Contents :

1. INTRODUCTION

AmMerchant Bank Berhad (AmMerchant Bank) (formerly known as Arab-Malaysian Merchant Bank Berhad), on behalf of the Board of Directors, is pleased to announce that, on 25 September 2002, the Company had entered into the following agreements:
i) a share sale and purchase agreement (SPA) between Engtex and Ultimate Target Sdn Bhd (Ultimate Target) (collectively the Parties) with the Vendors of Linear Solid (i.e. Lee Geok Ai and Law Seong Chye) (collectively the Vendors), wherein the Parties propose to acquire 100% of the equity interest in Linear Solid comprising 1,500,000 ordinary shares of RM1.00 each (Sale Shares) for a total cash consideration of RM1,500,000; and

ii) a conditional Shareholders Agreement (SA) with Ultimate Target wherein the Parties have agreed to subscribe for additional shares in Linear Solid in the proportion of their shareholdings in Linear Solid (Engtex and Ultimate Target will hold 80% and 20% respectively ) (Agreed Proportions). Pursuant to the SA, the Parties have also agreed to advance to Linear Solid, by way of subordinated shareholders loans and in the Agreed Proportions, the sum of RM10,000,000.

On 9 August 2002, Linear Solid had entered into a conditional sale and purchase agreement with Suasa Unik (M) Sdn Bhd (Receiver and Manager Appointed) (SPASU) to acquire a piece of leasehold industrial land held under H.S. (D) 15633 for Lot No. 46479 in Mukim Sungai Karang, Daerah Kuantan, Negeri Pahang together with the buildings erected thereon (collectively the land and the building is referred to as Property) and all plant and machinery, ancillary equipment and stocks (Other Assets). The Assets (i.e. Property and Other Asset) are acquired on an as is where is basis for a total cash consideration of RM12.3 million in accordance to the terms and conditions set out in the SPASU.

With the completion of the SPASU, Linear Solid shall be involved in the business of manufacture of ductile iron pipes and fittings, which are suitable for water and sewerage pipeline systems.

2. DETAILS OF THE PROPOSED ACQUISITION

2.1 Introduction

Pursuant to the SPA, the Parties shall acquire Linear Solid free from all encumbrances for a total cash consideration of RM1,500,000 in accordance to Table 1.

Table 1: Acquisition Consideration and Agreed Proportions

Engtex will finance the said acquisition from bank borrowings and/or internally generated funds.

2.2 Basis of Determining the Purchase Consideration and Mode of Payment

The total cash consideration of RM1,500,000 was arrived at on a willing-buyer willing-seller basis after taking into consideration the net tangible assets (NTA) of Linear Solid based on the unaudited financial statements as at 31 August 2002 of RM1,490,567.

2.3 Salient Terms of the SPA

A summary of the salient terms of the SPA is set out, inter-alia, as follows:-

i) the shareholding structure of Linear Solid shall, upon completion of the SPA, be in the following proportion, unless otherwise agreed in writing between the Parties:
Engtex 80%
Ultimate Target 20%
ii) The Parties shall pay the Vendors the total cash consideration of RM1,500,000 (the Purchase Price) in the following manner:-

a) the deposit sum of RM150,000 only immediately upon execution of the SPA; and
b) the remaining sum of RM1,350,000 within six(6) months from the date of the SPA or within fourteen(14) days after the SPASU becomes unconditional in accordance with the terms thereof;
whichever is the earlier.
iii) The Purchase Price of RM1,500,000 shall be paid by the Parties to the Vendors in the following proportion:

Engtex RM1,200,000
Ultimate Target RM300,000

iv) The SPA shall be completed when the Vendors shall have delivered all necessary documents to effectively vest in the Parties the beneficial interest in the Sale Shares, when the Vendors shall have caused a meeting of the board of directors of Linear Solid to carry into effect the resolutions to authorise the sale, transfer and registration of the Sale Shares, appoint the Parties nominees as directors of Linear Solid; and when the total Purchase Price has been paid by the Parties.
v) In the event any of the mentioned warranties and representations is not accurate or not fulfilled whether wholly or in part, the Vendors shall upon discovery or upon notification by the Parties take all necessary actions to rectify the same and if necessary pay the Parties the amount by which the net worth and/or the net profit of Linear Solid are diminished, failing which the Parties are entitled to bring legal actions against the Vendors for breach of warranties/representations and/or recover such amount of diminution in the net worth and/or net profit of Linear Solid. The Vendors undertake that if the warranties/ representations have been misrepresented and/or otherwise untrue, false or incorrect in all material respect, or the Vendors breach any provision of the SPA (and provided that the Vendors shall fail to remedy the same within 14 days from the date of receipt of written notification from the Parties to do so), the Parties shall be entitled to either terminate the SPA by written notice and entitled to a refund of all monies paid, OR complete the SPA but without prejudice to its rights to claim all damages, losses, expenses and costs incurred and suffered, OR alternatively seek specific performance of the SPA in which event the Vendors shall be liable for losses, expenses, costs and damages.

2.4 Particulars of liabilities to be assumed
There is no assumption of liabilities of Linear Solid by Engtex pursuant to the Proposed Acquisition.

2.5 Original Cost and Date of Investment

The original cost and the date of investment in Linear Solid are set out in Table 2.

Table 2: Original Cost and Date of Investment in Linear Solid

2.6 Rationale for the Proposed Acquisition

Engtexs principal activities can be broadly categorised into two major activities:-

(i) the distribution and wholesale of pipes, valves and fittings (PVF), plumbing materials and general hardware products; and

(ii) manufacturing of valves and ductile iron fittings, steel PVF, bitumen products, hydrants, manhole covers, pipe asphalt/coatings, welded wire mesh and hard drawn wire.

Linear Solid has entered into the SPASU to acquire the Assets, which upon completion, shall be involved in the business of manufacture of ductile iron pipes and fittings that are suitable for water and sewerage pipeline systems.

The proposed acquisition of Linear Solid provides the Engtex Group with a low entry cost to expand its manufacturing division via the manufacture of ductile iron pipes and fittings, hence strengthening its position as a market leader within the PVF industry.

In addition, the Proposed Acquisition would further complement and enhance its distribution and wholesale division, promote healthy competition in the local market, reduce reliance of imported ductile iron pipes, provide a platform for the transfer of specialized technical assistance and know-how, and to enhance business prospects in the wake of the Governments effort to upgrade and replace old water pipes under the 8th Malaysia Plan.

3. DETAILS OF THE PROPOSED SUBSCRIPTION AND PROPOSED ADVANCE

3.1 Introduction and Rationale

Linear Solid has entered into the SPASU to acquire the Assets for a total cash consideration of RM12.3 million. In order to finance the said acquisition and to finance the working capital requirements of Linear Solid, it is provided in the SA that:-

(i) the Parties are to subscribe for additional shares in Linear Solid in the Agreed Proportions; and

(ii) the Parties are to advance to Linear Solid, by way of subordinated shareholders loans in the Agreed Proportions, the sum of RM10,000,000 free of interest with no fixed repayment period.
Table 3: The proposed subscription and advance to Linear Solid by the Parties:-

Engtex proposes that its portion amounting to RM10,800,000 is to be financed via the following:

i) proceeds from its recent Initial Public Offering (IPO) designated for repayment of borrowings and financing the acquisition of a land and construction of factory building for its subsidiary company amounting to RM5,000,000 (further details are found in Section 4 of this announcement); and

ii) and the balance via bank borrowings and/or internally generated funds.

3.2 Salient Terms of the SA

A summary of the salient terms of the SA is set out, inter-alia, as follows:-

i) Upon the completion of the Proposed Acquisition (for the amount of RM1,500,000 and to be contributed by the Parties in the amounts as set out in first column of Table 3 above), the entire issued and paid-up share capital of Linear Solid shall be held by the Parties hereto in the Agreed Proportion as set out in Table 3 above;

ii) The Parties hereto recognise and accept that the financing of the business of Linear Solid would require the issued and paid up share capital of Linear Solid to be increased and the Parties hereto hereby agree that they shall subscribe and pay for further shares in Linear Solid for such purpose and in the Agreed Proportions as set out in Table 3 above;

iii) For the purposes of facilitating the successful completion of the acquisition of the Assets pursuant to the terms of the SPASU, the Parties shall advance to Linear Solid by way of subordinated shareholders loans and in the Agreed Proportions the sum of Ringgit Malaysia Ten Million (RM10,000,000); and such shareholders loans shall be interest free with no fixed repayment period.

iv) In the event of procurement of financial facilities from bank and/or financial institutions by Linear Solid and the said grant of the financial facilities entails the giving of corporate guarantee(s) by Engtex in favour of the relevant financier(s), the Parties agree to indemnify and keep Engtex indemnified, in accordance with the Agreed Proportion, against all losses, actions, proceedings, claims, demands, costs, damages and expenses which Engtex may incur or sustain by reason of or as a result of or in connection with or arising from Engtex giving the corporate guarantee(s).

v) If an event of default as set out in Section 9.01(1) of the SA occurs, which default is not remedied (if capable of being remedied) within thirty(30) days of any non-defaulting Party notifying the defaulting party in writing, the non-defaulting party shall have the right to purchase the defaulting partys shares (which right is referred to as the Call Option). The Call Option shall be exercisable for a period of six(6) months from the date that the relevant event of default first occurred (the Option Period). The Non-Defaulting Partys right to the Call Option is subject to it having given to the defaulting party a written notice describing the Event of Default (the Default Notice). The Call Option shall be exercised by the non-defaulting party giving a notice to the defaulting party specifying the number of shares it wishes to purchase (the Default Call Notice). If the non-defaulting party does not give a Default Call Notice during the Option Period, it shall be deemed to have waived its Call Option. Upon expiry of the Option Period, the defaulting party shall sell its shares to the non-defaulting party who has exercised its Call Option. The price at which the exercise of the Call Option shall take place shall be the fair value of the shares (as defined in the SA) less twenty per cent (20%). If the non-defaulting party does not exercise its Call Option, the defaulting party shall forfeit its right to vote on all matters requiring the decision of the shareholders in general meeting, all directors appointed by the defaulting party shall be deemed to have vacated their office as directors so as to forfeit their right to vote on all matters requiring the decision of the board of directors, and the defaulting party shall lose all its rights and powers under the SA, but shall remain bound, and shall continue to comply with all of its obligations under the SA;

4. PROPOSED REVISION

Pursuant to Engtexs successful listing and quotation on the Main Board of the Kuala Lumpur Stock Exchange (KLSE) on 2 August 2002, a gross proceed of RM24,936,196 was raised from the IPO. It was disclosed in the Companys Prospectus dated 27 June 2002, that RM5,000,000 from the IPO proceeds was set aside for the purpose of repayment of borrowings and financing the acquisition of a piece of land and construction of factory building for its subsidiary company.

In view that financing is already in place for the acquisition of the aforementioned piece of land and construction of factory building for its subsidiary company, the Directors of Engtex have resolved to utilise the RM5,000,000 for the purpose set out in Section 3.1 above. The Proposed Revision is not subject to the approval of the Securities Commission as the revised utilisation is for the core business activities of Engtex. The Proposed Revision is also not subject to the approvals of the shareholders of Engtex as the revision concerned is less than 25% from the originally proposed utilisation.

5. INFORMATION ON ULTIMATE TARGET

Ultimate Target was incorporated in Malaysia on 20 May 2002 under the Companies Act, 1965 as a private limited company. Presently, Ultimate Target has an authorised share capital of RM5,000,000 comprising 5,000,000 ordinary shares of RM1.00 each, of which RM300,000 comprising 300,000 ordinary shares of RM1.00 each are issued and fully paid up.

The principal activity of Ultimate is investment holding. The present directors of Ultimate Target are Ho Hong Seng and Lim San Hee.

6. INFORMATION ON LINEAR SOLID

Linear Solid was incorporated in Malaysia on 22 April 2002 under the Companies Act, 1965 as a private limited company. Linear Solid is currently dormant.

Presently, Linear Solid has an authorised share capital of RM5,000,000 comprising 5,000,000 ordinary shares of RM1.00 each and an issued and paid-up share capital of RM1,500,000 comprising 1,500,000 ordinary shares of RM1.00 each.

Upon completion of the Proposed Subscription by the Parties, the issued and paid-up share capital of Linear Solid will be increased to RM5,000,000 comprising 5,000,000 ordinary shares of RM1.00 each.

7. INFORMATION ON THE ASSETS TO BE ACQUIRED BY LINEAR SOLID

The Assets comprise the following:-

(i) a piece of leasehold industrial land held under H.S. (D) 15633 for Lot No. 46479 in Mukim Sungai Karang, Daerah Kuantan, Negeri Pahang together with the buildings erected thereon (collectively the land and the building is referred to Property); and

(ii) plant and machinery, ancillary equipment and stocks.
The Property is currently charged to Danaharta Urus Sdn Bhd vide Charge Presentation Number 7670/1998 registered on 17 December 1998. The title to the land is further subject to restrictions-in-interests in that the land could not, inter-alia , be transferred or charged unless the prior written consent of the state authorities is obtained.

Based on the latest available audited financial statements of Suasa Unik (M) Sdn Bhd (Receiver and Manager Appointed) as at 31 January 1999, the net book value of the land and building amounted to RM25.565 million and plant and machinery amounted to RM52.758 million.

8. PROSPECTS AND RISK FACTORS

8.1 Prospect of Proposed Investment to Engtex

As disclosed in the Companys Prospectus dated 27 June 2002, Engtex Group intends to venture towards the manufacturing of import-substitution products such as cast iron ball valves, check valves and ductile iron products which would further enhance its manufacturing, distribution and wholesale divisions.

The Proposed Investment in Linear Solid provides the Engtex Group with a low entry cost to expand its manufacturing division via the manufacture of ductile iron pipes and fittings, hence strengthening its position as a market leader within the PVF industry.

With the manufacturing of ductile iron pipes and fittings, the Group is also expanding its PVF products range, which in turn will further compliment the Groups Integrated One-Stop Distribution Centre concept. The Group is able to further enhance its competitive edge in the PVF industry.

8.2 Risk Factors

The following are some risk factors in relation to the Proposed Investment:
a) Availability of Resources
The production of ductile iron pipes will require certain level of experience and expertise in producing good quality products. Limited human and financial resources are a constraint to the Proposed Investment due to the scarcity of such venture locally and any delay in the implementation and deployment of such resources would have a material adverse effect on the business, financial condition and results of operations. Therefore, the continued support from shareholders and financiers, ability to recruit and train skilled personnel and strong market presence are imperative for business continuity. The Group plans to enter into arrangement with an overseas business partner for the transfer of technology and know-how of manufacturing ductile iron pipes including technical expatriates. The Group believesits current listing status, strong market presence and wide distribution network will provide a strong impetus for the Proposed Investment to obtain the requisite support from its financiers, customers and suppliers.
b) Investment in a new or relatively new venture
The Proposed Investment is relatively new to the Group and there is a potential risk that the Proposed Investment may have longer than expected gestation period. In this event, the Group may require time to recover its initial investments. The Group plans to mitigate this by exercising due care in the evaluation of its business plan including securing an overseas business partner to manage the entire development stage from repair, upgrading and commissioning works until the running of the manufacturing plant and operations.

c) Competition
The Proposed Investment is not insulated from competition both locally and abroad. The survival of the venture and its ability to compete in the market place are very much dependent on the ability of the Groups sustainability to properly manage the manufacturing plant, monitor the production output, cost and reject rate, and produce products that can be competitively priced. In this aspect, the Group will exercise due care in developing strong risk management framework to manage the venture and may tap on its large pool of customers and suppliers, and integrated one-stop distribution centre.

d) Raw Materials Prices
The fluctuation in raw materials prices is dictated by the market forces of supply and demand and foreign exchange currency, which can be either favourable or adverse. There is a potential risk that a material increase in raw materials prices will have adverse effect to the profitability of the venture if such price increase is unable to pass on to the consumers. The Group will tap on its large pool of suppliers to procure raw materials locally and abroad at the best pricing and deploy centralised material resource planning system.

e) Required compliance to relevant standards
Ductile iron pipes and fittings produced are required to comply with international and local standards, which may be imposed and varied by the local and foreign authorities from time to time. The Groups quality control system plays a crucial part to ensure the consistency in the products quality otherwise non-compliance with minimum standards may result in its products being rejected in the market and lose its credibility. The Group intends to implement the International Organization for Standardization (ISO) accreditation program to ensure its ductile iron pipes and fittings meet the stringent standards set.

f) Political and Economic Risks
Adverse development in political, economic and regulatory condition in Malaysia and abroad could materially affect the financial and operational condition or the overall profitability of the venture. Such political and economic uncertainties include the risk of war, product protectionism, liberalisation of market arising from Malaysias commitment to Asean Free Trade Area (AFTA) and World Trade Organisation (WTO), restriction on the transfer of technology, know-how and movement of expatriates, changes in interest, foreign exchange and taxation rates, and changes in import tariff and tax incentive policies. Although the impact of AFTA may not be significant as the manufactured ductile iron pipes are bulky and/or heavy and it would be cumbersome and uneconomical to import these products from the neighbouring countries, there is no assurance that the venture will not be significantly affected. Notwithstanding this, the Group intends to upgrade the production facilities and process with joint technical support from its foreign investment partner. Nonetheless, no assurance could be given that any change to these factors would not have any material adverse impact on the Groups business.

9. EFFECTS OF THE PROPOSALS ON ENGTEX

9.1 Share Capital and Major Shareholders
As the Proposed Investment will not involve any issuance of securities by Engtex, it will not have any effect on the issued and paid-up share capital and major shareholders shareholding of Engtex.

9.2 NTA and Gearing

The effects of the Proposed Investment on the NTA and gearing of the Engtex Group based on the consolidated audited accounts of Engtex as at 31 December 2001 are set out Table 4 below.

Table 4 : NTA and Gearing

9.3 Earnings

The Proposed Investment is not expected to have any material effects on the earnings of the Engtex Group for the financial year ending 31 December 2002 as it is expected to be completed after the financial year ending 31 December 2002. However, the Proposed Investment is expected to contribute positively to the earnings of the Engtex Group in the future.

10. DISCLOSURE OF MAJOR SHAREHOLDERS AND DIRECTORS INTEREST

None of the Directors, major shareholders and/or persons connected with them has any interest, direct and/or indirect, in the Proposed Investment.

11. DIRECTORS RECOMMENDATION

The Directors of Engtex after careful deliberation on the Proposed Investment, are of the opinion that the Proposed Investment is in the best interests of the Engtex Group.

12. CONDITIONS TO THE PROPOSALS

The Proposed Acquisition and Proposed Subscription are subject to the following approvals:-
(i) Foreign Investment Committee (FIC); and

(ii) the fulfilment of all the conditions precedent for the SPASU, which includes inter-alia:-
(a) the approval and grant by the High Court of Malaya of an order approving the sale and transfer of the assets;
(b) the procurement of the approval by the state authorities consenting to the transfer of the property; and
(c) (if necessary and applicable) the procurement of all other relevant authorities approvals and consents as may be required or necessary for the sale of the assets.

13. ESTIMATED TIME FRAME FOR THE COMPLETION OF THE PROPOSED INVESTMENT

The Proposed Investment is estimated to complete within a period of six (6) months from the date of this announcement, subject to obtaining timely approvals from the relevant authorities/parties.

14. APPLICATIONS TO THE AUTHORITIES

The Company expects to make the application to the FIC for the Proposed Acquisition and Proposed Subscription within two(2) months from the date of this announcement.

15. DOCUMENTS FOR INSPECTION

The SA, SPA and SPASU will be available for inspection at the Registered Office of the Company at Level 7, Setia 1, 15 Lorong Dungun, Damansara Heights, 50490 Kuala Lumpur during normal business hours from Mondays to Fridays (except public holidays) within 14 days from the date of this announcement.

In compliance with Paragraph 10.05 of the KLSEs Listing Requirements, an Information Circular will be issued and despatched to the shareholders in due course.

This announcement is dated 25 September 2002.

Table 1: Acquisition Consideration and Agreed Proportions

Name of Parties	Percentage Shareholding in Linear Solid (Agreed Proportions)	No of Shares	RM
Engtex	80	1,200,000	1,200,000
Ultimate Target	20	300,000	300,000
Total	100	1,500,000	1,500,000

Table 2: Original Cost and Date of Investment in Linear Solid

Date of Investment	No. of shares	Cost of Investment (RM)
22.04.2002	2	2
09.08.2002	1,499,998	1,499,998
Total	1,500,000	1,500,000

Table 3: The Proposed Subscription and Advance to Linear Solid by the Parties:-

Name of Parties	No of Shares to be held pursuant to Proposed Acquisition	% Shareholding in the Linear Solid	No of Shares to be subscribed pursuant to the Proposed Subscription	Shareholders Loan pursuant to the Proposed Advance (RM)	Total (RM)
Engtex	1,200,000	80	2,800,000	8,000,000	10,800,000
Ultimate Target	300,000	20	700,000	2,000,000	2,700,000
Total	1,500,000	100	3,500,000	10,000,000	13,500,000

Table 4 : NTA and Gearing

	Audited as at 31 December 2001	After public issue but prior to utilisation of proceeds (as disclosed in the Prospectus dated 27 June 2002)	After Proposed Investment
	RM000	RM000	RM000
Share capital	*	60,000	60,000
Share premium	-	17,970	17,970
Capital reserve	-	2,790	2,790
Accumulated loses	(10)	(10)	(10)
(Deficit)/Surplus in Shareholders Funds	(10)	80,750	80,750
Less: Goodwill	-	-	-
(NTL)/NTA	(10)	80,750	80,750
No. ordinary shares (000)	*	60,000	60,000
(NTL)/NTA per share (RM)	(5)	1.35	1.35
Borrowings (RM000)	-	61,571	68,571**
Gearing (times)	-	0.76	0.85

Notes;
* RM2.00
** Assuming RM7.0 million out of the full RM12.0 million required for the Proposed Investment will be financed through bank borrowings.

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