LOOKS GOOD to me,,,,,,,,,,,,,,,,,,,,,,!!EXPLANATORY STATEMENT...

LOOKS GOOD to me,,,,,,,,,,,,,,,,,,,,,,!!


EXPLANATORY STATEMENT This Explanatory Statement and all attachments and the preceding Notice form an important document. They should be read carefully. If you have any questions regarding the matters set out in this Explanatory Statement or the preceding Notice, please contact the Company, your stockbroker or other professional adviser. 1. GENERAL INFORMATION This Explanatory Statement has been prepared for the shareholders of Wasabi Energy Limited in connection with the General Meeting of the Company to be held on Monday, 7 February 2005 at 10:00 am (WST). This Explanatory Statement should be read in conjunction with the Notice of General Meeting. 2. THE RESOLUTIONS Special Business 2.1 Resolution 1 – Ratification of Allotment and Issue of Shares ASX Listing Rule 7.1 requires that a listed company must obtain shareholder approval prior to the issue of shares, or securities convertible into shares (such as an option), representing more than 15% of the issued capital of that company in any 12 month period. ASX Listing Rule 7.4 states that an issue by a company of securities made without approval under ASX Listing Rule 7.1 is treated as having been made with approval for the purpose of ASX Listing Rule 7.1 if the issue did not breach ASX Listing Rule 7.1 and the company’s shareholders subsequently approve it. On 7 December 2004, the Company issued and allotted 32,416,814 Shares at an issue price of $0.016 per Share to raise $518,669 (“Placement”). Shareholders’ ratification for the issue of the Shares under the Placement is now sought pursuant to ASX Listing Rule 7.4 to reinstate the Company’s capacity to issue up to 15% of its issued capital, if required, in the next 12 months without Shareholder approval. ASX Listing Rule 7.5 requires that the following information be provided to Shareholders for the purpose of obtaining Shareholder approval pursuant to ASX Listing Rule 7.4: a) the total number of Shares issued was 32,416,814; b) the issue price of the Shares was $0.016 per Share and the Shares were allotted and issued on 7 December 2004; c) the Shares issued rank equally with, and are on the same terms as, the Company’s existing Shares on issue; d) the money raised through the issue of these Shares is intended to be used, or has been used, to fund an increase in the Company’s interest in Exergy Inc and for general working capital; and
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e) the Shares were allotted to the following subscribers: Name Shares Sassey Pty Ltd 2,900,000Transocean Securities Pty Ltd 500,000Alex Negus 500,000Craig Burton 250,000Francois LeClezio 250,000Muteroo Pastoral Co Pty Ltd 1,800,000Ocean View WA Pty Ltd 4,018,750DW Wilkins & NM Garbutt-Wilkins 200,000Robert Wittenoom 1,562,500Cambrian Mining Plc 14,400,000John Byrne 6,000,000Phillip MacLeod 35,564TOTAL 32,416,814 None of the parties listed above are related parties or associates of the Company. 2.2 Resolution 2 – Issue of Shares to an Underwriter The Company announced on 22 November 2004 its intention to raise up to $1,988,230 by a non-renouncable Rights Issue. The pro-rata offering is on the basis of one New Share at a price of 1.6 cents and a free attaching Option expiring 31 December 2006 and exercisable at 2 cents per share for every two existing Shares. Cambrian Mining Plc (“Cambrian”), a major shareholder of the Company, has agreed to underwrite the Rights Issue. The Underwriting Agreement is subject to and conditional upon Shareholders approving the issue of any shortfall New Shares to Cambrian in accordance with all relevant provisions of the ASX Listing Rules and the Corporations Act. The ASX Listing Rules and the Corporations Act set out various regulatory requirements which must be satisfied in relation to the issue of Shares to Cambrian pursuant to the Underwriting Agreement. These are summarised below. 2.2.1 Section 611 of the Corporations Act Pursuant to Section 606(1) of the Corporations Act, a person must not acquire a relevant interest in issued voting shares in a listed company if the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person and because of the transaction, that person’s or someone else’s voting power in the company increases: (a) from 20% or below to more than 20%; or (b) from a starting point above 20% and below 90%.
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The voting power of a person in a body corporate is determined in accordance with Section 610 of the Corporations Act. The calculation of a person’s voting power in a company involves determining the voting shares in the company in which the person and the person’s associates have a relevant interest. The “associate” reference includes a reference to a person: (a) who has the capacity to control a company; (b) a person who has the ability to control or influence the composition of a company’s board or the conduct of a company’s affairs; and (c) who is acting in concert in relation to a company’s affairs. A person has a relevant interest in securities if they: (a) are the holder of the securities; (b) have the power to exercise, or control the exercise of, a right to vote attached to securities; or (c) have power to dispose of, or control the exercise of a power to dispose of, the securities. It does not matter how remote the relevant interest is or how it arises. If two or more people can jointly exercise one of these powers, each of them is taken to have that power. The Company currently has 248,528,908 Shares on issue. Cambrian currently holds 49,400,000 Shares representing a voting power of 19.9%. As stated above, Cambrian has agreed to underwrite the Rights Issue. If no other Shareholder takes up the rights entitlement, Cambrian would be required to subscribe for approximately 129,264,454 Shares and 129,264,454 Options taking its holding to 178,664,454 Shares representing a voting power of 47.9%. If Cambrian were to exercise all the Options issued, its holding would increase to 307,928,908 representing 60.7% of the voting power on a fully diluted basis. Shareholder approval under Item 7 of Section 611 of the Corporations Act is required because, depending on the amount of any shortfall of the Issue, Cambrian’s voting power in the Company may increase from a starting point below 20% to more than 20%. Information is required to be provided to Shareholders under ASIC Policy Statement 74 and the Corporations Act. Shareholders are also referred to the independent expert’s report prepared by Stanton Partners Corporate Pty Ltd which accompanies this Explanatory Statement. For the purposes of the Corporations Act, the following information is disclosed: Identity of the entity that may hold a relevant interest in the Shares on completion of the acquisition pursuant to the Underwriting Agreement The identity of the entity that may hold a relevant interest in the Shares on completion of the Rights Issue pursuant to the Underwriting Agreement is Cambrian. 7
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Cambrian is a company registered in England with Company Number 0401 0083. Cambrian describes itself as a mining investment house with a portfolio of equity interests in companies involved in coal, gold and base metals. The company’s various investments hold resources projects in Australia, North America, Tunisia, Ghana and Bangladesh. Cambrian is listed on the Alternative Investments Market (AIM) of the London Stock Exchange. Securities to which Cambrian may have a relevant interest in immediately before and after the finalisation of the Rights Issue. As at the date of this Notice, Cambrian has a relevant interest in 49,400,000 Shares and no Options. The maximum number of securities that may be held by Cambrian on completion of the Rights Issue under the Underwriting Agreement is 178,664,454 Shares and 129,264,454 Options. Set out below are the matters required to be disclosed in accordance with Item 7 of Section 611 of the Corporations Act being: (a) the maximum extent of the increase in the relevant allottee’s voting power in the Company that would result from the acquisition: The maximum extent of the increase in Cambrian’s voting power is 28.0% on an undiluted basis. (b) the voting power that the relevant allottee would have as a result of the acquisition: The maximum voting power Cambrian will have as a result of the acquisition is 47.9% on an undiluted basis. (c) the maximum extent of the increase in the voting power of each of the allottee’s associates that would result from the acquisition: Cambrian is not controlled by any particular entities that would make them associates of Cambrian. (d) the voting power that each of the allottee’s associates would have as a result of the acquisition: Cambrian does not have any associates for the purposes of the Corporation Act. Other Required Information The following further information is disclosed: (a) as a major shareholder in the Company, Cambrian may actively seek to assist the Company in identifying a new asset or business for acquisition that may have synergies with the Company’s existing business, and Cambrian (or its nominees) would expect to make an active contribution to the Company’s management deliberations although it will not initially seek Board representation; (b) Pursuant to the terms of the Underwriting Agreement, Cambrian will be entitled to an underwriting fee of 5% of the amount raised under the Rights Issue; (c) Cambrian does not propose to change the business of the Company; 8
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(d) Cambrian does not have any present intention to inject further capital into the Company beyond its underwriting commitment. However, if the Company wishes to raise further capital on some future date, Cambrian would, subject to the terms of the capital raising, consider supporting the Company’s future capital raising initiative; (e) Cambrian does not propose to change the current employment arrangements with the Company’s employees; (f) Cambrian has no current intention to redeploy any fixed assets of the Company or to change the Company’s existing policies in relation to financial matters or dividends; and (g) Cambrian does not have any current intention to appoint any additional directors to the board of directors of the Company. 2.2.2 Directors’ Recommendations Each of the Directors recommends that Shareholders approve the proposal for the reason that the underwriting of the Rights Issue provides some security as to future funding that enables the Company to fund its expanded interest in Exergy Inc. (the US-based owner of the Kalina power cycle technology) and its technologies, evaluate and invest in other energy related projects and conduct its day to day operations. Shareholders should read this Explanatory Statement in full, including the independent expert’s report referred to below to form an opinion on the merits of the proposal. 2.2.3 Independent Expert’s Report The independent export’s report prepared by Stanton Partners Corporate Pty Ltd sets out a detailed examination of the proposed transaction to enable shareholders to assess the merits and decide whether to approve the proposal. To the extent that it is appropriate, the independent expert’s report sets out further information with respect to the proposed transaction and concludes that the underwriting of the Rights Issue by Cambrian is fair and reasonable to the non associated shareholders of the Company. Shareholders are urged to carefully read the independent expert’s report to understand the scope of the report, the methodology of the valuation and the sources of information and assumptions made. 2.3 Resolution 3 – Grant of Options to Tim Wise 2.3.1 Background Resolution 3 seeks Shareholder approval for the issue of 10,000,000 Director Options to Mr Tim Wise, a Director of the Company, or his nominee (“Mr Wise”) at no cost. The grant of these Director Options to Mr Wise is designed to provide a reward for past efforts of Mr Wise and an incentive to Mr Wise to provide dedicated and ongoing commitment to the Company. The particular number of Options being granted has been determined after reviewing the remuneration packages offered to executives of similar companies and, based on this review, the Directors believe that this level of remuneration is in line with corporate remuneration of similar companies. The Director Options are proposed to be granted with an exercise price of 2 cents each and expiring 2 years from the date of issue.
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The number of Director Options to be granted to Mr Wise under Resolution 3 were determined after having regard to a number of factors including: a) retaining an experienced and skilled employee – the grant of Director Options will assist the Company to retain the services of Mr Wise and allow the Company to utilise his skills in relation to the ongoing management of the investment in Exergy Inc.; the operations of the Company; and the sourcing and evaluation of suitable new projects; b) creation of incentive – the Directors consider the number and terms of the Director Options to be granted is the appropriate balance between rewarding past endeavours and creating an incentive for Mr Wise to provide dedicated services and commitment to the Company and protecting the interests of Shareholders from the dilutionary impact of the exercise of the Director Options; c) alignment of interests – the Directors consider that it is in the interests of Shareholders to align the interests of Mr Wise and Shareholders by encouraging Mr Wise to increase his equity holding in the Company. The Directors consider however that similarly to other Shareholders, this interest should arise through direct investment by Mr Wise in the Company. In this regard, the total Director Option exercise consideration with respect to the Shares to be issued on exercise of the 10,000,000 Options is $200,000. The Directors determined the exercise prices of these Director Options in light of the historical price of Shares in the Company. Further details on the Company’s Share price are set out in Section 2.3.3 of this Explanatory Statement. The Director Options to be granted are in addition to Mr Wise’s fees and remuneration package payable by the Company. Further details of Mr Wise’s remuneration package is set out in Section 2.3.3 of this Explanatory Statement. 2.3.2 ASX Listing Rule 10.11 ASX Listing Rule 10.11 provides that a company must not issue securities (including options) to a related party of the company, such as a director, without the company obtaining prior shareholder approval. Accordingly, Resolution 3 seeks Shareholder approval for the grant of Director Options to Mr Wise, who is a related party of the Company by virtue of his position as a Director. Approval pursuant to ASX Listing Rule 7.1 is not required in order to issue the Director Options to Mr Wise (or his nominee) as approval is being obtained under ASX Listing Rule 10.11. Shareholders should note that the issue of securities to Mr Wise (or his nominee) will not be included in the 15% calculation for the purposes of ASX Listing Rule 7.1. For the purposes of ASX Listing Rule 10.13, the following information is provided in relation to Resolution 3: a) 10,000,000 Director Options will be issued by the Company to Mr Wise; b) the Director Options will be issued not later than one (1) month after the date of this Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules) and it is anticipated that the Director Options will be issued on one date;
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c) the Director Options will be issued for no consideration; d) the Director Options will be issued on the terms and conditions in Section 2.3.4 of this Explanatory Statement; and e) there will be no funds raised from the issue of the Director Options as they will be issued for no consideration as a reward and an incentive for the Director to provide dedicated and ongoing commitment to the Company. However, should these Director Options be exercised by Mr Wise, the Company will receive funds. 2.3.3 Chapter 2E of the Corporations Act Chapter 2E of the Corporations Act regulates the provision of financial benefits to related parties by a public company. Section 208 of the Corporations Act prohibits a public company giving a financial benefit to a related party unless one of a number of exceptions applies. A “related party” for the purposes of the Corporations Act is widely defined. It includes a director of a public company and specified members of the director’s family. It also includes an entity over which a director maintains control. A “financial benefit” for the purposes of the Corporations Act is also defined widely. It includes a public company paying money to another entity. It also includes the public company granting an option over its securities. In determining whether or not a financial benefit is being given, it is necessary to look to the economic and commercial substance and the effect of the transaction (rather than just the legal form) and any consideration which has been given is to be disregarded, even if it is full or adequate. For the purposes of Chapter 2E of the Corporations Act, Mr Wise is considered to be a “related party”, whilst the issue of Options to him constitutes a “financial benefit” which will require prior shareholder approval. Section 208 of the Corporations Act provides that, for a public company to give a financial benefit to a related party of that company, the public company must: a) obtain the approval of members in the ways set out in Sections 217 to 227; and b) give the benefit within 15 months after the approval. The Company is seeking Shareholder approval for the purposes of Chapter 2E of the Corporations Act in respect of the Director Options to be issued to Mr Wise pursuant to Resolution 3, which may constitute the giving of financial benefits to a related party of the Company. In accordance with the requirements of Chapter 2E of the Corporations Act and in particular, Section 219 of the Corporations Act, the following further information is provided to allow Shareholders to assess the proposed issue of Director Options: a) Mr Wise is a related party of the Company by virtue of him being a Director of the Company; b) the proposed financial benefit and the nature of the financial benefit to be given to Mr Wise is the issue of 10,000,000 Director Options for no consideration;
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c) as set out in Section 2.3.1 of this Explanatory Statement, the Director Options will be issued to provide a reward for past efforts and as an incentive for on-going commitment and effort to the Company and on the terms and conditions set out in Section 2.3.4 of this Explanatory Statement; d) Mr Wise declines to make a recommendation to Shareholders in relation to the issue of Director Options to himself pursuant to Resolution 3 as he has a material personal interest in the outcome of the Resolution; Other information that is reasonably required by members to make a decision and that is known to the Company or any of its Directors is set out as follows: a) the current interests of Mr Wise in the securities of the Company are as follows: Shares Options % of securities currently held Mr Wise 6,301,119 Nil 2.5% b) should Shareholders approve the grant of Director Options under Resolution 3, Mr Wises’s interest in the securities of the Company will be as follows: Shares Options % of securities held following issue of securities under Resolutions 3* Tim Wise 6,301,119 10,000,000 6.3% *Assuming all Director Options the subject of Resolution 3 are exercised, but excluding any New Shares and Options that may be issued following the Rights Issue. c) the total remuneration package for Mr Wise is $109,000. Mr Wise’s total remuneration package, including the value of the Director Options to be granted pursuant to Resolution 3, is $245,122; d) in the twelve (12) months prior to the date of this Notice, the highest and lowest closing trading price of the Shares on ASX was $0.025 on 21 December 2004 and $0.01 on 1 October 2004. The closing price of the Shares on ASX on the trading day immediately preceding the date of lodgement of this Notice with the ASIC was $0.024 on 23 December 2004; e) if Shareholders approve the issue of Director Options to Mr Wise and all or any of the Director Options are exercised, the effect will be to dilute the shareholding of existing Shareholders. The market price for Shares during the term of the Director Options would normally determine whether or not Mr Wise exercises the Director Options. Subject to any adjustments arising from any rights issues or bonus issues of securities by the Company, if all the Options are exercised, a maximum of 10,000,000 Shares may be allotted and issued to Mr Wise with the effect that the shareholding of existing Shareholders will be diluted by approximately 3.9% (not taking into account the Shares and Options that may be issued pursuant to the proposed Rights Issue); f) the value of the Options and the pricing methodology is set out in Section 2.3.5 of this Explanatory Statement;
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g) the primary purpose of the issue of the Director Options is to reward effort and provide an incentive to Mr Wise to provide dedicated and ongoing commitment and effort to the Company. Shareholders should note that potential benefits will accrue to Mr Wise should the market price of Shares be in excess of the exercise price of the Director Options. Accordingly, the grant of the Director Options may create an opportunity cost or benefit foregone by the Company depending on fluctuations in the market value of its Shares during the exercise period of the Director Options. However, given the purpose of the grant of the Director Options and bearing in mind the exercise terms of the Director Options, the Directors (other than Mr Wise, who declines to comment) do not consider that the opportunity costs to the Company or benefits forgone by the Company in issuing the Director Options upon the terms proposed to be significant; h) the Directors are not aware of any other information that would be reasonably required by Shareholders to allow them to make a decision whether it is in the interests of the Company to pass the Resolution; and i) the Directors (other than Mr Wise who declined to make a recommendation due to his interest in the Resolution) recommend that Shareholders vote in favour of the Resolution as it will create an incentive for the performance of Mr Wise as the Managing Director of the Company and to allow the Company to access the skills of Mr Wise in the future. 2.3.4 Terms and Conditions of Director Options The terms and conditions of the Director Options are as follows: a) each Director Option entitles the holder, when exercised, to one (1) Share; b) the expiry date is 2 years from the date of issue; c) the Options are exercisable at 2 cents each; d) the Options will not be quoted on ASX; e) all Shares issued upon exercise of the Options will rank pari passu in all respects with the Company’s then issued Shares. The Company will apply for official quotation by ASX of all Shares issued upon exercise of the Options; f) there are participating rights in the Director Options and the optionholder will be entitled to participate in new issues of capital offered to shareholders during the currency of the Director Options; g) in the event of any new or bonus issues, there are no rights to a change in exercise price, or a change in the number of underlying securities over which the Director Options can be exercised; and h) in the event of any reorganisation of the issued capital of the Company prior to the expiry date of the Director Options, all rights of the optionholder will be varied in accordance with the ASX Listing Rules.
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2.3.5 Details concerning Value of Options The independent Directors of the Company have ascertained the value of the 10,000,000 Director Options to be issued to Mr Wise to be approximately $136,122. This value has been ascertained using the Black-Scholes valuation method and is based upon the following inputs and assumptions: a) current share issue price is 2.4 cents; b) an estimated volatility factor of 138%; c) option exercise price of 2 cents each; d) a risk free rate of 5.25%; and e) a term to expiry of 24 months. In deriving the valuation, the Black-Scholes method relies on the following assumptions: a) the Director Options can be exercised at any time during the period; b) there are no transaction costs and the securities are infinitely divisible and information is available to all without cost; and c) the risk free interest rate is known and constant throughout the duration of the option contract. The Director Options will not be quoted on ASX. 14
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GLOSSARY ASIC means Australian Securities and Investments Commission. ASX means Australian Stock Exchange Limited. ASX Listing Rules or Listing Rules means the Listing Rules of ASX. Board means the board of directors of the Company. Company means Wasabi Energy Limited (ACN 000 090 997). Constitution means the Company’s constitution. Corporations Act means the Corporations Act 2001 (Cth). Directors means the current directors of the Company. Explanatory Statement means the explanatory statement set out in this document. Meeting means the meeting convened by the Notice. Notice means the notice of meeting set out in this document. Share means a fully paid ordinary share in the capital of the Company. Rights Issue means a proposed one for two pro-rata entitlements issue to existing shareholders at a price of 1.6 cents per New Share with a free attaching Option. New Share means the Shares that may be issued pursuant to the Rights Issue. Option means an option to acquire a Share exercisable at 2 cents expiring 31 December 2006. Director Option means a participating option to acquire a Share exercisable at 2 cents expiring 2 years from the date of issue. 15
STANTON PARTNERS CORPORATE PTY LTD A.C.N 063 036 331 1 HAVELOCK STREET WEST PERTH 6005 WESTERN AUSTRALIA TELEPHONE: (08) 9481 3188 FACSIMILE: (08) 9321 1204 e-mail: [email protected] 24 December 2004 The Directors Wasabi Energy Limited 139 Victoria Street MOSMAN PARK WA 6012 Dear Sirs RE: WASABI ENERGY LIMITED (ACN 000 090 997) MEETING OF SHAREHOLDERS TO CONSIDER RESOLUTIONS RELATING TO THE PROPOSAL TO ISSUE SECURITIES TO CAMBRIAN MINING PLC AND ISSUE PARTICIPATING OPTIONS TO T WISE 1. INTRODUCTION 1.1 We have been requested by the Directors of Wasabi Energy Limited (“Wasabi” or “the Company”) to prepare an Independent Expert’s Report to determine the fairness and reasonableness of the transaction referred to in Resolution 2 as detailed in the Notice of Meeting to Wasabi shareholders (“the Notice”) as they apply to Cambrian Mining PLC ("Cambrian"). Wasabi has recently made a placement by issuing 32,416,814 shares in Wasabi at an issue price of 1.6 cents each (herein noted as the “Issue”) to raise $518,669 of which Cambrian subscribed for 14,400,000 shares (44.42% of the Issue) by paying Wasabi $230,400. By doing so, Cambrian increased its shareholding from 16.20% (35,000,000 shares) to approximately 19.88% (49,400,000 shares) before any other capital raisings. It is planned to undertake a one for two rights issue to shareholders (herein called the “Rights Issue”) whereby shareholders will be offered the right to subscribe for one share for every two shares held at an issue price also at 1.6 cents per share. Furthermore, pursuant to the Rights Issue, shareholders who subscribe for shares under the Rights Issue will receive at no additional cost one share option (“Options”) for each share subscribed for. Such Options may be exercised at 2 cents each, on or before 31 December 2006. Cambrian has entered into an Underwriting Agreement with Wasabi whereby Cambrian will underwrite the Rights Issue for a fee of 5% of the monies to be raised under the Rights Issue. It is possible that Cambrian may increase its shareholding to a figure greater than 20% in Wasabi in the event that other shareholders do not subscribe for shares (and Options) under the Rights Issue.
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1.2 Resolution 3 relates to the proposed issue of 10,000,000 options (“Participating Options”) to Mr Tim Wise (“Wise”), a director of the Company. The Participating Options are participating options in that they do not need to be exercised into shares for the Participating Option holder to participate in any rights issue to shareholders. The Participating Options are exercisable at 2 cents each, on or before two years from date of issue. Further details on the Participating Options are outlined elsewhere in the Explanatory Statement to Shareholders. The Australian Stock Exchange ("ASX") Listing Rule 6.20.3 requires an Independent Expert to report to the shareholders on the effect of the proposed right of participation. 1.3 We are not reporting on the fairness and reasonableness of the proposals pursuant to Resolution 1 that relates to the ratification of the previous issue of 32,416,814 shares at 1.6 cents each to which Cambrian subscribed for 14,400,000 shares or the fairness and reasonableness of Resolution 3. The report specifically addresses Resolution 2 only that allows Cambrian to acquire shares and options (and exercise the options) pursuant to an shortfall requirement under the Underwriting Agreement. However, our report comments on the affect of issuing the 10,000,000 Participating Options proposed to be issued pursuant to Resolution 3. 1.4 Under Section 606 of TCL, a person must not acquire a relevant interest in issued voting shares in a company if because of the transaction, that persons’ or someone else’s voting power in the company increases: (a) from 20% or below to more than 20%; or (b) from a starting point that is above 20% and below 90%. Under Section 611 (Item 7) of TCL, Section 606 does not apply in relation to any acquisition of shares in a company by resolution passed at a general meeting at which no votes were cast in favour of the resolution by the acquirer or the disposer or their respective associates. An independent expert is required to report on the fairness and reasonableness of the transaction pursuant to a section 611 (Item 7) meeting. However, no report or shareholders approval is required where an underwriter acquires shares under an underwriting agreement that causes the underwriter to exceed 20%. 1.5 If Resolution 2 is passed and consummated, Cambrian may increase its shareholding in Wasabi to greater than 20% if it subscribes for shares under the Underwriting Agreement. Technically, if no other shareholder subscribed for shares in Wasabi pursuant to the Rights Issue (including Wise pursuant to the right under the Participating Options), Cambrian could increase its shareholding to 178,656,047 shares that would represent a 47.29% shareholding interest in Wasabi (refer paragraph 3.2 of this report). Furthermore, it may acquire Options (maximum 129,256,047 Options) by subscribing for shares pursuant to its obligations under the Underwriting Agreement and taking up shares under the Rights Issue. It may not be able to exercise any Options acquired without shareholder approval. The Directors have requested Stanton Partners Corporate Pty Ltd to prepare an Independent Expert’s Report to assist the shareholders in determining how to vote on Resolution 2 as outlined in the Notice.
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1.6 Apart from this introduction, the report considers the following: • Summary of opinion • Implications of the proposals • Future directions of Wasabi • Basis of valuation of Wasabi • Premium for control • Fairness and Reasonableness of the Proposals • Conclusion as to Fairness and Reasonableness • Sources of information • Appendix A 2. SUMMARY OF OPINION 2.1 In determining the fairness and reasonableness of the transactions pursuant to Resolution 2, we have had regard for the definitions set out by the Australian Securities and Investments Commission (“ASIC”) in its Policy Statements 75 and 74. Policy Statement 75 states that an opinion as to whether an offer is fair and/or reasonable shall entail a comparison between the offer price and the value that may be attributed to the securities under offer (fairness) and an examination to determine whether there is justification for the offer price on objective grounds after reference to that value (reasonableness). Policy Statement 74 states that in all cases, where an acquisition of shares by way of an allotment is to be approved by shareholders pursuant to Section 611 (Item 7) of the Corporations Act (“TCA”), a report by an independent expert stating whether or not the proposal is fair and reasonable, having regard to the interests of shareholders other than the proposed allottee (in this case, Cambrian), and whether a premium for potential control is being paid by the allottee, will be required. Policy Statement 74 also provides that such an allotment should involve a comparison of the advantages and disadvantages likely to accrue to non-associated shareholders if the transactions proceed compared with if they do not. Accordingly, our report relating to Resolution 2 is concerned firstly with the fairness and reasonableness of the proposals from the point of view of the existing non associated shareholders of Wasabi, and secondly, whether the price payable for a significant interest and potential to increase such interest includes a premium for potential control. 2.2 In our opinion: The proposals as outlined in Resolution 2 that will allow Cambrian to acquire further shares and Options pursuant to an Underwriting Agreement and allow Cambrian to exercise any Options acquired at 2 cents each, on or before 31 December 2006 are on balance fair and reasonable to the non-associated shareholders of Wasabi. Au:WAS6279\IER December 2004 v2 lh.doc 3
The effect on the proposal to allow the issue of 10,000,000 Participating Options, exercisable at 2 cents each, is outlined under the Advantages and Disadvantages section 7 of this report and paragraphs 3.3, 3.4 and 5.6 of this report. The opinions expressed above must be read in conjunction with the more detailed analysis and comments made in this report. 3. IMPLICATIONS OF THE PROPOSALS 3.1 As at 26 November 2004, there were 216,112,094 ordinary shares on issue in Wasabi and there are approximately 915 shareholders. The top forty shareholders as at 26 November 2004 own 70.36% of the current issued capital. The significant shareholders are disclosed as: Name of Shareholder No. of Shares % Interest Cambrian Mining PLC 35,000,000 16.20 Invia Custodian Pty Limited 30,600,000 14.16 Archfield Pty Ltd 15,067,840 6.97 Sassey Pty Ltd 12,444,000 5.76 Jem Nominees Pty Ltd 5,897,400 7.73 Marguerite Investment Pty Ltd 3,582,000 1.66 Timothy Wise 3,370,225 1.56 M A O’Brien Medical Pty Ltd 3,237,860 1.50 Running Water Limited 2,500,000 1.16 111,749,325 51.70 Subsequent to 26 November 2004, a further 32,416,814 shares were issued at 1.6 cents each to various parties, of which Cambrian was issued 14,400,000 shares to increase Cambrian's interest to 49,400,000 shares out of a total of 248,528,908 shares. The percentage interest of Cambrian rose from 16.20% to approximately19.88%. 3.2 If the Rights Issue is fully subscribed for, a further 124,264,454 shares would be issued to the shareholders (including Cambrian) at an issue price of 1.6 cents each, along with 124,264,454 Options, exercisable at 2 cents each, on or before 31 December 2006. Furthermore, assuming the 10,000,000 Participating Options are issued and Wise subscribes for shares under the Rights Issue as allowed to under the Participating Options conditions, a further 5,000,000 shares and 5,00,000 Options could be issued to Wise. If Cambrian took up only its full entitlement a further 24,700,000 shares would be issued to Cambrian (and 24,700,000 Options). This would result in Cambrian owning 74,100,000 shares or approximately 19.61% of the expanded issued capital of Wasabi (19.98% if Wise is not issued Participating Options). However, there is the possibility that not all shareholders will subscribe for shares (and free attached Options) pursuant to the Rights Issue and thus Cambrian will be obligated to take up any shortfalls at 1.6 cents each. It is not possible to determine the shortfall. The maximum number of shares that Cambrian would be obliged to subscribe for would be 104,564,454 assuming Cambrian took up its entitlement referred to above (and 99,564,454 if the Participating Options are not issued to Wise). If this unlikely
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scenario eventuated, Cambrian could theoretically own a maximum of 178,664,454 shares (or 173,664,454 shares if the Participating Options are not issued to Wise) in Wasabi out of a total of 377,793,362 on issue (372,792,362 if Wise is not issued the Participating Options). Cambrian’s shareholding interest would then increase to approximately 47.29% (or 46.59% if Wise is not issued the Participating Options). Additionally, Cambrian could potentially own up to 129,264,454 Options that if exercised would increase Cambrian’s shareholding interest to up to 307,928,908 shares or approximately 60.73% of the share capital (507,057,816 shares would be on issue). If the Participating Options are not issued to Wise, Cambrian could own 297,928,908 shares for an approximately 59.94% shareholding interest in Wasabi (497,057,816 shares on issue). 3.3 The Issue raised a total of $518,669 whilst the Rights Issue will raise a gross $2,068,231 or around $1,926,000 after capital raising costs ($1,988 823 gross and $1,850,000 net if the Participating Options are not issued to Wise). Cambrian paid Wasabi $230,400 under the Issue and will pay a minimum of $395,200 under the Rights Issue. The maximum payable by Cambrian if Cambrian was required to take up all of the Rights Issue pursuant to the underwriting agreement would be $2,068,231. Cambrian will be entitled to receive an underwriting fee of up to $103,412 (5% of the amount to be raised under the Rights Issue) ($99,441 if the Participating Options are not issued). 3.4 It is not expected in the short term to alter the Board of Directors. However, as new projects are acquired, additional directors may be appointed. 4. FUTURE DIRECTION OF WASABI 4.1 We have been advised by the Directors of Wasabi that: 4.1.1 The immediate short term plan is to complete the Rights Issue to raise a gross $2,068,231 so that with the amount raised from the Issue, a gross total of $2,586,900 would be raised (assuming the Participating Options are issued to Wise). The funds raised will be initially utilised to fund a significant increase in Wasabi’s interest in Exergy Inc (“Exergy”), the US based owner of the Kalina power cycle technology and in the medium term, to invest in other energy related projects. As announced, Wasabi has an option to increase its shareholding interest in Exergy from 11% to 45% by purchasing all of the interests of Unotec Holdings AG and QI-X Holdings LDC, a company associated with George Soros. The option agreement of November 2004 allows Wasabi to purchase equity in Exergy (18,736,621 shares in Exergy) (and acquire a convertible note due to be paid by Exergy of US$400,000) from these parties for a total of US$400,000. Wasabi has paid a non refundable deposit of US$100,000 and the balance of US$300,000 is due to be paid on 22 March 2005. In Australian dollar terms, the US$400,000 purchase consideration is expected to lie in the range of $512,000 to $533,000.
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4.1.2 There are no proposals contemplated either whereby Wasabi will acquire any property or assets from Cambrian or where Wasabi is to transfer any of its property or assets to Cambrian other than the proposal for Cambrian to acquire further shares and Options under the Rights Issue and Underwriting Agreement. 4.1.3 Composition of the Board of Directors of Wasabi is not expected to change in the near future (refer paragraph 3.4 of this report). 4.1.4 No dividend policy has been set and is not proposed to be set until such time as the Company is profitable and has a positive cash flow. 4.1.5 The Company is to try and maximise its investment in Exergy that may include selling the investment if an appropriate offer was made. The theoretical share price of Wasabi may increase if Wasabi managed to increase the value of its share and loan investment in Exergy. 4.1.6 The Company has through previous announcements via the ASX stated that it would consider the future acquisition of a business or businesses in the energy industry. 5. BASIS OF TECHNICAL VALUATION OF WASABI 5.1 Allotment of Shares 5.1.1 In considering the proposal as outlined in Resolution 2 we have sought to determine if the consideration payable by Cambrian is fair and reasonable to the existing non associated shareholders of Wasabi. 5.1.2 The proposal pursuant to Resolution 2 would be fair to the existing non associated shareholders if the value of the consideration being offered by Cambrian (1.6 cents per share) is greater than or equal to the implicit value of the shares being issued as consideration. Accordingly, we have sought to determine a theoretical value which could reasonably be placed on Wasabi shares for the purposes of this report. 5.1.3 The valuation methodologies we have considered in determining the current technical value of a Wasabi share are: • Capitalised maintainable earnings/discounted cash flow • Takeover bid - the price which an alternative acquirer might be willing to offer • Adjusted net asset backing and windup value • The weighted market value price of Wasabi shares. 5.2 Capitalised Maintainable Earnings / Discounted Cash Flows 5.2.1 Wasabi currently does not have a reliable cash flow or profit history from a business undertaking and accordingly we have not used the capitalised maintainable earnings and discounted cash flow methodologies.
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5.3 Takeover Bid We have been advised by the Directors of Wasabi that they do not believe that there would be any person with an interest in taking over the Company by way of a formal takeover bid. To our knowledge, there are no current bids in the market place and the Directors of Wasabi have formed the view that there is unlikely to be any takeover bids made for Wasabi in the immediate future. However, we do note that Cambrian has recently increased its shareholding in Wasabi from 16.20% to 19.88% and could theoretically increase its shareholding to up to 60.73% as noted in paragraph 3.2. 5.4 Net Asset Backing and Wind Up Value 5.4.1 As there is no intention to wind up the Company, we have not considered wind up values for the purposes of this report. A summary of the unaudited Statement of Financial Position as at 30 June 2004 of the Wasabi Group is summarised below after allowing for expenditure of $120,000 in the period July 2004 to November 2004 on administration costs, the payment of $59,835 to invest in another ASX listed company the payment of a non refundable deposit of US$100,000 (AUS$130,000) as noted in paragraph 4.1 and the issue of 32,416,814 shares at 1.6 cents each to raise $518,669. We also disclose the proforma consolidated Statement of Financial Position (unaudited) of the Wasabi Group incorporating: • the proposed issue pursuant to the Rights Issue of 124,264,454 shares to receive $1,988,231; • allowing for $138,231 capital raising costs and expensed against equity; • the payment of US$300,000 (say $390,000) to complete the acquisition of shares and notes in Exergy as noted in paragraph 4.1.1 • the above adjustments. UnaudAdju
ited
sted
004
00's
P
893
47
94
30 June 2$0ro-forma 30 June 2004 $000's Current assets Cash assets 2,353 Receivables 11 Other financial assets 47 12,401 Non Current Assets
Plant and equipment 7
13
13
7 Investments 0520 Receivables -- 7527 Total Assets 1,07 82,928 Au:WAS6279\IER December 2004 v2 lh.doc 7
Unaudited
Adjusted
30 June 2004
$000's
Pro-forma
30 June 2004
$000's
Current Liabilities
7
77
Payables 777 Total Liabilities 77 Net Assets 1,00 12,851 Equity
,75
75
,00
Contributed capital 9211,602 Accumulated losses (8,1)(8,751) Net Equity 112,851 5.4.2 Based on the adjusted book values at 30 June 2004, this equates to a value per share (248,528,908 shares) of approximately 0.40 cents (ignoring the value, if any, of non booked tax benefits). 5.4.3 Based on the proforma Statement of Financial Position, the net book assets are $2,851,000. Thus, the net book asset backing per share (372,793,362 shares) would approximate 0.76 cents (or 1.03 cents if the convertible notes due to Exergy were repaid as noted in 5.5.4 below). If the Participating Options are issued to Wise, the net assets increase by a net $76,000 as Wise may subscribe for shares under the Rights Issue and would be eligible to take up a further 5,000,000 shares (and Options) at 1.6 cents each to raise a gross $80,000 and $76,000 after underwriting fees payable to Cambrian. Thus the net asset backing per share would increase to 0.77 cents or 1.04 cents if the convertible notes were repaid). 5.4.4 The Directors have formed the view that the fair value of the non- Exergy related assets of the Wasabi Group are not materially different from book values. We have not verified this assertion however for the purposes of this report we do not consider an independent valuation of the assets is necessary. We note that Wasabi is listed on the ASX and its shares are quoted. As at 30 June 2004, Wasabi had a purported 11% interest in Exergy by way of a 6,000,000 share investment. The shares were acquired at no cost to Wasabi but Wasabi agreed to not take any action on collection of the convertible notes as noted below. Furthermore, Wasabi had lent Exergy a total of US$332,924 plus interest that as at 9 January 2005 will total approximately US$413,528 (AUS$517,000 to AUS$551,000). The annual report of Wasabi noted the following comments in regard to Exergy. Quote "The consolidated entity holds unsecured convertible notes in Exergy Inc (“Exergy”). Exergy was incorporated in California on 1 March 1998 to licence the Kalina Cycle Technology (“the Technology”) and to develop the Technology commercially through its own activities (including construction of a demonstration facility) and through licences to other companies and government entities and to provide engineering consulting services to users of the Technology. Accrued interest of $50,993 has been
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recognised on the convertible notes for the year ended 30 June 2004 and is included in the gross value of $620,171. Exergy does not have the financial capacity to repay the convertible notes at present. The Directors believe Kalina cycle technology has substantial merit and therefore that the convertible notes will ultimately prove to have value. The Company is continuing to examine its options to realise value from the convertible notes. Recognising that the Company is not in a position to fully assess the recoverability of the convertible notes at the date of this report (sic, 30 September 2004), the directors believe it prudent to provide for this asset in full." End of Quote The convertible notes are for US$250,000 and US$83,294 (excluding interest) and carry an interest rate of 12% per annum. Both convertible notes are overdue for repayment and are repayable in US dollars. Furthermore, Wasabi has an agreement to acquire US$400,000 of notes due to be payable by Exergy to two parties as part of the agreement to increase its share equity in Exergy from 11% to 45%. In Australian dollar terms, these notes are worth in the range of $506,000 to $533,000 (say $510,000 as at 1 December 2004). The Company had an agreement with CTE Investments Pty Ltd (“CTE”) for CTE to provide a due diligence investigation report on Exergy and advise and enable the Company to extract a suitable return on its investment in Exergy. Included in the fee for this service, CTE is to receive up to 3,700,000 shares in the Company at a deemed issue price of 1 cent per share if the Company receives the principal and interest due on the convertible notes or the Company converts the notes to common stock in Exergy. If the return on the convertible notes is less than full amount, the shares issued to CTE is reduced proportionately. Based on the adjusted 30 June 2004 Statement of Financial Position as noted in paragraph 5.4.1, the book net assets (mainly comprising of cash) total $1,001,000 and thus the net asset backing per share approximates 0.40 cents. However, if the convertible notes were repayable in full, the net assets may approximate $2,048,000, for an asset backing per share of around 0.81 cents. This assumes a further issue of 3,700,000 shares as noted above. If the proposals proceed as noted in paragraph 4.1.5, then the value per share may be significantly higher. At the date of this report, no written offer has been signed and thus we cannot determine if it is appropriate to revalue Wasabi assuming the proposals per paragraph 4.1.5 proceed. In any event, we do not consider it necessary to determine a theoretical value for the purposes of this report assuming the proposals as noted in paragraph 4.1.5 proceeds. If the 3,700,000 shares are issued, the percentage shareholdings of Cambrian as referred to throughout this report would be reduced. 5.5 Weighted Average Market Price of Wasabi Shares 5.5.1 We set out below a summary of the share prices of Wasabi since 1 April 2004 to the trading date (19 November 2004) prior to the announcement of the capital raisings that incorporate dealings with Cambrian. Au:WAS6279\IER December 2004 v2 lh.doc 9
2004 High Cents Low Cents Last Sale Cents Volumes Trade (000’s) April 1.9 1.4 1.4 4,333 May 1.5 1.3 1.3 2,272 June 1.4 1.0 1.1 4,115 July 1.6 1.1 1.3 2,308 August 1.3 1.1 1.1 1,375 September 1.3 1.0 1.3 3,793 October 2.4 1.0 2.3 20,948 November (to 19th) 2.4 1.9 1.9 6,190 It is noted that there was a considerable lift in trades (and prices) that commenced shortly after the release of the 2004 Annual Report on 30 September 2004. The Annual Report made reference to Exergy and the proposition to strengthen Wasabi’s position in Exergy and the possibility of investing in other energy related businesses. It is our view that over the past eight weeks there has been considerable speculation of a large deal and this has caused a massive increase in turnover and share price. At the time of negotiating with Cambrian, the share price was around 1.5 cents to 1.6 cents but has increased over the past ten weeks. It is noted that the cash reserves of Wasabi are not high and that a capital raising is required to fund activities for 2005. It was also noted that 25,000,000 shares were placed by the Company with Cambrian in April 2004 at 1.3 cents each and 24,900,000 shares were placed in late 2003 at 1.3 cents. 5.5.2 After taking into the account the matters referred to in the preceding paragraphs, we are of the view that the ‘technical’ theoretical value of a Wasabi share currently approximates 0.40 cents to 0.81 cents. This compares with the 19 November 2004 market value of 1.9 cents and April 2004 to September 2004 prices of between 1.0 cents and 1.8 cents. As at 30 November 2004, the last sale was undertaken at 2.1 cents and as at 21 December 2004, the share price was 2.2 cents. The future ultimate value of a Wasabi share will depend upon, inter alia: • the future prospects of its investment in Exergy; • the state of the energy markets (and prices) in Australia and overseas; • the state of Australian and overseas stock markets; • who controls the Board; • general economic conditions; • the liquidity of shares in Wasabi; and • possible other energy ventures entered into by Wasabi. 5.6 We note that under the proposed Rights Issue, free Options are to be issued to the shareholders, exercisable at 2 cents each, on or before 31 December 2006. Using the Black Scholes formula, volatility factors of 50%, 75% and 100%, a current closing share price of 2.2 cents (21 December 2004), and a risk free interest of 5.25% results in a theoretical value per Option of 0.76 cents (50% volatility), 1.00 cent (75% volatility)
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and 1.23 cents (100% volatility). In the event that Cambrian subscribes for shares in Wasabi pursuant to the Underwriting Agreement, it will receive free Options. As a shareholder in Wasabi it will be entitled to take up a minimum of 24,700,000 shares and 24,700,000 free attaching share Options as Cambrian already owns 49,400,000 shares. As noted previously, we consider the price appreciation of a Wasabi share over the past eight weeks results from speculation that Wasabi will proceed with a new energy acquisition and enter into a proposal to maximise its investment in Exergy. The Participating Options have a theoretical value of between 0.77 cents (50% volatility) and 1.25 cents (100% volatility) with a mid range value of 1.02 cents (75% volatility) using the Black Scholes methodology and assuming a share price of 2.2 cents (closing price at 21 December 2004), a risk free interest rate of 5.35%, assuming the volatilities noted and a two year term for the Participating Options. The Participating Options also have the advantage that the Participating Option holder (proposed to be Wise) can participate in the Rights Issue and any future rights issues (before expiry of the Participating Options). Furthermore, by Wise being allowed to participate in the Rights Issue via being issued Participating Options, a further 5,000,000 Options will be granted to him. 6. PREMIUM FOR CONTROL 6.1 Premium for control for the purposes of this report, has been defined as the difference between the price per share, which a buyer would be prepared to pay to obtain or improve a controlling interest in the Company and the price per share which the same person would be required to pay per share, which does not carry with it control or the ability to improve control of the Company. 6.2 Under TCA, control may be deemed to occur when a shareholder or group of associated shareholders control more than 20% of the issued capital. In this case, Cambrian holds 19.88% of the expanded issued capital of Wasabi after the issue of the shares pursuant to Issue. However, Cambrian could increase its percentage shareholding up to 47.29% (refer paragraph 3.2 of this report) if Cambrian acquired further shares (and share Options) pursuant to the Underwriting Agreement (by acquiring shares not taken up by other shareholders under the Rights Issue). Accordingly, we have addressed whether a premium for control will be paid. 6.3 The current assessed technical value of a Wasabi share lies in the range of approximately 0.40 cents to 0.81 cents. Initially, control is not passing to Cambrian, however it is expected that Cambrian will increase its shareholding interest in Wasabi by acquiring shares not taken up by other shareholders. Wasabi would probably not be paying a premium for control based on share prices of October and November 2004, however as noted above, the shares in Wasabi in the period June 2004 to October 2004 were trading between 1.0 cents and 1.8 cents and thus at 1.6 cents a premium for control would be paid for most of that period. If all shareholders subscribed for shares under the Rights Issue, Cambrian’s interest would not exceed 19.88% and thus deemed “control” would not occur. 7. FAIRNESS AND REASONABLENESS OF THE PROPOSALS Au:WAS6279\IER December 2004 v2 lh.doc 11
We set out below, some of the advantages, disadvantages and other factors pertaining to the proposed issues of shares and Options to Cambrian (including the shares subscribed for under the Issue as the Issue was part of a package with the proposed Rights Issue). We also set out the advantages and disadvantages and effects of issuing Participating Options to Wise. Advantages 7.1 Cambrian subscribed for shares in Wasabi with other professional investors at 1.6 cents each. The total capital raising from the Issue was $518,669 of which Cambrian subscribed for $230,400. These funds will be used to complete the payment to two Exergy shareholders a total of US$400,000 (approximately AUS$520,000) so that Wasabi can increase its shareholding in Exergy to 45%. US$100,000 of the US$400,000 has been paid. Wasabi as at 30 November 2004 only had $478,000 of available cash funds (and approximately $950,000 after the Issue) and after allowing for holding costs of being a publicly listed company, would not have sufficient funds to pay the US$400,000 and increase its business activities. 7.2 There will still be a significant non associated shareholding in Wasabi after the passing and consummation of Resolutions 2 and 3 and Cambrian potentially increases its shareholding from 19.88%. If all shareholders acquired shares pursuant to the Rights Issue, Cambrian’s shareholding would still remain at approximately 19.88% (or reduce to 19.62% if Wise acquired shares under the Rights Issue pursuant to the Participating Options). Control does not pass at 19.88%. 7.3 The extra funds that will flow from the capital raising of $518,669 (completed) and the Rights Issue (approximately $1,988,231 or $2,068,231 if the Participating Options are issued) will be able to be used to expand the energy business of Wasabi and hopefully increase shareholders wealth. However, we cannot guarantee that the Company will be successful in any new business activity and that Wasabi will be able to maximise its investment in Exergy. 7.4 Cambrian paid 1.6 cents per share as part of the Issue to raise $518,669. No options were issued pursuant to this Issue. Cambrian paid the same price as other new professional investors and thus received no advantage as compared with other new investors. Furthermore, Cambrian will not increase its shareholding in Wasabi past 19.88% under the Rights Issue if all shareholders take up there full entitlement. 7.5 The Company would receive $494,000 of extra funds if Cambrian exercised the 24,700,000 Options that it may receive if it acquires 24,700,000 shares and 0ptions under the Rights Issue. These funds could be used for further expansion of the energy interests of Wasabi. If all Options issued pursuant to the Rights Issue were exercised, Wasabi would receive a total of $2,585,289 (or $2,485,289 if the Participating Options are not issued). 7.6 All shareholders, including Cambrian are given the right to acquire further shares in Wasabi at the same price of 1.6 cents each (along with one free Option exercisable at 2
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cents each, on or before 31 December 2006) and thus there is no advantage or disadvantage to Cambrian as compared with other shareholders. 7.7 By issuing the Participating Options to Wise, the Company can raise a further $80,000 or $76,000 after capital raising costs as Wise will be able to subscribe for up to 5,000,000 shares and Options under the Rights Issue. If the 5,000,000 Options were exercised, Wise would be required to pay Wasabi a further $100,000. Furthermore, if Wise exercised the Participating Options, he would need to pay Wasabi $200,000. Disadvantages 7.8 An influential shareholding of the Company has been given to Cambrian in that they have voting control of 19.88% of the expanded ordinary issued capital after the successful completion of the $518,669 capital raising. 7.9 If other shareholders do not take up there entitlement under the rights issue, Cambrian could increase its shareholding to a controlling interest of up to 47.29% and up to 60.73% if all 31 December 2006 Options were exercised. To maximise its shareholding, Cambrian would need to pay $2,068,231 (no Options exercised) and a further $2,585,289 if all 31 December 2006 Options were exercised by Cambrian (assumes the 10,000,000 Participating Options are issued). 7.10 The potential value of a Wasabi share may turn out to be worth more than 1.6 cents and even possibly 2.0 cents if Wasabi can maximise its interest in Exergy that may also include its sale. It could be proven that the proposed capital raising is at a discount to potential value of a Wasabi share if Wasabi can maximise its interest in Exergy in 2005. There is always the possibility that the investment in Exergy may be sold to parties who believe they can turn Exergy around so that Exergy becomes profitable. 7.11 If the Participating Options are issued to Wise, the existing shareholders interests are diluted as Wise will be able to increase his shareholding interest in Wasabi by participating in the Rights Issue without having to exercise the Participating Options into ordinary shares in Wasabi. Furthermore, Wise may be eligible to subscribe for further shares in any future rights issues whilst the Participating Options have not expired without exercising the Participating Options. This is a definite advantage to Wise that is detrimental (but not materially so) to the existing non associated shareholders. Currently the interests of Wise have an interest in 6,301,119 shares (approximately 2.54%) in Wasabi. Wise will be able to subscribe for 3,150,560 shares (and 3,150,560 Options) under the Rights Issue. If issued 10,000,000 Participating Options, Wise may subscribe for a further 5,000,000 shares at 1.6 cents each and also be granted a further 5,000,000 Options exercisable at 2 cents each within two years from date of grant. This could increase Wise’s shareholding interest to approximately 3.83% (14,451,679 shares) and approximately 4.46% (22,602,239 shares) if Wise exercised all 8,150,560 Options (assuming all Options exercised). If Wise also exercised the Participating Options at 2 cents each the interests of Wise would increase to approximately 6.31% (32,602,239 shares). If only Wise exercised his Options (and no other Option holder), Wise’s interest in Wasabi could increase to approximately 5.86% and approximately 8.23% if only all Options held by Wise and the 10,000,000 Participation Options are exercised.
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7.12 Wise may receive a further 5,000,000 Options if the Participating Options are issued to him. The Options are currently “in the money” as the 21 December 2004 closing share price is 2.2 cents. To exercise the 5,000,000 Options, Wise would however be required to pay $100,000. Other Factors 7.13 The current market value of a Wasabi share approximates 2.2 cents (21 December 2004) which is in excess of the 1.6 cent issue price pursuant to the $518,669 Issue and the capital raising pursuant to the Rights Issue. Possible reasons for this rise are outlined in paragraph 5.5.1 of this report. 7.14 The issue price of 1.6 cents pursuant to Resolution 2 approximates the quoted market value of Wasabi’s shares at the time of the initial negotiations with Cambrian, although the price did rise during the negotiation stage. Initial discussions were at 1.5 cents per share. It is quite common for companies to issue shares via placements and rights issues at a discount to market. A 20% discount is not uncommon however discounts can be higher or lower. 7.15 Cambrian is taking a risk in increasing its investment in Wasabi as to a large extent, Wasabi’s future share price may be determined by the exploitation and/or commercial success (or otherwise) of the investment in Exergy and any future energy projects that Wasabi may acquire. 7.16 Cambrian is a company that specialises in investing in energy related companies and having Cambrian increasing its interest in Cambrian allows for new capital to be obtained, to increase the energy business activities of Wasabi. 7.17 The management of Cambrian is staffed by a team of experienced investment professionals who plan to make an active contribution to Wasabi’s management deliberations although it will not initially seek a Board representative. 7.18 There is potential for Cambrian to form a long term strategic alliance with Wasabi. 7.19 The previous capital raising in April 2004 (also to Cambrian) was made at 1.3 cents per share. Au:WAS6279\IER December 2004 v2 lh.doc 14
8. CONCLUSION AS TO FAIRNESS AND REASONABLENESS 8.1 After taking into account the factors referred to in Section 7 above and elsewhere in this report, we are of the opinion that the proposals as outlined in Resolution 2 are, on balance, fair and reasonable to the non associated shareholders of Wasabi. 9. SOURCES OF INFORMATION 9.1 In making our assessment as to whether the proposals per Resolution 2 are fair and reasonable, we have reviewed relevant published available information and other unpublished information of the Company that is relevant to the current circumstances. In addition, we have held discussions with the management of Wasabi about the present and future operations of Wasabi and Exergy. Statements and opinions contained in this report are given in good faith, but in the preparation of this report, we have relied in part on information provided by the Directors and management of Wasabi. 9.2 Information we have received, includes, but is not limited to: • Draft December 2004 Notice of General Meeting of Shareholders of Wasabi; • Discussions with management and Directors of Wasabi; • Shareholding details of Wasabi as supplied by the Company’s Share Registry at 26 November 2004; • Draft of the Underwriting Agreement between Wasabi and Cambrian; • Share prices of Wasabi since 1 April 2004 to 21 December 2004; • Annual report of Wasabi for the year ended 30 June 2004; • Announcements made by Wasabi to the ASX from January 2003 to 21 December 2004; • Unaudited Appendix 4c’s for the 4 months ended 31 October 2004; • The Implementation Agreement of 15 April 2003 (and attachments) between Exergy and Wasabi; • The Loan and Purchase documentation between Wasabi and Unotec Holdings AG and QI-X Holdings LDC of November 2004; • Exergy shareholding list as at 31 July 2002 and share certificate (6,000,000 shares) held by Wasabi in Exergy; • Email correspondence on the proposal as outlined on paragraph 4.1.5; • General information on Exergy and the Kalina Technology; • Exergy income statement for the year ended 30 September 2003 (net loss of US$724,423) and Balance Sheet as at 30 September 2003 that discloses a deficiency in shareholders funds of US$3,750,176; Au:WAS6279\IER December 2004 v2 lh.doc 15
• Exergy income statements for the years ended 30 September 2001 and 2002 and balance sheets as at 30 September 2001 and 2002; and • Promissory (Convertible) Note calculations prepared by Exergy. 9.3 Our report includes Appendix A and a Financial Services Guide attached to this report. Yours faithfully STANTON PARTNERS CORPORATE PTY LTD J P Van Dieren, FCA Director and Authorised Representative Au:WAS6279\IER December 2004 v2 lh.doc 16
APPENDIX A AUTHOR INDEPENDENCE AND INDEMNITY This annexure forms part of and should be read in conjunction with the report of Stanton Partners Corporate Pty Ltd dated 24 December 2004 relating to Resolutions 2 and 3 outlined in the Notice of Meeting of Shareholders of Wasabi. At the date of this report, Stanton Partners Corporate Pty Ltd does not have any interest in the outcome of the proposal. There are no relationships with Wasabi other than acting as an independent expert for the purposes of this report. There are no existing relationships between Stanton Partners Corporate Pty Ltd and the parties participating in the transaction detailed in this report which would affect our ability to provide an independent opinion. The fee to be received for the preparation of this report is based on the time spent at normal professional rates plus out of pocket expenses and is estimated at $15,000. The fee is payable regardless of the outcome. With the exception of that fee, neither Stanton Partners Corporate Pty Ltd, nor John P Van Dieren have received, nor will or may they receive any pecuniary or other benefits, whether directly or indirectly for or in connection with the making of this report. Stanton Partners Corporate Pty Ltd, Stanton Partners and Stantons International or any partners/ Shareholders of Stanton Partners and Stantons International do not hold any securities in Wasabi. There are no pecuniary or other interests of Stanton Partners Corporate Pty Ltd that could be reasonably argued as affecting its ability to give an unbiased and independent opinion in relation to the proposal. Stanton Partners Corporate Pty Ltd and Mr J Van Dieren have consented to the inclusion of this report in the form and context in which it is included as an annexure to the Notice. QUALIFICATIONS We advise Stanton Partners Corporate Pty Ltd is the holder of an Investment Advisers Licence (No 231201) under the Corporations Act relating to advice and reporting on securities. A number of the partners of Stanton Partners and Stantons International are the Directors of Stanton Partners Corporate Pty Ltd. Stanton Partners, Stantons International and Stanton Partners Corporate Pty Ltd have extensive experience in providing advice pertaining to mergers, acquisitions and strategic and financial planning for both listed and unlisted companies and businesses. Mr John P Van Dieren FCA, the person responsible for the preparation of this report, has extensive experience in the preparation of valuations for companies and in advising corporations on takeovers generally and in particular on the valuation and financial aspects thereof, including the fairness and reasonableness of the consideration offered The professionals employed in the research, analysis and evaluation leading to the formulation of opinions contained in this report, have qualifications and experience appropriate to the tasks they have performed.
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DECLARATION This report has been prepared at the request of the Directors of Wasabi in order to assist the shareholders of Wasabi to assess the merits of the proposal to which this report relates. This report has been prepared for the benefit of Wasabi and those persons only who are entitled to receive a copy for the purposes of Section 611 (Item 7) of the Corporations Act and ASX Listing Rule 6.20.3 and does not provide a general expression of Stanton Partners Corporate Pty Ltd’s opinion as to the longer term value of Wasabi and Exergy. Stanton Partners Corporate Pty Ltd does not imply, and it should not be construed, that is has carried out any form of audit on the accounting or other records of Wasabi and Exergy or its subsidiaries. Neither the whole, or any part of this report, nor any reference thereto may be included in or with or attached to any document, circular, resolution, letter or statement, without the prior written consent of Stanton Partners Corporate Pty Ltd to the form and context in which it appears. DISCLAIMER This report has been prepared by Stanton Partners Corporate Pty Ltd with care and diligence. However, except for those responsibilities which by law cannot be excluded, no responsibility arising in any way whatsoever for errors or omission (including responsibility to any person for negligence) is assumed by Stanton Partners Corporate Pty Ltd, Stanton Partners, Stantons International, there shareholders, partners, employees or consultants for the preparation of this report. DECLARATION AND INDEMNITY Recognising that Stanton Partners Corporate Pty Ltd may rely on information provided by Wasabi and its officers (save whether it would not be reasonable to rely on the information having regard to Stanton Partners Corporate Pty Ltd experience and qualifications), Wasabi has agreed:- (a) to make no claim by it or its officers against Stanton Partners Corporate Pty Ltd to recover any loss or damage which Wasabi may suffer as a result of reasonable reliance by Stanton Partners Corporate Pty Ltd on the information provided by Wasabi; and (b) to indemnify Stanton Partners Corporate Pty Ltd against any claim arising (wholly or in part) from Wasabi or any of its officers providing Stanton Partners Corporate Pty Ltd any false or misleading information or in the failure of Wasabi or its officers in providing material information, except where the claim has arisen as a result of wilful misconduct or negligence by Stanton Partners Corporate Pty Ltd. A draft of this report was presented to Wasabi Directors for a review of factual information contained in the report. Comments received relating to factual matters were taken into account, however the valuation methodologies and conclusions did not alter. Au:WAS6279\IER December 2004 v2 lh.doc 18
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STANTON PARTNERS CORPORATE PTY LTD A.C.N 063 036 331 1 HAVELOCK STREET WEST PERTH 6005 WESTERN AUSTRALIA TELEPHONE: (08) 9481 3188 FACSIMILE: (08) 9321 1204 e-mail: [email protected] FINANCIAL SERVICES GUIDE Dated 24 December 2004 1. STANTON PARTNERS CORPORATE PTY LTD Stanton Partners Corporate Pty Ltd ABN 89 036 036 331 (“SPC” or “we” or “us” or “ours” as appropriate) has been engaged to issue general financial product advice in the form of a report to be provided to you. 2. FINANCIAL SERVICES GUIDE In the above circumstances we are required to issue to you, as a retail client a Financial Services Guide (“FSG”). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees. This FSG includes information about: �� who we are and how we can be contacted; �� the services we are authorised to provide under our Australian Financial Services Licence, Licence No: 231201; �� remuneration that we and/or our staff and any associated receive in connection with the general financial product advice; �� any relevant associations or relationships we have; and �� our complaints handling procedures and how you may access them. 3. FINANCIAL SERVICES WE ARE LICENCED TO PROVIDE We hold an Australian Financial Services Licence which authorises us to provide financial product advice in relation to: �� Securities We provide financial product advice by virtue of an engagement to issue a report in connection with a financial product of another person. Our report will include a description of the circumstances of our engagement and identify the person who has engaged us. You will not have engaged us directly but will be provided with a copy of the report as a retail client because of your connection to the matters in respect of which we have been engaged to report.
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Any report we provide is provided on our own behalf as a financial services licensee authorised to provide the financial product advice contained in the report. 4. GENERAL FINANCIAL PRODUCT ADVICE In our report we provide general financial product advice, not personal financial product advice, because it has been prepared without taking into account your personal objectives, financial situation or needs. You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. Where the advice relates to the acquisition or possible acquisition of a financial product, you should also obtain a product disclosure statement relating to the product and consider that statement before making any decision about whether to acquire the product. 5. BENEFITS THAT WE MAY RECEIVE We charge fees for providing reports. These fees will be agreed with, and paid by, the person who engages us to provide the report. Fees will be agreed on either a fixed fee or time cost basis. Except for the fees referred to above, neither SPC, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report. 6. REMUNERATION OR OTHER BENEFITS RECEIVED BY OUR EMPLOYEES All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report. 7. REFERRALS We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide. 8. ASSOCIATIONS AND RELATIONSHIPS Through a variety of corporate and trust structures, SPC is ultimately wholly owned by and operates as part of Stanton Partners and Stantons International professional advisory and accounting practices. Our directors may be partners or directors in Stanton Partners or Stantons International. From time to time, SPC, Stanton Partners and/or Stantons International and their related entities may provide professional services, including audit, tax and financial advisory services, to financial product issuers in the ordinary course of its business.
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9. COMPLAINTS RESOLUTION 9.1 Internal complaints resolution process As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing, addressed to: The Complaints Officer Stanton Partners Corporate Pty Ltd Level 1 1 Havelock Street WEST PERTH WA 6005. When we receive a written complaint we will record the complaint, acknowledge receipt of the complaints within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination. 9.2 Referral to External Dispute Resolution Scheme A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Industry Complaints Service Limited (“FICS”). FICS is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry. Further details about FICS are available at the FICS website www.fics.asn.au or by contacting them directly via the details set out below. Financial Industry Complaints Service Limited PO Box 579 Collins Street West MELBOURNE VIC 8007 Toll Free: 1300 78 08 08 Facsimile: (03) 9621 2291 10. CONTACT DETAILS You may contact us using the details set out at the top of our letterhead on page 1 of this FSG.
PROXY FORM The Secretary Wasabi Energy Limited 139 Victoria Street MOSMAN PARK WA 6012 I/We __________________________________________________________________________________ (Block Letters) being a member of WASABI ENERGY LIMITED hereby appoint __________________________________________________________________________ of ____________________________________________________________________________________ or failing him/her ________________________________________________________________________ of ____________________________________________________________________________________ or failing him/her, the Chairman of the Meeting or the Chairman’s nominee on my/our behalf at the General Meeting of the Company to be held at the Celtic Club, 48 Ord Street, West Perth, Western Australia, on Monday, 7 February 2005 at 10:00 am (WST) and at any adjournment thereof. If no directions are given, the Chairman will vote in favour of all of the resolutions. Instructions on voting: If you wish to direct your proxy how to vote in respect to the proposed resolutions, please indicate the manner in which your proxy is to vote by ticking the appropriate column below, otherwise your proxy may vote as he/she thinks fit. FOR AGAINST ABSTAIN Resolution 1 ~ Ratification of allotment and issue of shares �� �� �� Resolution 2 ~ Issue of shares to an underwriter �� �� �� Resolution 2 ~ Grant of options to Tim Wise �� �� �� OR If you do not wish to direct your proxy how to vote, please place a mark in this box By marking this box, you acknowledge that the Chairman may exercise your proxy even if he has an interest in the outcome of the resolution and votes cast by him other than as proxy holder will be disregarded because of the interest. The Chairman intends to vote in favour of all of the resolutions. YOU MUST EITHER MARK THE BOXES DIRECTING YOUR PROXY HOW TO VOTE OR MARK THE BOX INDICATING THAT YOU DO NOT WISH TO DIRECT YOUR PROXY HOW TO VOTE, OTHERWISE THIS APPOINTMENT OF PROXY FORM WILL BE DISREGARDED. If you mark the abstain box for a particular item, you are directing your proxy not to vote on that item on a show of hands or on a poll and that your shares are not to be counted in computing the required majority on a poll. %If two proxies are being appointed, the proportion of voting rights this proxy represents is Signed this day of 2005 ............................................................................ Shareholder's Signature(s) THE COMMON SEAL of........................................) ..................................................................................) was hereunto affixed by authority of the ) Directors in the presence of: ) ................................................................................... .................................................................................... Director Director/Secretary