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GRAND-FLO SOLUTION BERHAD (“GRAND-FLO” OR “COMPANY”) - PROPOSED ACQUISITION OF 55,000 ORDINARY SHARES OF RM1.00 EACH, REPRESENTING 55% EQUITY INTEREST IN LABELS NETWORK SDN BHD (“LNSB”) FROM CHAN PIK KHEW AND WAN KOK WENG FOR A TOTAL PURCHASE CONSIDERATION OF RM3,905,000.00 PAYABLE IN CASH, IN THREE (3) TRANCHES (“PROPOSED ACQUISITION”)

GRAND-FLO SOLUTION BERHAD

Type

Announcement
SubjectGRAND-FLO SOLUTION BERHAD (“GRAND-FLO” OR “COMPANY”)
- PROPOSED ACQUISITION OF 55,000 ORDINARY SHARES OF RM1.00 EACH, REPRESENTING 55% EQUITY INTEREST IN LABELS NETWORK SDN BHD (“LNSB”) FROM CHAN PIK KHEW AND WAN KOK WENG FOR A TOTAL PURCHASE CONSIDERATION OF RM3,905,000.00 PAYABLE IN CASH, IN THREE (3) TRANCHES (“PROPOSED ACQUISITION”)

Contents :

This announcement is dated 18 December 2007.


1. INTRODUCTION


      The Board of Directors of Grand-Flo (“Board”) is pleased to announce that Grand-Flo has on 18 December 2007 entered into a Share Acquisition Agreement with Chan Pik Khew and Wan Kok Weng (“Vendors”) to acquire 55,000 ordinary shares of RM1.00 each in LNSB, representing 55% of the issued and paid-up share capital of LNSB (“Sale Shares”) from the Vendors, for a purchase consideration of RM3,905,000.00 (“Purchase Price”), payable in cash, in three (3) tranches.
2. DETAILS OF THE PROPOSED ACQUISITION

2.1 Proposed Acquisition
          The Proposed Acquisition is subject to the terms and conditions set out in the Share Acquisition Agreement, the salient terms of which are laid out in Section 2.4 below.

          Upon completion of the Proposed Acquisition, Grand-Flo will become the largest shareholder of LNSB, and will have board and management control of LNSB pursuant to the terms of the Shareholders Agreement to be executed as required under the terms of the Share Acquisition Agreement.

          LNSB will upon completion of the Proposed Acquisition, become a subsidiary of Grand-Flo.
2.2 Background Information on LNSB
          LNSB was incorporated in Malaysia on 25 April 2001 under the Companies Act, 1965 as a private limited company.

          LNSB is primarily engaged in the business of marketing, promoting and selling self-adhesive label stickers.

          As at the date hereof, LNSB has an authorised share capital of RM100,000.00 comprising 100,000 ordinary shares of RM1.00 each, all of which have been issued and fully paid-up

          On 17 December 2007, LNSB had acquired the entire issued and paid up share capital of the following company from the shareholders of the said company:
      Kopacklabels Press Sdn Bhd (600478-D), a private limited company incorporated in Malaysia with an authorised share capital of RM100,000.00 comprising 100,000 ordinary shares of RM1.00 each, all of which have been issued and fully paid up (“KPSB”). KPSB had, on 1 December 2007, taken over the business of a partnership trading under the name of Kopack Enterprise, a manufacturer of self-adhesive label stickers.

          The share transfer forms for the transfer of the entire issued and paid up share capital of KPSB by the shareholders of KPSB to LNSB are pending adjudication and stamping at the relevant stamp office.

          The historical financial information on LNSB is as follows:

          Financial Year Ended
          31 December 2006
          RM
          Profit After Tax1,351,914
          Net Assets512,737
2.3 Background Information on Vendors
          The Vendors of the Sale Shares are Chan Pik Khew and Wan Kok Weng, both Malaysian nationals.
2.4 Salient Terms of the Agreement
        2.4.1 Purchase Price and Terms

        Subject to the terms and conditions contained in the Share Acquisition Agreement, the Vendors jointly, agree to sell, and Grand-Flo agrees to purchase, the Sale Shares, free from all pledges or liens or any other encumbrances and with all rights attaching thereto including but without limitation to all bonuses, rights, dividends and distributions declared paid or made in respect thereof as from the date of the Share Acquisition Agreement, for the Purchase Price.

        The Purchase Price is arrived at based on a willing buyer-willing seller basis, taking into consideration the future earnings potential of LNSB and KPSB (“Group”) and the Profit Guarantee by the Vendors as set out in Clause 7.5 thereof.

        The Purchase Price is made up of the following tranches:
    (a) a first tranche of Ringgit Malaysia Two Million (RM2,000,000.00) only (“First Tranche”);

        (b) a second tranche of Ringgit Malaysia Nine Hundred Fifty Two Thousand Five Hundred (RM952,500.00) only (“Second Tranche”); and

        (c) a third tranche of Nine Hundred Fifty Two Thousand Five Hundred (RM952,500.00) only (“Third Tranche”),

        and is to be satisfied in the manner and at such times as stipulated below:
    (i) Upon execution of this Agreement, a sum of RM200,000.00 being ten percent (10%) of the First Tranche shall be paid in cash to the Vendors’ solicitors, towards account of the Purchase Price, to be held by the Vendors’ solicitors as stakeholders in accordance with Clause 5 of the Share Acquisition Agreement;

    (ii) On the Completion Date, a sum of RM1,800,000.00 being the balance of the First Tranche, shall be paid in cash to the Vendors in equal proportions;
      (iii) On or before thirty (30) calendar days after the consolidated accounts of LNSB for the financial year ending 31 December 2008 having been adopted by the board of directors of LNSB, audited and signed off by the respective parties, the Second Tranche of RM952,500.00 shall be paid in cash to the Vendors in equal proportions , upon achievement of the Year 1 Guaranteed PAT, in the manner and subject to such adjustments, as set out in Clause 7.5 (i) of the Share Acquisition Agreement;

      (iv) On or before thirty (30) calendar days after the consolidated accounts of LNSB for the financial year ending 31 December 2009 having been adopted by the board of directors of LNSB, audited and signed off by the respective parties, the Third Tranche of RM952,500.00 shall be paid in cash to the Vendors in equal proportions upon achievement of the Year 2 Guaranteed PAT, in the manner and subject to such adjustments, as set out in Clause 7.5 (ii) of the Share Acquisition Agreement.
        2.4.2 Conditions Precedent
                The completion of the sale and purchase of the Sale Shares is conditional upon the following conditions being satisfied within a period of THREE (3) months from the date of the Share Acquisition Agreement or within such further period as may be mutually agreed upon by the parties hereto in writing, namely:-

            (i) the approval of the board of directors of Grand-Flo for the acquisition of the Sale Shares in accordance with the terms of this Agreement;
        (ii) the approval of the Foreign Investment Committee of the Prime Minister’s Department, to the sale and purchase of the Sale Shares;

        (iii) the approval of the Minister of Internal Security as to the change in the composition of the board of directors of KPSB;
          (iv) the approval or waiver of any regulatory requirement by any other relevant authorities, if required;
          (v) the share transfer forms for the transfer of the entire issued and paid up share capital of KPSB to LNSB having been duly adjudicated and stamped by the stamp office and the entry of LNSB as the sole shareholder of KPSB in the Register of Shareholders;
            (vi) the completion of the several sale and purchase agreements for the sale and purchase of the following properties, or Grand-Flo being satisfied that there is nothing to hinder the due completion of the said sale and purchase agreements on or before 15 March 2008:
                        (a) all that piece of leasehold property (expiring 16 August 2094) known as H.S (M) 24838, No. PT 16089, Tempat Bt 13 Jalan Puchong, Mukim Petaling, Daerah Petaling, Negeri Selangor together with a single storey industrial building bearing postal address known as No. 34 Jalan Utama 1/15, Taman Perindustrian Puchong Utama, Sek 1, 47100 Puchong, Selangor, measuring 148.62 square meters;

                        (b) all that piece of leasehold property (expiring 16 August 2094) known as H.S (M) 24839, No. PT 16090, Tempat Bt 13 Jalan Puchong, Mukim Petaling, Daerah Petaling, Negeri Selangor together with a one (1) storey factory bearing postal address known as No. 36 Jalan Utama 1/15, Taman Perindustrian Puchong Utama, Sek 1, 47100 Puchong, Selangor, measuring 148.62 square meters;

                        (c) all that piece of leasehold property (expiring 16 August 2094) known as H.S (M) 24840, No. PT 16091, Tempat Bt 13 Jalan Puchong, Mukim Petaling, Daerah Petaling, Negeri Selangor together with a one (1) storey factory bearing postal address known as No. 38 Jalan Utama 1/15, Taman Perindustrian Puchong Utama, Sek 1, 47100 Puchong, Selangor, measuring 148.62 square meters;

                        (d) all that piece of leasehold property (expiring 16 August 2094) known as H.S (M) 24841, No. PT 16092, Tempat Bt 13 Jalan Puchong, Mukim Petaling, Daerah Petaling, Negeri Selangor together with a one (1) storey factory bearing postal address known as No. 40 Jalan Utama 1/15, Taman Perindustrian Puchong Utama, Sek 1, 47100 Puchong, Selangor, measuring 148.62 square meters;

                        (e) all that piece of leasehold property (expiring 16 August 2094) known as H.S (M) 24842, No. PT 16093, Tempat Bt 13 Jalan Puchong, Mukim Petaling, Daerah Petaling, Negeri Selangor together with a one (1) storey factory bearing postal address known as No. 42 Jalan Utama 1/15, Taman Perindustrian Puchong Utama, Sek 1, 47100 Puchong, Selangor, measuring 148.62 square meters;

                        (f) all that piece of leasehold property (expiring 16 August 2094) known as H.S (M) 24843, No. PT 16094, Tempat Bt 13 Jalan Puchong, Mukim Petaling, Daerah Petaling, Negeri Selangor together with a one (1) storey factory bearing postal address known as No. 44 Jalan Utama 1/15, Taman Perindustrian Puchong Utama, Sek 1, 47100 Puchong, Selangor, measuring 148.62 square meters;

                        (g) all that piece of leasehold property (expiring 16 August 2094) known as H.S (M) 24844, No. PT 16095, Tempat Bt 13 Jalan Puchong, Mukim Petaling, Daerah Petaling, Negeri Selangor together with a one (1) storey factory bearing postal address known as No. 46 Jalan Utama 1/15, Taman Perindustrian Puchong Utama, Sek 1, 47100 Puchong, Selangor, measuring 148.62 square meters;
            (vii) the renewal in writing of the tenancy of premises known as No. 34 Jalan Utama 1/15, Taman Perindustrian Puchong Utama, Sek 1, 47100 Puchong, Selangor, measuring 148.62 square meters and the renewal in writing of the tenancy of all the premises referred to in para (vi) (a)-(g) above, pending the completion of the respective sale and purchase agreements;
              (viii) the renewal in writing of the tenancy of premises known as No. 37 Jalan Utama 1/15, Taman Perindustrian Puchong Utama, Sek 1, 47100 Puchong, Selangor, measuring 148.62 square meters, for a period not less than 3 years;
                (ix) Grand-Flo being satisfied that all requisite actions required to be taken following the transfer of the manufacturing business of Kopack Enterprise (“Manufacturing Business”) to KPSB have been so taken including but not limited to:
                            (a) the transfer or fresh application of, any licences, registrations, approvals and/or permits necessary for the operation of the Manufacturing Business, to or in the name of KPSB;

                            (b) the assignment, novation and/or transfer of all contracts and/or other agreements in connection with the Manufacturing Business to KPSB;

                            (c) the transfer or fresh application of, adequate insurance coverage over the assets of the Manufacturing Business (including insurance over office equipment and furniture and fittings which are not currently covered), to or in the name of KPSB;

                            (d) the transfer or fresh application of, any financing facilities granted for the Manufacturing Business, to or in the name of KPSB;

                            (e) the settlement of a term loan granted to a partner of Kopack Enterprise for purposes not connected with business operations (but nevertheless appearing in the accounts of Kopack Enterprise);

                (x) Grand-Flo being satisfied that all advances to the existing directors and/or shareholders of LNSB (which, as at the Last Accounts Date, amounted to RM607,312.00) have been fully repaid to LNSB.

                2.4.3 Completion

                        Completion of the sale and purchase of the Sale Shares shall take place within three (3) months after all the conditions precedent stipulated in the Share Acquisition Agreement have been fulfilled in accordance with the terms thereof.
                2.4.4 Profit Guarantee and Net Assets Guarantee

                    The Vendors irrevocably covenant, warrant and guarantee to Grand-Flo that LNSB shall have an aggregate audited consolidated profit after tax of at least Ringgit Malaysia Two Million Two Hundred and Fifty Thousand (RM2,250,000.00), as follows:
                (i) RM1,000,000.00 for the financial period commencing 1 January 2008 and ending 31 December 2008 (“Year 1 Guaranteed PAT”);
                  (ii) RM1,250,000.00 for the financial period commencing 1 January 2009 and ending 31 December 2009 (“Year 2 Guaranteed PAT”)

                      which form part of the basis of the Purchase Price (“Profit Guarantee”).
                            Grand-Flo shall not be required to provide any financial support to the Group to assist in the achievement of the Profit Guarantee. The Profit Guarantee shall survive the completion of the sale and purchase of the Sale Shares.
                            In respect of the Year 1 Guaranteed PAT:
                      (a) If the Group (on an aggregate basis) shall achieve the Year 1 Guaranteed PAT, the sum of RM952,500.00 shall be released to the Vendors as settlement of the Second Tranche;
                        (b) If the Group (on an aggregate basis) shall achieve an audited consolidated/combined profit after tax which exceeds the Year 1 Guaranteed PAT, the sum of RM952,500.00 shall be released to the Vendors as settlement of the Second Tranche and the amount of excess profit shall be rolled over to the next financial year and shall be taken into account in determining the achievement of the Year 2 Guaranteed PAT;
                          (c) If the Group (on an aggregate basis) shall fail to achieve the Year 1 Guaranteed PAT, Grand-Flo is hereby irrevocably authorised to deduct from the Second Tranche, a sum equivalent to the profit shortfall of the Year 1 Guaranteed PAT and pay the same into LNSB, and the balance thereof (if any) shall be released to the Vendors as settlement of the Second Tranche. In the event the Second Tranche shall not be sufficient to cover such profit shortfall, the Vendors shall top up the remaining profit shortfall of the Year 1 Guaranteed PAT by paying such amount into LNSB.

                                  In respect of the Year 2 Guaranteed PAT:

                          (a) If the Group (on an aggregate basis) shall achieve the Year 2 Guaranteed PAT, the sum of RM952,500.00 shall be released to the Vendors as settlement of the Third Tranche;
                            (b) If the Group (on an aggregate basis) shall achieve an audited consolidated/combined profit after tax which exceeds the Year 2 Guaranteed PAT, the original Purchase Price shall automatically be increased by an aggregate sum equivalent to 20% of the excess profit after tax (“Increased Purchase Price”) whereby the sum of RM952,500.00 shall be released to the Vendors as settlement of the Third Tranche together with an additional sum being the difference between the Increased Purchase Price and the original Purchase Price;
                              (c) If the Group (on an aggregate basis) shall fail to achieve the Year 2 Guaranteed PAT, Grand-Flo is hereby irrevocably authorised to deduct from the Third Tranche, a sum equivalent to the profit shortfall of the Year 2 Guaranteed PAT and pay the same into LNSB, and the balance thereof (if any) shall be released to the Vendors as settlement of the Third Tranche. In the event the Third Tranche shall not be sufficient to cover such profit shortfall, the Vendors shall top up the remaining profit shortfall of the Year 2 Guaranteed PAT remaining thereafter, by paying such amount into LNSB.
                                      The Vendors further warrant to Grand-Flo that the Group shall as at 31 December 2007 (on an aggregate basis), have net assets of not less than Ringgit Malaysia One Million Five Hundred Thousand (RM1,500,000.00) as certified by LNSB’s auditors and such auditors’ certificate shall on such date, be produced to Grand-Flo.
                              2.4.5 Indemnity

                                  The Vendors will hold Grand-Flo fully indemnified from and against any and all losses, liabilities, costs, claims, charges, actions, proceedings, damages, expenses and demands which Grand-Flo may incur or which may be made against Grand-Flo as a result of or arising out of or in relation to any suits, actions or proceedings which may be taken against each Group company in respect of any breach which occurred prior to the completion of the Share Acquisition Agreement.
                              2.4.6 Liabilities to be assumed

                                      Grand-Flo will not be assuming any liability pursuant to the Proposed Acquisition of the Sale Shares.
                              2.5 Basis of arriving at the Purchase Consideration

                                      The Purchase Consideration was arrived at on a willing buyer and willing seller basis, taking into consideration the future earnings potential of the Group and the Profit Guarantee by the Vendors.
                              2.6 Sources of Funding

                                      The Purchase Consideration for the Sale Shares will be funded from internally-generated funds.
                              2.7 Vendor’s Original Cost of Investment

                                      The Vendors’ original cost of investment in LNSB amounts to RM100,000.00 being the subscription price for the shares in LNSB, which were incurred between April 2001 and December 2007.


                              3. RATIONALE FOR THE PROPOSED ACQUISITION

                                  The Proposed Acquisition presents an opportunity for Grand-Flo and LNSB to co-operate and synergise their operations. The Board believes that the current market positioning of LNSB, coupled with the strong technical support from Grand-Flo, LNSB is poised to grow its business at a more rapid pace. The Proposed Acquisition is expected to strengthen the presence of Grand-Flo in the market for its solutions, products and services. The Proposed Acquisition is expected to contribute positively to the profit after tax of Grand-Flo.

                              4. PROSPECTS AND RISK FACTORS

                              4.1 Prospects

                                      The Board believes that the prospects are encouraging due to the current and potential demand for self-adhesive label stickers and manufacturing expertise that LNSB possesses.

                              4.2 Risk Factors

                                      The Group is subject to, amongst others, political, economic and regulatory risks, and business and operational risks in its day-to –day operations. Although the Group seeks to limit these risks through implementing various business strategies and sound risk management policies, no assurance can be given that any change in these factors will not have a material effect on the Group’s business.

                              5. FINANCIAL EFFECTS OF THE PROPOSED INVESTMENT

                              5.1 Share Capital and Equity Structure
                                      The Proposed Acquisition will not have any effect on the issued and paid-up share capital and equity structure of Grand-Flo.
                              5.2 Substantial Shareholding

                                      The Proposed Acquisition will not have any effect on the substantial shareholding structure of Grand-Flo, as they do not involve any issuance of new Grand-Flo shares.
                              5.3 Earnings

                                      The Proposed Acquisition is not expected to have a material impact on the earnings of the Grand-Flo Group for the financial year ending 31 December 2007 but is expected to contribute positively to the operating profits of Grand-Flo Group thereafter.
                              5.4 Net Assets and Gearing

                                      The Proposed Acquisition is not expected to have a material effect on the net assets of Grand-Flo Group.
                              5.5 Dividend

                                      The Proposed Acquisition is not expected to have any material effect on the policy of Grand-Flo in recommending dividends to the shareholders of Grand-Flo. Nevertheless, declaration of any dividend for the financial year ending 31 December 2008 and for future financial years will depend on the future financial position and performance of Grand-Flo.

                              6. DIVIDEND POLICY OF LNSB

                                  LNSB has no fixed dividend policy at this point of time.

                              7. APPROVALS REQUIRED
                                  The Proposed Acquisition is conditional upon the following approvals being obtained:-
                              (a) the approval of Foreign Investment Committee (“FIC”) of the Prime Minister’s Department;

                                  (b) the approval of the Minister of Internal Security (“MIS”) as to the change in the composition of the board of directors of KPSB;

                              (c) any other approvals which may be required.


                              8. DIRECTORS’ AND SUBSTANTIAL SHAREHOLDERS’ INTERESTS

                                  None of the Directors and/or substantial shareholders of Grand-Flo and persons connected to them, insofar as the existing Directors and substantial shareholders are able to ascertain and are aware, have any interest, direct or indirect, in the Proposed Acquisition.

                              9. DIRECTORS’ RECOMMENDATION
                                  The Directors of Grand-Flo having considered all aspects of the Proposed Acquisition are of the opinion that the Proposed Acquisition is in the best interest of Grand-Flo and that the terms thereof are fair and reasonable.

                              10. ESTIMATED TIME FRAME FOR SUBMISSION AND COMPLETION
                                  Barring any unforeseen circumstances, the Board expects that the submission to FIC and MIS for the Proposed Acquisition will be submitted by the first quarter of 2008 whilst the Proposed Acquisition will be completed by the first quarter of 2008.

                              11. DEPARTURE FROM THE SC’S POLICIES AND GUIDELINES ON ISSUE/OFFER OF SECURITIES (“SC GUIDELINES”)

                                  To the best knowledge of the Board, the Proposed Acquisition does not depart from the SC Guidelines.

                              12. DOCUMENTS AVAILABLE FOR INSPECTION

                                  The Share Acquisition Agreement and the latest management accounts of LNSB as at 31 October 2007 in relation to the Proposed Acquisition will be available for inspection at the registered office of Grand-Flo at Third Floor, No. 79 (Room A), Jalan SS21/60, Damansara Utama, 47400 Petaling Jaya, Selangor, during normal office hours from Mondays to Fridays (except public holidays) for a period of one (1) month from the date of this announcement.

                              This announcement is dated 18 December 2007.


                              Announcement Info

                              Company NameGRAND-FLO SOLUTION BERHAD (MESDAQ Market) 
                              Stock Name GRANFLO    
                              Date Announced18 Dec 2007  
                              CategoryGeneral Announcement
                              Reference NoCM-071218-59785





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