INTRODUCTION
The Board of Directors of Stone Master Corporation Berhad (hereinafter referred to as “SMCB” or “The Company”) wishes to announce that SMCB has at 12.00 noon on 6th December 2016 entered into a Sale and Purchase Agreement of Right To Complete Procurement Of Exclusive Agencies (“S&P”) with Quantum March Sdn. Bhd. (Company No. 1208115-M) (hereinafter referred to as “Purchaser”), a company incorporated in the Malaysia of and having its registered office at Unit A-6-2A, Wisma Yoon Cheng, No. 726, Batu 4 1/2, Jalan Ipoh, 51200 Kuala Lumpur, of the other part., where in principle, SMCB agrees to sell and the Purchaser agrees to purchase the SMCB’s Rights (as hereinafter defined) subject to all the salient terms and conditions as stated therein the S&P.
SMCB and the Purchaser shall hereinafter be individually referred to as “the Party” and collectively as “the Parties”.
1. BACKGROUND INFORMATION OF THE COMPANIES INVOLVED IN THE SALE AND PURCHASE AGREEMENT OF RIGHT TO COMPLETE PRCUREMENT OF EXCLUSIVE AGENCIES (“S&P”)
1.1 Background information of SMCB or the Company
SMCB was incorporated in Malaysia under the Companies Act 1965 on 11th November 1999 as a public limited company under its present name. On 1st of July 2002, SMCB and its entire issued and fully paid-up share capital of 42,000,000 ordinary shares of RM1.00 each was successfully listed on the Official List of the Bursa Malaysia Securities Berhad. SMCB is the first in Malaysia from the dimensional stone industry to be successfully listed on the Official List of Bursa Malaysia.
On 2nd June 2011, SMCB has undertaken a corporate exercise to reduce its share capital par value from RM1.00 to RM0.50 each per ordinary share and subsequently on 5th November 2014, the Company has undertaken to further reduce its share capital by a par value from RM0.50 to RM0.25 and had also further increased its authorized share capital. Subsequently, after undertaking a Rights Issue exercise via the approval of shareholders on 3rd September 2014 and upon the completion of its Rights Issue on 29th June 2015, its authorized and paid-up share capital as at to date stands at RM2,000,000,000.00 divided into 8,000,000,000 shares of RM0.25 each and RM22,476,294.25 divided into 89,905,177 shares of RM0.25 each respectively.
SMCB is principally an investment holding company with its subsidiaries engaging in the import, manufacturing, trading and undertaking contracts of natural stones, ceramic tiles, sanitary wares and other building finishing materials.
1.2 Background information of Quantum March Sdn. Bhd. (“Purchaser”)
The Purchaser principal business and activities include export and export of a variety of goods without any particular specialisation N.E.C. and buying, selling, renting and operating of self-owned or leased own real estate.
2. SOME SALIENT TERMS OF THE SALE AND PURCHASE AGREEMENT OF RIGHT TO COMPLETE PRCUREMENT OF EXCLUSIVE AGENCIES (“S&P”)
Preamble to the S&P
(A) SMCB is an investment holding company with its subsidiaries engaging in the import, manufacturing, trading and undertaking contracts of natural stones, ceramic titles, sanitary wars and other building finishing materials.
(B) On 3rd February 2016, SMCB entered into twenty-three (23) separate and standard type Exclusive Agency Agreements (hereinafter referred to as “EAAs”) with twenty-three (23) credible China principals (hereinafter referred to as “the Principals”) to individually procure twenty-three (23) exclusive agencies (hereinafter referred to as “the Exclusive Agencies”) from the respective Principals who participated in the China Brands “Go Out Policy” under the “One Belt, One Road” initiatives.
(C) The relevant description and the relevant information of the EAAs (as well as the related Settlement Agreements as hereinafter described below) are as summarised in Appendix A of the S&P.
(D) SMCB has anticipated some difficulties in completing the procurement of the Exclusive Agencies (“Agencies Procurement”) and SMCB intends to sell all its existing rights to complete the procurement of the Exclusive Agencies arising from the EAAs (hereinafter referred to as “SMCB’s Rights”).
(E) Immediately prior to execution of the S&P, SMCB and the Principals have mutually agreed that SMCB may at its discretion to sell SMCB’s Rights to the Purchaser, whose letters of consent are annexed collectively as Appendix B of the S&P.
(F) The Purchaser has, prior to making the offer to SMCB to purchase SMCB’s Rights, conducted its own independent research and due diligence.
(G) In making the said offer, the Purchaser recognised that SMCB had paid to the Principals cumulative non-refundable deposit (hereinafter referred to as “Non-refundable Deposit”) in the sum of Ringgit Malaysia Eleven Million Five Hundred and Ninety Thousand (RM11,590,000.00) only, and that SMCB had thereby acquired the said SMCB Rights which is valid and binding on the Principals.
(H) The Purchaser understands that the Settlement Agreements (hereinafter referred to as “SAs”) and the Framework Agreements (hereinafter referred to as “FAs”) (both referred to in Appendix A of the S&P) are related to the terms and conditions as stipulated in EAAs. The Purchaser may have to engage into further arrangements with the Principals and/or the Property Developers (as defined in Appendix A of the S&P). However, SMCB shall not in any way be liable to such future arrangements.
(I) SMCB hereby agrees to sell SMCB’s Rights and the Purchaser agrees to purchase SMCB’s Rights for a consideration set out herein this S&P Agreement and subject to the terms and condition contained therein.
Clause 1: Agreement
Subject to the terms and conditions appearing in the S&P, SMCB shall sell and the Purchaser shall purchase the SMCB’s Rights subject to the conditions express or implied in the EAAs for a total consideration of Ringgit Malaysia One Million and Ten Thousand (RM1,010,000.00) Only (hereinafter referred to as "Purchase Consideration").
The Purchase Consideration is derived at by mutual agreement, having taken into the consideration that SMCB had paid the Non-refundable Deposit in the sum of Ringgit Malaysia Eleven Million Five Hundred and Ninety Thousand (RM11,590,000.00) only to the Principals.
Clause 2: Payment of Purchase Consideration
The Purchase Consideration shall be paid directly to SMCB in one lump sum upon the day of execution of this S&P Agreement (hereinafter referred to as “S&P Date”).
Clause 3: Completion of the sale and purchase
The Completion of this S&P Agreement shall be deemed to have taken place upon execution hereof and receipt by SMCB of the banker’s cheque or the Client’s Account cheque issued by the Purchaser’s Solicitors towards full settlement of the Purchase Consideration pursuant to Clause 2.1 above.
This S&P Agreement shall, upon completion having taken place as aforesaid, be in no way vitiated, undermined or rendered null and void whether wholly or in part in any manner and for any reason whatsoever or as a result of intervention by any party.
Clause 4: SMCB’s Declarations, Warranties and Representations
SMCB declares, warrants and represents to the Purchaser as follows: -
(a) SMCB is a public company listed in Bursa Malaysia Main Market (Bursa Malaysia: STONE 7143) and is fully empowered to enter into and perform this S&P Agreement, having conducted validly convened meetings of its Board of Directors and signed corresponding Board resolution approving the sale and purchase herein, copy where is annexed hereto as Appendix C; and
(b) SMBC has not at any time prior to and up to the date of this S&P Agreement entered into any agreements or arrangements, whether in writing or otherwise for the sale or disposal of the right to complete procurement of Exclusive Agencies to any person or corporation, body corporate or unincorporated nor granted any option or the right of first refusal, whether written or otherwise in favour of any person, firm, corporation, body corporate or unincorporated for the purchase of the right to complete procurement of Exclusive Agencies.
For the avoidance of doubt, it is declared and agreed that SMCB has not given any warranty or representation to the effect that SMCB shall in any way be responsible for honouring all and any outstanding terms and conditions of the EAAs, SAs and FAs.
Clause 5: Purchaser’s Declarations, Warranties and Representations
The Purchaser declares, covenants, warrants and represents to SMBC that: -
(a) the Purchaser is given the full power and authority to purchase and the right to complete procurement of the Exclusive Agencies and to executed this S&P Agreement;
(b) the Purchaser conducted its own independent research and due diligence before entering into this S&P Agreement;
(c) the Purchaser shall be solely responsible for the fulfillment of all outstanding terms and conditions of the EAAs, SAs and the Framework Agreements; and
(d) the Purchaser is not wound up nor has any winding up petition been presented against the Purchaser.
Clause 6: Purchaser to pay SMCB for the Non-Refundable Deposit as its costs
The Purchaser shall upon execution of this S&P Agreement pays SMCB the sum of Ringgit Malaysia Eleven Million Five Hundred and Ninety Thousand (RM11,590,000.00) only which represents SMCB’s costs towards partial and incomplete acquisition of the Exclusive Agencies.
3. RATIONALE FOR THE SIGNING OF THE SALE AND PURCHASE AGREEMENT OF RIGHT TO COMPLETE PRCUREMENT OF EXCLUSIVE AGENCIES (“S&P”)
The following are the rationale for the signing of the S&P:
3.1 The Company has encountered several setbacks which to a substantial extent frustrated the Agencies Procurement and rendered the originally viable business model to near impossibility. There has been considerable and tangible objection from substantial shareholders who might vote against the proposed special issuance of settlement shares towards payment of the balance agency fees. Further, the worsening world and domestic economy situation have seriously affected the Company share price, which had dropped to RM0.20. The settlement share proposal which was pegged at RM0.40 has become unfeasible to be accepted by the Principals-creditors. This scenario has posed huge challenge for the Company to proceed any further with the proposed Agencies Procurement.
3.2 The current total cash and bank balances of the Company is insufficient to make payments to several trade creditors and banking institutions arising from earlier commitments entered into, and so it has become imperative that the Company must sell off the said SMCB’s Rights;
3.3 The Company will be able to utilise the proceeds of disposal received from the S&P to settle these payments, as well as reducing the Company’s depleting shareholders’ currently standing at RM6,920,000.00 as at 30th September 2016, which is approximately 30.8% of the total shareholders’ equity of RM22,476,000.00;
3.4 The sale would likely avoid a situation which where the Company’s external auditors, Messrs. Baker Tilly Monteiro Heng might likely qualify their written opinions of the Company’s audited financial statement for YE 2016 if the Company’s dire financial position has not improve on an urgent immediate basis.
4. EFFECT OF THE SIGNING OF THE SALE AND PURCHASE AGREEMENT OF RIGHT TO COMPLETE PRCUREMENT OF EXCLUSIVE AGENCIES (“S&P”)
In January 2016, the Board of Directors of SMCB gave the approval on the Business Extension Plan that encompassed the procurement of the Exclusive Agencies (“Agencies Procurement”) for architectural, finishing, building materials and relevant products and services coupled with interest free vendor financing services (“VFS”) as was detailed out in the “Special Report” in relation to the Business Extension Plan dated 19th January 2016.
Subsequently on 3rd February 2016, SMCB entered into the EAAs with the 23 Principals from China which granted the rights to SMCB as the exclusive agent to distribute the Principals’ products and services in Malaysia and Singapore. The Agency Rights which comprised of the Agency Fee and Kick-Off Package under the EAAs is worth approximately RM3,050,000,000.00.
With the signing of the S&P, SMCB is expected to on an immediate effect improve the Company’s dire financial position taking into consideration that the payment of the Purchase Consideration is payable in one lump sum payment made in cash, be able to re-coup the earlier cumulative non-refundable deposit payment made to all 23 Principals and discharge SMCB’s legal obligations with respect to the earlier undertakings and commitments made with several respective parties comprising of the EAAs, SAs and FAs.
5. THE TENURE OF THE SALE AND PURCHASE AGREEMENT OF RIGHT TO COMPLETE PRCUREMENT OF EXCLUSIVE AGENCIES (“S&P”)
The completion of the S&P shall take effect upon the S&P Date and Purchase Consideration be paid directly to SMCB in one lump sum.
6. THE FINANCIAL EFFECTS OF SIGNING OF THE SALE AND PURCHASE AGREEMENT OF RIGHT TO COMPLETE PRCUREMENT OF EXCLUSIVE AGENCIES (“S&P”)
SMCB believes that the signing of S&P will have immediate financial effect on the Group which will improve and strengthen the liquidity position of the Company to meet its current liability (excludes the amount due to loan creditors and advance due to a director) which includes repayment of bank loans. The anticipated quick ratio derived from this S & P is amounting to 32.98% as compared to 0.81% as at 30 September 2016. The positive liquidity position will enable the Company to consider early settlement of long term borrowings which will result in substantial savings on financial costs.
The profit of RM 1.01 million generated from this S & P shall turn the Company’s financial results into positive for the 1st quarter financial result, which will in turn improve the shareholder fund from current 30.8% of the total paid up capital as at 30 September 2016 to 35.3%.
7. THE RISKS IN RELATION TO THE SALE AND PURCHASE AGREEMENT OF RIGHT TO COMPLETE PRCUREMENT OF EXCLUSIVE AGENCIES (“S&P”)
The Board of Directors of SMCB does not foresee any risk factors in respect to the signing of the S&P, other than the normal market risk.
8. DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTEREST
None of the directors and major shareholders of SMCB as well as persons connected with them have any interest, direct and/or indirect, in the S&P.
9. WHETHER SHAREHOLDERS’ APPROVAL IS REQUIRED
Approval by the shareholders of SMCB is not required for the signing of the S&P.
10. DIRECTORS’ STATEMENT
The Board of SMCB is of the opinion that the signing of S&P will definitely be in the best and long term interest of SMCB and its Group as a whole.
11. DOCUMENT AVAILABLE FOR INSPECTION
The S&P can be inspected at the registered office of SMCB at Unit 2-03, Medan Klang Lama 28, No. 419, Jalan Klang Lama, 58100 Kuala Lumpur, Wilayah Persekutuan during the normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of the signing of the said S&P.
This Announcement is dated 6th December 2016.
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