Xyec Rays Solution Co., Ltd. was approved to be dissolved on 9 February 2011, and liquidation procedures were filed under the Japan Companies Act. Such liquidation procedures are carried out under the supervision of the court. As a result, the Company lost control, and accordingly excluded the subsidiary from its consolidated financial statements. The liquidation procedures were completed in the year ended 31 March 2012. The Company acquired 100% of the voting shares of em-kei Co., Ltd. on 1 April 2011. The Company acquired 100% of the voting shares of Sial System Co., Ltd. on 28 December 2012. The Company disposed all the shares of a subsidiary, FA Service Corporation, on 30 September 2012. The Group also lost control over its subsidiary, LATEC Corporation. Subsequent to the disposal, a Group loan of JPY207,500,000 was repaid and no balance remains outstanding as at 31 March 2013. Kowamex Co., Ltd., a wholly owned subsidiary of the Company, established Kowamex (Thailand) CO., LTD. on 22 June 2012. The Company has substantial control through its 49% ownership of voting stock and through its executives who are directors, involved in management decisions. The accounts of Kowamex (Thailand) CO., LTD have been included in the consolidated financial statements of the Group, as in substance, the Companys approval is necessary for the major decisions of Kowamex (Thailand) CO., LTD. Transactions with related parties are as follows: At 31 March 2011, a loan, which was provided to Xyec Rays Solution Co., Ltd., prior to deconsolidation, of JPY84,898,000 was outstanding together with a corresponding allowance for doubtful debts of JPY74,200,000. During the year ended 31 March 2011, interest income of JPY195,000 was recorded. Repayment of JPY11,623,000 was received in the year ended 31 March 2012 and offset against any remaining balance. Compensation of key management personnel of the Group Compensation of key management personnel of the Group for the years ended 31 March 2013, 2012 and 2011 is as follows: 2013 JPY000 Remuneration Share-based payment transactions Total compensation to key management personnel 58,928 5,764 2012 JPY000 31,028 1,868 2011 JPY000 26,078
64,692
32,896
26,078
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
29. Commitments and contingencies Operating lease commitments Group as lessee The Group has entered into operating leases for motor vehicles, buildings and land. These leases have a life of between two and five years for motor vehicles and buildings, and 15 years for land with no renewal option included in the contracts. There are no restrictions placed upon the Group by entering into these leases. Future minimum rentals payable under non-cancellable operating leases as at 31 March are, as follows: As at 1 April 2010 JPY000 33,382 59,867 11,610 104,859
2013 JPY000 Within one year After one year but not more than five years More than five years 58,532 34,923 6,286 99,741 Finance lease
The Group has finance leases for various items of equipment and machinery. These leases have terms of renewal, but no purchase options and escalation clauses. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: For the year ended 31 March 2013 Present value of payments (Note 14) JPY000 3,380 4,399 7,779 7,779
Minimum payments JPY000 Within one year After one year but not more than five years More than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments 3,495 4,471 7,966 (187) 7,779
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
For the year ended 31 March 2012 Present value of payments (Note 14) JPY000 6,586 14,858 150 21,594 21,594
Minimum payments JPY000 Within one year After one year but not more than five years More than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments For the year ended 31 March 2011 6,911 15,173 152 22,236 (642) 21,594
Minimum payments JPY000 Within one year After one year but not more than five years More than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments At 1 April 2010 10,246 19,313 29,559 (884) 28,675
Present value of payments (Note 14) JPY000 9,857 18,818 28,675 28,675
Minimum payments JPY000 Within one year After one year but not more than five years More than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments 20,262 14,458 34,720 (724) 33,996
Present value of payments (Note 14) JPY000 19,902 14,094 33,996 33,996
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
30. Financial risk management objectives and policies The Group is exposed to credit risk, market risk, which consists of interest rate, equity price and foreign currency risk, and liquidity risk in the course of business. To minimize these risks, the Group carries out the management of the risks by establishing certain policies. In order for financial risks to be efficiently managed, the Company raises necessary funds (mainly by bank borrowings) and obtains working capital for the entire Group. The Groups investing activities, including temporary excess funds, are governed by the Investment Management Guidelines and carried out in accordance with the Groups policies. It is the Groups policy that no trading, including derivatives, for speculative purposes shall be undertaken and it can make long-term investments only for capital investments in accordance with business strategy. Credit Risk Receivables, such as trade receivables, from operating activities are exposed to customer credit risk. The Group sets credit lines with respect to trade receivables based on the Credit Management Guidelines to manage contracts and outstanding balances. In order to reduce risk of default, the Group regularly monitors the status of each customer. With regard to trade receivables of significant consolidated subsidiaries, the Group monitors them according to the Credit Management Guidelines of the Company. An analysis of the age of financial assets that are past due but not impaired as at 31 March 2013, 2012, 2011 and 1 April 2010 is as follows:
Amount past due Over Over 60 days, 30 days, within within Within 90 days 60 days 30 days JPY000 JPY000 JPY000 8,470 2,406
2012
30,353
17,325
3,832
1,150
8,046
2011
7,122
1,153
853
5,116
At 1 April 2010
47,700
35,267
12,211
222
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
The Group reviews collectability of trade and other receivables depending on the credit conditions of counterparties and recognises an allowance for doubtful accounts. The schedule of the allowance of doubtful accounts is as follows: 2013 JPY000 At 1 April Charge for the year Utilised Unused amounts reversed Other At 31 March 7,607 7,859 (2,658) 12,808 2012 JPY000 84,960 (73,348) (4,443) 438 7,607 2011 JPY000 8,560 76,285 115 84,960
The Group recognised an allowance for doubtful accounts on loans receivable from the subsidiary, Xyec Rays Solution Co., Ltd., as the Group decided to dissolve the subsidiary and filed special liquidation procedures during the year ended 31 March 2011. The special liquidation was completed and the bad debt was written off in the year ended 31 March 2012, which caused the decrease in the allowance for doubtful accounts. Interest rate risk Interest rate risk of the Group is the risk of changes in market interest rates relating to interest-bearing debts. Interest-bearing debts mainly consist of fixed rates borrowings, and therefore, interest rate risk is not significant, but the Group is exposed to interest rate fluctuation risk in refinancing short-term borrowings or new borrowings. Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates on such short-term borrowings or new borrowings. With all other variables held constant, if the interest rates increase by 100 bp, the impact on profit before tax in the consolidated income statement for the years ended 31 March 2013, 2012 and 2011 would be as follows: 2013 JPY000 Profit before tax for continuing operations (8,684) 2012 JPY000 (9,689) 2011 JPY000 (10,316)
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Foreign currency risk The Group operates certain businesses outside Japan and has an overseas subsidiary. At the reporting date, foreign currency risk is not significant, but the Group is exposed to the risks due to foreign exchange fluctuation when the equity and/or the profit or loss denominated in each functional currency of overseas subsidiary are translated into Japanese yen and consolidated. Foreign currency sensitivity If the currency of the overseas subsidiary (Thai baht) increases by 10% in value against the functional currency of the Company, the impact on profit before tax from continuing operations and equity of the Group would be as follows: (based on the assumption that currencies other than the currencies used for the calculation do not fluctuate). As at/for the years ended 31 March 2013 2012 2011 JPY000 JPY000 JPY000 Profit before tax for continuing operations Equity 1,429 1,108
The Group founded its overseas subsidiary in the year ended 31 March 2013, and risks due to foreign exchange fluctuation prior to the establishment of the overseas subsidiary was negligible, thus the impact is not included in the above table. Equity price risk The Groups equity instruments and investments in fund are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group manages the equity price risk by establishing and complying with policy and procedures on trading. It is the Groups policies that no trading, including derivatives, for speculative purposes shall be undertaken and long-term investments are made only for capital investments in accordance with business strategy. The ratio of equity instruments and investments in fund divided by total assets as at 31 March 2013, 2012 2011 and 1 April 2010, is as follows: As at 1 April 2010 JPY000 72,733 2,601,460 2.8%
2013 JPY000 Equity instruments and investments in fund Total assets Ratio 43,649 4,140,327 1.1%
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Liquidity risk The Group raises funds mainly through borrowings; however, these liabilities are exposed to the liquidity risk that repayment would not be able to be made on the due date due to a shortage of funds or a deterioration of the financing environment. The Company establishes a finance plan by centralizing control over the entire funds of the Group and monitoring the balance of liquidity-in-hand and interest-bearing debt. In addition, the Group keeps necessary credit facilities to manage liquidity risk by having bank overdrafts with financial institutions, on the other hand, it raises certain funds by long-term borrowings to maintain a balance between short-term funds and long-term funds. The table below summarises the maturity profile of the Groups financial liabilities based on contractual undiscounted payments.
Due after Due after Due after Due after one year two years three years four years through through through through two years three years four years five years JPY000 59,280 2,056 61,336 JPY000 53,640 1,621 55,261 JPY000 26,320 724 27,044 JPY000 70 70
Year ended 31 March 2013 Trade and other payables Interest-bearing borrowings Obligations under finance leases Other financial liabilities
Year ended 31 March 2012 Trade and other payables Interest-bearing borrowings Obligations under finance leases Other financial liabilities
Due after Due after Due after Due after one year two years three years four years through through through through two years three years four years five years JPY000 268 2,856 6,584 9,708 JPY000 1,436 5,178 6,614 JPY000 2,680 2,680 JPY000 731 731
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Due after Due after Due after Due after one year two years three years four years through through through through two years three years four years five years JPY000 37,374 6,679 44,053 JPY000 2,856 6,597 9,453 JPY000 1,436 4,558 5,994 JPY000 1,479 1,479
Year ended 31 March 2011 Trade and other payables Interest-bearing borrowings Obligations under finance leases
Year ended 1 April 2010 Trade and other payables Interest-bearing borrowings Obligations under finance leases Other financial liabilities
Due within one year JPY000 123,761 1,020,000 20,262 105 1,164,128
Due after Due after Due after Due after one year two years three years four years through through through through two years three years four years five years JPY000 30,000 7,188 37,188 JPY000 30,000 3,621 33,621 JPY000 2,844 2,844 JPY000 805 805
Capital management The primary objective of the Groups capital management is to ensure that it maintains a strong credit and healthy capital ratios to support its business and maximise the shareholders value. The Group monitors capital mainly focusing on interest-bearing debt (net of cash and short-term deposits) and equity as at 31 March 2013, 2012, 2011 and 1 April 2010, which are as follows: As at 1 April 2010 JPY000 1,113,033 (531,607) 581,426 662,215
2013 JPY000 Interest-bearing debt (Note 14.2) Less: cash and short-term deposits (Note 19) Net financial position Equity 1,008,678 (2,079,585) (1,070,907) 1,436,196
The Group is not subject to any capital control from third parties at 31 March 2013. A-68
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
31. Events after the reporting period The Group has announced a Board of Directors resolution on 23 April 2013 for a stock split and the adoption of a share unit system as follows. (1) Stock split Ordinary shares held by shareholders listed in the final registry of shareholders as of the record date of 15 May 2013 have been split at a ratio of 3,000 shares to one share effective on 16 May 2013. Increase in shares resulting from the stock split Total number of shares issued prior to the share split: Number of shares to be increased resulting from the share split: Total number of shares issued following the share split: Total number of authorised shares following the share split: (2) Adoption of a share unit system The Group has adopted a share unit system, which sets a share trading unit to 1,000 shares, effective on 16 May 2013. (3) Retrospective adjustment of earnings per share Earnings per share have been calculated retrospectively taking into consideration the above stock split and is disclosed in the consolidated income statement, the discontinued operations (Note 10), and the earnings per share (Note 11). 32. First-time Adoption of International Financial Reporting Standards These financial statements are the first the Group has prepared in accordance with IFRS. In preparing these financial statements, the Groups opening statement of financial position was prepared as at 1 April 2010. Reconciliations that are required to be disclosed on the first-time adoption of IFRS are as follows. Items that do not influence retained earnings and comprehensive income are included in Reclassification of the reconciliation, and items that influence retained earnings and comprehensive income are included in Differences in recognition and measurement. 30,553 shares (including treasury shares) 91,628,447 shares 91,659,000 shares (including treasury shares) 300,000,000 shares
A-69
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Exemptions applied IFRS 1 allows first-time adopters certain exemptions from the retrospective application of certain requirements under IFRS. The Group has applied the following exemptions: IFRS 3 Business Combinations has not been applied to acquisitions and other acquisitions, which are considered businesses for IFRS, or of interests in associates and joint ventures that occurred before 1 April 2010. Use of this exemption means that the Japanese GAAP carrying amounts of assets and liabilities, that are required to be recognised under IFRS, is their deemed cost at the date of the acquisition. After the date of the acquisition, measurement is in accordance with IFRS. Assets and liabilities that do not qualify for recognition under IFRS are excluded from the opening IFRS statement of financial position. The Group did not recognise or exclude any previously recognised amounts as a result of IFRS recognition requirements. IFRS 1 also requires that the Japanese GAAP carrying amount of goodwill must be used in the opening IFRS statement of financial position (apart from adjustments for goodwill impairment and recognition or derecognition of intangible assets). In accordance with IFRS 1, the Group has tested goodwill for impairment at the date of transition to IFRS. No goodwill impairment was deemed necessary at 1 April 2010. IFRS 2 Share-based Payment has not been applied to equity instruments in share-based payment transactions that were granted on or before 7 November 2002, nor has it been applied to equity instruments granted after 7 November 2002 that vested before 1 April 2010. Reconciliation of equity as of 1 April 2010 (the date of transition to IFRS)
Differences in recognition Japanese Reclassification and GAAP (5) measurement JPY000 Assets Current assets Cash and Deposits Note and account receivables-trade Merchandise and finished goods Raw materials and supplies Work in progress 531,607 992,776 29,128 5,938 9,502 33,371 5,938 (5,938) 15,151 11,724 (9,502) 531,607 1,037,871 35,066 15,151 (1) JPY000 JPY000
IFRS JPY000
Notes
Accounts under IFRS Assets Current assets Cash and short-term deposits Trade and other receivables Inventories
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Differences in recognition Japanese Reclassification and GAAP (5) measurement JPY000 Other (current assets) Deferred tax assets Allowance for doubtful accounts Total current assets Non-current assets Property, plant and equipment Goodwill Intangible fixed assets Investment securities Deposits Other (investments and other assets) Deferred tax assets Allowance for doubtful accounts Total non-current assets Total assets 161,766 77,530 (8,559) 1,799,688 JPY000 (57,081) (177,457) 8,559 (177,457) JPY000 99,927 102,149
Notes
196,617 57,820 111,922 78,181 166,195 22,650 15,302 (221) 648,466 2,448,154
(2)
Total current assets Non-current assets Property, plant and equipment Goodwill Intangible assets
Total non-current assets Total assets Equity and liabilities Liabilities Current liabilities Trade and other payables Borrowings Other current financial liabilities Other current liabilities Income tax payable (1) Provisions
Liabilities Current liabilities Note and account payables-trade Short-term loans payable Lease obligations Other (current liabilities) Income tax payables Provisions (current liabilities) Deferred tax liabilities Total current liabilities Non-current liabilities Long-term loans payable Lease obligations
Total current liabilities Non-current liabilities Borrowings Other non-current financial liabilities
60,000 5,874
4,047
3,865
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Differences in recognition Japanese Reclassification and GAAP (5) measurement JPY000 Provisions (noncurrent liabilities) Other (non-current liabilities) Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Capital stock Capital surplus Treasury stock Retained earnings Valuation and translation adjustments 2,525 12,171 80,570 1,635,226 396,900 1,083,745 (141,011) (525,541) JPY000 (2,525) 6,193 (18,927) (11,212) (18,991) JPY000 35,064 19,305 58,234 323,812 (151,878)
IFRS JPY000 35,064 18,364 378 127,592 1,940,047 396,900 1,083,745 (141,011) (677,419)
Notes
(2)
Provisions Other non-current liabilities Deferred tax liabilities Total non-current liabilities Total liabilities Equity Issued capital Capital surplus Treasury shares Retained earnings
(4)
(1,165)
1,165
Equity attributable to equity holders of the parent Non-controlling interests Total equity Total equity and liabilities
(18,991)
Notes on Reconciliation (1 April 2010) Reconciling items from Japanese GAAP to IFRS mainly consist of: (1) Adjustment to Trade Receivables and Inventories Under Japanese GAAP the Group recognised revenue for certain services at the time of customer acceptance; however, under IFRS the Group recognises such revenue by reference to the stage of completion or cost recovery method. (2) Adjustment to Property, Plant and Equipment With regard to the depreciation method of property, plant and equipment (excluding leased assets), the Group mainly adopted the declining-balance method under Japanese GAAP, which was considered to be similar to the Corporate Tax Law; however, it has adopted the straight-line method under IFRS. The Group recognises leases and asset retirement provisions in accordance with the relevant IFRS, however under Japanese GAAP certain simplified methods were allowed.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
(3) Adjustment for Unused Vacation Accrual The Group recognises an unused vacation accrual, which was not required under Japanese GAAP, in liabilities under IFRS as an adjustment to retained earnings. (4) Adjustments to Retained Earnings At 1 April 2010 JPY000 (1) Adjustment to Trade Receivables and Inventories (2) Adjustment to Property, Plant and Equipment (3) Adjustment for Unused Vacation Accrual Other Subtotal Adjustment of tax effects Adjustment of Non-controlling interests Adjustment to retained earnings (5) Reclassification In addition to the above, the Group makes reclassifications to comply with the provisions of IFRS. The major reclassifications are as follows: all current portions of deferred tax assets and deferred tax liabilities under Japanese GAAP are reclassified as non-current. financial assets and financial liabilities are presented separately in accordance with IFRS. provisions are partially reclassified based on the definitions and requirements under IFRS. 2,439 5,945 (246,334) 949 (237,001) 84,321 802 (151,878)
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Reconciliation of equity as of 31 March 2012 (the date of latest consolidated financial statements under Japanese GAAP)
Differences in recognition Japanese Reclassification and GAAP (7) measurement JPY000 Assets Current assets Cash and Deposits Note and account receivables-trade Merchandise and finished goods Raw materials and supplies Work in progress Other (current assets) 1,139,499 1,205,931 17,794 2,776 39,244 61,293 Deferred tax assets Allowance for doubtful accounts Total current assets Non-current assets Property, plant and equipment Goodwill Intangible fixed assets 197,430 33,475 31,204 Investment securities Long-term loans receivable Other (investments and other assets) Deferred tax assets Allowance for doubtful accounts 61,102 5,000 146,048 29,505 (2,137) 679 (62,182) (5,000) 64,366 210,042 2,137 53,133 24,345 (1,277) 1,080 14,683 14,245 6,817 250,563 57,820 29,927 679 239,342 246,364 Total non-current assets Total assets Equity and liabilities (2) Other non-current financial assets Deferred tax assets (2) (3) 104,872 (7,607) 2,563,802 (5,365) 2,776 (2,776) 834 (6,536) 3,460 (235,291) 7,607 (235,291) 46,731 (39,244) 130,419 137,906 1,139,499 1,247,297 20,570 834 54,757 3,460 2,466,417 Total current assets Non-current assets Property, plant and equipment Goodwill Intangible assets Other non-current assets (1) Income tax receivable Other current assets Other current financial assets (1) JPY000 JPY000
IFRS JPY000
Accounts under Notes IFRS Assets Current assets Cash and short-term deposits Trade and other receivables Inventories
501,627 3,065,429
210,042 (25,249)
113,026 250,932
824,695 3,291,112
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Differences in recognition Japanese Reclassification and GAAP (7) measurement JPY000 Liabilities Current liabilities Note and account payables-trade Short-term loans payable Lease obligations Other (current liabilities) Income tax payables Provisions (current liabilities) Total current liabilities Non-current liabilities Long-term loans payable Lease obligations Provisions (non-current liabilities) Other (non-current liabilities) Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Capital stock Capital surplus Treasury stock Retained earnings 396,900 1,083,745 (161,703) (121,519) Valuation and translation adjustments (5,250) (198,015) 7,900 5,250 396,900 1,083,745 (161,703) (319,534) 7,900 Equity attributable to equity holders of the parent Total equity Total equity and liabilities (6) (5) 4,292 6,427 8,791 21,008 650 (3,654) 8,664 (25,249) 8,325 39,968 24,774 4,292 14,752 45,105 29,672 175 (2) (2) 67,460 937,374 3,093 522,979 67,331 233,851 1,832,088 98,264 55 126,430 (229,759) (5,010) 2,875 344,107 16,053 (305) 362,730 165,724 937,374 6,023 1,009,569 67,331 3,787 2,189,808 (1) (2) (4) JPY000 JPY000
IFRS JPY000
Accounts under Notes IFRS Liabilities Current liabilities Trade and other payables Borrowings Other current financial liabilities Other current liabilities Income tax payable Provisions Total current liabilities Non-current liabilities Borrowings Other non-current financial liabilities Provisions Other non-current liabilities Deferred tax liabilities Total non-current liabilities Total liabilities Equity Issued capital Capital surplus Treasury shares Retained earnings Other components of equity
41,168 1,873,256
(20,239) (25,249)
73,067 435,797
93,996 2,283,804
1,192,173 Total net assets Total liabilities and net assets 1,192,173
(184,865) (184,865)
1,007,308 1,007,308
3,065,429
(25,249)
250,932
3,291,112
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Notes on Reconciliation (31 March 2012) Reconciling items from Japanese GAAP to IFRS mainly consist of: (1) Adjustment to Trade Receivables and Inventories Under Japanese GAAP the Group recognised revenue for certain services at the time of customer acceptance; however, under IFRS the Group recognises such revenue by reference to the stage of completion or cost recovery method. (2) Adjustment to Property, Plant and Equipment With regard to the depreciation method of property, plant and equipment (excluding leased assets), the Group mainly adopted the declining-balance method under Japanese GAAP, which was considered to be similar to the Corporate Tax Law; however, it has adopted the straight-line method under IFRS. Under IFRS the Group recognises by the method in principle about the lease and asset retirement provisions to which simple processing was accepted under the Japanese GAPP. (3) Adjustment to Amortisation of Goodwill Under Japanese GAAP, the Group estimated the amortisation period and goodwill was amortised over that period; however, since goodwill is not amortised under IFRS, adjustments to reverse goodwill amortisation are made to retained earnings. (4) Adjustment for Unused Vacation Accrual The Group recognises an unused vacation accrual, which was not required under Japanese GAAP, in liabilities under IFRS as an adjustment to retained earnings. (5) Adjustments to Share-based payments Under Japanese GAAP, for unlisted companies, share options need not be recognised where the exercise price is higher than the fair value of the Companys share as at grant date. Share options are measured at fair value and recognised as Share options in equity under IFRS.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
(6) Adjustments to Retained Earnings At 31 March 2012 JPY000 (1) Adjustment to Trade Receivables and Inventories (2) Adjustment to Property, Plant and Equipment (3) Adjustment to Amortisation of Goodwill (4) Adjustments to Unused Vacation Accrual (5) Adjustments to Share-based payments Other Subtotal Adjustment of tax effects Adjustment to Retained Earnings (7) Reclassification In addition to the above, the Group makes reclassifications to conform with IFRS. The major reclassifications are as follows: all current portions of deferred tax assets and deferred tax liabilities are reclassified to non-current portions. financial assets and financial liabilities are presented separately in accordance with IFRS. provisions are partially reclassified based on the definitions and requirements under IFRS. 7,792 16,648 24,345 (344,107) (7,900) (7,255) (310,477) 112,462 (198,015)
A-77
APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Adjustment to profit or loss and comprehensive income (For the year ended 31 March 2012) (the latest year of consolidated financial statements prepared under Japanese GAAP)
Accounts under Japanese GAAP Japanese GAAP JPY000 Consolidated income statement Net sales Cost of sales Gross profit 6,466,574 (4,889,832) 1,576,742 (14,859) (14,859) 18,027 Selling, general and administrative expenses (885,296) 530,058 (355,238) (233) 1,313 (45,834) (44,521) (169) 5,582,591 (1) Discontinued operations JPY000 Differences in recognition and measurement JPY000 Accounts under Notes IFRS
Reclassification JPY000
IFRS JPY000
(4,420,467) (2), (3) Cost of sales 1,162,124 17,625 (3) Gross profit Other operating income
(1,225,920)
Selling, general and administrative expenses (941,313) (3), (4) (3,609) 234,827 2,676 (3) (3) (3) (3) (3) Finance income (3) Other operating expenses Operating profit
Operating income Non-operating income Non-operating expenses Extraordinary income Extraordinary loss
(14,516) (3), (5) Finance costs Profit before tax from continuing operations Income tax expense
Income before income taxes and minority interests Income taxes-current Income taxes-deferred Net profit for the year before minority shareholder profit or loss adjustment
17,462 (17,462)
222,987 (60,499)
251,961
(58,248)
(31,225)
162,488
Profit for the year from continuing operations Profit after tax for the year from discontinued operations Profit for the year
251,961
58,248
(31,225)
58,248 220,736
(6)
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
Accounts under Japanese GAAP Japanese GAAP JPY000 Consolidated statement of comprehensive income Other comprehensive income Valuation difference on available-for-sale securities Total other comprehensive income Discontinued operations JPY000 Differences in recognition and measurement JPY000 Accounts under Notes IFRS
Reclassification JPY000
IFRS JPY000
(2,333)
2,333
(2,333)
2,333
Comprehensive income
249,628
(28,892)
220,736
Notes on Reconciliation (Comprehensive Income for the year ended 31 March 2012) Reconciling items from Japanese GAAP to IFRS mainly consist of: (1) Adjustment to Revenue The Group recognised revenue for certain services at the time of customer acceptance under Japanese GAAP; however, under IFRS the Group recognises such revenue by reference to the stage of completion or cost recovery method. (2) Adjustment to Cost of Sales With regard to the depreciation method of property, plant and equipment (excluding leased assets), the Group mainly adopted the declining-balance method under Japanese GAAP, which was considered to be similar to the Corporate Tax Law; however, it has adopted the straight-line method under IFRS. In conjunction with revenue recognition for certain services at the time of customer acceptance, the Group recorded the related costs as inventories prior to customer acceptance under Japanese GAAP; however, under IFRS the Group recognises such expenses by reference to the stage of completion or cost recovery method. The Group recognises unused vacation accrual, which was not required under Japanese GAAP, in liabilities under IFRS and the adjustments are made to cost of sales.
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APPENDIX A INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF XYEC HOLDINGS CO., LTD. AND ITS SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 MARCH 2011, 2012 AND 2013
(3) Adjustment to Cost of Sales; Other Operating Income; Selling, General and Administrative Expenses; Finance Income and Finance Costs The Group presented non-operating income, non-operating expenses, extraordinary income, and extraordinary loss under Japanese GAAP. Under IFRS, the Group presents financial items as finance income or finance costs and other items as cost of sales, other operating income or selling, general and administrative expenses. (4) Adjustment to Selling, General and Administrative Expenses Under Japanese GAAP, the Group estimated the amortisation period and goodwill was amortised over that period; however, goodwill is not amortised under IFRS. The Group recognises unused vacation accrual, which was not required under Japanese GAAP, in liabilities under IFRS and the adjustments are made to selling, general and administrative expenses. Under Japanese GAAP, for unlisted companies, share options need not be recognised where the exercise price is higher than the fair value of the Companys share as at grant date. Share options are measured at fair value under IFRS. This fair value is expensed as selling, general and administrative expenses over the period until the vesting date. (5) Reconciliation of Finance Costs Lease payments apportioned to finance charges and changes in asset retirement provisions due to the passage of time were recognised in the cost of sales or selling, general and administrative expenses under Japanese GAAP; however, they are recognised in finance costs under IFRS. (6) Discontinued Operations A business is classified as discontinued operations and presented separately in the consolidated income statement under IFRS, which was not required under Japanese GAAP. Reconciliation of Cash Flows (for the year ended 31 March 2012) (the latest year of consolidated financial statements prepared under Japanese GAAP) There are no material differences between the consolidated statements of cash flows that are disclosed in accordance with Japanese GAAP and the consolidated statements of cash flows that are disclosed in accordance with IFRS.
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APPENDIX B COMPARISON BETWEEN SINGAPORE CORPORATE LAW AND JAPAN CORPORATE LAW
DIRECTORS POWER TO VOTE ON A PROPOSAL, ARRANGEMENT OR CONTRACT IN WHICH HE IS INTERESTED; CONFLICTS OF INTEREST AND OTHER TRANSACTIONS WITH DIRECTORS
1.1 Directors Disclosure of Interest in Contracts with the Issuer (Note: Unless otherwise stated, all articles below refer to those of the Japan Companies Act, regarding a stock corporation with a board of directors and a board of statutory auditors, like our Company.) Article 356 Article 365 Article 435 Every director of a company who is in any way interested in a transaction, shall disclose the material facts of the relevant transaction at a shareholders meeting and obtain the approval of the shareholders meeting if: (a) the director intends to carry out, for himself/herself or for a third party, any transactions in the line of the business of the company; the director intends to carry out any transactions with the company for himself/herself or for a third party, as a principal or as proxy; or the director intends to make the company guarantee his/her debts or otherwise carry out any transactions with a third party that results in a conflict of interests between the company and such director
Section 156 Every director of a company who is in any way, whether directly or indirectly, interested in a transaction or proposed transaction with the company shall, as soon as practicable after the relevant facts have come to his knowledge, declare the nature of his interest at a meeting of the directors of the company. Every director of a company who holds any office or possesses any property whereby whether directly or indirectly duties or interests might be created in conflict with his duties or interests as director shall declare at a meeting of the directors of the company the fact and the nature, character and extent of the conflict. An interest of a member of a directors family shall be treated as an interest of the director and the words member of a directors family shall include his spouse, son, adopted son, step-son, daughter, adopted daughter and step-daughter.
(b)
(c)
The transactions mentioned in (a) and (b) above are called Direct Conflict Transactions and those mentioned in (c) above are called Indirect Conflict Transactions (collectively Conflict Transactions). However, the above approval of Shareholders is not required for the following transactions: (a) transactions which do not adversely affect the company, such as loan from the Director to the company without any interest or security;
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APPENDIX B COMPARISON BETWEEN SINGAPORE CORPORATE LAW AND JAPAN CORPORATE LAW
(b)
transactions between the company and a shareholder of the company who holds all the shares of the company; or transactions between the company and a director of the company with the consent of all shareholders.
(c)
A company shall prepare financial statements and business reports for each business year as well as supplementary schedules thereof pursuant to the applicable ordinances. In the supplementary schedules, the details of Conflict Transactions executed in the manner mentioned above shall be included. 1.2 Interested Director Not to Participate or Vote in Boards Proceedings There is no such provision in the Singapore Companies Act. Article 369 Directors who have a special interest in the resolution may not participate in the vote. 1.3 Directors Fiduciary Duties and Conflicts of Interest Section 157 A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office. An officer or agent of a company shall not make improper use of any information acquired by virtue of his position as an officer or agent of the company to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the company. Every director by virtue of his office occupies a fiduciary position with respect to the company. The fiduciary relationship is similar to that of a principal and agent relationship. This relationship arises from the fact that a company being an artificial person can only act through the agency of natural persons, i.e., its individual directors and its board of directors, and it is the duty of the agents to act in the best interest of the company. Accordingly, a director is not permitted to place himself in a situation where his interests conflict with his duty. Duties are imposed upon any person who becomes a Article 330 Article 644 of Japanese Civil Code As a company delegates its powers to its directors, the directors owe a duty of care to act as a prudent manager. Article 354 The directors shall perform their duties for the company in a loyal manner and in compliance with the laws and regulations, the articles of incorporation, and the resolution of shareholders meetings. Some scholars argue that the above duty of loyalty under the Japan Companies Act is the same as the fiduciary duty under common law. According to a judicial precedent (the judgment of the Supreme Court of Japan as of 2 June 1970), such duty of loyalty is the same duty as the duty of care to act as a prudent manager. However, it is generally considered that such duty of care and duty of loyalty in Japan includes the duty not to prioritise ones benefit in a situation where ones interests conflict with that of the company.
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APPENDIX B COMPARISON BETWEEN SINGAPORE CORPORATE LAW AND JAPAN CORPORATE LAW
director of a company and breaches of these duties may lead to criminal or civil liabilities. Such duties are governed by statute and common law. Such duties include (without limitation) duties of care and skill and duties to act in good faith in the best interest of the company, as well as the statutory duty under the Singapore Companies Act to act honestly and to use reasonable diligence in the discharge of the duties of his office at all times. 1.4 Related Party Transactions The Singapore Companies Act does not impose compliance requirements relating to transactions with interested persons, which include directors of the issuer. The compliance requirements imposed on a company listed on the SGX-ST under the Listing Manual of the SGX-ST or the Catalist Rules (as the case may be), insofar as transactions with interested persons are concerned, apply to that company regardless of whether such company is incorporated in Singapore or elsewhere. 1.5 Loans to Directors Section 162 A company (other than an exempt private company) is prohibited from making a loan to a director of the company or a director of a related company (and to the spouse or natural, step or adopted children of any such director), and from giving a guarantee or providing any security in connection with such a loan, except in the following circumstances: (a) (subject to, inter alia , the approval of the company in a general meeting) the provision of funds to such a director to meet expenditure incurred or to be incurred for the purposes of the company or for the purpose of enabling him properly to perform his duties as an officer of the company; (subject to, inter alia , the approval of the company in a general meeting) a loan to a director in full time employment of the company or a related company for the There is no provision that prohibits the making of a loan by a company to a director of such company under the Japanese Companies Act. However, the approval of the board of directors for the following transactions must be obtained after disclosing them as set out in Section 1.1 above: (a) (b) loans to directors; loans to a company whose representative director is one of the directors of the company; or transactions with other companies in which a director of the company holds all the shares. Please see Articles 356, 365 and 435 of the Japan Companies Act described above regarding Directors Disclosure of Interest in Contracts with Issuer (Section 1.1).
(c)
(b)
Directors who have a special interest in the resolution may not participate in the vote as mentioned in Section 1.2 above. There is no regulation which specifically regulates loans to spouses and children of the
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purpose of purchasing or otherwise acquiring a home occupied or to be occupied by that director; however, not more than one such loan may be outstanding from the director at any one time; (c) any loan to a director in full time employment of the company or a related company pursuant to an employee loan scheme approved in a general meeting, provided the loan is in accordance with that scheme; or a loan made in the ordinary course of business by a company whose ordinary business includes the lending of money or the giving of guarantees in connection with loans made by other persons if the activities of that company are regulated by any written law relating to banking, finance companies or insurance or are subject to supervision by the Authority.
directors, and directors of related companies. However, if such loans fall under the category of Indirect Conflict Transactions, they shall be subject to the regulations as mentioned above.
(d)
For these purposes, a related company of a company means its holding company, its subsidiary and a subsidiary of its holding company. Section 163 A company (the first mentioned company) (other than an exempt private company) is also prohibited from making loans to connected persons or entering into any guarantee or providing any security in connection with a loan made to connected persons by a third-party. Connected persons of the first mentioned company include companies in which the director(s) (and his spouse or natural, step or adopted children) of the first mentioned company, individually or collectively, have an interest in 20.0% or more of the total number of equity shares in the other company (excluding treasury shares) (as determined in accordance with the Singapore Companies Act). This prohibition does not apply to: (a) anything done by a company where the other company is its subsidiary, holding company or a subsidiary of its holding company; or B-4
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(b)
a company whose ordinary business includes the lending of money or the giving of guarantees in connection with loans made by other persons, to anything done in the ordinary course of that business if the activities of that company are regulated by any written law relating to banking, finance companies or insurance or are subject to supervision by the Authority. DIRECTORS POWER TO VOTE ON REMUNERATION (INCLUDING PENSION OTHER BENEFITS) FOR HIMSELF OR FOR ANY OTHER DIRECTOR; AND WHETHER THE QUORUM AT A MEETING OF THE BOARD OF DIRECTORS MAY INCLUDE THE DIRECTOR WHOSE REMUNERATION IS THE SUBJECT OF THE VOTE
2.
2.1 Remuneration of Directors Section 169 A company shall not provide emoluments or improve emoluments for a director in respect of his office unless the provision has been approved by a resolution that is not related to other matters, and any resolution passed in breach of this provision is void. For this purpose, the term emoluments in relation to a director includes fees and percentages, expenses allowance in so far as those sums are charged to income tax in Singapore, contributions paid under a pension scheme, and any benefits received otherwise than in cash in respect of his services as a director. Any unlawful payment shall be deemed to have been received by the director on trust for the company. Article 361 The remuneration of the directors shall be fixed ((a) the total amount of remuneration; (b) the specific method for calculating the amount of remuneration; or (c) remuneration in other forms other than in monetary terms) by a shareholders resolution at a shareholders meeting unless prescribed by the articles of incorporation of the company. Remuneration referred to in this table means the financial benefits received from a company as consideration for the execution of duties, such as the pay and bonuses of the directors, contributions in kind such as company housing, the granting of rights to receive a retirement pension and make insurance claims, the granting of share options, and retirement allowance.
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3.
BORROWING POWERS EXERCISABLE BY DIRECTORS AND HOW SUCH POWERS MAY BE VARIED Article 362 The board of directors of a company shall decide on the execution of all the operations of the company. It may delegate such authority to a representative director(s) (and the representative director(s) can further delegate to other directors and employees), but it may not delegate authority on the following matters: (a) disposition and acquisition of important assets; borrowing of a significant amount; appointment and dismissal of managers ( shihainin ) and other important employees; establishment, change or abolishment of branch offices and other important organizations within the company; important matters relating to the offering of corporate bonds; matters relating systems; to internal control
There is no such provision in the Singapore Companies Act save that the business of a company shall be managed by or under the direction of the directors. The directors may exercise all the powers of a company except any power that the Singapore Companies Act or the memorandum and articles of the company require the company to exercise in general meeting. The articles of association of a company will usually include a provision that the directors may exercise all the powers of the company to borrow money and to mortgage or charge its undertaking, property, and uncalled capital, or any part thereof, and to issue debentures and other securities whether outright or as security for any debt, liability, or obligation of the company or of any third party.
(b) (c)
(d)
(e)
(f)
(g)
partial exemption from the liability of directors, statutory auditors, an accounting auditor and other officers (if any) under the Japan Companies Act; execution of any other business which is analogous to the matters mentioned above; and other matters stipulated as the authority of the board of directors under Japanese law.
(h)
(i)
In addition, the representative director(s) (and other directors and employees delegated by the representative director(s)) shall execute the regular operations of the company.
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4.
QUALIFICATION, APPOINTMENT AND RETIREMENT OR NON-RETIREMENT OF DIRECTORS UNDER AN AGE LIMIT REQUIREMENT Article 331 There is no limitation on the retirement age and nationality of directors. Provided, however, the following persons cannot act as directors: (a) a body corporate; an adult ward, a person under curatorship, or a person who is similarly treated under foreign laws and regulations; a person (i) to whom a penalty was imposed due to (1) violation of the provisions of the Japan Companies Act or the Act on General Incorporated Associations and General Incorporated Foundations; or (2) commission of certain crimes under the provisions of the Financial Instruments and Exchange Act or insolvency laws, such as the Bankruptcy Act; and (ii) for whom two years have not elapsed since the day on which the execution of the penalty was completed or no longer applied; and a person (i) who violated any laws and regulations (other than the above) and was sentenced to imprisonment or a more severe penalty and (ii)(1) who has not completed the execution of the sentence; or (2) to whom the sentence still applies (excluding persons for whom the execution of the sentence is suspended).
Section 145 Every company must have at least one director who is ordinarily resident in Singapore. Where the company has only one member, that sole director may also be the sole member of the company. No person other than a natural person who has attained the age of 18 years and who is otherwise of full legal capacity can be a director of a company. Section 153 Notwithstanding anything in the memorandum or articles of association, no person of or over the age of 70 years shall be appointed as a director of a public company or of a subsidiary of a public company, unless he has been appointed, re-appointed or authorised to continue in office as a director by an ordinary resolution passed at an annual general meeting of the company until the next annual general meeting of the company. The office of a director of a public company or of a subsidiary of a public company shall become vacant at the conclusion of the annual general meeting commencing next after he attains the age of 70 years. Subject to the provisions of the Singapore Companies Act, the articles of association of a company may also empower the board of directors to appoint any director to fill a casual vacancy or as an additional director.
(b)
(c)
(d)
Article 329 Directors shall be elected by an ordinary resolution at a shareholders meeting. At least one of the representative directors shall be a resident of Japan under the practice of the Japanese commercial registration.
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5.
NUMBER OF SHARES, IF ANY, REQUIRED FOR THE QUALIFICATION OF DIRECTOR Article 331 There is no specific provision which requires a director to hold a specified share qualification. However, a company, which is not a public company (hereinafter referred to as nonpublic company), may provide as a specific qualification in the articles of incorporation that directors shall be shareholders. A public Company means a company, under whose articles of incorporation, transfer of all or certain classes of shares are not limited (i.e. can be made without the approval of the board of directors in case of a company with a board of directors).
Section 147 Every director, who is by the articles of association, required to hold a specified share qualification and who is not already qualified, must obtain his qualification within two months after his appointment or such shorter period as is fixed by the articles of association. A director shall vacate his office if he has not within such period obtained such qualification or if after so obtaining it he ceases at any time to hold his qualification. Save as set out above, there is no specific provision under the Singapore Companies Act which requires a director to hold a specified share qualification. 6.
6.1 Disqualification of Directors Section 148 A person may not act as a director of any corporation if he is an undischarged bankrupt unless he has the leave of the Singapore High Court or a judge thereof or the written permission of the Official Assignee to do so. Section 154 A person who is convicted (whether in Singapore or elsewhere) of any offence involving fraud or dishonesty punishable with imprisonment for three months or more is subject to a disqualification order that the Singapore court may make. The court may also make a disqualification order in addition to any other sentence imposed where a person is convicted in Singapore of (a) any offence in connection with the formation or management of a corporation or (b) any offence under Section 157 or Section 339 (liability where proper accounts are not kept). Once a director receives a ruling to commence bankruptcy proceedings and is subject to an order for guardianship, the service agreement between the company and the director automatically terminates. However, a company may re-elect such a director because a ruling to commence bankruptcy proceedings is not a ground for disqualification. A director shall forfeit his position as a matter of course when he falls under any of the grounds stated in Article 331 above. Article 330 Article 653 of Japanese Civil Code
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A person may, subject to certain exceptions, also be disqualified from acting as a director by the Singapore courts for a period of three years if he is a director of a company which is ordered to be wound up by the Singapore courts on the ground that it is being used for purposes against national security or interest.
6.2 Resignation of Directors Section 145 A director of a company cannot resign or vacate his office unless there is remaining in the company at least one director who is ordinarily resident in Singapore, and any purported resignation or vacation of office in breach of this provision is deemed to be invalid. Subject to the provisions of the Singapore Companies Act, the articles of association of a company may provide that a directors resignation is effective by giving written notice to the company, unless the directors contract or the articles of association provide otherwise. 6.3 Removal of Directors Section 152 A director of a public company may be removed before the expiration of his period of office by an ordinary resolution (which requires special notice to be given in accordance with the provisions of the Singapore Companies Act) of the shareholders, notwithstanding anything in the memorandum or articles of association of that company or in any agreement between that company and the director, but where the director so removed was appointed to represent the interests of any particular class of shareholders or debenture holders, the resolution to remove him shall not take effect until his successor has been appointed. Subject to the provisions of the Singapore Companies Act, the articles of association of a company may prescribe the manner in which a director may be removed from office before the expiration of his term of office. Article 339 A director may be removed at any time for any reason by way of an ordinary resolution at a shareholders meeting. Such a director shall be entitled to demand damages arising from such removal from the company, except in cases where there are justifiable grounds for such removal. Article 330 Article 651 of Japanese Civil Code Article 346 A director may resign at any time at his/her own will. However, such a director cannot be exempted from obligations as a director until a newly elected director assumes his/her office. A Japan court may, in response to a petition by interested persons, elect a person who is to temporarily perform the duties of a director who has resigned.
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7.
7.1 Notice of Meetings and Business to be Concluded Thereat Section 177 Unless the articles of association provide for a longer period of notice, at least 14 days notice of each meeting must be given to every member entitled to attend and speak at the meetings, and 21 days notice for any meeting to pass a special resolution. An annual general meeting may be called at short notice with unanimous consent of all members entitled to attend and vote, and for any other meeting, with consent of a majority holding not less than 95.0% of the total voting rights of all the shareholders having a right to vote at that meeting. The method of service of notice is set out in the articles of association but in the event that the articles of association do not so provide, notice shall be served in the manner provided in Section 177(4) and in the Fourth Schedule of the Singapore Companies Act (i.e. sent personally or by post) and in the case of special business, the general nature of that business shall be given to such persons as are entitled to receive such notices from the company. All such notices must state members right to appoint a proxy. Article 299 In the case of a public company, the directors shall dispatch a notice in writing to shareholders to convene a shareholders meeting, no later than two weeks prior to the day of the shareholders meeting. (This does not mean that such notice should reach each shareholder within two weeks prior to the day of the shareholders meeting, rather the notice just needs to be dispatched within two weeks prior to the day on which the shareholders meeting is required.) The notice shall include the date, time, place, and the agenda of the shareholders meeting. In case of a non-public company, in principle the directors shall dispatch the notice in writing to Shareholders to convene a shareholders meeting, no later than one week prior to the day of the shareholders meeting. Article 300 A company may, with the consent of all the shareholders, shorten the notice period to call the meeting and to hold the meeting without providing notice. The notice period does not change whether it is for a meeting to pass an ordinary resolution or a special resolution (see section 7.5 below).
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7.2 Resolutions requiring Special Notice Section 185 Where by the Singapore Companies Act special notice is required of a resolution, the resolution shall not be effective unless notice of the intention to move it has been given to the company not less than 28 days before the meeting at which it is moved, and the company shall give its members notice of any such resolution at the same time and in the same manner as it gives notice of the meeting or, if that is not practicable, in any manner allowed by the articles of association not less than 14 days before the meeting, but if after notice of the intention to move such a resolution has been given to the company, a meeting is called for a date 28 days or less after the notice has been given, the notice, although not given to the company within the time required, shall be deemed to be properly given. 7.3 Quorum for Meetings Section 179 Subject to the articles of association, two members personally present constitute a quorum for any shareholders meeting. The quorum necessary for a directors meeting shall be determined by the articles of association. Article 309 Both ordinary and special resolutions shall be made at a meeting where the shareholders holding a majority of the votes are present and such quorum may be reduced when provided for in the articles of incorporation. In the case of an ordinary resolution for the appointment or removal of director(s) or the special resolution, the quorum may not be reduced to less than one third. An extraordinary resolution (see section 7.5 below) does not require a quorum. There is no similar provision under the Japan Companies Act for resolutions that require a special notice period.
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7.4 Annual General Meetings Section 175 Annual general meetings are required to be held (in addition to any other meeting) once in every calendar year and not more than 15 months after the holding of the last preceding annual general meeting. The Registrar of Companies may, on application of a company, extend the time period. There is no provision for signed written resolutions in lieu of a general meeting for a public company. Article 296 An annual shareholders meeting shall be held within a defined period of time (usually three months, since if a record date is set for an annual general meeting, it shall be set within three months from the annual general meeting) after the end of each financial year. Article 319 If all the shareholders who are entitled to vote express their intention to agree to the contents of a proposal in writing without a shareholders meeting, it shall be deemed that the resolution to approve such a proposal at the shareholders meeting has been passed.
7.5 Special Resolutions Section 184 A resolution shall be a special resolution when it has been passed by a majority of not less than three-fourths of such members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy present at a general meeting of which: (a) in the case of a private company, not less than 14 days written notice; or in the case of a public company, not less than 21 days written notice, (c) specifying the intention to propose the resolution as a special resolution has been duly given. If it is so agreed by a majority in number of the members having the right to attend and vote at the meeting, being a majority which together holds not less than 95.0% of the total voting rights of the members having a right to vote at that meeting, a resolution may be proposed and passed as a special resolution at a meeting of which written notice of a period less than that required above has been given. Article 309 The Japan Companies Act provides for the following types of shareholders resolutions: (a) ordinary resolution, which is passed by a majority of the votes of the shareholders present and voting; special resolution, which is passed by at least two thirds (may be increased if stipulated in the articles of incorporation) of the shareholders present and voting; and extraordinary resolution, which is passed by at least half (may be increased if stipulated in the articles of incorporation) of the shareholders present and voting, whose votes represent at least two thirds (may be increased if stipulated in the articles of incorporation) of the voting rights of the shareholders present and voting; or by at least half (may be increased if stipulated in the articles of incorporation) of all the shareholders whose votes represent at least threequarters (may be increased if stipulated in the articles of incorporation) of the total voting rights of all shareholders.
(b)
(b)
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The notice period does not change regardless of the type of the resolution proposed at the shareholders meeting. 7.6 Convening of General Meetings on Requisition Section 176 Members holding not less than 10.0% of the paid-up capital of a company (or not less than 10.0% of the total voting rights of all members having at that date a right to vote at general meetings) may requisition for an extraordinary general meeting in accordance with the provisions of the Singapore Companies Act. The directors must convene the meeting to be held as soon as practicable, but in any case not later than two months, after the receipt by the company of the requisition. Section 183 Any number of members representing (a) not less than 5.0% of the total voting rights of all the members having at the date of requisition a right to vote at a meeting to which the requisition relates or (b) not less than 100 members holding shares on which there has been paid up an average sum, per member, of not less than S$500, may requisition the company to give to members notice of any resolution which may properly be moved and is intended to be moved at the next annual general meeting, and circulate to members any statement of not more than 1,000 words with respect to the matter referred to in any proposed resolution or the business to be dealt with at that meeting. Article 297 Shareholders holding at least 3.0% or more (this amount may be reduced if stipulated in the articles of incorporation) of the total voting rights in a company continuously for the preceding six months or more (this period may be shortened if stipulated in the articles of incorporation, and the period requirement is not applicable to a non-public company) may demand that the directors convene a shareholders meeting, by showing the matters which shall be the purpose of the shareholders meeting and the reason for convening it. In the event the shareholders meeting is not convened after the above demand; or where a convocation notice for the shareholders meeting designates, as the day of the shareholders meeting, a day falling within the period of eight weeks (may be shortened if stipulated in the articles of incorporation) from the day of the demand, is not dispatched, the shareholders who made the demand may convene a shareholders meeting with the permission of the court. Article 303 Article 304 Shareholders holding at least three hundred votes or at least 1.0% (this amount may be reduced if stipulated in the articles of incorporation) of the total voting rights in a company continuously for the preceding six months or more (this period may be shortened if stipulated in the articles of incorporation, and the period requirement is not applicable to a non-public company) may demand that the directors include certain matters for the purpose of the shareholders meeting to be convened within eight weeks (may be shortened by the articles of incorporation). In addition, shareholders may submit proposals at the shareholders meeting with respect to the matters that are for the purpose of the shareholders meeting.
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Article 298 Article 299 The notice to the shareholders convening the shareholders meeting shall state the outlines of the proposals in relation to certain important matters that are for the purposes of the shareholders meeting. 7.7 Right to Attend Meeting and Vote Section 179 So far as the articles of association do not make other provision in that behalf, generally, in the case of a company having a share capital: (a) on a show of hands, each member who is personally present and entitled to vote shall have one vote; and on a poll, each member shall have one vote in respect of each share held by him and where all or part of the share capital consists of stock or units of stock each member shall have one vote in respect of the stock or units of stock held by him which is or are or were originally equivalent to one share. Article 308 Shareholders shall, in principle, be entitled to one vote for each one share they hold at the shareholders meeting. Provided, however, that, a shareholder shall not have any votes with respect to: (a) shares issued with restricted voting rights (with respect to the matters for which the voting rights are restricted); treasury shares; shares of a company held by another company or a partnership not less than a quarter of whose shares or equity are held by the former company; and shares less than one unit ( tangen ).
(b)
(b) (c)
(d) Section 180 Every member shall, notwithstanding any provision in the memorandum or articles of association, have a right to attend any general meeting of the company and to speak and vote on any resolution before the meeting except that the companys articles may provide that a member shall not be entitled to vote unless all calls or other sums personally payable by him in respect of shares in the company have been paid.
Article 188 Article 192 Units ( tangen ) of shares are a system that a company may provide in the articles of incorporation to the effect that a fixed number of shares shall constitute one unit of shares, which entitles a shareholder to cast one vote, and shares in a number less than one unit have no vote attached to them. This is provided, however, that one unit of shares may not exceed one thousand shares nor one two-hundredth (1/200) of the total number of the issued and outstanding shares (including treasury shares). Holders of shares constituting less than one unit may demand that the company purchase their shares. Shareholders without voting rights do not have right to participate in the shareholders meeting.
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7.8 Shareholders Action by Written Consent Section 184A Notwithstanding any other provision of the Singapore Companies Act, a private company may pass any resolution by written means in accordance with the provisions of the Singapore Companies Act. There is no corresponding provision in the Singapore Companies Act for a public company. 7.9 Proxies Section 181 A member of a company entitled to attend and vote at a meeting of the company (or at a meeting of any class of members of the company) shall be entitled to appoint another person or persons, whether a member or not, as his proxy to attend and vote in his stead at the meeting and a proxy appointed to attend and vote instead of a member shall also have the same right as the member to speak at the meeting, but unless the articles of association otherwise provide: (a) a proxy shall not be entitled to vote except on a poll; a member shall not be entitled to appoint more than two proxies to attend and vote at the same meeting; and where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportions of his holdings to be represented by each proxy. Article 310 Shareholders may exercise their votes by proxy. Such shareholders or proxies shall submit to the company a document evidencing the relevant proxy authority. A company may, in its articles of incorporation, limit the authority of a proxy to exercise votes of the shareholders (pursuant to a judgement of the Supreme Court of Japan as of 1 November 1968). Under the Japan Companies Act, the authority of a proxy may not be restricted only to voting. A company may restrict the number of proxies who are able to attend the shareholders meeting and in many cases, the articles of incorporation and the share handling regulations of a company limit the number of proxies to be appointed to one. Article 319 If all the shareholders who are entitled to vote express their intention to agree to the contents of a proposal in writing without a shareholders meeting, it shall be deemed that the resolution to approve such proposal at the shareholders meeting has been passed.
(b)
(c)
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7.10 Transfer of Shares Section 126 Notwithstanding anything in its articles, a company shall not register a transfer of shares unless a proper instrument of transfer has been delivered to the company, but this section shall not prejudice any power to register as a shareholder any person to whom the right to any shares in the company has been transmitted by operation of law. Section 127 On the request in writing of the transferor of any share, the company shall enter in the appropriate register the name of the transferee in the same manner and subject to the same conditions as if the application for the entry were made by the transferee. On the request in writing of the transferor of a share, the company shall by notice in writing require the person having possession, custody or control of the share certificate and the instrument of transfer thereof or either of them to bring it or them into the office of the company within a stated period, being not less than seven and not more than 28 days after the date of the notice, to have the share certificate cancelled or rectified and the transfer registered or otherwise dealt with. Article 133 Article 22 of Ordinance for Enforcement of the Japan Companies Act A person who has acquired shares from another person other than a company may, in principle, jointly with the person stated in the shareholders register as the shareholder of the acquired shares, request that the company amend the shareholders register. In the case of a company that issues share certificates, it shall be sufficient to submit the relevant share certificate only by the transferee. An independent request may also be approved by a company which does not issue share certificates, in case of exceptional situations stipulated under the Japan Companies Act. Article 128 For a company that issues share certificates, the effective assignment of shares is conditional upon the delivery of the share certificates. Article 132 Every time a company issues share certificates, acquires or disposes of treasury shares, it shall update the shareholders register accordingly without request from shareholders.
7.11 Refusal to Register Transfer Section 128 If a company refuses to register a transfer of any shares, it shall within one month after the date on which the transfer was lodged with it, send to the transferor and the transferee notice of the refusal. Where an application is made to a company for a person to be registered as a member in respect of shares which have been transferred or transmitted to him by act of parties or operation of law, the company shall not refuse registration by virtue of any discretion in that behalf conferred by the articles of association If a company is legally required to maintain the shareholders register as stated in section 7.10 above, it may not refuse the request properly made to amend the shareholders register. With respect to shares with a restriction on transfer, the approval of a board of directors is required with respect to such a transfer.
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unless it has served on the applicant, within one month beginning with the day on which the application was made, a notice in writing stating the facts which are considered to justify refusal in the exercise of that discretion. 7.12 Issue of Certificates Section 130 Every company shall within two months after allotment of any of its shares, and within one month after the date on which a transfer (other than a transfer which it is entitled to refuse to register and does not register) of any of its shares is lodged with it, complete and have ready for delivery the appropriate certificates in connection with the allotment or transfer. Article 215 A company can choose whether to issue share certificates or not, and make the necessary provision in its articles of incorporation. A company issuing share certificates shall, without delay after the day of a share issue, issue share certificates. A non-public company issuing share certificates may suspend this until the shareholders request for the certificates.
7.13 Substantial shareholder reporting requirements The Securities and Futures Act require substantial shareholders to give notice to the corporation of certain information as prescribed by the Authority, including particulars of their interest, within two business days of their becoming aware of being the corporation substantial shareholders, being aware of any change in the percentage level of their interest and being aware of ceasing to be a substantial shareholder (as the case may be). Percentage level, in relation to a substantial shareholder, is the percentage figure ascertained by expressing the aggregate of the votes attached to all the voting shares in which the substantial shareholder has an interest (or interests) immediately before or (as the case may be) immediately after the relevant time as a percentage of the total votes attached to all of the voting shares, and if it is not a whole number, rounding that figure down to the next whole number. Under the Securities and Futures Act, a person has a substantial shareholding in a company if he has an interest (or interests) in one or more of the companys voting shares and the total votes attached to those shares are not less than 5.0% of the aggregate of the total votes Article 27-23 of Japanese Financial Instruments and Exchange Act In relation to the shares of a company listed in Japan, under the Financial Instruments and Exchange Act, when a shareholder acquires a voting share (including dilutive shares such as share acquisition rights or non-voting shares convertible to voting shares) and a holding ratio that exceeds 5.0%, the shareholder shall submit reports as to the possession of its large volume of shares within five business days from the date of acquisition. Article 27-25 of Japanese Financial Instruments and Exchange Act In addition, after the submission of the abovementioned report, the shareholder shall submit an update report if (a) the holding ratio of shares has increased or decreased by 1.0% or more; or (b) where there arises any other matters prescribed by a Cabinet Order as amendments in important matters to be contained in the abovementioned report. The update report shall be submitted within five business days from the change.
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attached to all of the companys voting shares (excluding treasury shares). The directors and CEO of a company must also notify the corporation in writing of their interests or change in interests in the shares of the corporation or its related corporation.
Under the Anti-Monopoly Act of Japan, a corporation (if the criteria stated below is satisfied) is required to submit a notification to the Japan Fair Trade Commission (the JFTC) for share acquisitions resulting in more than 20.0% or 50.0% on the basis of voting rights held by the corporate group as a whole comprising the ultimate parent company of the acquiring corporation and its subsidiaries in principle 30 days (the JFTC may shorten or extend such period) prior to the acquisition. The criteria is as follows: (1) the total domestic (Japan) turnover of the acquiring group exceeds JPY20 billion and (2) the total domestic (Japan) turnover of the group being acquired exceeds JPY5 billion.
7.14 Foreign shareholding limits on the securities There is no such provision under Singapore Companies Act. A foreign company proposing to acquire 10.0% or more shares in a company conducting certain businesses designated under the Foreign Exchange and Foreign Trade Act is required to file a prior notification in respect of the acquisition under the Foreign Exchange and Foreign Trade Act. There are additional foreign ownership restrictions concerning certain types of businesses under the Foreign Exchange and Foreign Trade Act. We understand that these regulations are not applicable to our Company and its subsidiaries.
7.15 Obligations to file documents or make declarations in respect of its securities Save for the reporting requirements for substantial shareholders, directors and CEO (as set out in section 7.13), and the continuing listing obligations under the SGX-ST Listing Manual Section B: Rules of Catalist, there is no such provision. With regard to companies listed in Japan or which have made public offerings in Japan, certain types of information disclosure and submission of documents are required under the listing rules and the Financial Instruments and Exchange Act, but there is no significant obligation applicable to other companies or such other companies shareholders to which such disclosure obligation under the listing rules and the Financial Instruments and Exchange Act is not applicable.
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7.16 Bonus and rights issues Directors may, with approval of shareholders at a general meeting, capitalise any reserves or profits (including profits or monies carried and standing to any reserve) and distribute the same as bonus shares credited as paid-up to shareholders in proportion to their shareholdings. A company may also issue rights to take up additional shares to shareholders in proportion to their shareholdings. Such rights are subject to any conditions attached to such issue and the regulations of any stock exchange on which the company is listed. Article 183 Article 186 Article 278 Share split, allotment of shares without contribution or share acquisition rights without contribution may be effected by a resolution of the board of directors. In order to provide bonus shares similar to those under Singapore law, under Japan law the capitalisation of surplus and the share split must be effected simultaneously. The stock split may be effected by the above resolution of the board of directors, while the capitalisation of surplus requires a resolution of a shareholders meeting.
7.17 Power of Directors to Dispose of the Issuers or any of its Subsidiaries Assets Section 157A The business of a company is to be managed by or under the direction of the directors. The directors may exercise all the powers of a company except any power that the Singapore Companies Act or the memorandum and articles of association of the company require the company to exercise in general meeting. Section 160 Notwithstanding anything in a companys memorandum or articles of association, the directors shall not carry into effect any proposals for disposing of the whole or substantially the whole of the companys undertaking or property unless those proposals have been approved by the company in general meeting. Article 134 of Ordinance for Enforcement of the Japan Companies Act Article 467 Article 309 The assignment of the entire business or a significant part of the business (exceeding one fifth of the total amount of the assets), must be determined by a resolution of the board of directors and the assignment contract must also be approved by a special resolution in a shareholders meeting.
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7.18 Alterations of Memorandum and Articles of Association/Constituent Documents Section 26 Unless otherwise provided in the Singapore Companies Act, a companys memorandum of association may be altered by way of special resolution, except that any entrenching provision in the memorandum of association and any provision contained in the memorandum of association before 1 April 2004 which could not be altered before that date may be removed or altered only if all members of the company agree. For these purposes, the term entrenching provision means a provision of the memorandum or articles of association of a company to the effect that other provisions of the memorandum or articles of association (a) may not be altered in the manner provided by the Singapore Companies Act, or (b) may not be so altered except by a resolution passed by a specified majority greater than 75.0%, or where other specified conditions are met. Any alteration to the articles of association takes effect on and from the date of the special resolution approving such alteration or such later date as is specified in the resolution. 7.19 Giving of Financial Assistance to Purchase the Issuers or its Holding Companys Shares Section 76 Except as provided in the Singapore Companies Act, a company shall not: (a) directly or indirectly give any financial assistance for the purpose of, or in connection with the acquisition by any person, whether before or at the same time as the giving of financial assistance, of shares or units of shares in the company or a holding company of the company; or directly or indirectly, in any way acquire shares or units of shares in the company or purport to acquire shares or units of shares in a holding company of the company; or Article 965 Under the Japan Companies Act, an incorporator who has subscribed for shares shall, without any delay after subscription, make payment for the subscribed shares to the financial institution that handles such payments. When an incorporator has committed an act of disguising payment (borrow and deposit (azukeai)) in conspiracy with the financial institution that handles such payments, such person shall be punished by imprisonment with work for not more than five years and/or a fine of not more than JPY5 million. In addition, where an incorporator borrows monies for payment in relation to the subscription of shares from a financial institution other than the financial institution that handles the payments, withdrawing There are no memorandum and articles of association of a Japanese company a Japanese company has only articles of incorporation. Article 466 Article 309 Article 184 In principle, the articles of incorporation may be amended by a special resolution in a shareholders meeting. An extraordinary resolution shall be made (a) to add a provision which restricts the transfer of all shares issued by a company and (b) for a non-public company, to add a provision which allows dividends of surplus, delivery of the residual assets, or exercise of voting rights dependant on individual natures. A company may, by a resolution of a board of directors, effect an amendment to the articles of incorporation to increase the total number of authorised shares depending on the ratio of split when a company effects the share split.
(b)
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(c)
directly or indirectly, in any way, lend money on the security of shares or units of shares in the company or a holding company.
Financial assistance includes the giving of financial assistance by means of the making of a loan, the giving of a guarantee, the provision of security, the release of an obligation or the release of a debt or otherwise. Certain transactions are specifically provided by the Singapore Companies Act not to be prohibited. These include, inter alia, the payment of a dividend in good faith and in the ordinary course of commercial dealing, the payment by a company pursuant to a reduction of capital in accordance with the Singapore Companies Act, the giving by a company in good faith and in the ordinary course of commercial dealing of any representation, warranty or indemnity in relation to an offer to the public of, or an invitation to the public to subscribe for or purchase shares in the company, and the entering into by the company, in good faith and in the ordinary course of commercial dealing, of an agreement with a subscriber for shares in the company permitting the subscriber to make payments for the shares by instalments. The Singapore Companies Act further provides that a company can give financial assistance in certain circumstances if conditions and procedures under the Singapore Companies Act are complied with. Where the company is a subsidiary of a listed corporation or a subsidiary whose ultimate holding company is incorporated in Singapore, the listed corporation or the ultimate holding company, as the case may be, is also required to pass a special resolution to approve the giving of the financial assistance.
the monies immediately after assuming the office of a director after incorporation, and appropriates them as repayment of the borrowed money (pretense money (misegane)), such act shall not be construed as an effective payment and may cause the incorporation of the company to be invalid.
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7.20 Accounts and Audit Section 203 All persons entitled to receive notice of general meetings of the company must be sent copies of every profit and loss account, balance sheet and consolidated accounts (if the company is a holding company), duly audited and accompanied by a copy of the auditors report, not less than 14 days before the general meeting at which such accounts to be presented or not less than 28 days if, in the case of a private company, where the holding of an annual general meeting is dispensed with. Section 205 The directors of a company shall within three months of incorporation appoint a person or persons to be the companys auditor(s) until the conclusion of the first annual general meeting. Thereafter auditors are appointed at each annual general meeting. Article 437 Article 133 of the Ordinance for Enforcement of the Japan Companies Act Article 133 of the Ordinance regarding Company Accounting The directors shall, when giving notice to convene an annual shareholders meetings, provide financial statements and business reports including audit reports by the board of statutory auditors (and an accounting auditor). Article 328 A public company whose capital at the end of the latest financial year is not less than JPY500 million or whose liability at the end of the latest financial year is not less than JPY20 billion, shall have an accounting auditor. An accounting auditor shall be a certified public accountant or an audit firm, and shall audit the financial statement of a company. The accounting auditor shall not be an officer of the company, unlike directors or statutory auditors. The accounting auditor may at any time inspect or make copies of the accounting books of the company, and request accounting reports from directors. Article 344 Article 399 A board of statutory auditors shall have the authority to approve the proposals made by the board of directors to shareholders regarding the appointment and removal of accounting auditors and the refusal to re-elect accounting auditors and also to require directors to make such proposals. A board of statutory auditors shall also have the authority to approve the remuneration of accounting auditors.
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7.21 Inspection of Register of Members and Minute Books Section 189 The minute books shall be kept by a company at the registered office or the principal place of business in Singapore, and shall be open to inspections of any member without charge. Any member shall be entitled to be furnished within 14 days of his request a copy of the minutes at a charge not exceeding S$1.00 for every page thereof. Article 125 Article 318 Shareholders and creditors of a company may request for inspection or copies of the register of shareholders and the minutes of the meetings of the board of directors at any time during the business hours of the company.
Article 371 In addition, if it is necessary for the purpose of exercising the rights of a shareholder, he/she may request to inspect or obtain a copy of the minutes of meetings of the board of directors at any time during the business hours of a stock company. If it is necessary for the purpose of pursuing the liability of officers or executive officers by a creditor of a company with board of directors, such creditor may, with the permission of the court, request to inspect or obtain a copy of the minutes of meetings of the board of directors. 7.22 Power to Require Disclosure of Directors Emoluments Section 164A If a company is served with a notice by or on behalf of (a) at least 10.0% of the total number of members of the company (excluding the company itself if it is registered as a member); or (b) a member or members with at least 5.0% of the total number of issued shares of the company (excluding treasury shares), requiring the emoluments and other benefits received by the directors of the company or of a subsidiary to be disclosed, the company shall: (a) within 14 days or such longer period as the Registrar may allow, prepare or cause to be prepared and cause to be audited a statement showing the total amount of emoluments and other benefits paid to or received by each of the directors of the company and each director of a subsidiary; including any amount paid by way of salary, for the Article 361 As stated in section 2.1 above, the (total) amount of emoluments paid to the directors is approved by the resolution of shareholders. The amount of emoluments paid to each director can be and is usually determined by the resolution of a board of directors if such amount is within the total amount approved by shareholders. The emoluments of statutory auditors are also approved by shareholders. The emoluments for each statutory auditor shall be determined by consultation amongst the statutory auditors and cannot be determined by directors. The amount of emoluments paid to each director or statutory auditor is not disclosed unless inspection of the minutes of the meetings of the board of directors is requested while the total amounts of the emoluments for directors and statutory auditors are disclosed in the business report respectively.
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financial year immediately preceding the service of the notice; (b) when the statement has been audited, within 14 days send a copy of the statement to all persons entitled to receive notice of general meetings of the company; and lay the statement before the next general meeting of the company held after the statement is audited.
Cabinet Office Ordinance on Disclosure of Corporate Information, etc. The name of each director and statutory auditor whose total amount of emoluments are more than JPY100 million and the total amount of emoluments paid to each of them disclosed in the annual securities report shall be submitted by companies which have made public offerings in Japan or which otherwise are required to fulfill certain requirements under the Financial Instruments and Exchange Act.
(c)
7.23 Power to Require Disclosure of Auditors Remuneration Section 206 If a company is served with a notice by or on behalf of (a) at least 5.0% of the total number of members of the company (excluding the company itself if it is registered as a member); or (b) a member or members with at least 5.0% of the total number of issued shares of the company (excluding treasury shares), requiring particulars of all emoluments paid to or receivable by the auditor of the company or any person who is a partner or employer or employee of the auditor, by or from the company or any subsidiary in respect of services other than auditing services rendered to the company, the company shall forthwith: (a) prepare or cause to be prepared a statement showing particulars of all emoluments paid to the auditor or other person and of the services in respect of which the payments have been made for the financial year immediately preceding the service of such notice; forward a copy of the statement to all persons entitled to receive notice of general meetings of the company; and lay such statement before the company in general meeting. Article 126 of the Ordinance for Enforcement of the Japan Companies Act In a public company, the amount of emoluments paid to an accounting auditor is disclosed with the contents of the non-audit services business as a part of the business report.
(b)
(c)
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7.24 Mergers and Similar Arrangements Section 212 The Singapore High Court may make an order approving a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies and by subsequent order provide for any matters including the transfers of undertaking, property and liabilities from the transferee company to the transferor company. Such power only exists in relation to companies incorporated in Singapore. Section 215A-J A voluntary amalgamation process may be carried out without the need for a court order. Under this voluntary amalgamation process, two or more companies may amalgamate and continue as one company, which may be one of the amalgamating companies or a new company, in accordance with the procedures set out in the Singapore Companies Act. As part of these procedures, the board of directors of each of the amalgamating company must take a solvency statement in relation to both the amalgamating company and the amalgamated company. Part V Merger (in which one or more companies are merged into another company, or two or more companies are consolidated into a new company), company split (in which a company transfers all or a part of its business to a newly established company or another existing company in exchange for the shares in or other properties of such transferee company), share exchange (kabushiki kokan, in which a company becomes a wholly-owned subsidiary of another company and the shareholders of the former company becomes shareholders of the latter company) and share transfer (kabusiki iten, in which one or more companies establishes a new parent company and become whollyowned subsidiaries of the new parent company and the shareholders of such existing companies become shareholders of the new parent company) are provided as methods of corporate reorganization. In each case, in principle, a special resolution at a shareholders meeting is necessary, and the courts do not intervene, except in cases where the appraisal right is exercised by certain shareholders who are against reconstruction, and a petition for a determination of the purchase price of the relevant shares is filed in the court. In certain stipulated cases where the proposed reorganisation is expected to have a small impact on shareholders of the company, the resolution at a shareholders meeting is not required. Further, a reorganisation between companies where one company has 90.0% control over the other company (the controlled company) may be conducted without a shareholders meeting of the controlled company.
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7.25 Shareholders Suits and Protection of Minority Shareholders Section 216 A member or a holder of a debenture of a company may apply to the Singapore High Court for an order to remedy situations where: (a) a companys affairs are being conducted or the powers of the companys directors are being exercised in a manner oppressive to, or in disregard of the interests of, one or more of the members, shareholders or holders of debentures of the company, including the applicant; or a company has done an act, or threatens to do an act, or the members or holders of debentures have passed some resolution, or propose to pass some resolution, which unfairly discriminates against, or is otherwise prejudicial to, one or more of the companys members or holders of debentures, including the applicant. Article 847 In a public company, a shareholder having continuously held shares for the preceding six months or more (the period may be shortened if stipulated in the articles of incorporation. The period requirement is not applicable to a nonpublic company.) may demand in writing that the company file an action to pursue liability of the directors, and if the company does not file the action within 60 days from the day of such demand, the shareholder who made such a demand may file the action on behalf of the company (namely, a derivative action). Article Article Article Article Article Article Article Article 306 305 303 358 433 297 854 833
(b)
The Court may make such order as it thinks fit, including an order to: (a) (b) (c) direct or prohibit any act or cancel or vary any transaction or resolution; regulate the conduct of the affairs of the company in future; authorise civil proceedings to be brought in the name of or on behalf of the company by such person or persons and on such terms as the Court may direct; provide for the purchase of the shares or debentures by other members or debenture holders or by the company itself; in the case of a purchase of shares by the company provide for a reduction accordingly of the companys capital; or provide that the company be wound up.
Other than the above, the following rights, amongst others, are granted to minority shareholders: (a) the right to demand for the election of an inspector with respect to the convocation procedures of a shareholders meeting (by shareholder(s) who have continuously held, for a consecutive period of the preceding six months or more (the period may be shortened if stipulated in the articles of incorporation, and the period requirement is not applicable to a non-public company.), holding not less than 1.0% (may be reduced if stipulated in the articles of incorporation) of the total voting rights of all shareholders in the public company); the right to propose the agenda, right to demand notice of proposals (by shareholder(s) who have continuously held, for a consecutive period of the preceding six months or more (the period may be shortened if stipulated in the articles of incorporation, and the period requirement is not applicable to a non-
(d)
(e)
(f)
(b)
In addition, a member of a company who is seeking relief for damage done to the company may bring a common law derivative action in certain circumstances against the persons who have done wrong to the company.
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Section 216A of the Singapore Companies Act prescribes a procedure to bring a statutory derivative action. The statutory procedure is available to, inter alia, a member of a company not listed on the SGX-ST and any other person who, in the discretion of the Singapore courts, is a proper person to make an application under Section 216A of the Singapore Companies Act. (c)
public company.), holding not less than 1.0% (may be reduced if stipulated in the articles of incorporation) of the total voting rights of all shareholders in the public company or not less than 300 voting rights (may be reduced if stipulated in the articles of incorporation); the right to demand for election of inspector with respect to the operations of a company (by shareholder(s) who hold not less than 3.0% (may be reduced if stipulated in the articles of incorporation) of the total voting rights of all the shareholders of the company); the right to request to inspect accounting books (by shareholder(s) having not less than 3.0% (may be reduced if stipulated in the articles of incorporation) of the total voting rights or the total number issued shares (may be reduced if stipulated in the articles of incorporation)); the right to demand convocation of a shareholders meeting (by shareholder(s) having continuously held for a consecutive period of the preceding six months or more (may be reduced if stipulated in the articles of incorporation), holding not less than 3.0% (may be reduced if stipulated in the articles of incorporation) of the total voting rights of all shareholders in the public company); the right to file an action seeking dismissal of directors, etc. (by shareholder(s) continuously holding for a consecutive period of the preceding six months or more (the period may be shortened if stipulated in the articles of incorporation, and the period requirement is not applicable for a nonpublic company), holding not less than 3.0% (may be reduced if stipulated in the articles of incorporation) of the total voting rights of all the shareholders in the public company. If, notwithstanding the presence of (i) misconduct of a director or officer or (ii) material violation of laws and regulations or the articles of
(d)
(e)
(f)
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incorporation by a director or officer, a proposal to dismiss such director or officer is rejected at the shareholders meeting or a resolution at the shareholders meeting to dismiss such officer fails to become effective pursuant to the provisions which require a resolution of the class shareholders meeting, the shareholders may file an action within 30 days from the day of such shareholders meeting; and (g) the right to file an action seeking dissolution of a company (by shareholder(s) holding not less than 10.0% (may be reduced if stipulated in the articles of incorporation) of the total voting rights or the total number of issued shares).
8.
CHANGES IN CAPITAL
8.1 Power of Directors to Allot and Issue Shares Section 161 Notwithstanding anything in a companys memorandum or articles of association, the directors shall not, without the prior approval of the company in general meeting, exercise any power of the company to issue shares. Approval for this purpose may be confined to a particular exercise of that power or may apply to the exercise of that power generally and any such approval may be unconditional or subject to conditions. Such approval shall continue in force until: (a) the conclusion of the annual general meeting commencing next after the date on which the approval was given; or the expiration of the period within which the next annual general meeting after that date is required by law to be held, whichever is the earlier, but approval may be previously revoked or varied by the company in general meeting. Article 199 Article 201 Article 202 When a public company issues shares (other than shares in respect of which transfer is restricted) by way of public offering or allocation to third parties or shareholders, this may be effected by a resolution of the board of directors, except in cases where the issue price is particularly favourable (in such cases, a special resolution at a shareholders meeting is necessary). A public company (in case of a non-public company, if stipulated in the articles of incorporation) may issue shares in respect of which transfer is restricted by a resolution of the board of directors, only in cases where it issues shares by way of allotment to shareholders (for other share issues, a special resolution at a shareholders meeting is necessary).
(b)
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The directors may issue shares notwithstanding that an approval for such purpose has ceased to be in force if the shares are issued in pursuance of an offer, agreement or option made or granted by them while the approval was in force and they were authorised by the approval to make or grant an offer, agreement or option which would or might require shares to be issued after the expiration of the approval. 8.2 Powers of Issuer to Purchase its Own Shares There is a general prohibition against the acquisition (whether directly or indirectly) by a company of its own shares, or shares in its holding company. Exceptions include purchase under sanction of court order, redemption of redeemable preference shares and share repurchases in accordance with Section 76B to Section 76E of the Singapore Companies Act. Article 160 Article 309 Article 461 The acquisition by a company of its own shares and the distribution of dividends are both approved to the extent of the amount of surplus (after being adjusted in accordance with Article 461). If a company acquires its own shares by an agreement with specific shareholders, a special resolution at a shareholders meeting is required. The acquisitions of redeemable shares (for which the company has the call options) and shares with put options (for shareholders) are also possible only to the extent of the amount of surplus, while an acquisition exceeding this amount is not permitted. 8.3 Power for any Subsidiary of the Issuer to own shares in its Parent Company Section 21 There is a prohibition on the purchase of shares in a holding company by its subsidiary and a prohibition on a subsidiary being a member of its holding company. Any allotment or transfer of shares in a company to its subsidiary shall be void. Article 135 A subsidiary may not acquire the shares of its parent company. Even in cases where the subsidiary has exceptionally acquired the parent companys shares, it is required to dispose of them at an appropriate time. Article 308 The parent companys shares held by a subsidiary shall not be entitled to vote. 8.4 Power to Issue Shares at a Discount
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Article 199 Article 201 Article 309 In cases where a company issues shares on terms particularly favourable to a specific third party, the directors are required to explain the reasons for such issuance, and a special resolution at a shareholders meeting is required to be passed.
8.5 Power to Issue Shares at a Premium There is no such provision in the Singapore Companies Act. No such provisions (a public company can issue shares without transfer restrictions at premium by obtaining a board resolution).
8.6 Redeemable preference shares Section 70 The redemption shall not be taken as reducing the amount of share capital of the company. The shares shall not be redeemed unless they are fully paid up. The shares shall not be redeemed out of the capital of the company unless: (a) all the directors have made a solvency statement in relation to such redemption; and the company has lodged a copy of the statement with the Registrar of Companies. Please see section 8.2 above.
(b)
8.7 Power of company to alter its share capital Section 71 A company, if so authorised by its articles of association, may in general meeting alter its share capital in any one or more of the following ways: (a) (b) consolidate and divide all or any of its share capital; convert all or any of its paid-up shares into stock and reconvert that stock into paid-up shares; subdivide its shares or any of them, so however that in the subdivision the Article 180 Article 183 Article 309 A company may, pursuant to a special resolution at a shareholders meeting, consolidate its shares. A company may, by a resolution of the board of directors (or an ordinary resolution at a shareholders meeting for a company without a board of directors), split its shares or allot its shares to its shareholders without contribution. Under the Japan Companies Act, the amount of share capital does not change solely by share
(c)
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proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share was derived; and/or (d) cancel the number of shares which at the date of the passing of the resolution in that behalf have not been taken or agreed to be taken by any person or which have been forfeited and diminish the amount of its share capital by the number of the shares so cancelled.
consolidation, share split and allotment to shareholders without contribution of its shares.
8.8 Reduction of capital Section 78A A company may reduce its share capital under the provisions of the Singapore Companies Act in any way and in particular, do all or any of the following: (a) extinguish or reduce the liability on any of its shares in respect of share capital not paid-up; cancel any paid-up capital which is lost or unrepresented by available assets; and/or return to shareholders any paid-up share capital which is more than it needs. Article 447 Article 309 Article 449 In cases where a company reduces the amount of its stated capital, a special resolution at a shareholders meeting is required. An ordinary resolution is sufficient if a resolution is made to reduce the amount of its stated capital to an extent not exceeding the amount of deficit at the day of the annual shareholders meeting. In cases where a company reduces the amount of stated capital concurrently with a share issue, if the amount of stated capital after the day on which the reduction takes effect is not less than the amount of the stated capital before such day, a resolution at a shareholders meeting is not required. In cases where a company reduces the amount of its stated capital, a company shall execute procedures in which creditors of such company may state their objections. A resolution to distribute dividends of surplus using the distributable amount incurred by such reduction is sometimes made. Under the Japan Companies Act, there is no connection between number of shares and amount of share capital, so the number of shares does not change when only the amount of share capital is reduced.
(b)
(c)
A company may not reduce its share capital in any way except as provided in the Singapore Companies Act. A companys memorandum or articles of association may exclude or restrict any power to reduce share capital conferred on the company by the Singapore Companies Act.
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9.
CHANGES IN THE RESPECTIVE RIGHTS OF THE VARIOUS CLASSES OF SHARES INCLUDING THE ACTION NECESSARY TO CHANGE THE RIGHTS Article Article Article Article Article 111 116 322 324 309
Section 74 If, in the case of a company the share capital of which is divided into different classes of shares, provision is made in the memorandum or articles of association for authorising the variation or abrogation of the rights attached to any class of shares, subject to the consent of any specified proportion 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, and in pursuance of that provision the rights attached to any such class of shares are at any time varied or abrogated, the holders of not less than 5.0% in the aggregate of the issued shares of that class (excluding treasury shares) may apply to the Singapore High Court to have the variation or abrogation cancelled. If such an application is made, the variation or abrogation will not have any effect until it is confirmed by the Court. The Singapore High Court may, if satisfied that the variation or abrogation would unfairly prejudice the shareholders of the class represented by the applicant, disallow the variation or abrogation, and shall, if not so satisfied, confirm it. The issue of preference shares ranking pari passu with existing preference shares will be deemed to be a variation of rights of the existing preference shareholders unless the issue of the firstmentioned preference shares was authorised by the terms of issue of the existing preference shares or the articles of association. The alteration of any provision in the memorandum or articles of association of a company which affects or relates to the manner in which the rights attaching to the shares of any class may be varied or abrogated shall be deemed to be a variation or abrogation of the rights attached to the shares of that class.
If a company amends its articles of incorporation to effect an amendment with respect to the rights of an existing class of shares, the requirement differs as follows depending on the rights attached to the shares after amendment: (a) in cases where a company imposes a restriction on transfer, an extraordinary resolution by the particular class of shareholders is required to be passed; in cases where a company makes an existing class of shares redeemable, the consent of all the shareholders of that particular class is required; in cases where a company makes an existing class of shares subject to wholly call, a special resolution by a meeting of the particular class of shareholders is required. (This is a different type of shares from redeemable shares under the Japan Companies Act in that (i) all (and not part of) the shares subject to wholly call must be acquired by the issuing company at one time, (ii) the consideration for the acquisition need not be determined at the time of issuance (only how the consideration shall be determined must be determined), and (iii) another special resolution by the shareholders is necessary for the acquisition of such class of shares); and in cases where a company adds other conditions or rights to an existing class of shares, a special resolution by shareholders meeting is required.
(b)
(c)
(d)
In cases such as those listed above in items (a) to (c), an appraisal right is given to dissenting shareholders. In each case, if the amendment of the articles is likely to cause detriment to the class shareholders of any class of shares, a special resolution by such class of shareholders meeting is required.
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10. DIVIDENDS 10.1 Dividends and Other Methods of Distribution Section 403 Subject to the companys articles of association, dividends may be payable in cash, shares or by way of distribution of specific assets. No dividends are payable except out of profits. There is no unconditional right of members to receive dividends, unless specified in the articles of association, and how and when dividends are to be declared is determined by the articles of association. Article 461 Article 464 The total amount of dividends may not exceed the amount of surplus. Article 309 Dividends may be payable in property other than cash, but a special resolution at a shareholders meeting is required unless a company gives options to require cash dividends to shareholders (in such a case, an ordinary resolution is sufficient).
10.2 Time limit after which a dividend entitlement will lapse and an indication of the party in whose favour this entitlement then operates There is no such provision in the Singapore Companies Act. 11. WINDING-UP Article 475 A company must go into liquidation in any of the following events: (a) of where the company is dissolved by, inter alia , shareholders voluntary winding up (except where the company is dissolved via being the absorbed company in an absorption-type merger or where the bankruptcy proceedings have commenced and have not been completed); where a judgement allowing a claim seeking invalidation of the incorporation of the company becomes final and binding; or where a judgement allowing a claim seeking invalidation of a share transfer becomes final and binding. There is no such provision in the Japan Companies Act.
The winding up of a company may be done in the following ways: (a) (b) (c) members voluntary winding up; creditors voluntary winding up; winding up by Singapore; and the High Court
(d)
an order made pursuant to Section 216 of the Singapore Companies Act for the winding up of the company. (b)
The type of winding up depends, inter alia, on whether the company is solvent or insolvent. The directors of the company must make a statutory declaration of solvency (i.e. that the company is able to pay its debts within 12 months of the winding up) for a members voluntary winding up and lodge it with the Registrar. After that, a shareholders meeting to
(c)
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approve a resolution winding up the company will have to be convened where at least 75.0% of the shareholders present and voting must approve the special resolution for winding up. A copy of this resolution will have to be lodged with the Registrar of Companies.
Article 471 A company may be dissolved on the following grounds: (a) The expiration of the duration of the company provided for in the articles of incorporation (if any); The grounds for dissolution provided for in the articles of incorporation; A resolution of a shareholders meeting; A merger or a consolidation (limited to cases where such company is liquidated as a result of the merger or the consolidation); A ruling to commence procedures; or bankruptcy
(b)
(c) (d)
(e)
(f)
Judgement that orders the dissolution pursuant to Articles 824 or 834 of the Japan Companies Act.
12. LIMITATIONS ON THE RIGHT TO OWN SHARES OF THE COMPANY, INCLUDING LIMITATIONS ON RIGHTS OF SHAREHOLDERS REGARDED AS NON-RESIDENT OR FOREIGN SHAREHOLDERS TO OWN OR EXERCISE VOTING RIGHTS ON THEIR SHARES There is no such provision in the Singapore Companies Act. There is no such provision in relation to the shares of the Company.
B-34
(b)
(c) (d)
(e)
(l)
(m) All businesses incidental to each of items (a) to (l) above. C-1
(Location of headquarter) Article 3 The headquarter of our Company is located in Minato-ward of Tokyo Metropolitan Area. (Organization) Article 4 Our Company has the following organisations in addition to general shareholders meeting and directors. (1) (2) (3) Board of directors Statutory auditors Board of statutory auditors
(Method of public notice) Article 5 Our Company shall make public notices by publication in official gazettes. Chapter 2 Shares (Total number of authorised shares to be issued) Article 6 Total number of authorised shares to be issued by our Company is 300,000,000. (Ordinary shares) Article 7 (1) (2) The class of shares which our Company shall issue is only ordinary shares. Ordinary shareholders shall have the right to attend all the general shareholders meeting and exercise the voting right at such general shareholders meeting. Ordinary shareholders shall have the right to demand a poll at the general shareholders meeting. C-2
(3)
(2)
(3)
(4)
(Decision on terms and conditions for issuing shares, stock acquisition rights, and straight bonds with stock acquisition rights attached) Article 9 (1) The decision on the terms and conditions for issuing shares and stock options defined under Article 199, Paragraph 2 and Article 238, Paragraph 1 of the Japan Companies Act should be made through an ordinary resolution at a general shareholders meeting. However, in the event that the issuance of shares is made at the price which is especially preferential to those who subscribed for such shares, a special resolution shall be required at the general shareholders meeting. Save where it shall be resolved otherwise at a general shareholders meeting or be approved under the Listing Rules, the offering of shares and stock acquisition rights according to the preceding Paragraph shall be made by way of a shareholders allotment, in which the shares shall be allotted to shareholders in proportion to the number of shares each shareholder holds (except for treasury shares). In such an event, the Company shall set the same record date for the shareholders who can exercise the voting rights at the shareholders meeting where the offering is resolved and for the shareholders who shall receive the offering in accordance with Article 16, Paragraph 2 (in the case the offering is resolved in an annual general shareholders meeting, the record date for the offering shall be at the end of the fiscal year for which the annual general shareholders meeting shall be held).
(2)
C-3
(4)
(b)
Issuance of shares under a Share Issuance Agreement, made or granted based on authority given to the board of directors through an ordinary resolution at a general shareholders meeting (after the authority provided to the board of directors based on the ordinary resolution is expired), provided that (i) the aggregate number of shares to be issued pursuant to such ordinary resolutions (including shares to be issued pursuant to Share Issuance Agreement, made or granted based on the ordinary resolution of general shareholders meeting) shall be subject to the limitations prescribed by the Listed Stock Exchange; in exercising the authority pursuant to such ordinary resolution of general shareholders meeting, the Company shall comply with the Listing Rules (including but not limited to a listing manual prescribed by the Listed Stock Exchange being valid at the relevant time); and
(ii)
(iii) the effective period pursuant to the ordinary resolution of general shareholders meeting shall not exceed the earlier of either the first anniversary of such ordinary resolution or the date of the next annual general shareholders meeting after the general shareholders meeting where such resolution was made (the date on which such shareholders meeting is required by law to be held, where the next annual general shareholders meeting does not take place by such date).
C-4
(2) (3)
(Transfer of shares) Article 12 There shall be no restriction on the transfer of shares (except where required by the laws and regulations or the Listing Rules). (Transfer of shares and shareholders register and administrator of shareholders register) Article 13 (1) (2) Our Company shall appoint its administrator of its shareholders register. The administrator of the Companys shareholders register and the place to handle its business shall be resolved by the board of directors and published in a public notice. The shareholders register and the register of stock acquisition rights shall be kept at the place to handle the business by the administrator of shareholders register, and the registration or record to the shareholders register and the register of stock acquisition rights and all other clerical works relating to shares and stock acquisition rights of our Company shall be handled by the administrator of shareholders register, not by our Company. The request to register the transfer of shares in the shareholders register can be made by the form separately prepared by our Company and approved by the Listed Stock Exchange. Our Company shall not charge its shareholders any fee for the registration of transfer of shares.
(3)
(4)
(5)
C-5
(2)
(Share handling rules) Article 15 The registration to the shareholders register and the register of stock acquisition rights, and the handling of other issues relating to shares and stock acquisition rights of our Company shall be made pursuant to the share handling rules of our Company stipulated by the board of directors as well as laws and regulations and the Articles of Incorporation. (Record date) Article 16 (1) Our Company shall treat the shareholders registered or recorded in the shareholders register at the end of each fiscal year as those entitled to exercise the voting right at the general shareholders meeting held with respect to such fiscal year. In addition to what is provided for in the preceding Paragraph, when necessary, through making public notice in advance, our Company can treat the shareholders or the registered pledgees registered or recorded in shareholders register on a certain date as those entitled to exercise certain rights as shareholders or registered pledgees. Chapter 3 General Shareholders Meeting (Timing to call annual general shareholders meeting) Article 17 Our Company shall call for an annual general shareholders meeting within three months after the fiscal year end and extraordinary general shareholders meetings when necessary. (Those who can call general shareholders meeting and the chairman of such meeting) Article 18 (1) Based on the resolution by the board of directors, the president who is also a director shall call and chair such shareholders meeting unless otherwise provided for by the laws and regulations. When the president who is also a director is unable to call and/or chair the general shareholders meeting, another director shall call and/or chair such general shareholders meeting pursuant to the order which is predetermined by the board of directors.
(2)
(2)
C-6
(c)
(2)
Our Company shall dispatch notices stating the items stipulated in the preceding Paragraph by the date stipulated in the preceding Paragraph to those who have the rights as the de facto shareholders of our Company under the depository established under the law of the location where the Listed Stock Exchange exists (the Depository) ( De facto Shareholders). The notice of the general shareholders meeting shall be published in a local daily newspaper of the location where the Listed Stock Exchange exists and given to the Listed Stock Exchange in the written form no later than 14 days (in case that the agenda in the notice of the general shareholders meeting includes a matter requiring a Special Resolution, 21 days) prior to the date of the general shareholders meeting. With regard to convocation of a general shareholders meeting, it shall be deemed that the Company has provided the information which should be referred to or recorded in reference document for general shareholders meeting, business report, financial statements and consolidated financial statements, by making disclosure by way of using internet pursuant to the rules defined by the Ordinance of the Ministry of Justice.
(3)
(4)
(Method of resolution of the general shareholders meeting) Article 20 (1) The resolution of a general shareholders meeting shall be made by the majority of voting rights held by shareholders with voting rights present at the general shareholders meeting unless otherwise provided by the laws and regulations or the Articles of Incorporation.
C-7
(3)
(Voting by proxy) Article 21 (1) A shareholder shall be able to appoint a proxy to exercise voting rights. A shareholder holding multiple shares shall be able to appoint multiple proxies in order to attend and exercise voting rights on behalf of such shareholders at the same general shareholders meeting; provided, however, that in case that multiple proxies are appointed, it is necessary to state the class and the number of shares authorised for each proxy in the letter of proxy. It is not required that the proxy shall be a shareholder. The proxy shall be able to exercise the same authority which the shareholder can exercise (including but not limited to voting by poll and a show of hands and demanding a poll or joining in demanding a poll at general shareholders meetings) unless otherwise provided in the letter of proxy. The instrument appointing a proxy shall be in writing signed by or recording the names of and be affixed with the seal of the appointing shareholder (or of his attorney duly authorised in writing), or if the appointing shareholder is a corporation, either signed by or recording the names of and be affixed with the seal of its representative (or attorney duly authorised). With reference to the preceding two Paragraphs, the proxy or the relevant shareholder shall submit the proxy letter or other written document certifying such authority of proxy to our Company for each general shareholders meeting. Every instrument of proxy shall be in such form as the board may from time to time approve and the instrument appointing a proxy to vote at a general meeting shall: (a) in principle, be deemed to confer authority upon the proxy to exercise its authority as the proxy thinks fit, provided however, that such form shall be such as to enable the shareholder, according to his/her intentions, to instruct the proxy to vote in favour of or against (or, in default of instructions, to exercise his discretion in respect of) each resolution dealing with any proposal; and (b) unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which the proxy form relates. Delivery of an instrument appointing a proxy shall not preclude a shareholder from attending and voting in person at the meeting or where a poll is concerned. In such event, the instrument appointing a proxy shall be deemed to be revoked.
(2)
(3)
(4)
C-8
(b)
(c)
(6)
If the shareholder is the Depository, the instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or recording the names of and affixed with the seals (or a notarially certified copy of that power or authority) shall be deposited at such place or one of such places (if any) as specified in the notice of meeting or in the instrument of proxy issued by the Company (or, if no place is specified, at the Registration Office) not less than 48 hours before the time for holding the meeting or adjourned meeting or poll (as the case may be) at which the person named in such instrument proposes to vote, 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 12 months from the date of its execution, except at an adjourned meeting or on a poll demanded at a meeting or an adjourned meeting in the event where the meeting was originally held within 12 months from such date.
(Minutes of general shareholders meeting) Article 22 (1) The minutes of general shareholders meeting shall be made pursuant to the laws and regulations. The original copies of such minutes on general shareholders meeting should be kept at the headquarter for 10 years and a duplicate copy shall be kept at each branch office for five years.
(2)
C-9
(3) (4)
(5)
(6)
(Term of assignment) Article 25 (1) The office term of directors shall continue until the close of the general shareholders meeting of the fiscal year ending within one year after such election and such directors can be re-elected. The office term for directors elected as additional or substitute directors shall be until the expiration of then existing directors terms of office and such directors can be re-elected.
(2)
C-10
(b) (c)
(2)
Other than the reasons stipulated in the preceding Paragraph, if a director is disqualified from acting as a director in any jurisdiction for reasons other than on technical grounds, he must immediately resign from the board.
(Representative directors and directors with business titles) Article 27 (1) The board of directors shall elect one or more representative directors by way of resolution. The board of directors shall supervise the execution of business by the representative directors and will be able to remove them from office. The office term of representative directors shall continue until the time of general shareholders meeting of the fiscal year ending within one year after such an election. The board of directors shall be able to elect one chairman, one president, a few deputy presidents, senior managing directors and managing directors through its resolutions. The board of directors shall supervise the execution of business by such managing directors (except for the chairman) and will be able to remove them from office. The term of chairman, president, deputy presidents, senior managing directors and managing directors shall continue until the time of general shareholders meeting of the fiscal year ending within one year after such an election.
(2)
(3)
(4)
(Convenor and chairman of the board of directors meeting) Article 28 (1) The president shall convene the board of directors meeting unless otherwise provided by the laws and regulations. When the president is unable to convene the board of directors meeting, other directors shall convene such board of directors meeting pursuant to the order which was predetermined by the board of directors. The board of directors meeting shall be chaired by the director who is determined by the resolution of the board of directors.
(2)
(3)
C-11
(2)
(Resolution method of board of directors meeting) Article 30 (1) The resolution for a board of directors meeting shall be passed by the majority of the directors present at the meeting, where the majority of directors are present. The chairman of the board of directors meeting shall not have a casting vote in any circumstances. In the event a director makes a proposal to an item which is the object of the resolution of the board of directors meeting, our Company recognises a written or electronically recorded agreement by all board members (limited to the board members who shall be eligible to join the resolution on such matter) on such proposal as the resolution by the board of directors meeting for the purpose of passing such proposal, except where a statutory auditor makes objection against such proposal. A director shall not be able to join resolutions concerning the matters he or she has a special interest with including contracts, transactions, arrangements or other proposals in which he or she has directly or indirectly a personal material interest.
(2)
(3)
(Minutes of board of directors meeting) Article 31 (1) The minutes of board of directors meeting shall be recorded in written or electronic form pursuant to the laws and regulations. The minutes shall be signed by or record the names of plus affixed with the seals of all the directors and the statutory auditors who attended such meetings or other alternative measures stipulated by the laws and regulations shall be taken. The minutes of a board of directors meeting shall be kept at the headquarter for 10 years.
(2)
(Remuneration and retirement allowance) Article 32 (1) The remuneration, bonus, property benefit provided by our Company in compensation for the execution of duties assigned (herein after referred to as Remuneration) and an increase of such shall be resolved at the general shareholders meeting, where notice of such proposal is given in the convocation notice for such general shareholders meeting. The Remuneration to executive directors shall not include a commission or a percentage of turnover. The Remuneration to non-executive directors shall be a fixed amount and not by a commission or a percentage of profit or turnover.
(2)
(3)
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(2)
(The authority of board of directors with regard to borrowings) Article 34 The board of directors shall have the authority to make decisions on the borrowings by the Company and be able to delegate such authority (save for substantial borrowings) to a director. Chapter 5 Statutory Auditors and Board of Statutory Auditors (Number of statutory auditors) Article 35 The number of statutory auditors of our Company shall be more than three and not exceed five. (Election method) Article 36 (1) (2) The statutory auditors shall be elected by resolution of a general shareholders meeting. The resolution for the election of statutory auditors shall be made by the majority of shareholders with voting rights present at a general shareholders meeting where not less than one-third (1/3) of shareholders with voting rights are present.
(Term of assignment) Article 37 (1) The office term of a statutory auditor shall continue until the close of the general shareholders meeting of the fiscal year ending within four years after such election. The term of statutory auditor elected as a substitute shall continue until the time of expiring the term of statutory auditor who is initially elected and retired.
(2)
(Full-time statutory auditor) Article 38 Our Company shall elect one or more full-time statutory auditors by resolution of the board of statutory auditors meeting.
C-13
(2)
(Resolution method of board of statutory auditors meeting) Article 40 The resolution of the board of statutory auditors meeting shall be passed by the majority of statutory auditors. (Minutes of board of statutory auditors meeting) Article 41 (1) The minutes of board of statutory auditors meeting shall recorded in written or electronic form pursuant to the laws and regulations. The minutes should also record the names of and be affixed with the seals of all the statutory auditors who attended such meetings or such other alternative measures. The minutes of board of the statutory auditors meeting should be kept at the headquarter for 10 years.
(2)
(Remuneration and retirement allowance) Article 42 The remuneration of statutory auditors shall be resolved at a general shareholders meeting. (Indemnification of statutory auditors) Article 43 (1) Our Company shall be able to indemnify and hold statutory auditors (including former statutory auditors) harmless against liabilities for damages stipulated under Article 423, Paragraph 1 of the Japan Companies Act by resolution of the board of directors to the extent of the amount obtained by subtracting the minimum amount of the liability prescribed by the laws and the regulations from the amount for which they are liable. Our Company shall be able conclude any contract with outside statutory auditors by which they can limit their liabilities for damage stipulated under Article 423, Paragraph 1 of the Japan Companies Act; provided, that the limit of the liabilities for damage is the minimum amount of the liability prescribed by the laws and the regulations.
(2)
C-14
(2)
(Residual assets distribution) Article 48 In the event our Company is dissolved and liquidated, the distribution of residual assets shall be made out in proportion to the number of shares held by the shareholders and by distributing cash or actuals other than cash unless otherwise stipulated by the Articles of Incorporation; provided, however, that in case that assets other than cash is distributed, the shareholders shall have the right to demand distribution of cash.
C-15
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
(1) Yes In the event that our Company issues Preference Shares (shares with the right to receive dividends prior to other classes of shares, hereinafter the same), the number of authorised Preference Shares to be issued should not exceed that of authorised ordinary shares to be issued. Yes Article 8(1)
Capital
(a)
The total number of issued preference shares shall not exceed the total number of issued ordinary shares issued at any time.
D-1
Yes Article 8(2)
(b)
The rights attaching to shares of a class other than ordinary shares must be expressed.
The Company currently does not have any other class of shares other than ordinary shares.
(c)
Whether the company has power to issue further preference capital ranking equally with, or in priority to preference shares already issued must be expressed.
Our Company, in the event that Preference Shares have been already issued, shall be able to issue preference shares which have the same rights or have more preference over such already issued Preference Shares with regard to the dividend, pursuant to the applicable laws and regulations (including the applicable foreign laws, hereinafter the same) and rules of foreign stock exchange on which our Company is listed (Listed Stock Exchange) (Listing Rules).
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Article 8(3) Notes Yes
Appendix 4C Requirement
(d)
D-2
Yes, with amendments Article 9(2) and (3)
Preference Shareholders must have the same rights as ordinary shareholders as regards receiving notices, reports and balance sheets, and attending general meetings of the issuer. Preference shareholders must also have the right to vote at any meeting convened for the purpose of reducing the capital, or winding up, or sanctioning a sale of the undertaking of the issuer, or where the proposition to be submitted to the meeting directly affects their rights and privileges, or when the dividend on the preference shares is in arrear for more than six months. Preference Shareholders shall have the same rights as ordinary shareholders to receive the convocation notice with regard to shareholders meeting (other than those with regard to class shareholders meeting, hereinafter the same), business report and financial statements (including balance sheet) and to attend the shareholders meeting. Preference Shareholders shall have the voting right with regard to the following matters, such as decrease of capital, liquidation, business transfer, and other agendas directly affecting the right of Preference Shareholders and their preferential right and all agendas in case that the payment of preferential dividend is delinquent in excess of six months.
(e)
Subject to any direction to the contrary that may be given by the company in the general meeting or except as permitted under the Exchanges listing rules, all new shares shall, before issue, be offered to such persons who as at the date of the offer are entitled to receive notices from the company of general meetings in proportion, as far as circumstances admit, to
Save where it shall be resolved otherwise at a general shareholders meeting or be approved under the Listing Rules, the offering of shares and stock acquisition rights according to the preceding Paragraph shall be made by way of a shareholders allotment, in which the shares shall be allotted to shareholders in proportion to the number of shares each shareholder holds (except for treasury shares). In such an event, the Company shall set the same
The last sentence of this Appendix 4C(1)(e) is not applicable as fractional shares in a shareholders allotment shall be rounded off under the Japan Companies Act.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
D-3
the amount of the existing shares to which they are entitled. The offer shall be made by notice specifying the number of shares offered, and limiting a time within which the offer, if not accepted, will be deemed to be declined. After the expiration of the aforesaid time or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered, the directors may dispose of those shares in a manner as they think most beneficial to the company. The directors may likewise dispose of any new shares which (by reason of the ratio which the new shares bear to shares held by persons entitled to an offer of new shares) cannot, in the opinion of the directors, be conveniently offered under this provision. record date for the shareholders who can exercise the voting rights at the shareholders meeting where the offering is resolved and for the shareholders who shall receive the offering in accordance with Article 16, Paragraph 2 (in the case the offering is resolved in an annual general shareholders meeting, the record date for the offering shall be at the end of the fiscal year for which the annual general shareholders meeting shall be held). In the notice stipulated under Article 202, Paragraph 4 or Article 241, Paragraph 4 of the Japan Companies Act relating to the shareholders allotment stipulated in the preceding Paragraph, it is required to stipulate the number of shares or stock acquisition rights which shall be allocated to the shareholders, application period for the subscription of such shares or stock acquisition rights to be offered, matters required by other laws and regulations and listing rules, and the shares and stock acquisition rights which have not been subscribed within the application period shall be forfeited. The board of directors shall be able to offer the number of shares or stock acquisition rights equivalent to such forfeited shares or stock acquisition rights, in compliance with the laws and regulations, by way of a third party allotment or other method which the board of directors think the most beneficial to the Company, notwithstanding the preceding two Paragraphs.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes Appendix 4C(1)(f) is not applicable to the Company, as the Company operates on a scripless shares basis. This is found in Article 214 of the Japan Companies Act (Provisions of Articles of Incorporation of the Company to the effect that Share Certificates be Issued), which states the following: Not applicable
Appendix 4C Requirement
(f)
D-4
Article 214 A Stock Company may provide in the articles of incorporation to the effect that it issues share certificates relating to its shares (or, for a Company with Class Shares, the shares of all classes). This means that a stock company may issue share certificates by stipulating so in its articles of incorporation, but need not do so.
Subject to the provisions of the Singapore Companies Act, if any share certificates shall be defaced, worn-out, destroyed, lost or stolen, it may be renewed on such evidence being produced and a letter of indemnity (if required) being given by the shareholder, transferee, person entitled, purchaser, member company of the Exchange or on behalf of its/their client(s) as the directors of the company shall require, and in the case of defacement or wearing out, on delivery of the old certificate and in any case on payment of such sum not exceeding two dollars as the directors may from time to time require. In the case of destruction, loss or theft, a shareholder or person entitled to whom such renewed certificate is given shall also bear the loss and pay to the company all expenses incidental to the investigations by the company of the evidence of such destruction or loss.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
Certificate Appendix 4C(2) is not applicable to the Company, as the Company operates on a scripless shares basis.
Every member shall be entitled to receive share certificates in reasonable denominations for his holding and where a charge is made for certificates, such charge shall not exceed two dollars.
D-5
Pursuant to Article 130, Paragraph 1 of the Japan Companies Act (Perfection of Transfer of Shares), the evidence of title for companies operating on a scripless shares is based on the shareholders register. The Japan Companies Act states the following: Article 130(1) Transfer of shares shall not be perfected against the Stock Company and other third parties unless the name and address of the person who acquires those shares is stated or recorded in the shareholders register.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
Forfeiture And Lien Appendix 4C(3) is not applicable to the Company. Under the Japan Companies Act, all shares must be fully paid up. Therefore, there will not be any unpaid calls on shares. The English translation of Article 208 of the Japan Companies Act is as follows: (Performance of Contributions) Article 208(1) Subscribers for shares for subscription (excluding persons who tender for properties contributed in kind) shall, on the date or within the period provided for in Article 199(1)(iv), pay in the entire amount to be paid in for the shares for subscription for which the subscribers respectively subscribed, at the bank designated by the Stock Company as the place for the handling of payments. <Paragraph 2 is omitted>
(a)
D-6
The companys lien on shares and dividends from time to time declared in respect of such shares, shall be restricted to unpaid calls and instalments upon the specific shares in respect of which such monies are due and unpaid, and to such amounts as the company may be called upon by law to pay in respect of the shares of the member or deceased member.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article (3) Notes
Appendix 4C Requirement
D-7
(5)
Subscribers for shares for subscription may not set off their obligations to effect payment under the provisions of Paragraph (1) or delivery under the provisions of the preceding paragraph (hereinafter in this subsection referred to as Performance of Contribution) against claims they have against the Stock Company. <Paragraph 4 is omitted> A subscriber for shares for subscription shall lose his/her right to become the shareholder of Shares for Subscription by effecting the Performance of Contribution if he/she fails to effect the Performance of Contribution.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes According to Paragraph 5 of the Article, if a subscriber fails to effect the Performance of Contribution, which means the payment of entire amount for the subscription according to Paragraphs 1 and 3 of the Article, he/she shall lose his/her right to become the shareholder of shares for subscription. Not applicable
Appendix 4C Requirement
D-8
(b)
If any shares are forfeited and sold, any residue after the satisfaction of the unpaid calls and accrued interest and expenses, shall be paid to the person whose shares have been forfeited, or his executors, administrators or assignees or as he directs.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
(4) Yes The request to register the transfer of shares in the shareholders register can be made by the form separately prepared by our Company and approved by the Listed Stock Exchange. Yes Article 13(5) Our Company shall not charge its shareholders any fee for the registration of transfer of shares. Yes Article 12 There shall be no restriction on the transfer of shares (except where required by the laws and regulations or the Listing Rules). Yes Article 13(4)
(a)
The company will accept for registration a transfer in the form approved by the Exchange.
(b)
D-9
Any fee charged on the transfer of securities shall not exceed two dollars per transfer.
(c)
There shall be no restriction on the transfer of fully paid securities except where required by law or by the Rules, Bye-Laws or Listing Rules of the Exchange.
(d)
Any articles which entitles a company to refuse to register more than three persons as joint holders of a share must be expressed to exclude the case of executors or trustees of a deceased shareholder.
Noted. There is no article which entitles a company to refuse to register more than three persons as joint holders of a share.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
(5) Yes, without the proviso With regard to an acquisition by our Company of Preference Shares and change of rights held by the Preference Shareholders, our Company is required to obtain an approval from more than three-fourths (3/4) of Preference Shareholders attending the class shareholders meeting for Preference Shareholders. Article 8(4)
Modification Of Rights Shareholders consent has to be obtained before the meeting. The English translation of the relevant Articles of the Japan Companies Act is as follows:
D-10
The repayment of preference capital other than redeemable preference capital, or any alteration of preference shareholders rights, may only be made pursuant to a special resolution of the preference shareholders concerned, provided always that where the necessary majority for such a special resolution is not obtained at the meeting, consent in writing if obtained from the holders of three-fourths of the preference shares concerned within two months of the meeting, shall be as valid and effectual as a special resolution carried at the meeting.
(Voting in Writing) Article 311(1) If the votes are exercised in writing, it shall be exercised by completing the Voting Form with necessary matters and submitting it to the Stock Company no later than the time prescribed by the applicable Ordinance of the Ministry of Justice. (Voting by Electromagnetic Method) Article 312(1) If the votes are exercised by an electromagnetic method, it shall be exercised by providing the matters to be completed on the Voting Form to the Stock Company by an Electromagnetic Method, with the approval of such Stock Company, no later than the time prescribed by the applicable Ordinance of the Ministry of Justice in accordance with the provisions of the applicable Cabinet Order.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes The applicable Ordinance of Ministry of Justice mentioned above is Articles 69 and 70 of the Ordinance for Enforcement of the Japan Companies Act, which stipulate as follows:
Appendix 4C Requirement
D-11
The time prescribed by the applicable Ordinance of the Ministry of Justice referred in Articles 311 and 312 of the Companies Act is the end of business hours right before the day of shareholders meeting (or, if specific due time for the submission of the Voting Form either in writing or by the electromagnetic method has been decided by Board of Directors when they call a shareholders meeting, such specific due time, which must be before the time of the shareholders meeting). The above provisions apply to that of a general shareholders meeting, but they shall apply mutatis mutandis to the class shareholders meeting based on Article 325 of the Japan Companies Act.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes Therefore, the article does not contain the proviso that consent obtained in writing from holders of three-fourths of the preference shares concerned within two months of the meeting, shall be as valid and effectual as a special resolution carried at the meeting.
Appendix 4C Requirement
Borrowing Powers
D-12
The scope of the borrowing powers of the board of directors shall be expressed.
The board of directors shall have the authority to make decisions on the borrowings by the Company and be able to delegate such authority (save for substantial borrowings) to a director.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
Meetings
D-13
(a) Date, time and place shareholders meeting. of the (b)
The convocation notice of a general shareholders meeting shall be dispatched to shareholders no later than 14 days prior to the date of the general shareholders meeting (excluding the date of dispatching the convocation notice and the date of the general shareholders meeting) stating the items defined below. In case that the agenda includes a matter requiring a Special Resolution defined under the second Paragraph of the following Article, the convocation notice shall be dispatched no later than 21 days prior to the date of general shareholders meeting. general
The notices convening meetings shall specify the place, day and hour of the meeting, and shall be given to all shareholders at least fourteen days before the meeting. Where notices contain special resolutions, they must be given to shareholders at least twenty-one days before the meeting. Any notice of a meeting called to consider special business shall be accompanied by a statement regarding the effect of any proposed resolutions in respect of such businesses. At least fourteen days notice of every such meeting shall be given by advertisement in the daily press and in writing to each stock exchange on which the company is listed. With regard to proposals other than those relating to dividend of surplus, approval of financial statements, election of directors, statutory auditors and an accounting auditor and remuneration of directors, statutory auditors and an accounting auditor, a statement of the effect if such proposals are passed at the resolution. Proposals by shareholders shall be limited to those submitted to the Company no later than eight
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article weeks prior to the shareholders meeting. (c) Other items which should be referred to pursuant to the laws and regulation and the Listing Rules. date of general Notes
Appendix 4C Requirement
D-14
Yes Article 21(1)
The notice of the general shareholders meeting shall be published in a local daily newspaper of the location where the Listed Stock Exchange exists and given to the Listed Stock Exchange in the written form no later than 14 days (in case that the agenda includes a matter requiring a Special Resolution, 21 days) prior to the date of the general shareholders meeting.
(8)
Voting And Proxies Under Article 208 of the Japan Companies Act, all shares are required to be fully paid up on subscription.
(a)
A holder of ordinary shares shall be entitled to be present and to vote at any general meeting in respect of any share or shares upon which all calls due to the company have been paid.
A Shareholder shall be able to appoint a proxy to exercise voting rights. A shareholder holding multiple shares shall be able to appoint multiple proxies in order to attend and exercise voting rights on behalf of such shareholders at the same general shareholders meeting; provided, however, that in case that multiple are appointed, it is necessary to state the class and the number of shares authorised for each proxy in the letter of
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article proxy. It is not required that the proxy shall be a shareholder. The proxy shall be able to exercise the same authority which the shareholder can exercise (including but not limited to voting by poll and a show of hands and demanding a poll or joining in demanding a poll at general shareholders meetings) unless otherwise provided in the letter of proxy. Yes, with amendments Article 14(2) The voting rights of the shares co-owned by two or more persons shall be exercised by the Coowners Representative. Under Article 106 and Article 126, Paragraph 3 of the Japan Companies Act, joint holders of shares shall appoint one of them as a representative and notify the company of the name of such person. This representative shall then exercise their rights as shareholders, including voting rights and receive notices from the company. Notes
Appendix 4C Requirement
(b)
D-15
In the case of joint holders of shares, any one of such persons may vote, but if more than one of such persons is present at a meeting, the person whose name stands first on the Register of Members shall alone be entitled to vote.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes The English translation of Article 106 and Article 126, Paragraph 3 of the Japan Companies Act is as follows:
Appendix 4C Requirement
D-16
(Exercise of Rights by Co-owners) Article 106 If any share is co-owned by two or more persons, the coowners may not exercise their rights in relation to such share unless they specify one person to exercise the rights in relation to such share, and notify the Stock Company of the name of that person; provided, however, that this shall not apply in cases where the Stock Company agrees to the exercise of such rights. (Notice to Shareholders) Article 126 (3) If a share is co-owned by two or more persons, the coowners shall specify one person to receive the notices or demand sent by the Stock Company to shareholders and notify such Stock Company of the name of that person. In such cases, that person shall be deemed to be the shareholder and the provisions of the preceding two paragraphs shall apply.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Article 21(1) It is not required that the proxy shall be a shareholder. Yes Article 21(1) The position under the Japan Companies Act as set out in Article 315, Paragraph 1 of the Japan Companies Act, as follows: (Authority of Chairperson) Article 315(1) The chairperson of the shareholders meeting shall maintain the order of such shareholders meeting and organise the business of the meeting. Based on such authority as stipulated in the above Article, the chairperson has the discretion to determine how the voting will be made. Therefore, a shareholder does not have a right to demand a poll under the Japan Companies Act unless such a right is stipulated in the articles of incorporation. Notes Yes
Appendix 4C Requirement
(c)
(d)
An instrument of proxy shall be deemed to confer authority to demand or join in demanding a poll. The proxy shall be able to exercise the same authority which the shareholder can exercise (including but not limited to voting by poll and a show of hands and demanding a poll or joining in demanding a poll at general shareholders meetings) unless otherwise provided in the letter of proxy.
D-17
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Article 21(1) The proxy shall be able to exercise the same authority which the shareholder can exercise (including but not limited to voting by poll and a show of hands and demanding a poll or joining in demanding a poll at general shareholders meetings) unless otherwise provided in the letter of proxy. Notes Yes
Appendix 4C Requirement
(e)
A proxy shall be entitled to vote on a show of hands on any matter at any general meeting.
D-18
Yes Article 26(1)
(9)
Directors
(a)
A person falling under any of the following reasons (except the item (c) of Article 26(1)) shall be disqualified from becoming a director and any person falling under the any of the following reasons during his or her term of office shall not be able to continue the assignment as a director: (1) A person who is not a natural person or falls under another reason stipulated under Article 331, Paragraph 1 of the Japan Companies Act.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Article 25(1) and (2) The office term of directors shall continue until the close of the general shareholders meeting of the fiscal year ending within one year after such election and the directors can be re-elected. The office term for directors elected as additional or substitute directors shall be until the expiration of then existing directors terms of office and such directors can be re-elected. Yes Article 32(2) and (3) The remuneration (defined in Article 32(1)) to executive directors shall not include a commission or a percentage of turnover. The remuneration to non-executive directors shall be a fixed amount and not by a commission or a percentage of profit or turnover. Notes Yes
Appendix 4C Requirement
(b)
Where provision is made for the directors to appoint a person as a director either to fill a casual vacancy, or as an addition to the board, any director so appointed shall hold office only until the next annual general meeting of the company, and shall then be eligible for re-election.
D-19
(c)
Fees payable to non-executive directors shall be by a fixed sum, and not by a commission on or a percentage of profits or turnover. Salaries payable to executive directors may not include a commission on or a percentage of turnover.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Article 32(1) The remuneration, bonus, property benefit provided by our Company in compensation for the execution of duties assigned (herein after referred to as Remuneration) and an increase of such shall be resolved at the general shareholders meeting, where notice of such proposal is given in the convocation notice for such general shareholders meeting. Yes Article 30(3) A director shall not be able to join resolutions concerning the matters he or she has a special interest with including contracts, transactions, arrangements or other proposals in which he or she has directly or indirectly a personal material interest. Notes Yes
Appendix 4C Requirement
(d)
Fees payable to directors shall not be increased except pursuant to a resolution passed at a general meeting, where notice of the proposed increase has been given in the notice convening the meeting.
D-20
(e)
A director shall not vote in regard to any contract or proposed contract or arrangement in which he has directly or indirectly a personal material interest.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Article 26(1)(b) and (c) A person falling under any of the following reasons (except the item (c)) shall be disqualified from becoming a director and any person falling under the any of the following reasons during his or her term of office shall not be able to continue the assignment as a director: (b) A person who is objectively deemed mentally ill. (c) A person who is declared bankrupt pursuant to the Bankruptcy Act or has civil rehabilitation proceedings pursuant to the Civil Rehabilitation Act commenced against him or her or similar declaration or proceedings in foreign jurisdictions. Notes Yes
Appendix 4C Requirement
(f)
The office of a director shall become vacant should he become of unsound mind or bankrupt during his term of office.
D-21
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Article 24(5) and (6) A shareholder can nominate anyone as a candidate for a director in accordance with the procedures prescribed by laws and regulations as long as such candidate fulfills the requirements prescribed by laws and regulations and the Articles of Incorporation. Notes Under the Japan Companies Act, there is no requirement for 11 clear days notice for nomination of director. According to Article 304 of the Japan Companies Act, shareholders may submit proposals at the shareholders meeting including those relating to the candidates of directors without having to give such notice. Hence, the requirement for such notice would impair shareholders rights under Japan law. The English translation of Articles 303 to 305 is as follows: (Shareholders Right to Propose) Article 303(1) Shareholders may demand that the directors include certain matters (limited to the matters on which such shareholders may exercise their votes. The same shall apply in the following paragraph) in the purpose of the shareholders meeting. (2) Notwithstanding the provisions of the preceding paragraph, at a company with board of directors, only shareholders holding shares continuously for the preceding six Not applicable
Appendix 4C Requirement
(g)
D-22
A person who is not a retiring director shall be eligible for election to office of director at any general meeting if some member intending to propose him has, at least eleven clear days before the meeting, left at the office of the company a notice in writing duly signed by the nominee, giving his consent to the nomination and signifying his candidature for the office, or the intention of such member to propose him. In the case of a person recommended by the directors for election, nine clear days notice only shall be necessary. Notice of each and every candidature for election to the board of directors shall be served on the registered holders of shares at least seven days prior to the meeting at which the election is to take place. If the board of directors intends to nominate a person who is not a retiring director as a director at any general shareholders meeting, the board of directors shall have, at least 14 days prior to the meeting, at the headquarter of the Company a notice in writing duly signed by the nominee, giving his/her consent to the nomination of his/her candidate for the office, or the intention of the board of directors to nominate him/her. Notice of each and every candidature for election to the board of directors shall be delivered to the shareholders together with the convocation notice of the relevant meeting.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
D-23
months or more (or, in cases where shorter period is prescribed in the articles of incorporation, such period or more) not less than one hundredth (1/100) (or, in cases where lesser proportion is prescribed in the articles of incorporation, such proportion) of the votes of all shareholders or not less than three hundred (or, in cases where lesser number is prescribed in the articles of incorporation, such number of) votes of all shareholders may demand the directors to include certain matters in the purpose of the shareholders meeting. In such cases, that demand shall be submitted no later than eight weeks (or, in cases where shorter period is prescribed in the articles of incorporation, such period or more) prior to the day of the shareholders meeting. <Paragraphs 3 and 4 of Article 303 are omitted> Article 304 Shareholders may submit proposals at the shareholders meeting with respect to the matters that are in the purpose of the shareholders meeting (limited to the
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
D-24
matters on which such shareholders may exercise their votes. The same shall apply in paragraph (1) of the following article); provided, however, that this shall not apply in cases where such proposals are in violation of the laws or the articles of incorporation, or in cases where three years have not elapsed from the day on which, with respect to the proposal which is essentially identical to such proposal, affirmative votes not less than one tenths (1/10) (or, in cases where any proportion less than that is provided for in the articles of incorporation, such proportion) of the votes of all shareholders (excluding the shareholders who may not exercise their voting rights on such proposal) were not obtained. Article 305(1) Shareholders may demand the directors that, no later than eight weeks (or, in cases where any period less than that is provided for in the articles of incorporation, such period) prior to the day of the shareholders meeting, shareholders be notified of the summary of the proposals which such demanding
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
D-25
shareholders intend to submit with respect to the matters that are the purpose of the shareholders meeting (or, in cases where a notice pursuant to paragraph (2) or paragraph (3) of Article 299 is to be given, such summary be specified or recorded in that notice); provided, however, that, for a company with board of directors, only shareholders holding continuously for the preceding six months or more (or, in cases where shorter period is prescribed in the articles of incorporation, such period or more) not less than one hundredth (1/100) (or, in cases where lesser proportion is prescribed in the articles of incorporation, such proportion) of the votes of all shareholders or not less than three hundred (or, in cases where lesser number is prescribed in the articles of incorporation, such number of) votes of all shareholders may make such demand. <Paragraph omitted> 2 of Article 305 is
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Article 27(2) The office term of representative directors shall continue until the time of general shareholders meeting of the fiscal year ending within one year after such an election. Notes Under the Articles of Incorporation of the Company, each director shall step down for re-election every year. Furthermore, according to Article 332 of the Japan Companies Act, the term of office of a director cannot exceed two years. Therefore, the fixed term for the managing director or persons holding an equivalent position will not exceed one year. Yes, with amendments
Appendix 4C Requirement
(h)
Where a managing director or a person holding an equivalent position is appointed for a fixed term, the term shall not exceed five years.
(i)
A managing director or a person holding an equivalent position shall be subject to the control of the board.
Yes
Article 27(1) The board of directors shall elect one or more representative directors by way of resolution. The board of directors shall supervise the execution of business by the representative directors and will be able to remove them from office.
D-26
Yes Article 24(4)
(j)
The continuing directors may act notwithstanding any vacancy in the board, provided that if their number is reduced below the minimum number fixed by or pursuant to the regulations of the company, the continuing directors may, except in an emergency, act only for the purpose of increasing the number of directors to such minimum number, or to summon a general meeting of the company.
Even if one or more directors resign, the remaining directors may act notwithstanding such resignation(s). In the event that the number of directors decreases below the lower limit stipulated in the preceding Paragraph of Article 24 and a vacancy has occurred, except in an emergency, such remaining directors shall act only to convene a general shareholders meeting to elect director to resolve such a vacancy.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes There is no concept of alternate directorship under the Japan Companies Act. Not applicable
Appendix 4C Requirement
(k)
A director may appoint a person approved by a majority of his codirectors to act as his alternate, provided that any fee paid by the company to the alternate shall be deducted from that directors remuneration. No director may act as an alternate director of the company. A person may not act as an alternate director for more than one director of the company. Yes Article 30(1) The resolution for a board of directors meeting shall be passed by the majority of the directors present at the meeting where the majority of directors are present. The chairman of the board of directors meeting shall not have a casting vote in any circumstances.
D-27
(l)
Where two directors form a quorum, the chairman of a meeting at which only such a quorum is present, or at which only two directors are competent to vote on the matter at issue, shall not have a casting vote.
Pursuant to Article 369, Paragraph 1 of the Japan Companies Act and the judgment of Osaka District Court as of 19 June 1953 (which referred to Article 260-2, Paragraph 1 of the Commercial Code, to which the corresponding provision in the current Japan Companies Act is Article 369, Paragraph 1), it is stated that a chairman of the board of a Japanese company shall not have casting votes.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes The English translation of Articles 369, Paragraph 1 of the Japan Companies Act is as follows:
Appendix 4C Requirement
D-28
Yes Article 26(2) Other than the reasons stipulated in the preceding Paragraph of Article 26(2), if a director is disqualified from acting as a director in any jurisdiction for reasons other than on technical grounds, he must immediately resign from the board.
Article 369(1) The resolution of a board of directors meeting shall be decided by a majority of the directors present at the meeting (except when the articles of association of the company requires a higher threshold, in which case the higher threshold is to be required) where the majority of the directors (or as per the requirement under the articles of association) entitled to participate in the vote are present.
(m) Where a director is disqualified from acting as a director in any jurisdiction for reasons other than on technical grounds, he must immediately resign from the board.
APPENDIX D COMPARISON BETWEEN OUR ARTICLES OF INCORPORATION AND APPENDIX 4C OF THE CATALIST RULES
Complied (Yes/No/Not applicable) Article Notes
Appendix 4C Requirement
(10) Yes Our Company shall call for an annual general shareholders meeting within three months after the fiscal year end and extraordinary general shareholders meeting when necessary. Article 17
Accounts
The interval between the close of an issuers financial year and the date of its annual general meeting (if any) shall not exceed four months.
Winding Up
D-29
The basis on which shareholders would participate in a distribution of assets on a winding up shall be expressed.
In the event that our Company is dissolved and liquidated, the distribution of residual assets shall be made out in proportion to the number of shares held by the shareholders and by distributing cash or actuals other than cash unless otherwise stipulated by the Articles of Incorporation; provided, however, that in case that assets other than cash is distributed, the shareholders shall have the right to demand distribution of cash.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
(A) 1. 1.1 RULES OF THE XYEC EMPLOYEE STOCK OPTION SCHEME Definitions In this Stock Option Scheme, except where the context otherwise requires, the following words and expressions shall have the following meanings: Acceptance Period shall have the meaning ascribed to it in Rule 3.3. Associates means (a) in relation to any director, chief executive officer, substantial shareholder or controlling shareholder (being an individual) means: (i) his immediate family (which means spouse, children, adopted children, step children, siblings and parents); the trustees of any trust of which he or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; and
(ii)
(iii) any company in which he and his immediate family together (directly or indirectly) have an interest of 30.0% or more; (b) in relation to a substantial shareholder or a controlling shareholder (being a company) means any other company which is its subsidiary or holding company or is a subsidiary of such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have an interest of 30.0% or more.
Catalist Rules means any or all of the rules in the SGX-ST Listing Manual Section B: Rules of Catalist, as amended or supplemented from time to time. Control means the capacity to dominate decision-making, directly or indirectly, in relation to the financial and operating policies of a company. Controlling Shareholder means a person who (a) holds directly or indirectly fifteen per cent. (15.0%) or more of the nominal amount of all issued voting shares in the Company (unless the SGX-ST determines that such a person is not a Controlling Shareholder of the Company); or (b) in fact exercises control over the Company. Committee means the remuneration committee of the Company, or such other committee comprising directors of the Company duly authorised and appointed by the board of the Company to administer the Stock Option Scheme. Designated Securities Company means such securities company designated by the Company for the purpose of Rule 3.5 and Rule 3.6. Eligible Participant(s) means a person who is eligible to participate in the Stock Option Scheme.
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APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Exercise Period shall have the meaning ascribed to it in Rule 4.3. Group means the Company and its Subsidiaries. Group Directors means the directors of the Company and its Subsidiaries. Group Employees means the full-time employees of the Company and the Companys Subsidiaries. Market Price means the average of the dealt price for a share of the Company as determined by reference to the last dealt prices of the shares on SGX-ST for the five consecutive market days immediately preceding the date on which a Stock Option shall be granted. SGX-ST means Singapore Exchange Securities Trading Limited. Shareholders means the shareholders of the Company. Strike Price means the price per share in the exercise of the Stock Option, being JPY25, subject to adjustments according to the terms of the Stock Option Scheme. The number of the Stock Options granted will not change after the Sub-Division of our shares; which means each Stock Option is exercisable into 3,000 shares. Substantial Shareholders means persons who have an interest in one or more voting shares, and the total votes attaching to that share or those shares, represent not less than 5.0% of the total votes attaching to all the voting shares in our Company. Subsidiaries means a corporation shall be deemed to be a subsidiary of another corporation, if (a) that other corporation (i) controls the composition of the board of directors of the first-mentioned corporation; controls more than half of the voting power of the first-mentioned corporation; or
(ii)
(iii) holds more than half of the Issued Share Capital of the first-mentioned corporation (excluding any part thereof which consists of preference shares and treasury shares); or (b) the first-mentioned corporation is a subsidiary of any corporation which is that other corporations subsidiary.
E-2
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
2. 2.1 Offer and Acceptance of Stock Option Number of Stock Options offered: (a) (b) (c) 4,000 Stock Options of the Company under #1 Stock Option; 3,580 Stock Options of the Company under #2 Stock Option; and 6,037 Stock Options of the Company under #5 Stock Option
In the case of Rule 4.1, the number of allotment for the remaining Stock Option (the Stock Option not exercised yet) is to be adjusted in accordance with the following formula; provided, however, that fractional portion less than 1 share shall be rounded down. Adjusted number of shares = Number of shares before the adjustment times ratio of stock split/consolidation 2.2 Subscription Price No cash is required to be paid in exchange for the subscription of the Stock Options. 2.3 Acceptance Period of the Stock Option An offer of a Stock Option made to an Eligible Participant under the Stock Option Scheme, if not accepted by the Eligible Participants within 30 days from the date of offer, will lapse. 3. 3.1 Exercise of Stock Option Strike Price The Strike Price is JPY25, subject to adjustments according to the terms of the Stock Option Scheme. The exercise price of one Stock Option shall be the Strike Price multiplied by the number of shares to be issued by the exercise of one Stock Option. 3.2 If the Strike Price of the Stock Option granted is at a discount to the Market Price of a share of the Company at the time of grant, the discount must be approved by the Companys Shareholders in a separate resolution. The maximum discount must not exceed twenty per cent. (20.0%). Exercise Period (a) The Exercise Period of #1 Stock Option is as follows: (i) Any Stock Options granted at a discount to the Market Price of a share of the Company at the time of grant will only be exercisable only in the period commencing two years from the date of grant (two years from 27 April 2006) until 26 April 2016.
3.3
E-3
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
(ii) Other Stock Options will only be exercisable in the period commencing two years from the date of grant (two years from 27 April 2006) until 26 April 2016.
(b)
The Exercise Period of #2 Stock Option is as follows: (i) Any Stock Options granted at a discount to the Market Price of a share of the Company at the time of grant will only be exercisable only in the period commencing two years from the date of grant (two years from 27 April 2007) until 26 April 2017. Other Stock Options will only be exercisable in the period commencing two years from the date of grant (two years from 27 April 2007) until 26 April 2017.
(ii)
(c)
The Exercise Period of #5 Stock Option is as follows: (i) Any Stock Options granted at a discount to the Market Price of a share of the Company at the time of grant will only be exercisable only in the period commencing two years from the date of grant (two years from 5 December 2011) until 27 September 2021. Other Stock Options will only be exercisable in the period commencing two years from the date of grant (two years from 5 December 2011) until 27 September 2021.
(ii)
3.4
Shares allotted and issued pursuant to the exercise of Stock Options offered under the Stock Option Scheme shall be subject to the Articles of Incorporation of the Company, and will rank pari passu in all respects (including the voting, dividend, transfer and other rights, including those arising on a liquidation of the Company, attached thereto) with the then existing issued Shares, save for any dividend or other distribution the record date for which precedes the date of exercise of the Stock Option. The exercise of a Stock Option shall be subject to the following conditions: (a) The total of the Strike Price of the Stock Options (including other Stock Options granted as tax qualified Stock Options, if any) during a year (from 1 January to 31 December) shall not exceed JPY12,000,000. The shares which are allotted on the exercise of the Stock Option shall be kept in the account in the name of the Eligible Participant at a Designated Securities Company. A written oath shall be submitted to the Company that the Eligible Participant is not the Shareholder having one-third of the existing shares of the Company nor having relationship with such Shareholder. The Strike Price shall be higher than market price at the time of grant of the Stock Option.
3.5
(b)
(c)
(d)
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APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
(e) The shares which are allotted on the exercise of the Stock Option (including the issue of new Shares and transfer or assignment of shares) shall be delivered in accordance with Article 238 paragraph 1 of the Japan Companies Act, which are approved in the resolution for the issue of Stock Options.
3.6
Manner of Exercise (a) When the Eligible Participant exercises the Stock Option, the Eligible Participant shall make the necessary payment to the financial institution to deal with the payment designated by the Company, and submit the exercise application to the Company. The financial institution to deal with the payment in (a) above shall be a financial institution designated by the Designated Securities Company. If the Eligible Participant exercises the Stock Options in accordance with (a) above, a custody account in the name of the Eligible Participant shall be opened at the Designated Securities Company in the manner stipulated by the Company. The Company shall allot the shares by transferring them to the account in the name of the Eligible Participant opened in accordance with (c) above.
(b)
(c)
(d)
3.7
Amount of Increase of Capital and Capital Reserve at the Time of Issue of Shares by Exercise of Stock Option (a) The amount of the increased capital in the case of issuance of shares by the exercise of the Stock Option shall be the half of the maximum capital increase amount calculated in accordance with Article 17, Paragraph 1 of the Corporate Accounting Rules of Japan; provided, however, that fractional portion less than JPY1 shall be rounded up. The amount of the increased capital reserve in the case of issuance of shares by the exercise of the Stock Option shall be the amount obtained by deducting the amount of increased capital calculated by (a) from the maximum capital increase amount referred to in (a).
(b)
3.8
Restriction of Acquisition of Stock Options by Transfer The approval of the board of directors is necessary for the acquisition of Stock Options by transfer.
4. 4.1
Variation of Capital After the allotment of the Stock Option is made, if the Company makes stock split or stock consolidation, the Strike Price is to be adjusted in accordance with the following formula; provided however, that any fractional portion less than JPY1 shall be rounded up. Strike Price after adjustment = Strike Price before adjustment divided by ratio of stock split/consolidation E-5
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
4.2 For any other variation in the issued ordinary share capital of the Company (whether by way of a capitalization of profits or reserves or rights issue, reduction or distribution), the board of directors of the Company may determine whether the subscription price or the number or amount of Stock Options shall be adjusted and, if so, the manner in which such adjustment shall be made, provided that such adjustment shall satisfy the requirement set out in Rule 849 of the Catalist Rules. Any adjustment under Rule 5 should be made in such a way that (a) an Eligible Participant will not receive a benefit that a Shareholder does not receive; and (b) accords an Eligible Participant the same proportion of the equity share capital of the Company as that to which such Eligible Participant would be entitled to if such variation of the Companys Issued Share Capital did not take place. Any other adjustments other than on a capitalisation issue must be confirmed in writing by the Companys auditors to be fair and reasonable. Eligible Participant An Eligible Participant is one of the following: (a) Group Employees who have attained the age of 21 years as at the date of the allotment agreement of the Stock Option; and Group Directors,
4.3.
4.4
5. 5.1
(b)
provided always that such Eligible Participant shall cease to be eligible to participate in the Stock Option Scheme or to exercise its Stock Options in the following circumstance: (i) (ii) dismissal pursuant to the employee work handbook; violation of the allotment agreement;
(iii) any cases similar to the above (i) or (ii); (iv) charged or found guilty of any offence punishable by imprisonment with work; (v) resignation from our Group; or
(vi) expression of his intent to give up the Stock Option in written notice to the Company. 5.2 The aggregate number of shares over which Stock Options may be granted to Group Directors shall not exceed seventy per cent. (70.0%) of the total number of shares which may be granted under the Stock Option Scheme and all the other share-based incentive schemes of the Company. The aggregate number of shares over which Stock Options may be granted to each Eligible Participant shall not exceed ten per cent. (10.0%) of the total number of shares which may be granted under the Stock Option Scheme and all the other share-based incentive schemes of the Company. E-6
5.3
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
5.4 Eligible Participants who are also Controlling Shareholders or Associates of a Controlling Shareholder are also eligible to participate in the Stock Option Scheme provided that the terms of each grant and the actual number of Stock Option offered under the Stock Option Scheme to an Eligible Participant who is also a Controlling Shareholder or an Associate of a Controlling Shareholder shall be approved by the independent Shareholders in a separate resolution. The participation of such eligible Controlling Shareholders or Associates of a Controlling Shareholder is subject to the following: (a) the aggregate number of shares comprised in Stock Options granted to Controlling Shareholders or their Associate(s) under the Stock Option Scheme shall not exceed twenty-five per cent. (25.0%) of the total number of shares which may be granted under the Stock Option Scheme and all the other share-based incentive schemes of the Company. the aggregate number of shares comprised in Stock Options granted to each Controlling Shareholder or their Associate(s) under the Stock Option Scheme shall not exceed ten per cent. (10.0%) of the total number of shares which may be granted under the Stock Option Scheme and all the other share-based incentive schemes of the Company.
5.5
(b)
5.6
The minimum number of Stock Options to be exercised at one time by an Eligible Participant shall be 20 or, where the number of vested Stock Options held by an Eligible Participant is less than 20, such lower number of vested Stock Options. The Stock Option cannot be exercised by inheritor(s) of an Eligible Participant in the case of the Eligible Participants death. Limitation on the size of the Stock Option Scheme The aggregate number of shares over which Stock Options may be granted under the Stock Option Scheme and any other share-based incentive schemes of the Company, will be limited to twenty five per cent. (25.0%) of the total number of the issued shares of the Company (excluding treasury shares) from time to time.
5.7
6.
7.
Abstention from Voting Group Employees and Group Directors who are also Shareholders, should abstain from voting at the Shareholders meeting in respect of the resolutions related to the Stock Option Scheme, in particular the following resolutions: (a) (b) (c) modification of the existing scheme and implementation of the Stock Option Scheme; discount quantum; and participation by and Stock Option grant to Controlling Shareholders and their Associates,
E-7
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
and should not accept nominations as proxies or otherwise for voting at the Shareholders meeting in respect of such resolutions unless specific instructions have been given in the proxy instrument on how the Shareholders wish their votes to be cast for each of the resolutions to be proposed at the Shareholders meeting. 8. 8.1 Administration of the Stock Option Scheme The Stock Option Scheme will be administered by the Committee, appointed by the Board to administer the said Scheme. The Committee may make rules and regulations or impose terms and conditions (not being inconsistent with the Stock Option Scheme) necessary, desirable or expedient for it to administer and give full effect to the Stock Option Scheme. In accordance with the requirements of the SGX-ST, a member of the Committee who is also an Eligible Participant of the Stock Option Scheme must not be involved in its deliberations in respect of Stock Options to be granted to or held by him. Acquisition of the Stock Option by the Company If the Eligible Participant does not meet the exercise requirement in Rule 4, the Company can acquire the Stock Option without any compensation. If the Shareholders meeting approves below (a) to (c), the Company can acquire the Stock Option without compensation (and if a Shareholders meeting is not required, when the Companys Board of Directors Meeting or the Companys CEOs decision is made): (a) (b) Approval on merger contract where the Company is merged by a company; Approval on company split agreement or company split plan where the Company is split; and Approval on share exchange ( kabushiki kokan ) agreement or share transfer ( kabushiki iten ) plan where the Company becomes another companys subsidiary.
8.2
9. 9.1
9.2
(c)
10.
Detailed Rules
10.1 The Company stipulates the detailed rules on Stock Option Scheme (the Detailed Rules) and may revise it when necessary; 10.2 The Company shall show the Detailed Rules when the Eligible Participant requests during office hours. 10.3 The Detailed Rules of the Stock Option Scheme is available for inspection at the Companys registered office at 4-15, Konan 2-chome, Minato-ku, Tokyo, Japan for at least 14 days before the date of the general shareholders meeting.
E-8
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
11. 11.1 Modification to the Stock Option Scheme Subject to the prior approval of the SGX-ST and such other regulatory authorities as may be necessary, the Detailed Rules of the Stock Option Scheme may be modified and/or altered by a resolution of the board of directors of the Company provided that no modification and/or alteration shall adversely affect the rights attached to Stock Options granted prior to such modification and/or alteration except with the consent in writing of the Eligible Participants, nor shall any modification and/or alteration be made to the Stock Option Scheme under Rules 843 to 848, and Rules 852 and 853 of the Catalist Rules to the advantage of Eligible Participants except with the prior approval of the Shareholders in general meeting. No modifications and/or alterations shall be made to the Stock Option Scheme if, as a result the Eligible Participant receives a benefit that a Shareholder does not receive. For any modifications and/or alterations regarding any adjustment (except in relation to a capitalisation issue), it must be confirmed in writing by the Companys auditors (acting only as experts and not as arbitrators), in their opinion, to be fair and reasonable. 11.2 When any provision of the allotment agreement of the Stock Option becomes clear to be inconsistent with tax laws including but not limited to the Japanese Income Tax Act and the Japanese Corporation Tax Act, the Japan Companies Act, the Japanese Financial Instruments and Exchange Act or other relevant laws and regulations, the Company can make necessary revision of such provision of the allotment agreement, by notifying the Eligible Participant of such revision. In order to revise the allotment agreement in accordance with the preceding paragraph, the Company shall make notification to the Eligible Participant which contains the content of proposal of the revision, the deadline for objection, the effective date of the revision and the disclaimer to the effect that if there is no written objection sent to the Company by the deadline, it shall be considered that the proposal is accepted, provided, however, that the period between the dispatch of such notice and deadline shall be not less than two weeks. If there is no written objection by the deadline stipulated in the preceding paragraph, it shall be considered that the Eligible Participant accepts the proposal and the allotment agreement shall be revised as proposed as of the effective date of the revision stipulated in the preceding paragraph. Transfer The Eligible Participant shall not transfer, create any securities on, nor make any disposal of the Stock Option. 13. Treatment of Fractional Share The fractions less than one share arisen from the exercise of the Stock Options shall be rounded down. 14. Taxes All taxes arising from the subscription of the Stock Option, the exercise of any Stock Option and the acquisition of Shares due to the exercise of the Stock Options shall be borne by that Eligible Participant. E-9
11.3
11.4
12.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
(B)
COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE XYEC EMPLOYEE STOCK SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme
Requirement
Complied (Yes/No/Not Applicable with basis provided) Please refer to the enclosed confirmation letter dated 27 August 2013. Page E-6 of the Preliminary Offer Document Rule 5.1 An Eligible Participant is one of the following: (a) Group Employees who have attained the age of 21 years as at the date of the allotment agreement of the Stock Option; and (b) Group Directors. Yes
Comments
Rule 843-860
Please provide a written confirmation that the Scheme complies with listing rules 843 to 860. #1 Stock Option: director, statutory auditor, employee or adviser of the Company; #2 and #5 Stock Option: director, statutory auditor or employee of a Company in the Group with more than 50% held by the Company, directly or indirectly. No, also available to statutory auditor and the adviser who is not the employee.
Rule 843
Please confirm whether the participation in a scheme is restricted to directors and employees of issuer and its subsidiaries.
Yes
E-10
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Please confirm whether participation in a scheme is available to: Not applicable, not available to such persons. Not applicable, not available to such persons.
(1)
E-11
directors and employees of an associated company of the issuer. Where participation in a scheme is available to such directors and/or employees, please confirm in the offer document and in this checklist if the issuer has control over the associated company in the Comments/ Details column.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Not applicable, not available to such persons.
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided) Not applicable, not available to such persons.
Comments
(2)
directors and employees of the issuers parent company and its subsidiaries who have contributed to the success and development of the issuer may participate in the scheme. Not applicable, not available to such persons.
E-12
Where the Scheme is available to persons in (1) and (2) above, please confirm that the relevant disclosure has been made in the circular.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Pages E-6 to E-7 of the Offer Document Yes Number of the shares issued by the exercise of the Stock Options: #1 Stock Option: 4,000 Stock Options of the Company. #2 Stock Option: 3,850 Stock Options of the Company. #5 Stock Option: 6,037 Stock Options of the Company. Due to the exercise, the increased capital increases Paid-in Capital by 50% of the increase of the capital (decimal portion below JPY 1 will be rounded-up). Rule 5.2 The aggregate number of shares over which Stock Options may be granted to Group Directors shall not exceed seventy per cent. (70.0%) of the total number of shares which may be granted under the Stock Option Scheme and all the other share-based incentive schemes of the Company. Rule 5.3 The aggregate number of shares over which Stock Options may be granted to each Eligible Participant shall not exceed ten per cent. (10.0%) of the total number of shares which may be granted under the Stock Option Scheme and all the other share-based incentive schemes of the Company. No, no other relevant clauses except mentioned here
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 844
Please confirm that there is a limit on the size of each scheme, the maximum entitlement for each class or category of participant (where applicable), and the maximum entitlement for any one participant (where applicable).
E-13
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
E-14
Amount of cash for the Stock Option: Subscription Price #1 Stock Option: No consideration required. #2 and #5 Stock Option: No cash is required to be paid in exchange for the Subscription of the Stock Option. No, no other relevant clauses except mentioned here
Rule 6 The aggregate number of shares over which Stock Options may be granted under the Stock Option Scheme and any other share-based incentive schemes of the Company, will be limited to twenty five per cent. (25.0%) of the total number of the issued shares of the company (excluding treasury shares) from time to time. Page E-3 Document of the Offer Yes
Rule 845
The amount, if any, payable on application or acceptance, the period in or after which payments or calls, or loans to provide the same, may be paid or called must be set out.
Rule 2.2 No cash is required to be paid in exchange for the subscription of the Stock Option. Rule 2.3 An offer of a Stock Option made to an Eligible Participant under the Stock Option Scheme, if not accepted by the Eligible Participants within 30 days from the date of offer, will lapse.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Pages E-3 to E-4 of the Offer Document Amount of cash for the exercise of the Stock Option = Number of shares times Strike Price (JPY75,000) Yes, exercise price is JPY75,000. Yes
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 846
For share option schemes, please confirm that the following is complied with:
(1)
E-15
No (a) Period for the exercise of the Stock Option: #1: from 27 April 2008 to 26 April 2016. #2: from 27 April 2009 to 26 April 2017.#5: from 5 December 2012 to 27 September 2020. No (i) Period for the exercise of the Stock Option: #1: from 27 April 2008 to 26 April 2016. #2: from 27 April 2009 to 26 April 2017.#5: from 5 December 2012 to 27 September 2020.
Rule 3.1 The Strike Price is JPY25, subject to adjustments according to the terms of the Stock Option Scheme. The exercise price of one Stock Option shall be the Strike Price multiplied by the number of shares to be issued by the exercise of one Stock Option. Rule 3.3 Exercise Period
(2)
options granted at a discount will only be exercisable only after 2 years from the date of grant; and
Yes
(3)
other options will only be exercisable after one year from the date of grant.
The Exercise Period of #1 Stock Option is as follows: Any Stock Options granted at a discount to the Market Price of a share of the Company at the time of grant will only be
Yes
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme exercisable only in the period commencing two years from the date of grant (two years from 27 April 2006) until 26 April 2016. (ii) Other Stock Options will only be exercisable in the period commencing two years from the date of grant (two years from 27 April 2006) until 26 April 2016. (b) The Exercise Period of #2 Stock Option is as follows: (i) Any Stock Options granted at a discount to the Market Price of a share of the Company at the
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
E-16
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme time of grant will only be exercisable only in the period commencing two years from the date of grant (two years from 27 April 2007) until 26 April 2017. (ii) Other Stock Options will only be exercisable in the period commencing two years from the date of grant (two years from 27 April 2007) until 26 April 2017. (c) The Exercise Period of #5 Stock Option is as follows: (i) Any Stock Options granted at a discount to the Market Price
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
E-17
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
E-18
(ii)
of a share of the Company at the time of grant will only be exercisable only in the period commencing two years from the date of grant (two years from 5 December 2011) until 27 September 2021. Other Stock Options will only be exercisable in the period commencing two years from the date of grant (two years from 5 December 2011) until 27 September 2021.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Page E-4 Document of the Offer Yes No
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 847
The voting, dividend, transfer and other rights attached to the securities, including those arising from a liquidation of the issuer must be stated.
E-19
Rule 3.4 Shares allotted and issued pursuant to the exercise of Stock Options offered under the Stock Option Scheme shall be subject to the Articles of Incorporation of the Company, and will rank pari in all respects passu (including the voting, dividend, transfer and other rights, including those arising on a liquidation of the Company, attached thereto) with the then existing issued Shares, save for any dividend or other distribution the record date for which precedes the date of exercise of the Stock Option.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Page E-8 Document of the Offer Yes No
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 848
E-20
The scheme must be administered by a committee of directors of the issuer. However, where the issuer has a parent company, the parent company may nominate one person to the committee. A participant who is a member of the committee must not be involved in its deliberations in respect of options to be granted to that participant. Rule 8.1 The Stock Option Scheme will be administered by the Committee, appointed by the Board to administer the said Scheme. The Committee may make rules and regulations or impose terms and conditions (not being inconsistent with the Stock Option Scheme) necessary, desirable or expedient for it to administer and give full effect to the Stock Option Scheme. Rule 8.2 In accordance with the requirements of the SGX-ST, a member of the Committee who is also an Eligible Participant of the Stock Option Scheme must not be involved in its deliberations in respect of Stock Option Scheme to be granted to or held by him.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Pages E-5 to E-6 of the Offer Document Yes After the allotment of the Stock Option is made, if the Company makes stock split or stock consolidation, the Strike Price is to be adjusted in accordance with the following formula; provided, however, that any fractional portion less than JPY1 shall be rounded up. No, only provide the adjustment under subdivision or consolidation circumstances. Rule 4.1 After the allotment of the Stock Option is made, if the Company makes stock split or stock consolidation, the Strike Price is to be adjusted in accordance with the following formula; provided however, that any fractional portion less the JPY1 shall be rounded up. Strike Price after adjustment = Strike Price before adjustment divided by ratio of stock split/consolidation Rule 4.2 For any other variation in the issued ordinary share capital of the Company (whether by way of a capitalization of profits or reserves or rights issue, reduction or distribution), the board of directors of the Company may determine Strike Price after adjustment = Strike Price before adjustment divided by ratio of stock split/consolidation If the Company makes issuance of its common stock at the price below the Strike Price used in the adjustment formula of the Strike Price, or the Company makes offering to subscribers of its treasury shares (including allotment without contribution, but excluding securities which can be acquired by the Company, or a holder can demand the Company to acquire, in exchange of
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 849(1)
E-21
Please confirm that the scheme has provisions for adjustment of the subscription or option price or the number of amount of securities under the scheme not already allotted, in the event of a capitalisation issue and in other circumstances (e.g. rights issue, capital reduction, subdivision or consolidation of shares or distribution).
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme whether the subscription price or the number or amount of Stock Options shall be adjusted and, if so, the manner in which such adjustment shall be made, provided that such adjustment shall satisfy the requirement set out in Rule 849 of the Catalist Rules.
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
E-22
Exercise price after adjustment = Exercise price before adjustment x (number of existing shares + number of new shares x payment per share/market price before issuance of new shares)/(number of existing shares + number of new shares)
issuance of its common shares (including bond with stock acquisition right), and exercise of stock subscription rights as stock options and conversion of convertible bonds under the Commercial Code before the amendment by the Act on the Arrangement of the Commercial Code (Law No. 128 in 2001)), the Strike Price after adjustment shall be adjusted in accordance with the following formula (the adjustment formula of the Strike Price) and fraction less than JPY 1 will be rounded up.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme When the Company disposes its treasury share, number of new shares should be read as number of shares to be disposed, and market price before issuance of new shares should be read as market price before disposition No Page E-6 Document of the Offer Yes
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
E-23
Rule 849(2)
Please confirm that the adjustment will be made in such a way that the participant will not receive a benefit that a shareholder does not receive.
Rule 4.3 Any adjustment under Rule 5 should be made in such a way that (a) an Eligible Participant will not receive a benefit that a Shareholder does not receive; and (b) accords an Eligible Participant the same proportion of the equity share capital of the Company as that to which such Eligible Participant would be entitled to if such variation of the Companys Issued Share Capital did not take place.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Yes No
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 849(3)
Please confirm that the circumstance requiring adjustment does not include the issue of securities as consideration for an acquisition.
E-24
No
#1 Stock Option: When the adjustment of the Strike Price is necessary due to decrease of capital or merger or company split. #2 and #5 Stock Option: After the allotment of the Stock Option is made, if the Company is merging with other company, or making company split, or needs to change the number of existing shares, the Company can make necessary adjustment as long as it is reasonable and appropriate. Page E-6 Document of the Offer
Rule 849(4)
Please provide a written confirmation by the companys auditor that the adjustments other than on a capitalisation issue is fair and reasonable.
Yes
Rule 4.4 Any other adjustments other than on a capitalisation issue must be confirmed in writing by the Companys auditors to be fair and reasonable.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Page E-9 Document of the Offer Yes No
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 850
Please confirm that provisions relating to the matters contained in Rules 843 to 848, and Rules 852 to 853 will not be altered to the advantage of the participants without prior shareholder approval. Rule 11.1 Subject to the prior approval of the SGX-ST and such other regulatory authorities as may be necessary, the Detailed Rules of the Stock Option Scheme may be modified and/or altered by a resolution of the board of directors of the Company provided that no modification and/or alteration shall adversely affect the rights attached to Stock Options granted prior to such modification and/or alteration except with the consent in writing of the Eligible Participants, nor shall any modification and/or alteration be made to the Stock Option Scheme under Rules 843 to 848, and Rules 852 and 853 of the Catalist Rules to the advantage of Eligible Participants except with the prior approval of the Shareholders in general meeting.
E-25
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Pages 163 to 164 of the Offer Document for the section entitled Xyec Employee Stock Schemes Disclosures In Annual Reports. Yes No
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 851
The issuer must provide in the scheme that the disclosures set out in Rule 851(1) will be made in its annual report.
If any of the requirement in Rule 851(1) is not applicable, an appropriate negative statement must be included. No Page E-7 Document of the Offer Yes
E-26
Rule 852
Please confirm that participation in a scheme by controlling shareholders and their associates will be approved by independent shareholders of the issuer.
Rule 5.4 Eligible Participants who are also Controlling Shareholders or Associates of a Controlling Shareholder are also eligible to participate in the Stock Option Scheme provided that the terms of each grant and the actual number of Stock Option offered under the Stock Option Scheme to an Eligible Participant who is also a Controlling Shareholder or an Associate of a Controlling Shareholder shall be approved by the independent Shareholders in a separate resolution.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Not applicable, not available to such persons.
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided) Not applicable, not available to such persons.
Comments
Please confirm that a separate resolution is and will be passed to approve the participation of each such person and further that the resolution will approve the actual number and terms of options to be granted to that participant. Not applicable, not available to such persons.
E-27
Please confirm that the specific number and terms of each such option grant are disclosed in the resolution itself.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Not applicable, not available to such persons.
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided) Not applicable, not available to such persons.
Comments
Rule 853
E-28
Not applicable, not available to such persons.
Please confirm that any grant of options to a director or employee of the issuers parent company and its subsidiaries that, together with options already granted to the person under the scheme, represents 5% or more of the total number of options available to such directors and employees, will be approved by independent shareholders.
Please confirm that a separate resolution will be passed for each such person and the resolution will approve the aggregate number of options to be made available for grant to all directors and employees of the parent company and its subsidiaries.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 854
When seeking shareholder approval, please confirm that the following basis is disclosed in the offer document: Not applicable, not available to such persons.
E-29
Not applicable, not available to such persons. No Not applicable, not available to such persons. by and the
participation by, and the specific grant of options to, each of the controlling shareholders or their associates;
Not applicable, not available to such persons. Not applicable, not available to such persons.
participation by, and the grant of options to, directors and employees of the parent company and its subsidiaries;
of
the
Offer
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Page E-3 Document of the Offer Yes No
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
E-30
Number of the shares for this subscription right: #1: 4,000 Stock Options of the Company. #2: 3,850 Stock Options of the Company. #5: 6,037 Stock Options of the Company. Yes
Rule 3.2 If the Strike Price of the Stock Option granted is at a discount to the Market Price of a share of the Company at the time of grant, the discount must be approved by the Companys Shareholders in a separate resolution. The maximum discount must not exceed twenty per cent. (20.0%). Page E-7 Document of the Offer Rule 6 The aggregate number of shares over which Stock Options may be granted under the Stock Option Scheme and any other share-based incentive schemes of the Company, will be limited to twenty five per cent. (25.0%) of the total number of the issued shares of the company (excluding treasury shares) from time to time. Yes
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Page 163 Document of the Offer Yes No
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 855
Please confirm that there is a brief description in the offer document of the potential cost to the issuer arising from the grant of options. No Pages E-3 to E-9 of the Offer Document
Yes
E-31
No
An issuer must disclose the terms of the scheme or a summary of the principal terms in the offer document. The summary must contain all the information required under Rule 843 to 848, and Rules 852 to 853 Page E-8 Document
Rule 856(2)
If only a summary of the option scheme is disclosed, please confirm that the issuer will make the terms of the scheme available for inspection at its registered office for at least 14 days before the date of the general meeting.
of
the
Offer
Yes
Rule 10.3 The Detailed Rules of the Stock Option Scheme is available for inspection at the Companys registered office at 4-15, Konan 2-chome, Minato-ku, Tokyo, Japan for at least 14 days before the date of the general shareholders meeting.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Page 50 Document of the Offer Yes No
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
Rule 857
Where directors of the issuer are trustees of the scheme or have an interest direct or indirect in the scheme, the offer document must disclose that interest. No Pages E-7 to E-8 of the Offer Document Rule 7 Group Employees and Group Directors who are also Shareholders, should abstain from voting at the Shareholders meeting in respect of the resolutions related to the Stock Option Scheme, in particular the following resolutions:
Rule 858
Yes
E-32
Please disclose and confirm that the issuer will ensure that shareholders who are eligible to participate in the scheme must abstain from voting on any resolution relating to the scheme (other than a resolution relating to the participation of, or grant of options to, directors and employees of the issuers parent company and its subsidiaries).
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme (i) modification of the existing scheme and implementation of the Stock Option Scheme; discount quantum; and Yes No
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
(ii) (iii)
E-33
No
In particular, please confirm that the offer document contains a statement that all shareholders who are eligible to participate in the Scheme will abstain from voting on the following resolutions where applicable: (a) implementation of the Scheme; (b) discount quantum; and (c) participation by and option grant to controlling shareholders and their associates. participation by and Stock Option grant to Controlling Shareholders and their Associates, and should not accept nominations as proxies or otherwise for voting at the Shareholders meeting in respect of such resolutions unless specific instructions have been given in the proxy instrument on how the Shareholders wish their votes to be cast for each of the resolutions to be proposed at the Shareholders meeting.
If an issuer wants to allow participants to act as proxies, please confirm that the circular contains a statement that the participants will not vote unless specific instructions have been given in the proxy instrument on how the shareholders wish their votes to be cast for each of the resolutions contemplated.
Yes
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Yes
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
If the offer document deals with proposed amendments to the terms of an existing scheme, please confirm that the circular includes a statement that the participants will abstain from voting on the resolution in respect of the modifications to the existing scheme. Not applicable, the Original Stock Option Scheme does not deal with proposed amendments to the terms of an existing scheme. Rule 7 Group Employees and Group Directors who are also Shareholders, should abstain from voting at the Shareholders meeting in respect of the resolutions related to the Stock Option Scheme, in particular the following resolutions: (a) modification of the existing scheme and implementation of the Stock Option Scheme;
E-34
Not applicable, not available to Such persons. Not applicable, not available to Such persons.
Rule 859
Please disclose and confirm that the issuer will ensure that the following categories of persons will abstain from voting on any resolution relating to the participation of, or grant of options to, directors and employees of the parent company and its subsidiaries:
(1)
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme Not applicable, not available to such persons.
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided) Not applicable, not available to such persons.
Comments
(2)
directors and employees of the parent company (and its subsidiaries), who are also shareholders and are eligible to participate in the scheme. Not applicable, there is no previous scheme.
E-35
of
Rule 860
If options have been granted under a previous scheme, the offer document must disclose the following about the previous scheme:
(1)
(2)
number participants;
(3)
(4)
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
(a)
(b)
E-36
(c)
number of shares allotted upon exercise of options. Yes We confirm our understanding in this respect.
General
Please confirm the issuers understanding that any term alteration of the scheme such as repricing of the exercise price of the options will not be permitted and further that the replacement of existing options will not be permitted.
APPENDIX E RULES OF THE STOCK OPTION SCHEME AND COMPLIANCE CHECKLIST FOR THE ORIGINAL RULES OF XYEC EMPLOYEE STOCK OPTION SCHEME AND RULES OF THE STOCK OPTION SCHEME
Listing Rule Reference Original Rules of the Stock Option Scheme Current Rules of the Stock Option Scheme
Requirement
Complied (Yes/No/Not Applicable with basis provided) Complied (Yes/No/Not Applicable with basis provided)
Comments
COMPLIANCE WITH GOVERNING LAWS, REGULATIONS AND THE ARTICLES OF ASSOCIATION Yes
E-37
Issuer to confirm that the terms of the transaction in this application does not contravene any laws and regulations governing the issuer and the articles of association of the issuer.
It is confirmed that the terms of the transaction in this application does not contravene any laws and regulations governing the Company and the Articles of Incorporation of the Company. Not applicable The Company is not applying for waiver to any of the Listing Rules in this application.
If the issuer is applying for waiver to any of the Listing Rules in this application, issuer to also confirm that the waiver, if granted, will not result in the issuer contravening any laws and regulations governing the issuer and the articles of association of the issuer.
2.
5.
6.
F-1
8.
9.
10. Our Company, the Manager, Sponsor and Placement Agent further reserve the right to treat as valid any applications not completed or submitted or effected in all respects in accordance with the instructions set out in the Application Forms or the terms and conditions of this Offer Document, 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 . 11. Our Company, the Manager, Sponsor and Placement Agent reserve the right to reject or to accept, in whole or in part, or to scale down or to ballot any application, without assigning any reason therefor, and no enquiry and/or correspondence on the decision with regards hereto will be entertained. In deciding the basis of allotment and/or allocation which shall be at the discretion of our Company, the Manager, Sponsor and Placement Agent, due consideration will be given to the desirability of allotting the Placement Shares to a reasonable number of applicants with a view to establishing an adequate market for the Shares.
12. Share certificates will be registered in the name of CDP or its nominee and will be forwarded only to CDP. It is expected that CDP will send to you, at your own risk, within 15 Market Days after the close of the Application List, a statement of account stating that your Securities Account has been credited with the number of Placement Shares allotted to you, if your application is successful. This will be the only acknowledgement of application monies received and is not an acknowledgement by our Company, the Manager, Sponsor and Placement Agent. You irrevocably authorise CDP to complete and sign on your behalf, as renouncee, any documents required for the issue of the Placement Shares allotted to you.
F-2
(b)
Where you have notified us within 14 days from the date of lodgement of the Relevant Document of your wish to exercise your option under paragraph 13(a) and (b) above to withdraw your application, we shall pay to you all monies paid by you on account of your application for the Placement Shares without interest or any share or revenue or other benefit arising therefrom and at your own risk, within seven days from the receipt of such notification. In the event that at any time at the time of the lodgement of the Relevant Document, the Placement Shares have already been issued but trading has not commenced, we will (as required by law), and subject to the SFA, either: (a) within seven days from the lodgement of the Relevant Document give you a copy of the Relevant Document and provide you with an option to return the Placement Shares; or deem the issue as void and refund your payment for the Placement Shares (without interest or any share of revenue or other benefit arising therefrom) to you within seven days from the lodgement of the Relevant Document.
(b)
Any applicant who wishes to exercise his option under paragraph 13(c) above to return the Placement Shares issued sold to him shall, within 14 days from the date of lodgement of the Relevant Document, notify us of this and return all documents, if any, purporting to be evidence of title of those Placement Shares, whereupon we shall, subject to the SFA, within seven days from the receipt of such notification and documents, pay to him all monies paid by him for the Placement Shares without interest or any share of revenue or other benefit arising therefrom and at his own risk, and the Placement Shares issued to him shall be void. Additional terms and instructions applicable upon the lodgement of the supplementary or replacement Offer Document, including instructions on how you can exercise the option to withdraw, may be found in such supplementary or replacement Offer Document. 14. You irrevocably authorise CDP to disclose the outcome of your application, including the number of Placement Shares allotted to you pursuant to your application, to our Company, the Manager, Sponsor and Placement Agent and, any other parties so authorised by the foregoing persons.
F-3
(b)
(c)
(d)
17. Our acceptance of applications will be conditional upon, inter alia , our Company, the Manager, Sponsor and Placement Agent being satisfied that: (a) permission has been granted by the SGX-ST to deal in and for quotation for all our existing Shares, the PPCF Shares and the Placement Shares on Catalist; the Management Agreement and the Placement Agreement referred to in the section entitled General and Statutory Information Management and Placement Arrangements of this Offer Document have become unconditional and have not been terminated or cancelled prior to such date as our Company may determine; and the SGX-ST, acting as an agent on behalf of the Authority, has not served a stop order ( Stop Order ) which directs that no or no further shares to which this Offer Document relates be allotted.
(b)
(c)
18. In the event that a Stop Order in respect of the Placement Shares is served by the SGX-ST, acting as agent on behalf of the Authority or other competent authority, and: (a) where the Placement Shares have not been issued, we will deem all applications withdrawn and cancelled and our Company shall refund (at your own risk) all monies paid on account of your application for the Placement Shares (without interest or any share of revenue or other benefit arising therefrom) to you within 14 days of the date of the Stop Order; or
F-4
(ii)
This shall not apply where only an interim Stop Order has been served. 19. In the event that an interim Stop Order in respect of the Placement Shares is served by the SGX-ST, acting as agent on behalf of the Authority or other competent authority, no Placement Shares shall be issued during the time when the interim Stop Order is in force. 20. The Authority or the SGX-ST (acting as agent on behalf of the Authority) is not able to serve a Stop Order in respect of the Placement Shares if the Placement Shares have been issued and listed for quotation on a securities exchange and trading in the Placement Shares has commenced. 21. In the event of any changes in the closure of the Application List or the time period during which the Placement is open, we will publicly announce the same through a SGXNET announcement to be posted on the Internet at the SGX-ST website http://www.sgx.com and through a paid advertisement in a generally circulating daily press. 22. Our Company, the Manager, Sponsor and Placement Agent will not hold any application in reserve. 23. Our Company, the Manager, Sponsor and Placement Agent will not allot Shares on the basis of this Offer Document later than six months after the date of registration of this Offer Document by the SGX-ST. 24. Additional terms and conditions for applications by way of Application Forms are set out on pages F-6 to F-9 of this Offer Document.
F-5
3.
4.
5.
(c)
F-6
7.
8.
9.
F-7
12. You irrevocably agree and acknowledge that your application is subject to risks of fires, acts of God and other events beyond the control of our Company, our Directors, the Manager, Sponsor and Placement Agent, and/or any other party involved in the Placement, and if, in any such event, our Company and/or the Manager, Sponsor and Placement Agent does not receive your Application Form, you shall have no claim whatsoever against our Company, the Manager, Sponsor and Placement Agent and/or any other party involved in the Placement for the Placement Shares applied for or for any compensation, loss or damage. 13. By completing and delivering the Application Form, you agree that: (a) in consideration of our Company having distributed the Application Form to you and agreeing to close the Application List at 12.00 noon on 16 September 2013 or such other time or date as our Directors may, in consultation with the Manager, Sponsor and Placement Agent, decide and by completing and delivering the Application Form, you agree that: (i) (ii) your application is irrevocable; and your remittance will be honoured on first presentation and that any application monies returnable may be held pending clearance of your payment without interest or any share of revenue or other benefit arising therefrom;
(b)
neither our Company, the Manager, Sponsor and Placement Agent nor any other party involved in the Placement shall be liable for any delays, failures or inaccuracies in the recording, storage or in the transmission or delivery of data relating to your application to us or CDP due to breakdowns or failure of transmission, delivery or communication facilities or any risks referred to in paragraph 10 above or to any cause beyond their respective controls; all applications, acceptances and contracts resulting therefrom under the Placement shall be governed by and construed in accordance with the laws of Singapore and that you irrevocably submit to the non-exclusive jurisdiction of the Singapore courts; in respect of the Placement Shares for which your application has been received and not rejected, acceptance of your application shall be constituted by written notification and not otherwise, notwithstanding any remittance being presented for payment by or on behalf of our Company; you will not be entitled to exercise any remedy of rescission for misrepresentation at any time after acceptance of your application;
(c)
(d)
(e)
F-8
(g)
(h)
F-9
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