These applications are now allowed if the guarantors can demonstrate that they do not have the financial capability to fulfill the profit guarantee obligation. For such cases, the guarantors are allowed to vary the profit guarantee agreement only if the variation involves compensating the Company/shareholders for the profit shortfall and not a variation to the guaranteed sum or an extension of time in fulfilling the obligation. The compensation can take the form of payment of the profit shortfall by instalments or by way of issuance of new securities.

Investor protection conditions

Additionally, the SC has introduced conditions that are meant to uphold investors' interest, in the event that variations to profit guarantee are proposed. In this respect, guarantors who opt to vary the tenure of the profit guarantee period or the guaranteed sum must now provide a security margin equivalent to at least 120% of the original guaranteed annual maintainable profit as stated in the prospectus of the Company.

The security arrangement shall be in the form of deposit of quoted securities with an independent stakeholder and the guarantors are required to maintain this level of security margin at all times until their profit guarantee obligations are fully discharged.

For cases where the guarantors propose to issue new securities, the guarantors are now required to adhere to a restriction in sale of their existing shareholdings in the Company from the date the announcement of the variation is made until one (1) month after the listing of the new securities.

The above flexibilities and requirements are effective immediately and are additions to the SC's existing requirements on variations to profit guarantee agreements, which shall remain in force. The new requirements on security margin based on the original guaranteed annual profit will not however apply to cases which have been previously approved by the SC. Full details on the new flexibilities and requirements will be conveyed to the advisers and affected parties in due course.

Procedures

All new proposals must be announced at least one (1) month before the close of the financial year end in question and the SC will only accept applications for variation if they are submitted to the SC within three (3) months from the announcement of the variation by the Company. Companies which have made an announcement to vary the profit guarantee agreements prior to the date of this press statement (30 September 1999) but have yet to submit the applications to the SC are allowed a grace period of three months, from that date, to submit their applications through their advisers.

Directors and guarantors are reminded that any applications to vary profit guarantee agreements should be undertaken in the best interest of the Company.