GENERAL: PLU: PRE BREAK ANNOUNCEMENT

26 Jul 2010 8:58 am

PLU 26/07/2010 GENERAL

REL: 0858 HRS Pulse Utilities New Zealand Limited

GENERAL: PLU: PRE BREAK ANNOUNCEMENT

PRE BREAK ANNOUNCEMENT

Under NZAX Listing Rule 10.2 and clause 3 of the Constitution of Pulse Utilities New Zealand Limited

23 July 2010

Proposed Note Offer Pulse Utilities New Zealand Limited (Pulse) proposes to issue up to 5,000,000 convertible notes for a face value of $1 per note and on the terms otherwise specified in the appendix to this announcement (Notes) during the 12 month period commencing on the date that is 10 business days after the date of this announcement (Note Offer). Pulse does not intend to seek a listing for the Notes.

Use of Pre-Break Announcement Procedure The Note Offer is being effected under the Pre-Break Announcement procedure permitted by Rule 10.2 and clause 3 of Pulse's Constitution.

The Pre-Break Announcement procedure is being used because undertaking the Note Offer would not comply with Rule 7.3.5, in that, if the Note Offer was fully subscribed, the aggregate number of equity securities allotted would exceed 25% of the number of equity securities on issue prior to the Note Offer occurring. This Pre Break Announcement will allow Pulse to issue the Notes (which are 'Equity Securities' for the purposes of the Rules) under Rule 7.3.1, without having to seek shareholder approval.

Waiver from Rule 9.2 NZX has granted to Pulse a waiver from the requirement to obtain shareholder approval under the related party transaction restrictions set out in Rule 9.2.1 in respect of the Note Offer.

As set out below, two related parties of Pulse (Mr. Biddlecombe and Mr Famularo) have each expressed interest in subscribing for at least $100,000 of Notes. Under the Rules, the Note Offer as a whole is treated as a related series of transactions and therefore is a "Material Transaction" meaning that no related party may participate in the Note Offer without Pulse shareholder approval to do so.

A condition of the waiver is that no related party of Pulse together with their "Associated Persons" (as that terms is defined in the Rules) may subscribe for Notes under the Note Offer of a value exceeding 10% of Pulse's average market capitalisation (representing approximately $1.23 million at the date of this announcement.

Rationale for the Note Offer Pulse has a continuing need to raise funds as it establishes its business as a competitive electricity retailer in New Zealand. Pulse Energy (Pulse's current retail electricity brand) presently has 10,018 customers (including current customers and customers in the switching process) and has been adding approximately 350 customers per week on average for the last 6 months.

Establishing the retail electricity business and building its revenue base requires capital expenditure and flexibility with working capital. With new customers joining Pulse, Pulse often seeks to fund the manufacture and installation of its smart meter technology at their premises as soon as possible. In return, customers sign up to Pulse for a minimum term of six months from the time that the meter technology has been installed. Once Pulse smart meters are installed, they become revenue generating assets of Pulse with a daily charge for the smart meter levied to customers.

In addition, as new customers join Pulse it has increased working capital requirements. Pulse must purchase more electricity to supply its customers, post more security with other electricity market participants and fund office resources to service new customers.

As an electricity retailer Pulse has various security requirements, for example:

- Security must be posted to purchase electricity on the wholesale electricity market. In accordance with the Electricity Governance Rules, Pulse must post security with the electricity market clearing manager to cover the markets exposure to Pulse's electricity purchases. - Pulse has entered a Use of Systems Agreement with several electricity lines companies which regulate the conveyance of electricity to its customers. With Pulse's customer base growing and volumes of electricity conveyed thereby increasing, it is becoming necessary for Pulse to give security to these lines companies to secure the payment by Pulse of lines charges under these agreements. - Where Pulse enters hedge agreements for the purchase of electricity from electricity generators, it can be required to post security to secure its performance under the hedge agreement.

The required form of security in each of the above examples can include a cash deposit, bank guarantee, a letter of credit or a combination thereof. Accordingly, until Pulse has built its business to a point where it is cash flow positive it does need to continue to raise new capital to meet these working capital requirements.

Pulse has had significant success with raising the required capital to date. Pulse has raised $5.25 million in the last 12 months by placing 11.5 million Shares at $0.50 per share. Pulse's $4 million convertible note programme has also successfully raised another $1.62 million.

The Pulse Board has determined that Pulse needs a further $3.5 million to fully implement its business plan in the next one to two years. The Note Offer is proposed to give Pulse a facility to meet these requirements. In addition Pulse intends to offer a share purchase plan to all shareholders before the end of this year to secure this required funding.

Previous Convertible Notes Offering At a special meeting for Pulse held in April 2009, shareholders approved the issuance of up to 4,000,000 convertible notes for $1.00 per convertible note. The approval remained valid for 12 months and accordingly has expired. On 18 June 2010 a Pre Break Announcement was released to allow Pulse to have capacity to issue up to 2,410,000 convertible notes (being the balance of the convertible notes not issued following the 2009 shareholder approval). No convertible notes have been allotted since this Pre Break Announcement and Pulse no longer intends to utilise the authorised note offering contained in that Pre Break Announcement subject to this new Note Offer being authorised through this Pre Break Announcement.

The Note Offer has the following differences from these earlier note offers:

- Previously convertible notes could be converted into Shares based on a 10% discount to the volume weighted average market price of Shares on the NZAX market over the 20 business days preceding the relevant conversion date. In the Note Offer, Notes may convert for a fixed price of $0.60 per share. - The minimum term of a Note has been increased from 12 months to 18 months.

- The total amount of Notes that may be offered has increased from 2,410,000 to 5,000,000.

Pulse does not consider the Note Offer to otherwise have any material differences from the earlier note offers.

Current Status of the Note Offer Pulse has received non-binding expressions of interest from three potential investors to subscribe for at least $100,000 of Notes each. These potential investors are Dene Biddlecombe (CEO and a director of Pulse) and two existing shareholders of Pulse being interests associated with Mr. Robert Famularo and interests associated with Mr. John Philpott.

The Note Offer will not be an offer of securities to the public. Under the terms of the Note Offer, a person may only subscribe if they are not a 'member of the public' under the Securities Act 1978 (Act) and, in particular, they must be:

- wealthy or experienced 'eligible persons' under the Act; - relatives or close business associates of Pulse or of a director of Pulse;

- persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money; - persons who are each required to pay a minimum subscription price of at least $500,000 for the securities before the allotment of those securities; or - a person who in all the circumstances can properly be regarded as having been selected otherwise than as a member of the public.

At the time of any allotments under the Note Offer, Pulse will make a market announcement detailing the relevant subscription in accordance with the Rules.

Effect of Note Offer The Note Offer is an offer of securities which may convert into Shares at the option of the subscriber. While the convertible notes are on issue, Pulse must pay interest on the convertible notes at a rate of 10% per annum. On maturity of the convertible notes, the holder may elect to redeem them for cash at their face value ($1 per note) or convert them to Shares, which is determined by dividing the aggregate face value of the Notes subject to conversion by the conversion price of $0.60 per Share.

Accordingly by issuing convertible notes, Pulse is entering an obligation to pay interest on the notes and at maturity either redeem the notes for cash or convert them to Shares. If Shares are issued at maturity, dilution can occur in respect of current shareholdings. If all 5 million Notes are allotted and, at the option of the holders, are all converted into Shares, approximately 8.3 million Shares would be issued.

Failure of Note Offer to Proceed If a Shareholders meeting is called in accordance with the requirements of Rule 10.2.2 and the Note Offer is not approved, Pulse may revert to offering convertible notes on the previous terms outlined above and authorised by the Pre Break Announcement of 18 June 2010.

Pulse would have a continuing need to raise funds to develop its business and the Board will look to other fundraising options and potentially seek a further shareholder approval for a new method of raising funds or utilise this pre-break disclosure procedure again, to authorise a new fundraising.

Although Pulse may place Shares under Listing Rule 7.3.5 without shareholder approval, it would not have sufficient allotment capacity under the terms of that rule to raise the level of capital sought through the Note Offer.

Directors' Interests in the Note Offer The directors hold a relevant interest the following Shares in Pulse as at the date of this announcement:

Name Shareholding % of total issued Shares DP Biddlecombe 1,312,104 4.79% J van Wijk 574,406 2.10% RL Burcher 474,000 1.73%

As noted above, Dene Biddlecombe intends to subscribe for at least $100,000 of the Notes under the Notes Offer and is therefore interested in the Note Offer. No other directors have a present intention to subscribe under the Note Offer.

Shareholder Right to Call a Shareholders Meeting As required by Rule 10.2.2, the Note Offer is conditional (in addition to the expiry of a 10 business day period from the date of this announcement) upon no special meeting of shareholders being called pursuant to Section 121 of the Companies Act 1993, within that 10 business day period.

Section 121 requires that the Board of Pulse call a special meeting of shareholders where, shareholders holding Shares together carrying not less than 5% of the voting rights entitled to be exercised at a meeting of shareholders, submit a written request for a meeting.

Contact Details The contact details for delivery and acceptance of a written request under section 121 of the Companies Act 1993 are:

Pulse: Pulse Utilities New Zealand Limited 201 Hobson Street Auckland 1010 Attention: Dene Biddlecombe

NZX Sponsor to Pulse: Quigg Partners PO Box 3035 Wellington Attention: Matt Yates End CA:00197609 For:PLU Type:GENERAL Time:2010-07-26:08:58:57

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