General Announcement
Reference No
O&-050324-43602
Submitting Merchant Bank
:
K & N KENANGA BHD
Company Name
:
ASIAEP BHD
(MESDAQ Market)
Stock Name
:
ASIAEP
Date Announced
:
24/03/2005
Type
:
Announcement
Subject
:
AsiaEP Berhad ("AsiaEP" or the "Company")
PROPOSED ACQUISITION AND SUBSCRIPTION OF UP TO APPROXIMATELY 80% IN THE ISSUED AND PAID-UP SHARE CAPITAL OF CIMTEK PTE LTD ("CIMTEK")
Contents :
1. INTRODUCTION
We refer to the Company's announcement dated 3 January 2005 in respect of a letter of offer dated 22 December 2004 (
"Letter of Offer"
) from Cimtek and its shareholders to subscribe for and acquire up to approximately 80% of the enlarged issued and paid-up share capital of Cimtek (
"Proposed Investment"
) which was accepted by the Company on 3 January 2005. A further announcement with respect to the Letter of Offer was made on 4 March 2005 to extend the validity of the Letter of Offer by another thirty (30) days from the date of the said extension, i.e. 3 March 2005.
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 24 March 2005 entered into:-
(i)
a conditional sale of shares agreement (
"Acquisition Agreement"
) with Dr. Wang Ming and Diana Wang, both of whom are Singapore nationals (collectively referred to as the
"Vendors"
), for the proposed acquisition of 101,851 and 13,300 ordinary shares of SGD1.00 each in Cimtek (
"Cimtek Shares"
) respectively, representing an aggregate of approximately 76.77% of Cimtek's current issued and paid-up share capital for a total purchase consideration of RM16,500,273 or RM143.29 per Cimtek Share (the
"Proposed Acquisition"
); and
(ii)
a conditional subscription agreement (
"Subscription Agreement"
) with Cimtek for the proposed subscription of 24,426 new Cimtek Shares for a total subscription price of RM3,500,002 or RM143.29 per new Cimtek Share (the
"Proposed Subscription"
).
(The Proposed Acquisition and the Proposed Subscription shall collectively be defined hereinafter as the
"Proposed Investment"
).
In addition to the above which is a variation to the Letter of Offer, Dr. Wang Ming, the remaining shareholder of Cimtek after the Proposed Investment (the
"Founder Shareholder"
), had also under the Acquisition Agreement granted AsiaEP a conditional call option to acquire the balance 34,849 Cimtek Shares held by him which are not already owned by AsiaEP for a total purchase consideration of RM4,993,600 (the
"Call Option"
). Further details in respect of the Call Option are set out in Section 3.2.4 of this announcement.
The completion of the Proposed Acquisition and the Proposed Subscription are inter-conditional with each other and upon the completion of the Proposed Investment, AsiaEP will effectively own 80.02% of the enlarged issued and paid-up share capital of Cimtek.
In the event that AsiaEP exercises the Call Option after the Proposed Investment, Cimtek will become a wholly-owned subsidiary of AsiaEP. Set out in the ensuing paragraphs are the detailed information in respect of the Proposed Investment and the Call Option.
2. BACKGROUND INFORMATION ON CIMTEK
2.1 Background of Cimtek
Cimtek was incorporated in Singapore on 16 June 1993 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 Cimtek is SGD1,000,000 comprising 1,000,000 ordinary shares of SGD1.00 each, whereas the issued and paid-up share capital of Cimtek is SGD150,000 comprising 150,000 ordinary shares of SGD1.00 each. The entire issued and paid-up share capital of Cimtek is beneficially owned and registered under the names of Dr. Wang Ming with a shareholding of approximately 91.13% and Diana Wang with a shareholding of approximately 8.87%. Upon completion of the Proposed Investment, Dr. Wang Ming will retain approximately 34,849 Cimtek Shares representing approximately 19.98% of the enlarged issued and paid-up share capital of Cimtek.
As at the date of this announcement, the board of directors of Cimtek comprise of Dr. Wang Ming, Diana Wang and Khoo Bee Leng. The subsidiary companies of Cimtek are as follows:-
Name
Country of Incorporation
Shareholdings (%)
Principal Activities
MyCimtek Solutions Sdn Bhd
Malaysia
100
Sales, marketing, delivery and implementation of software developed and sourced by Cimtek
Cimtek (Shanghai) Co., Ltd.
People's Republic of China (
"PRC"
)
100
Sales, marketing, delivery and implementation of software developed and sourced by Cimtek
(Cimtek and its subsidiaries shall be described hereon as the
"Cimtek Group"
).
The Cimtek Group is principally involved in the business of product development, consultancy and product distribution in computer integrated solutions specifically in relation to supply-chain management solutions and materials forecasting simulation solutions.
The Cimtek Group currently has two (2) main products namely Cimtek Supply Chain Management (
"SCM"
) series which are its proprietary software and the
"Witness"
simulation software sseries which are third party software.
The proprietary software developed and offered by the Cimtek Group under its SCM series includes
"CIM-PACK"
,
"CIM-PRINT"
and
"CIMTEK SCM"
. The brief description of these proprietary products are as follows:-
"CIM-PACK"
:
the enterprise business application software specifically designed and developed for the paper packaging industries in Asia.
"CIM-PRINT"
:
the enterprise business application software specifically designed and developed for the printing industries in Asia.
"CIMTEK SCM"
:
a mid-range supply chain management software for manufacturers in Asia.
The key benefits of the Cimtek software series include cost-effective hardware and platform, ease of implementation, focus on operation optimization, constant upgrading, multiple languages and fully customizable.
In addition, the Cimtek Group also distributes the
"WITNESS"
series, a third party software from Lanner Group Ltd (formerly known as AT&T Istel) of the United Kingdom.
"WITNESS"
is a leading software for modeling, simulating and visualizing business process that provides companies with a cost-effective way of reducing the risks associated with business change. The Cimtek Group is the sole distributor of
"WITNESS"
in Singapore, Thailand and the Philippines and an authorized distributor in Malaysia and the PRC.
Furthermore, the Cimtek Group also provides information technology (
"IT"
) related services, which include the followings:-
-
SCM, Enterprise Resources Planning (ERP) business consultancy and training;
-
Turn-key SCM system design and implementation and project management; and
-
IT consultancy and IT related training.
As at 31 December 2003, Cimtek's latest available audited consolidated net tangible asset (
"NTA"
) and loss after tax for the financial year ended 31 December 2003 are SGD412,179 (or approximately RM960,377) and SGD27,912 (or approximately RM65,035) 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:RM2.33 as at 22 March 2005, being the latest practicable date 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 Investment and the Call Option.
2.2 Dividend policy
Cimtek does not have any specific dividend policy in place and has not issued any dividends in the past since incorporation. However, going forward, future declaration of dividends shall be dependent on the performance of the Cimtek Group and shall only be declared in a manner that will not be prejudicial or which will not jeopardize the Cimtek Group's future operations or cause it to forego future investment opportunities.
2.3 Financial information
The audited consolidated financial information of Cimtek for the last five (5) financial years/periods ended from 30 June 1999 to 31 December 2003 are set out in Table 1 attached herein this announcement.
3. THE PROPOSED ACQUISITION
3.1 The Acquisition Consideration
The purchase consideration of RM16,500,273 for the Proposed Acquisition (the
"Acquisition Consideration"
) is to be satisfied by the issuance of 61,112,122 new ordinary shares of RM0.10 each in AsiaEP at an issue price of RM0.27 per share (the
"Consideration Shares"
) in the following manner:-
Vendor
Cimtek Shares Sold
Consideration Shares
Amount
(RM)
Wang Ming
101,851
54,053,640
14,594,483
Diana Wang
13,300
7,058,482
1,905,790
Total
115,151
61,112,122
16,500,273
The Acquisition Consideration was arrived at on a willing buyer-willing seller basis after taking into account, inter alia, the following:-
(i)
the profit warranty and profit guarantees in relation to the Cimtek Group provided by the Vendors, the details of which are set out in Section 3.2.2 of this announcement; and
(ii)
the future earnings potential and capabilities of the Cimtek Group.
The issue price of the Consideration Shares of RM0.27 per share (
"Issue Price"
) represents:-
(i)
a premium of approximately 6.72% to the five (5)-day volume weighted average share price (
"WAP"
) of AsiaEP shares up to 31 December 2004 (being the last market trading day prior to the acceptance by the Company of the Letter of Offer on 3 January 2005) of RM0.253; and
(ii)
a premium of approximately 14.41% to the five (5)-day WAP of AsiaEP up to 23 March 2005 (being the last market trading day prior to the signing of the Acquisition Agreement) of RM0.236.
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 Acquisition Consideration
The Acquisition Consideration shall be satisfied in full via the issue and allotment to the Vendors 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 fulfillment of all the conditions precedent of the Acquisition Agreement as set out in Section 6 of this announcement.
Upon completion of the Acquisition Agreement, the Consideration Shares shall be issued and allotted in the following manner:-
Vendor
Consideration Shares to be allotted
Consideration Shares
to be allotted to the Escrow Agent*
Total Consideration Shares
Wang Ming
18,673,661
35,379,979
54,053,640
Diana Wang
2,438,461
4,620,021
7,058,482
Total
21,112,122
40,000,000
61,112,122
Note:-
* Under the terms of the Acquisition Agreement, an aggregate of 40,000,000 Consideration Shares shall be issued and allotted to an escrow agent to be jointly appointed by the Company and the Vendors (
"Escrow Agent"
) as security for the profit warranty and profit guarantees set out in Section 3.2.2 of this announcement (the
"Pledge Shares"
).
The Escrow Agent shall hold the Pledge Shares in an escrow account for the benefit of the Vendors and shall be authorised to deal with the Pledge Shares in accordance with the terms and conditions of the Acquisition Agreement and pursuant to an escrow agreement to be entered into between the Company, the Vendors and the Escrow Agent (
"Escrow Agreement"
). The Escrow Agreement shall set out in detail the powers, obligations and liabilities of the Escrow Agent.
3.2.2 Profit Warranty and Profit Guarantees
Under the terms of the Acquisition Agreement, the Vendors shall provide an irrevocable personal guarantee in the form of the Pledge Shares, pledged as the Vendors' warranty/guarantee in respect of the Cimtek Group's aggregated forecast/projected audited profit after tax guarantee of RM10,000,000 over a period of three (3) consecutive years from the date of completion of the Proposed Acquisition (
"Completion Date"
) as follows (the
"Profit Guarantees"
):-
·
the 12-month financial period ending on the date being twelve (12) months from the Completion Date – RM1,500,000 (the
"Year 1 Profit Warranty"
);
·
the 12-month financial period ending on the date being twenty four (24) months from the Completion Date – RM3,500,000 (the
"Year 2 Profit Guarantee"
); and
·
the 12-month financial period ending on the date being thirty six (36) months from the Completion Date – RM5,000,000 (the
"Year 3 Profit Guarantee"
).
Pursuant to the terms and conditions of the Acquisition Agreement, the Profit Guarantees shall be treated in the following manner:-
(i)
In the event the Cimtek Group meets at least the Year 1 Profit Warranty, the Escrow Agent shall release a portion of the Pledge Shares to the Vendors (in the proportion of the Consideration Shares due to the Vendors), so long as there remains in the escrow account an aggregate number of Pledge Shares to fully cover the Year 2 and Year 3 Profit Guarantees based on the market value of the Company's shares as listed on the Mesdaq Market of Bursa Malaysia Securities Berhad (
"Bursa Securities"
) as at the last market date prior to the date of release of such portion of the Pledge Shares;
(ii)
In the event the Cimtek Group meets at least the Year 2 Profit Guarantee, the Escrow Agent shall release a portion of the Pledge Shares to the Vendors (in the proportion of the Consideration Shares due to the Vendors), so long as there remains in the escrow account an aggregate number of Pledge Shares to fully cover the Year 3 Profit Guarantee based on the market value of the Company's shares as listed on the Mesdaq Market of Bursa Securities as at the last market date prior to the date of release of such portion of the Pledge Shares; and
(iii)
In the event the Cimtek Group meets at least the Year 3 Profit Guarantee, the Escrow Agent shall release the remainder of the Pledge Shares standing in the escrow account to the Vendors (in the proportion of the Consideration Shares due to the Vendors) to be dealt with at the Vendors'discretion, after which the Profit Guarantees shall lapse.
So long as the Pledge Shares are held in the escrow account, the beneficial ownership and voting rights of the Pledge Shares shall reside with the Vendors.
Pursuant to the Acquisition Agreement and as an alternative to the above,
(a) In the event the Cimtek Group meets at least the Year 1 Profit Warranty, the Vendors are entitled to instruct the Escrow Agent to release all of the Pledge Shares to the Vendors (in the proportion of the Consideration Shares due to the Vendors) for the purpose of disposal at the discretion of the Vendors, so long as the proceeds from the disposal of the Pledge Shares shall be deposited with the Escrow Agent to fully cover the Year 2 and Year 3 Profit Guarantees. In the event of the Cimtek Group meeting the Year 2 and Year 3 Profit Guarantees respectively, the Escrow Agent shall release the balance of the proceeds deposited with the Escrow Agent in the agreed proportion as stated in Section 3.2.2 (ii) and (iii) above; or
(b) The Vendors are entitled to instruct the Escrow Agent to release all of the Pledge Shares to be dealt with at the Vendors' discretion provided that the Vendors deposit a cash amount equivalent to the amount of the outstanding Profit Guarantees in an interest-bearing deposit account of AsiaEP's choice whereupon the interest shall accrue to the Vendors (in the proportion of the Consideration Shares due to the Vendors). Thereafter the deposit shall be released in the agreed proportion as stated in Section 3.2.2(i), (ii) and (iii) above together with any interest accrued (on a pro-rated basis).
3.2.3 Profit Warranty and Profit Guarantee shortfall
In the event that the Cimtek Group does not meet the targeted Profit Guarantees for any one of the warranted/guaranteed financial periods, the Vendors shall be jointly and severally liable to AsiaEP for the amount of the shortfall between the Profit Guarantee for each financial period (i.e. Year 1 Profit Warranty, Year 2 Profit Guarantee and Year 3 Profit Guarantee, as the case may be) and the actual audited consolidated profit or loss after tax of Cimtek for that particular financial year, in proportion to AsiaEP's ultimate shareholding (being 80.02%) of Cimtek's enlarged issued and paid-up share capital after taking into account the Proposed Subscription (the
"Shortfall"
).
In respect of the relevant Shortfall for each year (if any), the Vendors are obliged to settle the Shortfall amount in cash within fourteen (14) days from the Vendors being notified of the Shortfall by the Company. In the event that the Vendors fail to settle the Shortfall amount, the following event shall take place:-
(i)
The Company shall have the authority to instruct the Escrow Agent to dispose-off such number of Pledge Shares held by the Escrow Agent to fully cover the Shortfall whereby the proceeds from such disposal shall be deposited with the Company and applied to cover the Shortfall; and
(ii)
Any remaining Pledge Shares after the disposal exercise as described in (i) above which is entitled to the Vendors for each year as described in Section 3.2.2 above shall be released to the Vendors;
or alternatively, in the event the Pledge Shares have been released and replaced with a cash deposit equivalent to the amount of outstanding Profit Guarantees as described above, the Company shall have the authority to instruct the Escrow Agent to drawdown on such cash deposit held by the Escrow Agent to cover the Shortfall.
For avoidance of doubt, any remaining balance of the abovementioned Shortfall shall remain due and payable by the Vendors jointly and severally and AsiaEP shall be entitled to take such action and/or proceedings as it deems fit to claim for such remaining balance of the Shortfall.
3.2.4 Call Option
In consideration of a sum of RM1.00 to be satisfied upon completion of the Acquisition Agreement, the Call Option (subject to the fulfillment of certain conditions precedent set out in Section 6 of this announcement) was granted to AsiaEP by the Founder Shareholder for the period commencing on the Completion Date and ending on the date falling on the third (3rd) anniversary of the Completion Date (the
"Call Option Period"
).
The Call Option is in respect of the remaining 38,849 Cimtek Shares held by the Founder Shareholder upon completion of the Acquisition Agreement and the Subscription Agreement (the
"Call Option Shares"
).
Upon exercise of the Call Option by the Company, the consideration for the Call Option Shares shall be fixed at RM4,993,600 (
"Call Option Price"
) to be satisfied by the issuance and allotment of 18,494,815 new ordinary shares of RM0.10 each in AsiaEP at an issue price of RM0.27 each (the
"Call Option Consideration Shares"
).
The Call Option 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 the Company save that they shall not be entitled to any dividends, rights, bonuses, issues or other allotments or distribution which relevant book closing date is on or before the date of allotment of the Call Option Consideration Shares.
The Call Option shall be exercisable by AsiaEP in whole and not partially at any time during the Call Option Period by AsiaEP giving notice in writing to the Founder Shareholder.
The Call Option Price was arrived at between the Company and the Founder Shareholder on the same basis as set out in Section 3.1 of this announcement.
4. THE PROPOSED SUBSCRIPTION
4.1 The subscription price
Pursuant to the terms of the Subscription Agreement, AsiaEP shall subscribe for 24,426 new Cimtek Shares (the
"Subscription Shares"
) for a total subscription price of RM3,500,002 (the
"Subscription Price"
) or RM143.29 per new Cimtek Share to be issued and allotted by Cimtek to the Company upon completion of the Subscription Agreement.
The Subscription Price was arrived at between the Company and Cimtek on the same basis as set out in Section 3.1 of this announcement.
The Subscription Shares shall, upon being issued and allotted as fully paid-up, rank for dividends and in all other respects
pari passu
with the then existing issued ordinary shares of Cimtek.
4.2 Mode of settlement of the Subscription Price
The Subscription Price is proposed to be made payable in the following manner:-
(i) RM10,000 to be paid upon signing the Subscription Agreement, payable to Messrs. Kadir, Andri & Partners (the
"Stakeholder"
) as deposit (the
"Deposit"
), and are to be utilised as part payment towards the Subscription Price;
(ii) RM2,490,002 to be paid as subscription for new Cimtek Shares within sixty (60) days upon fulfilling of all the conditions precedent of the Subscription Agreement; and
(iii) the balance of RM1,000,000 in respect of the Proposed Subscription shall be made payable on a date which is not more than twelve (12) months from the date of the Subscription Agreement, subject to the fulfillment of all the conditions precedent of the Proposed Subscription
.
5.
APPOINTMENT OF DIRECTORS AT CIMTEK
Pursuant to the terms and conditions of the Subscription Agreement and the Acquisition Agreement, Cimtek shall procure the appointment of two (2) persons nominated by the Company as directors (hereinafter referred to
"Cimtek Directors"
) or such number of Cimtek Directors representing the majority of the board of directors in Cimtek within seven (7) days upon the execution of the Subscription Agreement and the Acquisition Agreement (collectively the
"Agreements"
).
In the event that the transactions contemplated by the Agreements are not completed for any reason whatsoever, the Cimtek Directors shall tender their resignations without any claim for payment of compensation or damages or any other sum for loss of office. Furthermore, the Cimtek Directors shall be fully indemnified by Cimtek of all liabilities or claims arising from or relating to their appointment as Cimtek Directors.
6. CONDITIONS PRECEDENT OF THE PROPOSED INVESTMENT AND THE CALL OPTION
The completion of the Proposed Investment and the Call Option is subject to the following conditions:-
(i)
a resolution being passed at a directors' meeting of Cimtek approving the the issuance of the Subscription Shares;
(ii)
a resolution being passed at the Company's directors' meeting approving the transactions contemplated under the Acquisition Agreement and the issuance of the Consideration Shares to the Vendors and the Call Option Consideration Shares to the Founder Shareholder respectively;
(iii) t
he approvals of the following public authorities having been obtained on terms satisfactory to AsiaEP, Cimtek, the Vendors and the Founder Shareholder (as the case may be), for the Proposed Acquisition and the Call Option 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 Call Option and the issuance of the Consideration Shares to the Vendors and the Call Option Consideration Shares to the Founder Shareholder respectively;
(b)
the SC in respect of the proposed issuance of the Consideration Shares in satisfaction of the Acquisition Consideration and the proposed issuance of the Call Option Consideration Shares in satisfaction of the Call Option Price and for the listing and quotation of all the Consideration Shares and the Call Option Consideration Shares on the MESDAQ Market of Bursa Securities 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 and the Call Option Consideration Shares on the MESDAQ Market of Bursa Securities in respect of the Proposed Acquisition; and
(d)
the approval, consent or authorisation of any other public authorities not specifically mentioned above.
(iv)
the written approvals and/or consents from and/or notifications to any financiers or lenders of the Vendors and/or Cimtek which require their approvals and/or consent and/or notifications pursuant to any document between the Vendors or Cimtek, as the case may be, for the transactions contemplated under the Acquisition Agreement, if any;
(v) the written waivers and/or consents from (in terms satisfactory to AsiaEP in its sole and absolute discretion) the remaining shareholders of Cimtek of any pre-emption rights pursuant to Cimtek's Memorandum and Articles of Association and/or any other document between the Vendors and/or Cimtek with the remaining shareholders, as the case may be, for the transactions contemplated under the Acquisition Agreement, if any;
(vi)
the completion of a due diligence by AsiaEP into the Cimtek Group, its businesses, assets, financial condition and prospects, the results of which are satisfactory to AsiaEP in its sole and absolute discretion in respect of the transactions contemplated under the Acquisition Agreement;
(vii)
the approval of the Proposed Investment and the Call Option by AsiaEP's shareholders at an extraordinary general meeting to be convened;
(viii)
the execution of the Acquisition Agreement and the Subscription Agreement respectively;
(ix)
the execution of the Escrow Agreement;
(x) the approval of the Controller of Foreign Exchange of Malaysia for AsiaEP to make payment of the Subscription Price to Cimtek, which approval shall be applied for by AsiaEP in respect of the Proposed Subscription; and
(xi) the approval of any governmental, quasi-governmental or regulatory authority of Singapore or Malaysia, as may be required, in respect of the transactions contemplated under the Subscription Agreement.
Save for (ii) above, all of the conditions set out above are pending as at the date of this announcement.
In respect of the Proposed Investment, the completion of the Acquisition Agreement and the Subscription Agreement are inter-conditional upon each other.
AsiaEP and the Vendors may (but shall not be obliged to) waive or modify, by written agreement by them, any of the conditions precedent whereupon such conditions precedent shall be deemed to be (as applicable) waived or modified as aforesaid.
In the event that any of the abovementioned approvals is not obtained within six (6) months after the date of the Agreements or such other later date as may be mutually agreed upon in writing between the parties to the Agreements, the Agreements shall be terminated and shall cease to have any further effect and the Vendors and AsiaEP shall be relieved from all obligations to each other.
7. RATIONALE FOR THE PROPOSED INVESTMENT AND CALL OPTION
The Proposed Investment and Call Option will provide AsiaEP with a controlling stake in a new income-generating asset in the form of Cimtek's business, which is expected to enhance AsiaEP's long-term cashflow and profitability.
The Directors are of the view that the Proposed Investment and Call Option will provide a unique opportunity for the Company to be involved in a business that will allow the Company to tap into its existing clientele base and to provide additional value-added services in the form of solutions that specializes in supply-chain management and materials forecasting simulation solutions. The Directors are also of the view that with the addition of the Cimtek Group, it will serve as an enhancement to the current core businesses of AsiaEP by providing strategic benefits in the form of cross-selling of Cimtek's suites of software to AsiaEP's existing customers in the manufacturing sector through the Company's e-marketplace portals, and vice versa.
In addition, AsiaEP will also seek to benefit from the Cimtek Group's expertise in software development and deployment for the manufacturing sector, especially the paper packaging and printing industries. Furthermore, the Proposed Investment and Call Option will also provide the Company with an immediate presence in Singapore and the PRC, which is in line with AsiaEP's long-term intention to venture and develop into these respective countries.
8.
PROSPECTS AND INDUSTRY REVIEW
Overview of the Singapore IT industry
Information communications usage is now widely distributed and embedded throughout Singapore's economy. The finance, banking and communications industries are all heavily reliant on IT systems and applications as core inputs to their service delivery offerings. Increasingly, sectors such as manufacturing will adopt advanced technology solutions to enhance efficiency and improve production cycles. An expansion of the national information infrastructure through increased broadband service adoption will further enhance the scope for global collaboration in areas such as pharmaceutical clinical trials and logistics management.
The total industry spending on IT products and services is predicted to grow substantially from USD3.4 billion (SGD5.9 billion) in 2000 to more than USD5.8 billion (SGD10.1 billion) in 2006. As a leading participant within the context of this broader market, the Infocomm Development Authority of Singapore's Government Chief Information Office has plans to make further investments in a comprehensive e-Government Action Plan to deploy new capabilities and encourage the spread of innovation electronic service delivery within the public sector.
The manufacturing sector is expected to increase its investment in IT infrastructure by approximately 96% from USD588.5 million in 2000 to USD1,151.0 million in 2006, and capture a larger market share of 19.7% in 2006 compared to the 17.2% in 2000.
(Source: "Singapore – A Snapshot of the Infocomm Sector", Infocomm Development Authority of Singapore, March 2003)
Overview of the PRC software industry
The PRC software market reached approximately US$4.3 billion in 2002. Local software companies accounted for 30% of this total sales revenue, with foreign players covering the remainder.
The PRC software market is expected to achieve a compounded annual growth rate (
"CAGR"
) of 36.9 percent, reaching USD 7.7 billion in 2006. These numbers are confirmed by another study published by
Software & Information Industry Association
(SIIA) which targets an annual growth rate of 30%. Such growth will bring the IT and software sales to USD 20 billion by 2005. This outstanding projection is due to the growth of the local economy combined with an improvement in the IT infrastructures as well as to the growth in demand from the private sector.
The areas with the most promise are as follows:-
• Applications, for example, the Enterprise Resource Planning (ERP) applications which will grow at a CAGR of 32% to reach US$ 3.6 million by 2005 whereas the Enterprise Relationship Management (ERM) market is expected to grow at a CAGR of 37%, to reach US$ 2.7 billion by 2005;
• Infrastructure and system management; and
• Development tools.
(Source: "White Paper – Venturing into China", Softdatabase.com, 2003)
Overview of the Malaysia IT industry
The Government will continue to develop the Information and communication technology (
"ICT"
) sector and the Multimedia Super Corridor ("
MSC
"
)
. The MSC International Advisory Panel that met on 2 and 3 September 2004 has recognised the performance of the MSC, which is into the second phase of development 2004-2010. ICT is capable of generating economic growth and will be expanded. The MSC will be strengthened with the roll-out to Bayan Lepas, Pulau Pinang and Kulim High-Technology Park, Kedah. New sources of growth will be developed, particularly in the shared services and outsourcing industry where Malaysia has been ranked as the third best location in the world. The target is to create an additional 100,000 high value-added jobs to the existing 20,000 in the MSC. Various measures will be implemented to develop new sources of growth in the ICT sector, including training skilled manpower, developing technopreneurs, increasing international promotions and providing specific incentives to investors.
(
Source: "The 2005 Budget Speech", Ministry of Finance, 10 September 2004)
The Multimedia Development Corporation gained further ground in its endeavour to make the MSC a global ICT hub. As at end-August 2004, there were 1,099 MSC status companies, comprising 768 Malaysian-owned, 302 foreign-owned and 29 joint venture companies. The number of jobs created increased by 17.3%, from about 19,100 jobs in 2003 to 22,300 jobs in 2004, out of which 88% constitute knowledge workers in the fields of software development and programming as well as managerial and technical support in sales, finance and marketing. Currently, there are 65 international world-class companies operating in the MSC. In 2004, total sales from MSC activities is expected to reach RM6.8 billion, of which RM5.3 billion are exports while RM1.5 billion are local sales.
(Source: "The Economic Report 2004/2005", Ministry of Finance, 10 September 2004)
9. RISK FACTORS
9.1 Business risk
Cimtek's revenue and operating results are not insulated from 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, and other business risks common to going-concerns. Cimtek is also subject to the general economic, political, legislative, business and/or credit conditions. Any adverse changes in the abovementioned conditions may materially affect the financial performance and business prospects of Cimtek.
9.2 Competition
The market in which Cimtek operates is characterized by intense competition and rapid technological innovation. The future success of Cimtek will depend to a large extent, on its ability to market its products and increase market share in Singapore, Malaysia and the PRC. Cimtek'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 Cimtek and its competitors, product functionality, pricing strategies, customer service and support, technological advances, advertising campaign and product distribution channels.
However, the Directors believe that Cimtek has a competitive advantage in the nature, quality and cost of its products and services. The Directors also believe that Cimtek's long-term relationship with their clienteles and the in-depth knowledge and expertise in the industry enable them to develop products and services that cater to specific demands and budgets of the customers.
Furthermore, Cimtek plans to enhance its market recognition and acceptance of its products by increasing its marketing and promotional efforts. Cimtek is also constantly looking at improving product quality, functionality and performance through research and development, customer service and support as well as sales and marketing efforts to remain competitive.
Whilst Cimtek will undertake reasonable measures to maintain its competitive advantage through the abovementioned strategies, there is no assurance that Cimtek 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 Cimtek and consequently AsiaEP.
9.3 Protection of intellectual property rights
Cimtek relies on a combination of trademark and domain name registrations, copyright protection and contractual restrictions to protect its intellectual property rights, including but not limited to its brand names and logos, software applications and internet domain names. Cimtek's success is dependent upon its ability to protect its intellectual property rights. Accordingly, there can be no assurance that Cimtek will be able to continue to protect its proprietary rights against infringement, unauthorised third-party copying, use or exploitation, any of which may have a material and adverse impact on the Cimtek's business, operating results and financial condition.
9.4 Acquisition risk
There can be no assurance that the anticipated benefits of the Proposed Investment and the Call Option will be realized, or that Cimtek 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.
9.5 Political and regulatory risks
The financial and business prospects of Cimtek and the industry in which it operates may depend to some degree on the developments in the political, economic and regulatory factors in Singapore, Malaysia and the PRC. Any adverse developments in such factors may materially and adversely affect the financial prospects of Cimtek 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 Cimtek and/or AsiaEP.
9.6 Foreign exchange risk
Cimtek sells its products to various countries and has operations in Singapore, Malaysia and the PRC. It also distributes its products to other overseas market. The sales in these markets are often transacted in currencies of the respective countries principally, SGD, RM and RMB. As a result, Cimtek is exposed to foreign exchange fluctuations.
Currently, Cimtek does not use any financial instruments to hedge against transactions denominated in foreign currencies. However, the Company will continue to assess the need to utilise hedging techniques to mitigate this risk.
10. EFFECTS OF THE PROPOSED INVESTMENT AND THE CALL OPTION
10.1 Share capital
Based on the issued and paid-up ordinary share capital of AsiaEP as at 23 March 2005, the effects of the Proposed Investment and the Call Option on the ordinary share capital of AsiaEP are as follows:
Note (1): The Proposed Subscription will not have any financial impact on the share capital of the Company as the Subscription Price is proposed to be wholly satisfied by cash.
10.2 Foreign ownership
As at 16 March 2005, being the latest available date for the foreign shareholdings of the Company, the foreign shareholdings of the Company before and after the Proposed Investment and the Call Option are as follows:-
10.3 NTA
Based on the audited consolidated financial statements of AsiaEP as at 29 February 2004 and Cimtek's latest available audited financial statements as at 31 December 2003, the proforma effects of the Proposed Investment and the Call Option on the NTA of AsiaEP are as follows:
Notes:-
(1)
The increase in share capital after the Proposed Acquisition is based on the assumption that the Proposed Investment is completed and that the Profit Guarantee is fully met.
(2)
The increase in share premium is due to the Consideration Shares being issued at a premium of RM0.17 per share.
(3)
The reduction in reserves are due to the consolidated loss after tax contributions of Cimtek based on their latest available audited financial statements for the financial year ended 31 December 2003 adjusted to the Company's eventual shareholdings in Cimtek of approximately 80.02% pursuant to the Proposed Investment and 100.00% as a result of the exercise of the Call Option.
(4)
The increase in intangible assets after the Proposed Investment is based on the difference of the Proposed Investment's aggregate purchase consideration of RM20.00 million and the Company's 80.02% share of Cimtek's NTA of approximately RM3.57 million (after taking into account the Proposed Subscription).
(5)
The increase in intangible assets after the Proposed Investment and the Call Option is based on the difference of the Proposed Investment and the Call Option's aggregate purchase consideration of RM24.99 million and the Company's 100.00% share of Cimtek's NTA of approximately RM4.46 million (after taking into account the Proposed Subscription).
10.4 Earnings
As the Proposed Investment is expected to be completed in 5 months from the date of this announcement, it will have no financial impact on the earnings of AsiaEP for the financial year ended 28 February 2005. However, the Proposed Investment is expected to contribute positively to AsiaEP's earnings for the financial year ending 28 February 2006.
10.5 Substantial shareholders
The shareholding effects on the substantial shareholders of the Company as at 23 March 2005 after taking into account the Proposed Investment and the exercise of the Call Option are set out in Table 2 attached herein this announcement.
11. SOURCE OF FUNDS
The Proposed Acquisition and the Call Option shall be funded through the issuance of the Consideration Shares and the Call Option Consideration Shares while the Proposed Subscription shall be funded from the proceeds of the Company's initial public offering.
12.
POLICIES ON FOREIGN INVESTMENT, REPATRIATION OF PROFITS AND ENFORCEABILITY OF THE AGREEMENTS
(i) Policies on foreign investment and repatriation of profits
There is no restriction or prohibition under Singapore laws relating to the foreign ownership of Cimtek 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 Cimtek 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 Agreements
The Directors have been advised that the Agreements constitute a valid, legally binding and enforceable obligation of the shareholders of Cimtek under the Singapore's law.
13. 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 Investment and the Call Option. 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 Investment and the Call Option.
14. ADVISER AND SPONSOR
The Company has appointed Kenanga, who is also the sponsor for AsiaEP, as the adviser for the Proposed Investment and the Call Option.
15. TIMING OF SUBMISSIONS AND ESTIMATED TIME FRAME FOR COMPLETION
Submissions in relation to the Proposed Investment and the Call Option to the SC are expected to be made within three (3) months from the date of this announcement. The Proposed Investment is estimated to be completed within three (3) months from the submission date.
16. 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 Acquisition Agreement;
(ii)
The Subscription Agreement;
(iii)
The memorandum and articles of association of Cimtek; and
(iv)
The audited consolidated financial statements of Cimtek for the past 5 financial years/periods ended from 30 June 1999 to 31 December 2003.
This announcement is dated 24 March 2005.