General Announcement
Reference No
K&-051007-64232
Submitting Merchant Bank
:
K&N KENANGA BHD
Company Name
:
ASIAEP BHD
(MESDAQ Market)
Stock Name
:
ASIAEP
Date Announced
:
07/10/2005
Type
:
Announcement
Subject
:
PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE CAPITAL OF CONVERSANT SOLUTIONS PTE LTD
Contents :
1. INTRODUCTION
We refer to the Company's announcement dated 22 September 2005 in respect of a letter of offer dated 15 September 2005 (
"Letter of Offer"
) from Mr Cheong Kong Wai, a Singapore national (the
"Vendor"
) which was accepted by AsiaEP on 22 September 2005, for AsiaEP to acquire the entire issued and paid-up share capital of Conversant Solutions Pte Ltd (
"Conversant"
) on such terms and conditions set out in the Letter of Offer.
For and on behalf of the Board of Directors of AsiaEP (the
"Directors"
) and in reference to the Letter of Offer, K&N Kenanga Berhad (
"Kenanga"
) is pleased to announce that the Company had on 7 October 2005 entered into a conditional sale of shares agreement (
"Acquisition Agreement"
) with the Vendor for the proposed acquisition of 1,001 ordinary shares of SGD0.01 each in Conversant (
"Sale Shares"
), representing 100% of Conversant's current issued and paid-up share capital for a total purchase consideration of up to RM9,900,000 (to be described hereon as the
"Proposed Acquisition"
).
Upon completion of the Proposed Acquisition, Conversant will be a wholly-owned subsidiary of AsiaEP. Set out in the ensuing paragraphs is the detailed information in respect of the Proposed Acquisition.
2. BACKGROUND INFORMATION ON CONVERSANT
2.1 Background of Conversant
Conversant was incorporated in Singapore on 19 February 2002 as a private limited company under the Companies Act, Chapter 50 of Singapore. As at the date of this announcement, the authorized share capital of Conversant is SGD1,000,000 comprising 100,000,000 ordinary shares of SGD0.01 each, whereas the issued and paid-up share capital of Conversant is SGD10.01 comprising 1,001 ordinary shares of SGD0.01 each. The entire issued and paid-up share capital of Conversant is beneficially owned and registered under the name of Mr Cheong Kong Wai.
As at the date of this announcement, the board of directors of Conversant comprise solely of Mr Cheong Kong Wai. Conversant does not have any subsidiary companies and/or associated companies.
Conversant is principally involved in the provision of portal based software services to Small and Medium-sized Enterprises (
"SMEs"
) and end-customers through different formal channel partners. Conversant's current service offerings include the following:-
(i)
Providing hosted messaging, online storage and calendering portal services to SMEs through channel partners; and
(ii)
Providing hosted email anti-virus and anti-spam solutions to both SMEs and end customers through channel partners.
In respect of the provision of such portal based software services, Conversant provides its channel partners the software solution (including the development of the same to fit into the channel partner's environment), third level product support and joint marketing efforts. As for the channel partners, they will provide the hosting facilities, first and second level support including the billing and collection from the SMEs and the end-customers.
In addition to the provision of portal based software services, Conversant is also involved in the reselling of Information & Communication Technology (
"ICT"
) equipment as a secondary revenue generator. This service complements the provision of its portal based software services during the initial development and deployment stage. Together with this, Conversant is able to provide a complete solution package for its customers.
As SMEs and end-customers often face financial constraints when considering their Information Technology (
"IT"
) needs, the portal based software services provided by Conversant through its channel partners is an ideal solution as it provides an avenue for SMEs and end-customers to minimise expenses in setting-up its own IT solutions needs such as intranet and servers including on-going maintenance costs. Instead, the provision of these IT solutions and maintenance costs will be supplied by Conversant through its channel partners for a small fee via a portal maintained by the channel partners. The main features of the software services currently provided by Conversant, all of which are under portal hosting include:-
(i)
Email messaging
:
Empowers users with the flexibility to access their emails anytime. SMEs are able to create and manage their email accounts by specifying the number of user accounts and email capacities that suit their needs.
(ii)
Online storage
:
Offers online storage space of up to 3GB, which allows for files to be stored on a virtual hard drive that enables easy access anytime and from any location.
(iii)
Calendaring service
:
A feature which enables users to keep track of their appointments and schedules.
(iv)
Anti-virus & anti-spam
:
Provides security and protects user's computers from viruses and spamming which are spread through emails.
One of Conversant's channel partners is a leading Internet Service Provider and telecommunication carrier in the region.
As at 31 December 2004, being Conversant's latest available full-year financial results, the unaudited net tangible asset (
"NTA"
) and net income of Conversant is SGD2,409 (or approximately RM5,391) and SGD19,772 (or approximately RM44,250) respectively. Unless otherwise stated, all conversion from SGD to RM set out in this announcement hereon shall be based on the exchange rate of SGD1.00:RM2.238 as at 6 October 2005, being the last market day prior to the date of this announcement.
Save for the liabilities to be incurred in the ordinary course of business, there are no other liabilities to be assumed by AsiaEP arising from the Proposed Acquisition.
2.2 Dividend policy
Conversant does not have any specific dividend policy in place and has not issued any dividends in the past since incorporation up to the date of this announcement. However, going forward, dividends may be declared but shall be dependent on the performance of Conversant and shall only be declared in a manner that will not be prejudicial or which will not jeopardize Conversant's future operations and/or cause it to forego future investment opportunities.
2.3 Financial information
The financial information of Conversant for the financial period from 19 February 2002 (date of incorporation) up to 31 December 2002 and the financial years ended 31 December 2003, and 31 December 2004 are set out in Table 1 attached herein.
3. THE PROPOSED ACQUISITION
3.1 The Purchase Consideration
The purchase consideration of up to RM9,900,000 for the Sale Shares (the
"Purchase Consideration"
) is to be satisfied by a total cash consideration of up to RM4,950,000 (the
"Cash Consideration"
) and the balance RM4,950,000 via the issuance of up to 18,333,334 new ordinary shares of RM0.10 each in AsiaEP at an issue price of RM0.27 per share (the
"Consideration Shares"
) to the Vendor.
The Purchase Consideration was arrived at on a willing buyer-willing seller basis after taking into account, inter alia, the following:-
(i)
the profit guarantees in relation to Conversant provided by the Vendor, the details of which are set out in Section 3.2.2 of this announcement; and
(ii)
the future earnings potential of Conversant.
The issue price of the Consideration Shares of RM0.27 per share (
"Issue Price"
) represents:-
(i)
a premium of approximately 33.7% over the five (5)-day volume weighted average share price (
"WAP"
) of AsiaEP shares up to 21 September 2005 (being the last market trading day prior to the acceptance by the Company of the Letter of Offer on 22 September 2005) of RM0.202; and
(ii)
a premium of approximately 42.1% over the five (5)-day WAP of AsiaEP up to 6 October 2005 (being the last market trading day prior to the signing of the Acquisition Agreement) of RM0.190.
The Consideration Shares shall, upon being issued and allotted as fully paid-up, rank
pari passu
with the then existing issued and paid-up share capital of AsiaEP, save that they shall not be entitled to any dividends, rights, bonuses, issues or other allotments or distributions which relevant book closing date is on or before the date of allotment of the Consideration Shares.
3.2 Salient terms and conditions of the Acquisition Agreement
3.2.1 Mode of payment of the Purchase Consideration
The Purchase Consideration shall be satisfied via the Cash Consideration and the issue and allotment to the Vendor of the Consideration Shares (as set out in Section 3.1 above) in accordance with the terms and conditions of the Acquisition Agreement upon the fulfilment of all the conditions precedent of the Acquisition Agreement as set out in Section 4 of this announcement.
The settlement of the Purchase Consideration shall be made in the following manner (collectively described hereon as the
"Settlement"
):-
(i)
RM3,300,000 of the Purchase Consideration upon Conversant meeting at least the Year 1 Profit Guarantee (as defined in Section 3.2.2(i) of this announcement) to be paid by way of RM1,650,000 of the Cash Consideration and 6,111,111 of the Consideration Shares (the
"First Settlement"
);
(ii)
RM3,300,000 of the Purchase Consideration upon Conversant meeting at least the Year 2 Profit Guarantee (as defined in Section 3.2.2(ii) of this announcement) to be paid by way of RM1,650,000 of the Cash Consideration and 6,111,111 of the Consideration Shares (the
"Second Settlement"
); and
(iii)
RM3,300,000 of the Purchase Consideration upon Conversant meeting at least the Year 3 Profit Guarantee (as defined in Section 3.2.2(iii) of this announcement) to be paid by way of RM1,650,000 of the Cash Consideration and 6,111,112 of the Consideration Shares (the
"Final Settlement"
).
Pursuant to the terms of the Acquisition Agreement, upon the issuance and allotment of each tranche of the Consideration Shares to the Vendor under the respective Settlements, the relevant tranche of the Consideration Shares shall be subject to a moratorium of ten (10) months from the date of allotment (
"Moratorium Period"
) whereby the Vendor is unable to sell, transfer or otherwise dispose-off the said tranche of the Consideration Shares (the
"Moratorium"
). In view of this, it has been agreed between the parties to the Acquisition Agreement that upon the allotment of the relevant tranche of the Consideration Shares by the Company, the said Consideration Shares shall be deposited with an escrow agent, who shall be jointly appointed by the Company and the Vendor under a separate escrow agreement (
"Escrow Agreement"
) to be executed. It shall be a term of the Escrow Agreement that upon expiry of the Moratorium Period, the escrow agent shall release the said Consideration Shares to the Vendor.
Notwithstanding the fact that an escrow agent holds the Consideration Shares under the Escrow Agreement, the beneficial ownership and voting rights of those Consideration Shares under escrow shall reside with the Vendor.
3.2.2 Profit Guarantees
Under the terms of the Acquisition Agreement, the Vendor shall provide an irrevocable guarantee in respect of Conversant's aggregated forecast/projected audited profit after tax attributable to shareholders (
"PAT"
) of RM5,700,000 over a period of three (3) consecutive financial years beginning from the financial year ending 31 December 2005, as follows (collectively, the
"Profit Guarantees"
):-
(i)
for the financial year ending 31 December 2005, a PAT amount of RM1,500,000 (the
"Year 1 Profit Guarantee"
);
(ii)
for the financial year ending 31 December 2006, a PAT amount of RM1,900,000 (the
"Year 2 Profit Guarantee"
); and
(iii)
for the financial year ending 31 December 2007, a PAT amount of RM2,300,000 (the
"Year 3 Profit Guarantee"
).
For the purpose of determining whether the Profit Guarantees have been achieved, a separate audit exercise shall be performed by an auditor appointed by the Company (
"Audit Exercise"
) for each of the relevant Profit Guarantee periods. In determining the achievability of the respective Profit Guarantees all inter-company transactions between AsiaEP and its group of companies with that of Conversant will be excluded from the PAT of Conversant.
3.2.3 Profit Guarantee Shortfall
In the event that Conversant meets more than 75% and up to 100% of the respective Profit Guarantee amount under the Year 1 Profit Guarantee, the Year 2 Profit Guarantee and the Year 3 Profit Guarantee, as the case may be, the amount payable by AsiaEP under the First Settlement, the Second Settlement and the Final Settlement respectively shall be reduced proportionately within this profit band.
Further, in the event that Conversant meets 75% and below the respective Profit Guarantee amount under the Year 1 Profit Guarantee, the Year 2 Profit Guarantee and the Year 3 Profit Guarantee, as the case may be, AsiaEP will not be obliged to pay any of the respective Settlement amount under the relevant Profit Guarantee periods.
3.2.4 Appointment of observers
Pursuant to the terms of the Acquisition Agreement, the Vendor shall also procure the appointment of two (2) persons nominated by the Company as observers to the board of directors of Conversant (
"Nominated Observers"
) within seven (7) days from the date of the Acquisition Agreement or within such other period as may be mutually agreed upon.
The Nominated Observers will not be subject to the relevant director's fiduciary duties or any directorship powers but will have the powers to call for board of director meetings during the period up to completion of the Acquisition Agreement.
4. CONDITIONS PRECEDENT OF THE PROPOSED ACQUISITION
The completion of the Proposed Acquisition is subject to the following conditions/approvals:-
(i)
a resolution being passed at the Company's board of directors meeting approving the Proposed Acquisition and the issuance of the Consideration Shares and the payment of the Cash Consideration to the Vendor;
(ii) t
he approvals of the following public authorities having been obtained on terms satisfactory to AsiaEP, Conversant and the Vendor for the Proposed Acquisition which require their approval or waiver:-
(a)
the Securities Commission (
"SC"
) with the concurrence of the Foreign Investment Committee (
"FIC"
) for approval of the Proposed Acquisition and the issuance of the Consideration Shares to the Vendor, if required;
(b)
the SC in respect of the proposed issuance of the Consideration Shares in satisfaction of the Purchase Consideration and for the listing and quotation of all the Consideration Shares on the MESDAQ Market of Bursa Malaysia Securities Berhad (
"MESDAQ Market"
) in respect of the Proposed Acquisition and any other matter which requires the approval of the SC;
(c)
Bursa Securities for the listing and quotation of all the Consideration Shares on the MESDAQ Market;
(d)
the approval of Bank Negara Malaysia, if required;
(e)
the approval, consent or authorisation of any other public authorities not specifically mentioned above.
(iii)
the written approvals and/or consents from and/or notifications to any financiers or lenders of the Vendor and/or Conversant which require their approvals and/or consent and/or notifications pursuant to any document between the Vendor or Conversant, as the case may be, for the Proposed Acquisition, if any;
(iv) the completion of a due diligence by AsiaEP into Conversant, its businesses, assets, financial condition and prospects, the results of which are satisfactory to AsiaEP in its sole and absolute discretion;
(v)
Conversant has a collective net cash balance of SGD300,000 (or approximately RM671,400) as at the completion of the Acquisition Agreement;
(vi)
the approval of the Proposed Acquisition by AsiaEP's shareholders at an extraordinary general meeting to be convened (if required); and
(vii)
the execution of the Escrow Agreement.
Save for (i) above, all of the conditions/approvals set out above are still pending as at the date of this announcement.
AsiaEP and the Vendor may (but shall not be obliged to) waive or modify, by written agreement by them, any of the conditions precedent set out above whereupon such conditions precedent shall be deemed to be (as applicable) waived or modified as aforesaid.
In the event that any of the abovementioned conditions/approvals is not obtained within six (6) months after the date of the Acquisition Agreement or such other later date as may be mutually agreed upon in writing between the parties to the Acquisition Agreement, the Acquisition Agreement shall be terminated and shall cease to have any further effect and the Vendor and AsiaEP shall have no claims against each other.
5. RATIONALE FOR THE PROPOSED ACQUISITION
The Proposed Acquisition will provide AsiaEP with a controlling stake in an income-generating asset, which is expected to enhance AsiaEP's profitability.
The Directors are of the view that the Proposed Acquisition is a complementary acquisition as Conversant is involved in a similar business as AsiaEP, with similar customer profile, namely SMEs, which will provide a wider and immediate customer base for AsiaEP in Singapore. Furthermore, the Proposed Acquisition will also provide AsiaEP with an opportunity to expand its reach into a new foreign market as well as widen its service offerings from eMarketplace to also include portal based hosted messaging, online storage, calendaring, email anti-virus and anti-spam. These portal based solutions coupled together with AsiaEP's existing products provide a larger scope for AsiaEP to be a leading online service provider.
In addition to the above, the Vendor had also represented under the Acquisition Agreement, that on a "best efforts" basis, he will expand the market of Conversant's current business model to include the Philippines and Thailand within 12 to 15 months from Acquisition Agreement's date of completion. With this, AsiaEP will also benefit from Conversant's expansion plans to these territories as part of its own expansion plan regionally.
6.
Prospects and industry review
6.1
Singapore's SME sector and its Overall Economic Performance and Outlook
Nine in ten business establishments in Singapore are classified as SMEs and in aggregate they employ up to half of Singapore's workforce. Singapore SMEs also contribute 30% of the total value-add to Singapore's national economy and are responsible for over a quarter of its gross domestic product.
(Source: Association of Small and Medium Enterprises, Singapore)
The Singapore economy grew 5.2% in the second quarter of 2005, a significant improvement over the 2.7% growth recorded in the preceding quarter. Similarly, growth momentum (on an annualized quarter-on-quarter basis) was strong, with the economy surging 18%, reversing the contraction of 4.6% a quarter ago.
With the exception of the transport and communications sector, all major sectors grew at a faster pace than in the last quarter. The top three highest growth sectors for the second quarter of 2005 comprise of the wholesale and retail trade sector (8.3%), the financial services sector (6.8%) and the manufacturing sector (5.9%).
(Source: Economic Survey of Singapore Second Quarter 2005, Ministry of Trade and Industry)
Moving forward, the outlook for the second half of 2005 has improved. Continued growth in the G-3 economies, a tentative recovery in the global electronics industry, limited impact from higher oil prices and stronger domestic forward looking indicators, together signal better prospects in the 2nd half of 2005.
In view of this improved outlook, the Ministry of Trade & Industry of Singapore has narrowed the 2005 GDP growth forecast to 3.5% - 4.5%.
(Source: Performance of the Singapore Economy in Second Quarter 2005 and Outlook for 2005, Ministry of Trade and Industry)
6.2
The Singapore ICT Market
Strong communications infrastructure and rapid developing research capabilities provide fertile ground for Singapore's ICT industry. A large number of major international ICT companies locate their regional headquarters in Singapore and some of them their research and development facilities as well. Singapore is the natural test-bed for the next generation of ICT products and services because of the state-of-the-art ICT infrastructure and human resource as well as the high level of IT usage in the educational sector and at home.
In 2003, 74% of all households in Singapore owned one or more personal computers. Almost two-thirds of all households (70%) have internet access (either broadband or non-broadband). There is almost total penetration for fixed phones as well as mobile phones.
Singapore's ICT industry grew by 4.5% in 2003. Total revenue chalked up by the ICT industry in 2003 was USD20.2 billion up from USD19.4 billion in 2002. The industry revenue is expected to see a higher growth for 2004 (7.5%) and a steadier growth in 2005 (5%). Hardware Retail and Software take the lion's share of the total ICT industry revenue in 2003, accounting for 35% and 25% respectively of the overall pie. These were followed by Telecommunication Services (about 20%), IT Services (14%) and Content Activities (7%).
The export market and the domestic market share of the total ICT industry revenue is close to 50/50. Singapore's ICT industry exported most of its products and services to the United States of America and ASEAN countries. The next three largest export destinations are China, Australia and Hong Kong.
(Source: Singapore's IT and Telecommunication Sector, Ministry of Foreign Affairs of Denmark, Embassy of Denmark, Singapore, Edited 16 February 2005.)
7. RISK FACTORS
7.1 Business risk
Conversant's revenue and operating results are exposed to general business risks as well as certain risks inherent in the broad sector of IT. These may include, amongst others, timing and market acceptances of new products, debt collection problems, inability to control unforeseen costs, the lack of human resources to meet increasing market demand, rapid technological change in the software and IT market, reliance on the performance of other industries including the growth of the SME sector, and other business risks common to going-concerns.
Conversant is also subject to the general economic, political, legislative, business and/or credit conditions in the territories which it operates in. Any adverse changes in the abovementioned conditions may materially affect the financial performance and business prospects of Conversant. In order to mitigate this risk, it is intended that Conversant will constantly keep abreast with new technologies and market trends and channel these findings into the provision of its services in order to maintain and/or increase its competitiveness in the marketplace.
7.2 Competition
The market in which Conversant operates is characterized by intense competition and rapid technological innovation. The future success of Conversant will depend to a large extent, on its ability to market its products and increase market share in Singapore and the territories in which it plans to operate in. Conversant's ability to compete with the current and potential competitors depends on many factors within and outside its control, such as (but not limited to) market acceptances of new products, services, and enhancements developed by Conversant and its competitors, product functionality, pricing strategies, customer service and support, technological advances, advertising campaign and product distribution channels and on-going relationships with its channel partners.
However, the Directors believe that Conversant has a competitive advantage in the nature, quality and cost of its products and services. The Directors also believe that Conversant's long-term relationship with it channel partners and the in-depth knowledge it has on their requirements and the requirements of its end-users enable them to develop products and services that cater to specific demands and budgets of the customers.
Whilst Conversant will undertake reasonable measures to maintain its competitive advantage through the abovementioned strategies, there is no assurance that Conversant will be able to compete successfully against current and potential competitors, or that competitive pressures will not result in loss of market share, reduced profit margins, price reductions, which could materially affect its business, operating results and financial conditions of Conversant and ultimately AsiaEP.
7.3 Reliance on channel partners
Conversant's end market of SMEs and users are sourced primarily through its channel partners who provide the hosting facilities, billings and collection, marketing and customer base and the first and second customer support. In view of this, there is a high level of reliance on these channel partners for Conversant's market base and hence revenue. As such, there is no assurance that Conversant will be able to secure these channel partners indefinitely in order to maintain its market base.
Whilst there are high levels of reliance on channel partners, Conversant is confident that it will be able to maintain good relations with these channel partners. In addition, all partnerships with these channel partners are formalized through long term and renewable distribution agreements. In order to expand its market base and to mitigate its reliance on its existing channel partners, Conversant is in various stages of discussions with other Internet Service Providers and telecommunication carriers to provide similar services in Singapore as well as in the region including the introduction of new services. With the completion of the Proposed Acquisition, this reliance is further mitigated with its ability to be able to tap onto the network of AsiaEP to further expand its reach.
7.4 Reliance on key management personnel
The success of Conversant will depend, to a certain extent, upon the ability and continued participation and efforts of its existing key management personnel. The loss of any key personnel may affect the future prospects of Conversant.
In this regard, upon the completion of the Acquisition Agreement, a service agreement based on mutually agreed upon terms shall be entered into between Conversant and key management parties to be identified for a period of three (3) years with an option by AsiaEP to renew an additional one (1) year.
7.5 Acquisition risk
There can be no assurance that the anticipated benefits of the Proposed Acquisition will be realized, or that Conversant will be able to generate sufficient revenues in future to offset the associated acquisition costs incurred by AsiaEP, or that AsiaEP will be able to conform to uniform standards of quality, services, controls, procedures and policies.
In order to mitigate acquisition risks, the Proposed Acquisition was entered into after taking into account the Profit Guarantees as described in Section 3.2.2 of this announcement. Subject to the meeting of the relevant Profit Guarantees, the Purchase Consideration would reduce accordingly based on the actual PAT recorded by Conversant for the respective three financial years. For instance, in the event that Conversant does not meet its Profit Guarantees by at least 75%, the Company is not required to pay the respective Settlement amount.
7.6 Political and regulatory risks
The financial and business prospects of Conversant and the industry in which it operates may depend to some degree on the developments in the political, economic and regulatory factors in Singapore and the territories that it plans to operate in. Any adverse developments of such factors may materially and adversely affect the financial prospects of Conversant and the industry in which it operates. The political and regulatory uncertainties include, amongst others, the risks of war, riots, changes in political leadership, expropriation, nationalism, re-negotiation or nullification of existing sales orders and contracts.
As such, there is no guarantee that there will not be any changes in government policies or regulations that may be unfavourable to Conversant.
7.7 Foreign exchange risk
Conversant currently operates in Singapore. Going forward, there are intentions for regional expansion which will result in the distribution of its services to other overseas market. The revenue transacted in these markets will then likely be transacted in currencies of the respective countries. However, it should also be noted that some of Conversant's development partners (i.e. suppliers) are based overseas and as a result, the terms transacted with these development partners are transacted in foreign currencies. In view of this, Conversant has some minimal exposure to foreign exchange fluctuations and risks.
Currently, Conversant does not use any financial instruments to hedge against transactions denominated in foreign currencies as it is still only operating within Singapore. However, the Company will continue to assess the need to utilise hedging techniques to mitigate this risk whenever it ventures overseas and/or deal with foreign development partners.
8. EFFECTS OF THE PROPOSED ACQUISITION
8.1 Share capital
Based on the issued and paid-up ordinary share capital of AsiaEP as at 6 October 2005, being the last market day prior to the date of this announcement, the effects of the Proposed Acquisition and the full exercise of the Company's outstanding ESOS on the ordinary share capital of AsiaEP are as follows:
Number of AsiaEP shares
RM
('000)
('000)
Current issued and paid-up share capital
200,000,000
20,000,000
Consideration Shares issued pursuant to the Proposed Acquisition
18,333,334
1,833,333
Enlarged issued and paid-up share capital after completion of Proposed Acquisition
218,333,334
21,833,333
Upon the exercise of all outstanding ESOS options *
25,230,740
2,523,074
Enlarged issued and paid-up share capital after completion of Proposed Acquisition and the exercise of all outstanding ESOS options **
243,564,074
24,356,407
Note:-
* Comprise of 25,230,740 unexercised outstanding options granted under AsiaEP's employees' share option scheme ("ESOS") as at 6 October 2005 which entitles its holders to subscribe for 25,230,740 new ordinary shares in AsiaEP.
** Does not include the shareholding impact of the Company's proposed renounceable rights issue of up to 103,202,312 new warrants in AsiaEP (
"Warrants"
) on the basis of one (1) Warrant for every three (3) existing ordinary shares in AsiaEP held which was announced on 23 August 2005.
8.2 Foreign ownership
As at 30 September 2005, being the latest available date for the foreign shareholdings of the Company, the foreign shareholdings of the Company before and after the Proposed Acquisition and the full exercise of the Company's outstanding ESOS are as follows:-
As at 30 September 2005
After the Proposed
Acquisition
After the Proposed Acquisition and the exercise of ESOS options
No. of AsiaEP shares
%
No. of AsiaEP shares
%
No. of AsiaEP shares
%
Malaysian
198,869,000
99.4
198,869,000
91.1
222,899,740
91.5
Foreign
1,131,000
0.6
19,464,334
8.9
20,664,334
8.5
Total
200,000,000
100.0
218,333,3
34
100.0
243,564,074
100.0
8.3 NTA
Based on the audited consolidated financial statements of AsiaEP as at 28 February 2005 and Conversant's latest available full-year unaudited financial statements as at 31 December 2004, the proforma effects of the Proposed Acquisition and the full exercise of the Company's outstanding ESOS on the NTA of AsiaEP are as follows:
Audited as at
28 February 2005
After the Proposed Acquisition
After the Proposed Acquisition and the exercise of ESOS options
(RM'000)
(RM'000)
(RM'000)
Share capital
20,000
21,833
(1)
24,356
(4)
Share premium
14,462
17,179
(2)
21,326
(5)
Reserves
10,001
10,001
10,001
Shareholders' funds
44,463
49,013
55,683
(less) Intangible assets
(18,242)
(28,137)
(3)
(28,137)
Net tangible assets ("NTA")
26,221
20,876
27,546
Number of Shares in issue ('000)
200,000
218,333
243,564
NTA per Share (Sen)
13.1
9.6
11.3
Notes:-
(1)
Based on the assumption that the Proposed Acquisition is completed and the Profit Guarantees are fully met.
(2)
The increase in share premium is due to the Consideration Shares being issued at a premium of RM0.17 per AsiaEP share less the estimated expenses associated with the completion of the Proposed Acquisition of approximately RM400,000.
(3)
The increase in intangible assets is due to the net assets of Conversant as at 31 December 2004 being acquired at a premium compared to the Purchase
Consideration. Subject to the completion date of the Acquisition Agreement, the net assets of Conversant to be taken into account to compute the acquisition goodwill may differ from that of 31 December 2004.
(4)
The increase in share capital is based on the assumption that the current outstanding 25,230,740 ESOS options are fully exercised.
(5)
The increase in share premium is based on the assumption that the 22,379,240 and 2,851,500 ESOS options pursuant are exercised at an exercise price of RM0.27 and RM0.22 per AsiaEP share respectively, which represent a share premium of RM0.17 and RM0.12 per AsiaEP share respectively.
8.4 Earnings
As the Proposed Acquisition is expected to be completed in the first quarter of 2006, it will have negligible impact on the earnings of AsiaEP for the financial year ending 28 February 2006.
8.5 Substantial shareholders
The shareholding effects on the substantial shareholders of the Company as at 6 October 2005 after taking into account the Proposed Acquisition are set out in Table 2 attached herein.
9. SOURCE OF FUNDS
The Proposed Acquisition shall be funded partially through the issuance of the Consideration Shares while the Cash Consideration shall be funded through either a combination or wholly by the proceeds of the Company's initial public offering or internally generated funds or borrowings, depending on the requirements of the Company during the Settlement.
10.
POLICIES ON FOREIGN INVESTMENT, REPATRIATION OF PROFITS AND ENFORCEABILITY OF THE ACQUISITION AGREEMENT
(i) Policies on foreign investment and repatriation of profits
There is no restriction or prohibition under Singapore laws relating to the foreign ownership of Conversant by AsiaEP.
Further, there is no regulatory exchange control restriction or sanction currently in effect in Singapore that would in the ordinary circumstances prevent the repatriation of funds by Conversant to any country from Singapore. There is also no restriction on the time frame for the repatriation of profits out of Singapore.
(ii) Enforceability of the Acquisition Agreement
The Directors have been advised that the Acquisition Agreement constitute a valid, legally binding and enforceable obligation of the shareholder of Conversant under Singapore's law.
11. DIRECTORS' AND SUBSTANTIAL SHAREHOLDERS' INTERESTS
The Directors and the substantial shareholders of the Company do not have any interest, directly or indirectly, in the Proposed Acquisition. In so far as the existing Directors and the substantial shareholders of the Company are able to ascertain and are aware, no persons connected to them have any interest, directly or indirectly, in the Proposed Acquisition.
12. ADVISER AND SPONSOR
The Company has appointed Kenanga, who is also the sponsor for AsiaEP, as the adviser for the Proposed Acquisition.
13. TIMING OF SUBMISSIONS AND ESTIMATED TIME FRAME FOR COMPLETION
Submission in relation to the Proposed Acquisition to the SC is expected to be made within three (3) months from the date of this announcement. The Proposed Acquisition is estimated to be completed within four (4) months from the submission date.
14. DOCUMENTS FOR INSPECTION
The following documents will be available for inspection at the registered office of the Company at 18 & 20, Jalan TK 2/1C, Taman Kinrara, Seksyen 2, 47100 Puchong, Selangor Darul Ehsan during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date hereof: -
(i)
The Letter of Offer;
(ii)
The Acquisition Agreement; and
(iii)
The audited financial statements of Conversant for the financial period from date of incorporation to 31 December 2002 and the unaudited financial statements of Conversant for the financial years ended 31 December 2003 and 2004.
This announcement is dated 7 October 2005.
©
2006
, Bursa Malaysia Berhad. All Rights Reserved.
