BIO OSMO BERHAD ( BIO OSMO OR THE COMPANY ) (I) (II) PROPOSED DISPOSAL OF FREEHOLD INDUSTRIAL LAND TOGETHER WITH AN INDUSTRIAL COMPLEX COMPRISING THREE (3) INDUSTRIAL BUILDINGS WITH AN ANNEXED 2-STOREY OFFICE BLOCK AND ANCILLARY BUILDINGS ( FACTORY ) BY AMSHORE HOLDINGS SDN BHD ( AMSHORE ), A WHOLLY-OWNED SUBSIDIARY OF BIO OSMO, TO PENTAS PRISMA SDN BHD ( PRSB OR THE PURCHASER ) FOR A CASH CONSIDERATION OF RM12.0 MILLION ( PROPOSED DISPOSAL ); AND PROPOSED TENANCY OF THE FACTORY BY AMSHORE ( PROPOSED TENANCY ) (COLLECTIVELY REFERRED TO AS THE PROPOSALS ) 1. INTRODUCTION The Board of Directors of Bio Osmo ( Board ) wishes to announce the following: (i) Amshore, a wholly-owned subsidiary of Bio Osmo had on 30 May 2016 entered into a conditional sale and purchase agreement with PRSB in relation to the proposed disposal of the Factory to PRSB ( SPA ) for a cash consideration of RM12.0 million ( Disposal Consideration ); and (ii) simultaneous with the execution of the conditional SPA, Amshore and PRSB had on 30 May 2016 also executed a conditional tenancy agreement ( Tenancy Agreement ) in respect of the Proposed Tenancy. (Amshore and the Purchaser are individually referred to as the Party and collectively referred to as the Parties ) Further details of the Proposals are set out in the ensuing sections. 2. DETAILS OF THE PROPOSALS 2.1 Details of the Proposed Disposal (a) Pursuant to the conditional SPA, Amshore agrees to sell and the Purchaser agrees to purchase the Factory on an as is where is basis, free from all encumbrances but subject to the conditions expressed or implied on the title of the Factory ( Title ), and upon the terms and conditions set out in the conditional SPA. (b) Upon completion of the Proposed Disposal, there shall be no handing over of vacant possession in respect of the Factory by Amshore to the Purchaser. The Purchaser has agreed that a tenancy in respect of the Factory shall be granted to Amshore on the terms as set out in the Tenancy Agreement upon completion of the Proposed Disposal. Pursuant thereto, Amshore shall be permitted to continue to occupy and to conduct and carry on its existing business on the Factory uninterrupted and unimpeded. (c) Please refer to Appendix I and Appendix II of this announcement for information of the Purchaser and the Factory. 2.2 Basis of and justification for the Disposal Consideration (a) The Disposal Consideration of RM12.0 million was arrived at on a willing buyer-willing seller basis and after taking into consideration the Factory s market value of RM12.45 million as well as the tenancy in respect of the Factory granted to Amshore upon completion of the Proposed Disposal. The market value of the Factory was appraised by Appraisal (Malaysia) Sdn Bhd, an independent valuer appointed by Amshore ( Valuer ), in its valuation certificate and valuation report dated 20 May 2016. 1
(b) In deriving the valuation of the Factory, the Valuer had adopted the Comparison Method as the primary method of valuation and used the Cost Method as a countercheck on the result of the Comparison Method. The Comparison Method of valuation involves a process of comparing the Factory with recent sales of similar properties in the vicinity and making appropriate adjustments to account for differences. The Cost Method involves the assessment of the value of the Factory by estimating the cost of reconstruction for the buildings of the Factory after making due allowances for obsolescence and depreciation (also known as the depreciated replacement cost ) which is added to the cost of purchasing the land of the Factory. It assumes that the market value is equal to the total cost of purchasing an alternative but identical land and constructing upon it an identical building using modern equivalents, after making allowances for obsolescence and depreciation. (c) The Disposal Consideration is justified after taking into consideration the discount of RM450,000 or approximately 3.6% represented by the Disposal Consideration over the market value of the Factory of RM12.45 million and the rationale for the Proposed Disposal as set out in Section 3.2 of this announcement. 2.3 Salient terms of the conditional SPA The salient terms of the conditional SPA are as follows: (i) the conditional SPA shall be subject to the following conditions precedent ( Conditions Precedent ) being fulfilled and satisfied within six (6) months from the date of the conditional SPA or such later date as may be agreed between the parties in writing ( Conditional Period ): (a) the approval from the shareholders of Bio Osmo, being Amshore s holding company; and (b) the approval from the relevant authorities, if required. (ii) (iii) if the Conditions Precedent are not fulfilled within the Conditional Period, then any party may by notice in writing terminate the conditional SPA, and Amshore shall refund the Deposit to PRSB free of interest. Thereafter the conditional SPA shall be at an end and of no further effect, and none of the Parties shall have any further claims; the Disposal Consideration of RM12.0 million shall be paid in the following manner: (a) RM3.0 million being the deposit of the Proposed Disposal ( Deposit ) within thirty (30) days of the Conditional SPA; and (b) balance of the Disposal Consideration of RM9.0 million ( Balance Purchase Price ) is payable by the Purchaser and/or its lender to Amshore s solicitors as stakeholders within three (3) months from the date of the conditional SPA ( Completion Period ); (iv) in the event that the Purchaser and/or its lender is unable to pay the Balance Purchase Price to Amshore s solicitor as stakeholders within the Completion Period, Amshore agrees that the Completion Period shall be automatically extended by one (1) month from the day following the expiry of the Completion Period ( Extended Completion Period ), provided always that interest shall then be payable by the Purchaser to Amshore on the Balance Purchase Price or such part thereof which remains outstanding to be paid as at the expiry of the Completion Period at the rate of eight per centum (8%) per annum calculated on a day to day basis from the expiry of the Completion Period to the date of actual payment; 2
(v) (vi) (vii) if the Purchaser fails to settle the Balance Purchase Price fully by the expiry of the Extended Completion Date, provided that Amshore have fulfilled all of its obligations in the conditional SPA, Amshore shall be entitled at its absolute discretion to terminate the conditional SPA by notice in writing to the Purchaser whereupon the Deposit shall be forfeited to Amshore absolutely and the Purchaser shall within seven (7) days of the notice of termination, pay to Amshore an additional sum equivalent to the Deposit, both sums together, as agreed liquidated damages; if Amshore fails to complete the sale of the Factory to the Purchaser according to the terms of the conditional SPA, provided that the Purchaser shall have fulfilled all of its obligations in the conditional SPA, the Purchaser shall be entitled at its absolute discretion to the remedy of specific performance and to all reliefs flowing therefrom or to terminate the conditional SPA by notice in writing to Amshore whereupon Amshore shall within seven (7) days of the said notice, pay to the Purchaser agreed liquidated damages in a sum equivalent to the Deposit; and in the event that the transfer of the Factory in favour of the Purchaser ( Transfer ) is rejected or suspended and the non-registration of the Transfer cannot be rectified or remedied by either Party, the Purchaser shall be entitled to terminate the conditional SPA and Amshore shall refund the Deposit and all other moneys which have been paid by the Purchaser and/or its lender pursuant to the conditional SPA free of interest. 2.4 Utilisation of proceeds The Disposal Consideration is proposed to be utilised as follows: Proposed Utilisation Amount Estimated time frame for utilisation (RM 000) Investment and/or acquisition of new business (1) Rental payments under the Tenancy Agreement (2) 7,000 Within twenty four (24) months from the date of completion of the Proposed Disposal 540 Within twelve (12) months from the date of completion of the Proposed Disposal Working capital requirements (3) 4,000 Within twelve (12) month from the date of completion of the Proposed Disposal Estimated expenses for the Proposals (4) Total 12,000 460 Within one (1) month from the date of completion of the Proposed Disposal Notes: (1) Bio Osmo and its subsidiaries ( Bio Osmo Group or the Group ) expects to allocate approximately RM7.00 million of the proceeds from the Proposed Disposal for the investment and/or acquisition of new business to improve the Group s financial performance. The Group had obtained approval from its shareholders on 24 February 2016 for the diversification of its existing core businesses to include the businesses of management and operation of hotels and resorts, hotel property investment and hotel development. The potential investment and/or acquisition of new business may include acquisition of strategic investments and/or strategic collaborations, joint ventures or alliances in the hotel management industry and may or may not be in similar or complementary industries to the Group s existing businesses. In the event that no suitable new business opportunities are identified by the Group, the entire amount will be utilised for general working capital purposes. (2) An amount of RM540,000 is allocated for rental payments under the Tenancy Agreement for a period of 12 months from the date of completion of the Proposed Disposal. Rental payments for the remainder of the terms of Tenancy Agreement shall be funded by internally generated funds of the Group. (3) The proceeds will be utilised for general working capital requirements in respect of the Group s day to day operations to support the Group s business operations which include amongst others, payment to suppliers, salaries, utilities, business development expenses and marketing expenses. The breakdown of proceeds to be utilised for each component of the operating expenses has not been determined at this juncture. The actual utilisation for each component of working capital may differ at the time of utilisation. 3
(4) The estimated expenses includes estimated professional fees, fees payable to regulatory authorities, printing and advertising cost, and any other incidental expenses in connection with the Proposals. Any variation to the amount of estimated expenses in relation to the Proposals will result in an adjustment to the proceeds allocated for general working capital and/or future investments. 2.5 Original date and cost of investment The original cost and date of investment of the Factory are as follows: Original cost of investment Date of investment (RM 000) Land 3,764 20 March 2006 Factory 11,932 19 December 2006 Total 15,696 2.6 Liabilities to be assumed by the Purchaser There are no liabilities to be assumed by the Purchaser pursuant to the Proposed Disposal. 2.7 Details of the Proposed Tenancy Pursuant to the Tenancy Agreement, PRSB agreed to let to Amshore and Amshore agreed to accept the tenancy in respect of the Factory upon the terms and conditions set out in the Tenancy Agreement. 2.8 Salient terms of the Tenancy Agreement The salient terms of the Tenancy Agreement are as follows: (a) Tenancy Term : (i) Three (3) years from the Commencement Date (as defined herein) ( Tenancy Period ) (ii) Upon the expiry of the Tenancy Period, there shall be an extension of another three (3) years at the option of Amshore ( First Renewed Term ) (b) Commencement Date (iii) Upon expiry of the First Renewed Term, there shall be an extension of another three (3) years at the option of Amshore ( Second Renewed Term ) (First Renewed Term and Second Renewed Terms are collectively referred to as the Renewed Term ) : The tenancy in respect of the Factory shall commence on the day legal possession is handed by Amshore to PRSB as set out in the conditional SPA ( Commencement Date ). (c) Expiry Date : Nine (9) calendar years calculated from the Commencement Date. 4
(d) Rent : (i) The monthly rental is RM45,000.00 for the Tenancy Period. (ii) (iii) (iv) (v) The monthly rental for the First Renewed Term is RM47,250.00 per month being an increase of 5% of the last Rent payable for the Tenancy Period. The monthly rental for the Second Renewed Term is RM49,612.50 per month being an increase of 5% of the last Rent payable for the First Renewed Term. All payments of rental shall be made in arrears on or before the seventh (7 th ) day of each calendar month. The rental for the Renewed Term may be revised subject to mutual agreement of Amshore and PRSB, failing agreement, the rental to be paid shall be as stated above. Termination : Amshore may terminate the tenancy in respect of the Factory at any time and for any reason whatsoever by giving PRSB three (3) months advance notice in writing. 2.9 Basis of and justification for the rental of the tenancy in respect of the Factory The monthly rental of the tenancy in respect of the factory of RM45,000 was arrived after taking into consideration the rental valuation report which was prepared by Appraisal (Malaysia) Sdn Bhd, an independent valuer appointed by Amshore ( Valuer ), in its rental valuation report dated 22 May 2015. In deriving the valuation of the Factory, the Valuer had adopted the Comparison Method as the primary method of valuation. The Comparison Method of valuation involves a process of comparing the Factory with the recent rentals of similar properties in the vicinity and making appropriate adjustments to account for differences such as, amongst others, location, building quality, time factor and size. The rental amount is justified after taking into consideration the discount of RM1,000 or approximately 2% represented by the proposed rental over the market rental of the Factory of RM46,000. 3. RATIONALE FOR THE PROPOSALS The Board is of the view that the Proposed Disposal and Proposed Tenancy are in the best interest of the Company as they represent an opportunity for the Group to re-strategise its financial and capital resources. The Proposed Disposal and Proposed Tenancy will also enable the Company to unlock the value of the Factory without disrupting the operating activities of the Group as the Factory will be rented by Amshore upon completion of the Proposed Disposal, under the terms of the Tenancy Agreement. Accordingly, the Tenancy Agreement which is entered into by Amshore with PRSB will ensure the Group to benefit from the continued use of the Factory for its operations. The tenancy in respect of the Factory will also offer the Board the flexibility to introduce future changes, if required, to improve the utilisation of resources and operations of the Group, or to further streamline the operations of the Group. 5
4. RISK FACTORS Below are some non-exhaustive risk factors that may be inherent to the Bio Osmo Group in relation to the Proposed Disposal and Proposed Tenancy. 4.1 Completion risk Completion of the Proposed Disposal is subject to the fulfilment and/or waiver of the Conditions Precedent and the performance by the parties of their respective obligations as set out in the conditional SPA. There can be no assurance that the Conditions Precedent will be fulfilled or obtained in timely manner. Notwithstanding this, the Board and Amshore will use their best endeavours to ensure all the Conditions Precedent are fulfilled, including obtaining the approvals/consents required which are within its control, to facilitate the completion of the Proposed Disposal. 4.2 Contractual risk If PRSB has fulfilled all of its obligations under the conditional SPA but Amshore fails to complete the Proposed Disposal according to the terms of the conditional SPA, Amshore may be subjected to certain contractual risks such as remedy of specific performance or payment of agreed liquidated damages as a result of non-fulfilment of its obligations under the conditional SPA. Nevertheless, the Board and Amshore endeavour to ensure full compliance in relation to fulfilment of its part of the obligations under the conditional SPA. 4.3 Tenancy Risk Amshore is given options to renew the tenancy in respect of the Factory for two (2) terms of three (3) years each at the Rent upon the same terms and conditions set out in the Tenancy Agreement. Notwithstanding the above, on the expiry of the Third Term of the Tenancy Agreement, Amshore may not be able to renew its tenancy of the Factory with PRSB or where applicable, with subsequent purchaser of the Factory, on mutually agreed terms and conditions. Failure to enter into a new tenancy agreement upon expiry of the Third Term of the Tenancy Agreement may cause interruptions to the Bio Osmo Group s business operation at the Factory in the future. In such event, Bio Osmo Group shall identify suitable alternative premises to operate as its factory and office building which may result in the increase in rental expenses. 5. EFFECTS OF THE PROPOSALS 5.1 Issued and paid-up share capital The Proposed Disposal and Proposed Tenancy will not have any effect on the issued and paid-up share capital of Bio Osmo as they do not involve any issuance of shares in Bio Osmo. 5.2 Substantial shareholders shareholdings The Proposals will not have any effect on Bio Osmo s substantial shareholders shareholdings in Bio Osmo as they do not involve any issuance of shares in Bio Osmo. 5.3 NA and gearing Based on the audited consolidated financial statements for the financial year ended ( FYE ) 31 December 2014, the proforma effects of the Proposals on the NA and gearing of the Group are as follows: 6
5.3 NA and gearing Based on the audited consolidated financial statements for the financial year ended ( FYE ) 31 December 2014, the proforma effects of the Proposals, on the NA and gearing of the Group, assuming that the Proposals have been effected on 31 December 2014 are as follows: Minimum Scenario Audited as at 31 December 2014 (RM 000) After Proposed Disposal and Proposed Tenancy (RM 000) Share capital 99,732 99,732 Share premium 288 288 Warrants reserve 2,093 2,093 Capital reserve - Accumulated losses (71,023) (1) (70,483) Shareholders funds/na 31,090 31,630 No. of shares in issue ( 000) 498,660 498,660 NA per share (Sen) 6.23 6.34 Total borrowing - - Gearing (times) - - Notes: (1) After incorporating the estimated one-off gain from the Proposed Disposal of RM1,000,000 and the estimated expenses incidental to the Proposed Disposal of RM460,000. 7
Maximum Scenario (I) (II) Audited as at 31 December 2014 After full exercise of Warrants After (I), Proposed Disposal and Proposed Tenancy (RM 000) (RM 000) (RM 000) Share capital 99,732 104,732 104,732 Share premium 288 3,631 3,631 Warrants reserve 2,093 (1) - - Capital reserve - - - Accumulated losses (71,023) (71,023) (2) (70,483) Shareholders funds/na 31,090 37,340 37,880 No. of shares in issue ( 000) 498,660 523,660 523,660 NA per share (Sen) 6.23 7.13 7.23 Total borrowing - - - Gearing (times) - - - Notes: (1) After adjusting for the reversal of warrants reserves pursuant to the exercise of all the Warrants. (2) After incorporating the estimated one-off gain from the Proposed Disposal of RM1,000,000 and the estimated expenses incidental to the Proposed Disposal of RM460,000. 8
5.4 Earnings and EPS The Proposed Disposal is expected to reduce the consolidated losses and loss per share ( LPS ) of the Group for the FYE 30 June 2016 (*). The Group is expected to realise a net gain (after deducting the estimated expenses for the Proposals) of approximately RM540,000 arising from the Proposal Disposal. Thereafter, the Group is required to pay rental of RM45,000 per month effective from the commencement of the tenancy in respect of the Factory. (*) Note : The Group changed its financial period from December to June. Accordingly, the next financial year is from 1 January 2015 to 30 June 2016. For illustrative purposes, based on the audited consolidated financial statements of the Group for the FYE 31 December 2014 and assuming that the Proposed Disposal had been effected on that date, the Proposed Disposal will have the following proforma effects on the consolidated losses of the Group: Proforma consolidated losses (RM 000) (2) Proforma consolidated LPS (sen) Net losses for the audited FYE 31 December 2014 Add: Proforma gain from the Proposed Disposal (1) Less: Estimated expenses for the Proposed Disposal Proforma net losses for the FYE 31 December 2014 (20,127) (4.04) 1,000 0.20 (460) (0.09) (20,077) (3.93) Notes: (1) Computed based on the Disposal Consideration of RM12.0 million less the aggregate net book value ( NBV ) of the Factory of RM11.0 million as at 31 December 2014. (2) Computed based on 498,660,000 ordinary shares held as issued and fully paid-up share capital as at 31 December 2014. The actual gain arising from the Proposed Disposal will depend on the NBV of the Factory at the time of completion of the Proposed Disposal and the actual amount of expenses to be incurred in relation to the Proposals. 6. APPROVALS REQUIRED The Proposals are subject to the following being obtained: (i) (ii) approval of the shareholders of Bio Osmo at an extraordinary general meeting ( EGM ) to be convened in relation to the Proposals; and consent/approval of any other relevant authorities, if required. The Proposed Disposal and Proposed Tenancy are conditional on each other. 9
7. CASH COMPANY OR PN 17 COMPANY The Proposed Disposal will not result in Bio Osmo becoming a cash company or a PN 17 company, as defined under the Listing Requirements. 8. HIGHEST PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Disposal pursuant to Paragraph 10.02(g) of the Listing Requirements is 55.0%. 9. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS None of the directors or major shareholders of Bio Osmo or persons connected with them has any interest, direct or indirect, in the Proposals. 11. DIRECTORS STATEMENT The Board having considered all aspects of the Proposals is of the opinion that the Proposals are in the best interests of the Company. 12. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstance, the Board expects the Proposals to be completed by third quarter of the calendar year 2016. 13. DOCUMENT AVAILABLE FOR INSPECTION The following documents will be made available for inspection at the registered office of Bio Osmo during office hours from Monday to Friday (except public holidays) at No. 5-9A, The Boulevard Offices, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, for a period of three (3) months from the date of this announcement: (i) (ii) (iii) conditional SPA; Tenancy Agreement; and valuation certificate and report dated 20 May 2016 prepared by the Valuer in relation to the market value of the Factory. This announcement is dated 30 May 2016. 10
Appendix I 1. Information of PRSB PRSB was incorporated in Malaysia on 10 April 2015 as a private limited company under the Companies Act, 1965. It is principally engaged in investment holding. As at 30 May 2016, PRSB has an authorised share capital of 400,000 shares of RM1.00 each, of which 100,000 shares have been issued and fully paid-up. The substantial shareholders of PRSB and their direct and indirect shareholdings in PRSB are as follows: Direct Indirect Nationality No. of PRSB shares % No. of PRSB shares % Leong Siew Keng Malaysia 50,000 50 - - Leong Chee Keong Malaysia 50,000 50 - - The directors of PRSB and their direct and indirect shareholdings in PRSB are as follows: Direct Indirect No. of PRSB No. of PRSB Nationality shares % shares % Leong Siew Keng Malaysia 50,000 50 - - Leong Chee Keong Malaysia 50,000 50 - - 11
Appendix II 1. Details of the Factory The Proposed Disposal entails the disposal of a freehold industrial land measuring approximately 2.3 hectares together an industrial complex comprising three (3) industrial buildings with an annexed 2-storey office block and ancillary buildings held under GM 5649, Lot 8101, Locality of Sungai Suloh Besar, Mukim of Minyak Beku, District of Batu Pahat, Johor Darul Takzim. The Factory is currently being occupied by Amshore as their factory and office building. Salient information in respect of the Factory is as follows: Identification Details Title Particulars : GM 5649, Lot No. 8101 within Locality of Sungai Suloh Besar, Mukim of Minyak Beku, District of Batu Pahat, Johor Darul Takzim, Malaysia Land area : 2.3 hectares (after deducting land acquisition of about 0.0759 hectares) Approximate age of buildings / Gross Floor Area Tenure : Perpetuity Category of land use : Industry : 9 years and 8 months / 100,083 square feet Existing use : Processing & manufacturing of bottled reverse osmosis water Express conditions : (i) Tanah ini hendaklah digunakan sebagai kawasan Industri Sederhana untuk tujuan perusahaan Compressor/Cluches and Parts for Conditioning dan kegunaan lain yang berkaitan dengannya, dibina mengikut pelan yang diluluskan oleh Pihak Berkuasa Tempatan yang berkenaan. Restriction in interest : Nil Encumbrances : Nil Registered proprietor : Amshore Net book value as at 31 December 2014 (audited) (ii) Segala kekotoran dan pencemaran akibat daripada aktiviti ini hendaklah disalurkan /dibuang ke tempat-tempat yang telah ditentukan oleh Pihak Berkuasa Berkenaan. (iii) Segala dasar dan syarat yang telah ditetapkan dan dikuatkuasakan dari semasa ke semasa oleh Pihak Berkuasa Berkenaan hendaklah dipatuhi. : RM11,000,000 Market Value : RM12,450,000 (1) Date of valuation : 9 May 2016 Note: (1) Pursuant to the market value appraised by the Valuer in its valuation certificate and valuation report dated 20 May 2016. 12