Legal Opinion on the revised Term Sheet for Private Placement of Equity and the draft Investment Agreement sent by Company

Any attempts by “X” to raise new investment by issuing shares after the said 30 days has to comply with two conditions contained therein.

With regard to the requirement that the shares are to be sold at a value above Tk.25.00:

• This may subject to approval from the SEC hence it will be to the extend permissible by law;

• The value of the Company is not at a standstill and hence how long does Company 2 intends to place this restriction?

With regard to issue of shares at no cost to Company 2 in case shares are sold at a price lower than Tk.25.00:

This is a public company and Company 2 shall be shareholders holding ordinary shares having the same rights, benefits and privileges as other ordinary shareholders. A company does not have right to issue shares as fully paid-up shares at no cost except issue of bonus shares. If bonus shares are to be issued to Company 2, the same shall have to be issued to other shareholders under the same terms and conditions.

Moreover, issue of shares at no cost is in fact issue of shares at 100% discount. According to Section 153 of the Companies Act 1994, a company may issue, at a discount shares, in the company of a class already issued :

“Provided that –

(a) the issued of the shares at a discount must be authorised by resolution passed  in  general meeting of the company and must be sanctioned by the Court;

(b) the resolution must specify the maximum rate of discount, not exceeding ten  percent in any case,  at which  shares are to be issued;

(c) not less than one year must at the date of issued have clasped since the date on which the company was entitled to commence business;

(d) the  shares to be issued at a discount must be issued within six months after the date on which the issue is sanctioned by the Court or within such extended time as the Court may allow.”

Therefore, according to Section 153 of the Companies Act, the maximum discount allowed at the time of issuance of shares is 10% of the par/nominal value. Even then the discount must be authorised by resolution passed  in  general meeting of “X” and must be sanctioned by the High Court Division of the Supreme Court of Bangladesh.

Moreover, allotment of shares is in effect an agreement/contract between the Company and the shareholder. If shares are issued at no cost then there is in fact no consideration for the contract. Therefore there is a possibility that such allotment will be of no legal validity as one of the fundamental ingredient of contract, i.e. consideration will be missing.

In light of the above provisions of law,  it is not possible for “X” to issue shares at no cost. “X” may issue shares at the maximum discount rate of 10% of the nominal/par value i.e. 9 taka per share.

According to Paragraph 3.3 of Appendix 4, Company 2 will have drag along rights so that all remaining shareholders will be required to sell on the same terms to such purchasers identified by Company 2. “X” should consider carefully whether or not they agree to allow such drag along rights to Auroes.

All references to “STI” in the Agreement should be replaced with ““X””.

All references to “CSE” in the Agreement should be replaced with “DSE”.

All references to “Sri Lanka” in the Agreement should be replaced with “Bangladesh”.

“2.3 Within _____(_________) days of receipt by the Company of the full payment for the INVESTMENT by the Investor in accordance with Clause 2.1, the Company shall deliver to the Investor the duly sealed and executed letter of allotment for 41,160,000 ordinary shares of the Company subscribed by the Investor and shall enter the name of the Investor as ordinary shareholder of the Company with such other relevant details in the Register of Members of the Company.

2.4 The Company shall within sixty (60) Business Days of the allotment of the 41,160,000 ordinary shares file the returns of allotment to the Registrar of Joint Stock Companies and Firms.

2.5 The Company shall within 14 (fourteen) Business Days shall deliver to the Investor the duly sealed and executed share certificate(s) for the 41,160,000 ordinary shares subscribed by the Investor.”

According to Article 118 of Articles of Association of “X”, the qualification of a Director shall be holding of 1 lac fully paid-up shares of Tk. 10.0 each in his name other than a Director representing any institutions holding that number of fully-paid up shares. The Article does not state the qualification number of shares that are to be held by a Director representing any institutions. However, Article 71 of Schedule I of the Companies Act 1994 (which is made binding by Section 17 of the Companies Act 1994), states that the qualification of a director shall be the holding of at least one share in the company.

Therefore, we are of the opinion that, the nominee of the Investor may be appointed as a Director of “X”, provided that, within 60 days of his appointment, the minimum qualification number of shares specified by Companies Act i.e. one share is transferred to his name by Company 2.

Regarding retirement by rotation:

According to Section 91(2) of the Companies Act 1994, “Notwithstanding anything contained in the articles of a company other than a private company not less than one third of the whole number of directors shall be persons whose period of office is liable to determination at any time by retirement of directors rotation”. As the Companies Act makes no difference between a normal director and a nominee director and as “X” is a public limited company, the Nominee Director of Company 2 cannot be exempted from director’s rotation, even by altering the Articles of Association. However, please note that, according to Article 81 of Schedule I of the Companies (which is made binding by section 17 of the Companies Act), a retiring director shall be eligible for re-election.

“14. Governing Law

The Laws of Bangladesh shall govern this Agreement.”