General Announcement

Reference No CC-071115-EACD6

Company Name

:

IRE-TEX CORPORATION BERHAD

Stock Name

:

IRETEX

Date Announced

:

16/11/2007

Type

:

Announcement

Subject

:

PROPOSED DISPOSAL OF THE ENTIRE 100% EQUITY INTEREST IN BAGUDA (M) SDN BHD ("BMSB"), A WHOLLY OWNED SUBSIDIARY OF IRE-TEX CORPORATION BERHAD ("ITCB" OR "THE COMPANY")("PROPORSED BMSB DISPOSAL")

Contents :

1. INTRODUCTION


ITCB wishes to announce that the Company has on 16 November 2007 entered into a share sale agreement ("SSA") with Koh Kim Bee, See Ee Ling, See Ai Ling, See Ching Ling and See Tze Chang (hereinafter collectively referred to as "the Purchaser") for the purpose of the disposal of its entire 100% equity interest in BMSB.


The principal activity of BMSB is investment holding. The key asset of BMSB is a piece of leasehold land known as Lot 12358, Mukim 12, Daerah Barat Daya, Pulau Pinang held under PN 5855 together with a factory and office building erected thereon (hereinafter referred to as "the Property").

2. DETAILS OF THE PROPOSED BMSB DISPOSAL


The Proposed BMSB Disposal involves the disposal by ITCB of one million five hundred thousand (1,500,000) ordinary shares of RM1.00 each in BMSB ("Sale Shares"), representing 100% of the issued and paid-up capital of BMSB, to the Purchaser for a cash consideration of RM7,400,000 ("Purchase Price"). The sale and purchase of the Sale Shares was on the basis that as at the Completion Date or the Extended Completion Date as the case may be:


(i) BMSB shall have no other principal assets except the Property;


(ii) BMSB shall have no liabilities whatsoever. ITCB undertakes to settle all the liabilities of the Company including but not limited to inter-company debts/liabilities and whether or not disclosed in the accounts upon the Completion Date or the Extended Completion Date, as the case may be. As at 31 October 2007 the liabilities of BMSB amounted to RM2,679,149 which included an amount of RM2,383,578 owing by BMSB to ITCB and its related companies ("Inter-company Advances"); and


(iii) the Company shall be entitled to deduct from the Purchase Price the Inter-company Advances calculated up to the Completion Date or the Extended Completion Date, as the case may be, and/or to utilize part of the Purchase Price to set off against the Inter-company Advances calculated up to the Completion Date or the Extended Completion Date, as the case may be.


The Sale Shares will be disposed of free from all claims, charges, liens or other encumbrances and with all rights attaching to the Sale Shares together with all dividends and distributions declared in respect thereof after the Completion Date or the Extended Completion Date, as the case may be. The sale and purchase of the Sale Shares shall be deemed to be one whole transaction and shall not be segregated in any way and the Purchaser shall not be obliged to complete the purchase of any portion of the Sale Shares or shares in BMSB unless the purchase of all the Sale Shares is completed concurrently.


2.1 Consideration


The Purchase Price and the basis of sale of the Sale Shares are arrived at on a "willing-buyer, willing-seller" basis after taking into consideration the following:


(i) the share capital of BMSB comprising one million five hundred thousand (1,500,000) ordinary shares of RM1.00 each;


(ii) the net asset value of BMSB as at 31 August 2007 including the Inter-company Advances; and


(iii) the market value of the Property of RM6,500,000 as appraised by PPC International (Penang) Sdn Bhd, an independent firm of professional valuers based on their valuation report dated 1 November 2007 , using cost comparison method.


2.2 Liabilities to be assumed by the Purchaser


No liabilities shall be assumed by the Purchaser in connection with the Proposed BMSB Disposal.


2.3 Date and original cost of investment


The date and original cost of investment by ITCB in BMSB are as follows:


Date of investment

No of Sale Shares

% held

Cost of investment RM

25 September 2003

1,500,000

100

3,732,702


2.4 Other salient terms and conditions of the SSA


Other salient terms and conditions of the SSA are, amongst others, set out below:


2.4.1 Payment


The Purchaser must pay to ITCB in proportion to their respective shareholdings for its purchase of the Sale Shares in the following manner:-


(i) a Deposit of Ringgit Malaysia Seven Hundred and Forty Thousand (RM740,000) only upon signing of the SSA; and


(ii) a sum of Ringgit Malaysia Seven Hundred and Forty Thousand (RM740,000) only being the ten per centum (10%) of the Purchase Price within one (1) month from the date of the SSA; and


(iii) a sum of Ringgit Malaysia Seven Hundred and Forty Thousand (RM740,000) only being the ten per centum (10%) of the Purchase Price within two (2) months from the date of the SSA; and


(iv) a sum of Ringgit Malaysia Five Million One Hundred and Eighty Thousand (RM5,180,000) only being the balance seventy per centum (70%) of the Purchase Price within six (6) months from the date of the SSA (herein called "the Completion Date") with an extension of one (1) month Provided Always that the Purchaser shall pay to ITCB interest at the rate of seven per centum (7%) per annum on the outstanding balance calculated on daily basis until the date of full payment of such outstanding sum (herein called the "Extended Completion Date").


2.4.2 Conditions precedent


The SSA is conditional upon and subject to the approval of the Foreign Investment Committee ("Relevant Authorities") to the Purchaser undertaking the matters stated in the SSA being obtained and the result of the due diligence audit conducted by the Purchaser on BMSB.


The Purchaser shall immediately after the execution of the SSA use its best endeavours and diligently and expeditiously do all acts and things necessary to obtain the relevant approvals ("Relevant Approvals") and ITCB and BMSB shall co-operate with and assist the Purchaser in all respects, including but not limited to furnishing all information and documents as may be required from them.


In the event any condition shall be imposed in any of the Relevant Approvals which shall be unacceptable to any Party, that Party may within ten (10) working days after receiving such approval notify all the other Parties accordingly and unless such notice shall have been given as aforesaid, such condition shall be deemed to be acceptable to and agreed by such Party and for the avoidance of doubt, it is agreed that within such period of ten (10) working days, such Party may at its own cost and expense do such acts and things as it shall see fit including but not limited to making any appeal to the Relevant Authorities for the purpose of obtaining any review, revision, amendment, variation, modification, cancellation, removal or revocation of such condition.


In the event that the Relevant Approvals shall not have been obtained or the conditions precedent shall not have been fulfilled to the satisfaction of the Purchaser upon the expiration of thirty (30) days after the date of the SSA or in the event any Party shall have given such notice as aforesaid then the Company shall forthwith refund to the Purchaser the deposit and all monies paid towards account of the Purchase Price by the Purchaser to the Company under the SSA free of interest, thereupon the SSA shall immediately become null and void and of no further force or effect and no compensation shall be payable by any Party to any other Party.


The due diligence audit shall be completed within one (1) month from the date of the SSA. The Company shall give its full assistance which is within its ability and give full and frank disclosure as are necessary to the Purchaser's accountant/auditors of BMSB's affairs and shall make available to them all books documents and accounts of BMSB. The Purchaser shall bear all costs of and incidental to the due diligence audit.


The Purchaser shall be at liberty to withdraw from the purchase of the Sale Shares within one (1) month from the date of the SSA if the due diligence audit reveals material discrepancies in the accounts of BMSB and/or material non-disclosure of risks and liabilities and/or material inaccurate information and/or if there are found to be material contracts already entered into by BMSB which BMSB is unable to terminate at no costs and/or there are found to be existing material contracts entered into by BMSB which are burdensome and unprofitable. The word "material" for the purpose of this clause shall mean an amount of liability incurred by BMSB which is equal to or more than 5% of the Purchase Price.


In such event the Company shall forthwith refund to the Purchaser the deposit and all monies paid towards the account of the Purchase Price by the Purchaser to the Company under the SSA free of interest. Thereupon the SSA shall immediately become null and void and of no further force or effect and no compensation shall be payable by any Party to any other Party.


2.4.3 Non-completion


In the event that the Company shall fail for any reason whatsoever to perform those obligations that the Company need to perform to complete the SSA, the Purchaser shall be entitled to specific performance of the SSA.


In the event:


(a) the Purchaser fails to pay any part of the Purchase Price and/or any interest due thereon, if any, in accordance with the terms of the SSA; and/or


(b) the Purchaser commits a material breach of the terms of the SSA;


then the Deposit shall be forfeited absolutely by the Comapny and all other monies paid towards account of the purchase price by the Purchaser to the Company under the SSA shall be refunded forthwith by the Company to the Purchaser without interest and thereafter the SSA shall terminate be deemed to have no further effect. The Company shall be entitled to deal with the Sale Shares and the assets of BMSB in whatsoever manner it deems fit without further referring to the Purchaser.


2.4.4 Completion


Completion of the sale and purchase of the Sale Shares shall take place at the office of the Company's solicitors on the Completion Date or the Extended Completion Date, as the case may be, subject to the Purchaser shall have fully paid to the Company the full Purchase Price (including any interest due thereon, if any).


2.5 Information on BMSB


BMSB was incorporated in Malaysia under the Companies Act, 1965 on 25 September 1991 as a private limited company.


As at the current date the authorized share capital of BMSB comprises 5,000,000 ordinary shares of RM1.00 each, of which 1,500,000 ordinary shares have been issued and fully paid up


The principal activity of BMSB is investment holding. The main income of BMSB is derived from rental of the Property. The Property is currently rented out pursuant to a tenancy agreement for a period of 3 years commencing from 15 May 2006. Salient details of the Property are set out in Table 1.


A summary of the key financial information of BMSB based on its audited financial statements for the five (5) financial years ended 31 December 2006 and the unaudited financial statements for the 8 month period ended 31 August 2007 are set out in Table 2.


3. RATIONALE FOR THE PROPOSED BMSB DISPOSAL AND UTILISATION OF PROCEEDS ARISING THEREFROM


The disposal would benefit the company as it will generate additional cash inflow when completed.


The net proceeds from the Proposed BMSB Disposal of approximately RM7,000,000 will be used to fund the working capital requirements of ITCB and its subsidiaries ("ITCB Group").


4. EFFECTS OF THE PROPOSED BMSB DISPOSAL


4.1 Share capital and substantial shareholders' shareholding


The Proposed BMSB Disposal will not have any effect on the share capital and substantial shareholders' shareholding of ITCB.


4.2 Earnings, net assets and gearing


The expected gain to ITCB Group arising from the Proposed BMSB Disposal amounts to approximately RM866,000 after taking into account the settlement of Inter-company Advances of RM2,383,578 (as at 31 October 2007) and estimated expenses of RM400,000 relating to the Proposed BMSB Disposal. For illustrative purposes, the proforma effects of the Proposed BMSB Disposal on the earnings, consolidated net assets and gearing of ITCB based on the audited consolidated financial statements of ITCB for the financial year ended 31 December 2006 assuming that the Proposed BMSB Disposal had been implemented on that date, are set out in Table 3.


5. APPROVALS REQUIRED


The Proposed BMSB Disposal requires approval of the Foreign Investment Committee to be obtained by the Purchaser.


6. ESTIMATED TIMEFRAME FOR COMPLETION


Barring any unforeseen circumstances, the Proposed BMSB Disposal is expected to be completed by the second quarter of calendar year 2008.


7. DIRECTORS' AND MAJOR SHAREHOLDERS' INTERESTS


None of the Directors and/or major shareholders of ITCB and/or persons connected with them have any interest, direct or indirect, in the Proposed BMSB Disposal.


8. DIRECTORS' STATEMENT


The Board of Directors of ITCB, having considered all aspects of the Proposed BMSB Disposal, is of the opinion that the Proposed BMSB Disposal is in the best interest of the Company.


9. COMPLIANCE WITH THE SECURITIES COMMISSION'S POLICIES AND GUIDELINES ON ISSUE/OFFER OF SECURITIES ("SC GUIDELINES")


The Board of Directors of ITCB is not aware of any departure from the SC Guidelines.


10. DOCUMENTS FOR INSPECTION


Copies of the following documents are available for inspection at the registered office of the Company at 35, 1st Floor, Jalan Kelisa Emas 1, Taman Kelisa Emas, 13700 Seberang Jaya, Penang during normal office hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement:


(i) the SSA dated 16 November 2007; and


(ii) the valuation report on the Property prepared by PPC International (Penang) Sdn Bhd dated 1 November 2007.


This announcement is dated 16 November 2007.