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YGL CONVERGENCE BERHAD (“YGL” OR “COMPANY”) PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE CAPITAL OF SCS INFORMATION TECHNOLOGY (HK) LIMITED (“SCSHK”) FOR A TOTAL CASH CONSIDERATION OF SINGAPORE DOLLAR (“SGD”) 200,000 (“PROPOSED ACQUISITION”)

YGL CONVERGENCE BERHAD

Type

Announcement
SubjectYGL CONVERGENCE BERHAD (“YGL” OR “COMPANY”)

PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE CAPITAL OF SCS INFORMATION TECHNOLOGY (HK) LIMITED (“SCSHK”) FOR A TOTAL CASH CONSIDERATION OF SINGAPORE DOLLAR (“SGD”) 200,000 (“PROPOSED ACQUISITION”)

Contents :

1. INTRODUCTION

      The Board of Directors of YGL (“Board”) is pleased to announce that on 21 April 2006, YGL had entered into a conditional share sale agreement (“SSA”) with the vendors of SCS Information Technology (HK) Limited (“SCSHK”) namely Singapore Computer Systems Limited (“SCS”) and CSN Systems Pte Ltd (“CSN”) (collectively known as “Vendors”) to acquire the entire issued and paid-up share capital of SCSHK for a total cash consideration of SGD200,000 (approximately RM456,000 based on an exchange rate of SGD1 : RM2.28) (“Purchase Consideration”).

2. DETAILS OF THE PROPOSED ACQUISITION

2.1 Background information on SCSHK

          SCSHK was incorporated in Hong Kong as a private limited company under the Companies Ordinance of Hong Kong on 27 November 1984.

          SCSHK is principally a service provider and outsourcer for enterprise solutions with a wide range of clientele in the government and commercial sectors. SCSHK’s government clients consists of Hong Kong Public Library, Hong Kong Water Supplies Department, Hong Kong Department of Justice while their commercial clients include General Electric, Sara Lee, Rockwell, and Black & Decker (for Hong Kong and Suzhou, China).

          SCSHK does not have any subsidiary and/or associated company. SCSHK is wholly owned by SCS and CSN since 27 November 1984. The current directors of SCSHK are Chua Ah Leng, Kok Kah Sing and Donald Albert Ramble.
      2.2 Basis of arriving at the Purchase Consideration
            The Purchase Consideration was arrived at on a willing-buyer willing-seller basis after taking into consideration inter-alia, the net realisable value of SCSHK’s assets and prospective earnings of SCSHK.

    2.3 Liabilities to be assumed
            No liabilities shall be assumed by YGL in connection with the Proposed Acquisition other than the liabilities incurred by SCSHK in the ordinary course of its business.

            Under the SSA, the Vendors have agreed to assume all liabilities, duties and obligations incurred by SCSHK in the ordinary course of its business prior to and existing at 28 February 2006.
    2.4 Source of funding
            The Purchase Consideration is to be financed by utilizing YGL's listing proceeds from its recent listing on the MESDAQ Market of Bursa Malaysia Securities Berhad.
        2.5 Dividend policy

            SCSHK does not have any specific dividend policy in place and has not issued any dividends in the past up to the date of this announcement. Going forward, dividends may be declared but the quantum of any dividend declared will be dependent on the profitability of SCSHK and will be declared after taking into consideration SCSHK’s future operational and working capital requirements.
        2.6 Financial information on SCSHK
            The authorised share capital of SCSHK is HKD45,000,000 comprising 45,000,000 ordinary shares of HKD1.00 each, of which HKD44,677,220 comprising 44,677,220 ordinary shares of HKD1.00 each had been fully paid-up.

            Based on the latest audited accounts of SCSHK for the financial year ended 31 December 2005, the net liabilities and loss after tax of SCSHK amounted to HKD10.828 million and HKD6.435 million respectively (approximately RM5.089 million and RM3.024 million based on an exchange rate of HKD1 : RM0.47).

    2.7 Salient terms of the SSA
              An extract of the salient terms of the SSA is set out as follows:-

              Conditional Agreement

              (a) It is hereby expressly agreed and declared that the obligations of the Vendors to sell and YGL to acquire the shares in SCSHK shall be conditional upon the Vendors obtaining its requisite corporate approvals to the matters set out in the SSA and YGL obtaining the prior written approval of the Bank Negara Malaysia (“BNM”) for its purchase of shares hereunder (collectively, “the Conditions”).

              (b) The Vendors and YGL agree that for the purposes of fulfilling the Conditions, each of them shall provide all information and documentation as may be requested by YGL to make the application to the BNM and both the Vendors and YGL shall use its best endeavours to satisfy the Conditions.

              (c) In the event that any one or both the Conditions shall not have been obtained or fulfilled on or before the expiry of thirty (30) days from the date of the SSA, or such other later date as may be mutually determined by the Vendors and YGL (“the Approval Period”), the Vendors shall refund to YGL the Deposit (as defined below) and the SSA shall terminate and be null and void and of no further effect whatsoever and neither the Vendors nor YGL shall have any claims against the other party for costs, damages, compensation or otherwise, save in respect of any antecedent breach of the terms of the SSA and for actions that were taken by SCSHK after the Effective Date i.e. 28 February 2006 but prior to Completion Date (as defined in the SSA) in breach of Clause 3.6 of the SSA.

              (d) The SSA shall become unconditional on the date on which the Conditions shall have been duly obtained or fulfilled in accordance with the provisions of this Clause 2 of the SSA (“the Unconditional Date”) and thereafter the sale and purchase of the shares in SCSHK shall proceed to completion.

              Agreement for sale

              (a) Subject to the terms and conditions of the SSA, the Vendors shall sell and YGL shall purchase the shares in SCSHK with all rights, title and benefits attaching thereto from the 28 February 2006 and free from all claims, charges, liens, options and other encumbrances for the consideration set out in Clause 3.2 of the SSA.

              (b) The total consideration payable by YGL to the Vendors for the shares in SCSHK shall be the Purchase Consideration payable in cash in the following manner:
                  (i) 10% of the Purchase Consideration shall be paid on the date of execution of the SSA as deposit (“Deposit”); and
                  (ii) 90% of the Purchase Consideration shall be paid on the Completion Date (“Balance”).
                  In the event of any failure or delay in the payment to the Vendors of the Purchase Consideration or part thereof in accordance with the terms of the SSA, then in addition and without prejudice to any rights or remedies that the Vendors may be entitled to against YGL at law or in equity, the entire unpaid or outstanding amount of the Purchase Consideration shall, unless the Vendors decides otherwise, become due and payable without any further notice or demand.

              (c) Save for such provisions which have been made in the balance sheet of SCSHK, the Vendors hereby agrees to and shall assume, duly and on demand pay, satisfy, discharge, perform or fulfil all Liabilities (as defined in the SSA) to the extent that they are incurred by SCSHK in the ordinary course of carrying on the Business (as defined in the SSA) and prior to and existing at 28 February 2006 and/or arising, accruing or assessed after 28 February 2006 in consequence of and to the extent of any transaction carried out by SCSHK in the ordinary course of carrying on the Business prior to 28 February 2006.

              (d) Subject to the provisions of Clause 5.11 of the SSA, the Vendors shall be responsible for and agrees to indemnify and keep indemnified SCSHK from and against any Liability incurred by SCSHK prior to and on 28 February 2006 and liabilities arising out of the Tenancy (as defined in the SSA) after 28 February 2006 and/or liabilities that arise from contracts or matters other than those agreed to be assumed by YGL as set out in the balance sheet of SCSHK annexed as Schedule 2 in the SSA.

              (e) Subject to completion and to Clause (f) below, YGL shall as from 28 February 2006 and thereafter be for the sole account and risk of YGL. The Vendors agrees that all profits of and cash received after 28 February 2006 shall subject to completion of the sale and purchase as aforesaid be held and retained by SCSHK for YGL.

              (f) During the period between 28 February 2006 and Completion (“Interim Period”) and subject to Clauses (h) below and 8 of the SSA, neither Vendors nor YGL shall procure that SCSHK nor influence SCSHK to carry out any of the following matters without the prior written consent of the other party:
                  (i) enter into any transaction that is not in the ordinary course of the Business;
                  (ii) incur a material commitment or enter into or amend any contract in any material way;

                  (iii) carry out any matter or dealing which may prejudice or jeopardize the financial position, operations, business or affairs of SCSHK;

                  (iv) incur any additional borrowings;

                  (v) incur any other indebtedness otherwise than in the ordinary course of the Business;

                  (vi) save as required by law, make any amendment to the terms and conditions of employment (including, without limitation, remuneration and other benefits) of any Retained Employees (as defined in the SSA) or provide or agree to provide any gratuitous payment or benefit to any such person or any of their dependants;

                  (vii) acquire or agree to acquire or dispose of or agree to dispose of any material asset or enter into or amend any material contract or arrangement, in each case, involving consideration, expenditure or liabilities in excess of HKD10,000.00; and
                  (viii) acquire or agree to acquire any share, shares or other interest in any company, partnership or other venture.

                  Each party will indemnify the other party and SCSHK against all Losses (as defined in the SSA) which SCSHK may suffer in the event of any breach by the first-mentioned party of the terms of this clause.
              (g) During the Interim Period, both parties shall use reasonable endeavours to procure and ensure that SCSHK will at all times comply with any applicable legislation or regulation and any condition of any authority or consent relating to the SSA and/or its business and operations, and will notify the other party upon becoming aware of any applicable breach or no-compliance.
      2.8 Brief information on the Vendors
              2.8.1 SCS
                  SCS was incorporated in Singapore on 7 January 1980. SCS has an authorised share capital of SGD100,000,000 comprising 400,000,000 ordinary shares of SGD0.25 each, of which SGD38,534,000 comprising 154,136,000 ordinary shares of SGD0.25 each have been issued and fully paid-up.

                  SCS is listed on the Main Board of The Singapore Stock Exchange in 1991 and is a leading information and communications technology service provider in Asia with operations spanning Singapore, Brunei, China, Hong Kong, Indonesia, Malaysia, the Philippines and Thailand.

      2.8.2 CSN
                  CSN was incorporated in Singapore on 18 June 1970. CSN has an authorised share capital of SGD8,250,000 comprising 8,250,000 ordinary shares of SGD1.00 each, of which SGD7,900,000 comprising 7,900,000 ordinary shares of SGD1.00 each have been issued and paid-up.

                  CSN’s principal activities are those relating to the trading of computer equipment and the maintenance and servicing of computer equipment. The current directors of CSN are Chua Ah Leng and Vincent Lim Shuh Moh.

                  CSN is a wholly owned subsidiary of SCS Enterprise Systems Pte Ltd which is in turn a wholly owned subsidiary of SCS.

      3. RATIONALE FOR THE PROPOSED ACQUISITION
          YGL’s growth plan is to be a leading Enterprise Resource Planning (“ERP”) solutions provider in Asia. To achieve that, YGL believes having a presence in Hong Kong (“HK”) through SCSHK will help YGL to tap into the China market, as many multinational companies (“MNC") manufacturers in southern China have corporate headquarters in HK. YGL’s presence in HK and southern China is a major step towards realising YGL’s growth plan to be a leading ERP solution provider in Asia.

          SCSHK has been operating in HK since 1984 and has thus acquired extensive clientele, experience and knowledge in library information systems (“LIS”), information technology outsourcing and managed services (“ITOMS”) and ERP. The Proposed Acquisition will enable YGL to leverage on SCSHK’s existing client and knowledge base.

          The Proposed Acquisition will also provide a convenient avenue for YGL to sell and support YGL’s world class ERP solutions such as SSA Global, Microsoft and Sage products on top of acting as YGL’s principal office and support center for YGL’s proprietary solutions. In addition, the Proposed Acquisition is expected to reap economies of scale for YGL through operating synergies and cost savings arising from pooling of assets and human resources as well as a more efficient allocation of resources.

          In addition, arising from the Proposed Acquisition, YGL may be able to widen its current commercial clientele base to include government related organisations as the current government clientele of SCSHK could act as regional reference sites for YGL in Malaysia, Singapore and Thailand.

          The Company envisages that the Proposed Acquisition will contribute positively to the future earnings of the YGL Group.

      4. RISK FACTORS
          (i) Business risks
              SCSHK’s revenues and operating results are exposed to 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 products, 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.

              In order to mitigate this risk, it is intended that YGL and SCSHK will constantly keep abreast with new technologies and market trends and channel these findings into the provision of its services in order to maintain and/or increase its competitiveness in the marketplace.

          (ii) Competition
              The IT market in which SCSHK operates in has a large number of participants and is subject to rapid change and intense competition. However, the Directors believe that SCSHK has a competitive advantage in the nature, quality and cost of its services. The Directors also believe that SCSHK’s long term relationships with its existing clients and in-depth knowledge on their requirements will enable them to deliver products and services that cater to specific demands and budgets of their clients.

              Whilst SCSHK will undertake reasonable measures to maintain its competitive advantage through the abovementioned strategies, there is no assurance that SCSHK will be able to compete successfully against current and potential competitors, which could affect its business, operating results and financial conditions of SCSHK and ultimately YGL.
            (iii) Acquisition risks

                There can be no assurance that the anticipated benefits of the Proposed Acquisition will be realized, or that SCSHK will be able to generate sufficient revenues in future to offset the associated acquisition costs incurred by YGL.
              (iv) Political and Regulatory Risks

                  The financial and business prospects of SCSHK and the industry in which it operates may depend to some degree on the developments in the political, economic and regulatory factors in countries that it operates or plans to operate in. Any adverse developments of such factors may materially and adversely affect the financial prospects of SCSHK 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 SCSHK.

              (v) Foreign Exchange Risks
                  SCSHK provides services and support operations for its products in HK and southern China. The operations in these markets are often transacted in currencies of the respective countries i.e. HKD and RMB. In addition, SCSHK procures its products from its principal, SCS, which is based in Singapore. As a result, SCSHK may be exposed to foreign exchange fluctuations.

                  Currently, SCSHK 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.

          5. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION
              The effects of the Proposed Acquisition on the share capital, substantial shareholders, earnings and net assets of YGL are as follows:-

              5.1 Share Capital
                  The will be no effect on the issued and paid-up capital of YGL arising from the Proposed Acquisition as the Purchase Consideration is satisfied entirely by cash.
              5.2 Substantial shareholders’ shareholdings

                  The will be no effect on the substantial shareholders’ shareholdings of YGL arising from the Proposed Acquisition as the Purchase Consideration is satisfied entirely by cash.

              5.3 Earnings

                  The Proposed Acquisition is not expected to materially effect the earnings of YGL Group for the financial year ending 31 December 2006.

                  The Proposed Acquisition is expected to contribute positively to the future earnings of the YGL Group.
              5.4 Net assets

                  Based on the audited consolidated financial statements of YGL as at 31 December 2004, the Proposed Acquisition is not expected to materially affect the net assets of YGL on a proforma basis.


          6. APPROVALS REQUIRED

              The Proposed Acquisition is subject to the approval of BNM.

              The approvals of the shareholders of YGL is not requires as the Proposed Acquisition does not exceed the relevant percentage ratios prescribed in Chapter 4 of the MESDAQ Market Listing Requirements.


          7. DIRECTORS' AND/OR MAJOR SHAREHOLDERS' INTERESTS
              None of the directors and/or major shareholders and/or persons connected to the directors and/or major shareholders of YGL have any interest, direct or indirect, in the Proposed Acquisition.


          8. DIRECTORS' RECOMMENDATION

              The directors of YGL, having considered all aspects of the Proposed Acquisition, are of the opinion that the Proposed Acquisition is in the best interest of YGL.

          9. ESTIMATED TIMEFRAME FOR COMPLETION
                The Proposed Acquisition is expected to be completed within six (6) months from the date of this announcement.


            10. DEPARTURE FROM THE POLICIES AND GUIDELINES ON ISSUE/OFFER OF SECURITIES ISSUED BY THE SC ("SC GUIDELINES")

                In relation to the Proposed Acquisition, the Directors of YGL are not aware of any departure from the SC Guidelines.

            11. POLICIES ON FOREIGN INVESTMENT, REPATRIATION OF PROFITS AND ENFORCEABILITY OF THE SSA

            (a) Policies on foreign investment and repatriation of profits

                    There is no restriction or prohibition under HK laws relating to the foreign ownership of SCSHK by YGL.

                    Further, there is no regulatory exchange control restriction or sanction currently in effect in HK that would in the ordinary circumstances prevent the repatriation of funds by SCSHK to any country from HK. There is also no restriction on the time frame for the repatriation of profits out of HK.
            (b) Enforceability of SSA

                    The SSA is governed by the laws of Singapore. The Directors have been advised that the SSA constitute valid, legally binding and enforceable obligations under Singaporean law.


            12. SPONSOR
                K & N Kenanga Bhd is currently the sponsor for YGL.


            13. DOCUMENTS FOR INSPECTION

                The SSA will be made available for inspection at the registered office of YGL at No. 10, China Street, 10200 Penang, during normal office hours from Monday to Friday (except public holidays) for three (3) months commencing from the date of this announcement.


            This announcement is dated 24 April 2006.


            Announcement Info

            Company NameYGL CONVERGENCE BERHAD (MESDAQ Market) 
            Stock Name YGL    
            Date Announced24 Apr 2006  
            CategoryGeneral Announcement
            Reference NoO&-060424-28321


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