Transense Regulatory News (TRT)

22 Oct 2007 13:30

Transense Technologies PLC22 October 2007 Transense Technologies plc ("Transense" or the "Company") Acquisition of Bishop Technology Group Limited The Board of Transense, the UK-based technology licensing company is pleased toannounce the acquisition of Bishop Technology Group Limited ("Bishop") for atotal consideration of £8.6 million. The consideration will be satisfied by the issue to Vendors of 37,535,553Ordinary Shares of 10 pence each at 23 pence per share. A conditional placingwill raise £5.7 million (before estimated expenses) to provide working capitalfor the Enlarged Group which was undertaken by Noble & Company Ltd ("Noble").Completion of the acquisition of Bishop is expected to take place (subject,inter alia, to shareholder approval) on 16 November 2007. Highlights • The Directors and the Proposed Directors believe that the Acquisition and Placing will strengthen the existing management team, put the Enlarged Group onto a better financial footing and enable technology synergies between Transense and Bishop to be leveraged into the Enlarged Group's target markets • Bruce Grey and Tim Renfrey the Chief Executive Officer and the Finance Director of Bishop will become respectively Chief Executive Officer and Finance Director of Transense following completion of the Acquisition. The Enlarged Group's management will be located in England and Bishop will benefit by being closer to many of its major clients in the UK and Europe with the ability to make 'real' time decisions for the global business • Following the development of the Company's products over the last few years, the Board is now seeking to transform Transense into an IP led, integrated global automotive technology group • Bishop is a leading global technology licensing and know-how company serving the automotive industry. This historically family run business, founded in 1975, has its headquarters in Australia and employs 115 people around the globe (excluding people employed in its joint ventures). Bishop supplies intellectual property, tooling, special purpose machines and components to a number of automotive Original Equipment Manufacturers ("OEMs") and tier one suppliers globally. Specifically, Bishop is focused on the steering gear industry for passenger motor vehicles, with its technology being incorporated in approximately 24 per cent. of all motor vehicles manufactured annually around the world. Bishop, through its joint ventures, is the only independent global steering rack supplier. • The Acquisition (through Bishop's joint ventures) will provide access to synergistic and profitable products and key relationships with OEMs and the top tier one, two and three automotive component suppliers, thereby enhancing Transense's position in the automotive component sector. • The net proceeds of the Placing will be used as working capital for Transense to accelerate its commercialisation process, assist in targeting major tier one and two automotive component manufacturers and fund the continuing development of SAW technology. The proceeds will also be used as working capital for Bishop to reduce long term debt and assist in funding for a high speed warm forge facility in Asia. Commenting on the acquisition, Chief Executive Jim Perry said: "This acquisition confirms the commitment of the Board to enhancing shareholdervalue. Acquiring Bishop transforms Transense into an IP led, integrated globalautomotive technology group and secures a solid platform with a new managementteam poised to deliver strong future growth for all shareholders." Bruce Grey, Bishop CEO and proposed Transense CEO said: "This is a tremendous move for Bishop and our relocation of our head office tothe UK will put us in close proximity to many of our major clients in the UK andEurope. I look forward to integrating our teams and growing our combinedbusiness to enable technology synergies between Transense and Bishop to beleveraged into the enlarged group's target markets." Enquiries: Transense Technologies plc 01869 238 380Jim Perry Noble & Company Limited 020 7763 2200John Llewellyn-LloydGraeme Bayley The admission document published in connection with the acquisition and there-admission of Transense following shareholder approval of the acquisition hasbeen posted to shareholders and prospective placees today. Copies of theadmission document will be available free of charge to the public on any weekday(Saturdays, Sundays and public holidays in England excepted) from the principalplace of business of the Company, 66 Heyford Park, Upper Heyford, Bicester,Oxfordshire OX25 5HD and the offices of the Company's Nominated Adviser andBroker, Noble & Company Limited, 120 Old Broad Street, London EC2N 1AR from thedate of this announcement until at least one month after First Admission. Theadmission document will be available on the Transense website atwww.transense.co.uk 1. Introduction Your Board is pleased to inform you that the Company has today announced that ithas conditionally agreed to acquire the entire issued share capital of Bishop.Bishop is a privately owned, Australian-based company which is a globaltechnology licensing and know-how company serving the automotive industry.Bishop supplies IP, tooling, special purpose machines and components toautomotive manufacturers around the world. The consideration for the Acquisitionis Au$19.7 million to be satisfied by the issue of 37,535,553 ConsiderationShares to the Vendors at a price of 23 pence per share. In order to provide the cash component of the Acquisition and provide theEnlarged Group with sufficient working capital to enable it to implement itsstrategy, the Board is also proposing to raise up to £5.7 million (£4.4 millionafter expenses) by way of the Placing of 24,763,892 Ordinary Shares at 23 penceper Placing Share. The Placing has been arranged by Noble. The Placing is notbeing underwritten but has been pre-placed with institutional and otherinvestors. The Acquisition constitutes a reverse takeover under the AIM Rules for Companiesand is therefore subject to the approval of Shareholders. Such approval is beingsought at the General Meeting which has been convened for 16 November 2007.Shareholders who, in aggregate, own 8,444,712 Ordinary Shares representing 14.8per cent. of the Existing Ordinary Shares have already irrevocably undertaken tovote in favour of the Resolution to be proposed at the GM. Trading in Ordinary Shares was suspended on 11 October 2007 following theBoard's announcement regarding the acquisition and will resume on thepublication of the admission document. If the Resolution is duly passed at theGM and the other conditions set out in the Placing Agreement are met, thedealing facility for the Existing Ordinary Shares will be cancelled.Applications will be made by the Company for the Existing Ordinary Shares to bere-admitted and for the New Ordinary Shares to be admitted to trading on AIM. The Directors recognise the importance of ensuring that employees are wellmotivated and identify closely with the success of the Company and that thesuccess of the Enlarged Group will be enhanced by the implementation ofappropriate share incentive arrangements. Accordingly, subject to Shareholderapproval at the GM, the Company has adopted the 2007 Unapproved Scheme. Furtherdetails of the 2007 Unapproved Scheme are set out in paragraph 4.4 of Part VI ofthe admission document. The purpose of the admission document is to provide youwith background to and information regarding the Acquisition, the Enlarged Groupand the Placing, to explain why the Directors consider the Acquisition to be inthe best interests of the Company and its Shareholders as a whole and torecommend that you vote in favour of the Resolution to approve the Acquisitionand to adopt the 2007 Unapproved Scheme at the GM. Notice of the GM is set outon page 152 of the admission document. 2. Reasons for the Acquisition Following the development of the Company's products over the last few years, theBoard is now seeking to transform Transense into an IP led, integrated globalautomotive technology group. The Directors and the Proposed Directors believethat the Acquisition will strengthen the existing management team, put theEnlarged Group onto a better financial footing and enable technology synergiesbetween Transense and Bishop to be leveraged into the Enlarged Group's targetmarkets. The Directors have known of and followed the progress of Bishop forover 10 years. The Directors and the Proposed Directors also believe that theAcquisition (through Bishop's joint ventures) will provide access to synergisticand profitable products and key relationships with Original EquipmentManufacturers ("OEMs") and the top tier one, two and three automotive componentsuppliers, thereby enhancing Transense's position in the automotive componentsector. Following the Acquisition the Company intends to change its name tobetter reflect the business of the Enlarged Group. 3. Information on Transense Transense is a UK-based technology licensing company owning 20 patent families.It has an innovative portfolio of sensor technologies designed for theautomotive industry. Founded in 1991, Transense develops non-contact,batteryless sensors and electronic interrogation systems for measuring pressureand temperature, and non-contact systems for measuring torque using theCompany's patented Surface Acoustic Wave ("SAW") technology. SAW technology A SAW is an acoustic wave that travels along the surface of an elastic material.This kind of wave is commonly used in piezoelectric devices in electroniccircuits. These piezoelectric devices will convert electrical pulses intomechanical vibrations and, conversely, mechanical vibrations into electricalpulses. A SAW resonant sensor is designed to resonate at a certain frequency,but if its piezoelectric substrate distorts through heat, mechanical stress orpressure, it will resonate at a different frequency. When a radio wave isdirected at this device to interrogate its properties, it will, in the absenceof any external forces, reflect (back scatter) a wave of the same frequency tothe source. If, however, the device is subject to external force, e.g. heat orstress, the reflected wave will be of a different frequency and that change infrequency can be measured. The Company has developed a way of measuring thedifference in frequency between these waves in a range of sensors, which can beused to accurately calculate torque, temperature and pressure. In order to readthis change in frequency, the Company has developed associated interrogationelectronics and software. These SAW devices are fabricated utilising commonprocesses employed in the manufacture of silicon integrated circuits. Revenue model The automotive industry is structured with OEMs producing vehicles in final formready for the consumer market. OEMs are supplied by tier one manufacturers, whoprovide entire systems, which are in turn made up of the components produced bytier two suppliers. Transense employs an IP licensing model which allows theCompany to retain its IP and know-how. Transense's licences fall into twocategories: supply licences and applications licences. Transense is focused onresearch and development to create IP and know-how to generate revenues fromlicence fees, implementation support and royalties. Transense's revenue modelcapitalises on the structure of the automotive industry by ensuring that throughthe supply licences and applications licences, revenues and royalties aregenerated at each level of the supply chain. Supply licences Transense has entered into a number of licences permitting the development,manufacture and supply of the various components that make up the tiers of theSAW sensor system supply chain. Under the Company's licensing model, no onecompany possesses all Transense's IP. The Company has entered into the followinglicences with component manufacturers involved in the different stages of theSAW sensor system supply chain. • SAW devices: TAI-SAW Technology Co. Ltd ("TAI-SAW"), a company based in Taiwanwith a subsidiary near Shanghai in China, is now Transense's main licensee forthe manufacturing of SAW devices. A licence for tyre pressure monitoring system("TPMS") SAW devices was granted in October 2002, which was followed by alicence to manufacture torque SAW devices in November 2006. TAI-SAW is a rapidlygrowing, high quality SAW supplier with full automotive quality approvals forthe US and large customers such as Hitachi in Japan. Transense and TAI-SAW arealso discussing the packaging of SAW devices. These licences are non-exclusive.Negotiations are under way with another SAW manufacturer. • Packages: The SAW device needs to be packaged to make it into a sensor.Honeywell International Inc's ("Honeywell's") first licence, granted in April2002, was to package TPMS sensors. The second Honeywell licence, granted inNovember 2004, was to package torque sensors for automotive applications and thethird licence, granted in December 2006, was to package pressure sensors fornon-automotive applications. Honeywell is one of the largest sensormanufacturers in the world. These licences are non-exclusive. Transense has justannounced a patent administration agreement with the German company, Schott AG("Schott"), part of the Carl Zeiss Foundation and one of the leading packagingsuppliers and an approved supplier to Honeywell. This covers the filing of ajoint patent and the grant of licences to Schott for manufacturing rights inreturn for a royalty and an undertaking to restrict the supply of SAW packagesto Transense's licensees. • Digital Signal Processor ("DSP") chips: The DSP is an important part of theSAW sensortechnology as it is the means of communication with the SAW sensor. Afterseveral years working together, Transense signed a technical collaborationagreement with Texas Instruments, a world leader in DSPs, in July 2006. • Application Specific Integration Circuit ("ASIC"): The ASIC is the key enablerof the SAW system that condenses the function of discrete radio frequencycomponents into a compact key device. Although there are several large ASICmanufacturers, few are automotive qualified and only Transense's licensee makesthis complicated radio frequency ASIC. After working with a number of large ASICmanufacturers, a licence was signed in November 2003 with MicroelectronicIntegrated System NV ("Melexis"), a Belgian company with operations around theworld, to manufacture ASICs. The licence also provides for the supply of DSPchips which may be integrated into the ASIC. Melexis supplies components to mostvehicle manufacturers. This agreement is exclusive until a certain quantity isreached to enable Melexis to recover its large investment in the development,after which it automatically becomes non-exclusive. • Discrete systems: A supplementary, non-exclusive licence was signed withSociete de Technologie Michelin ("Michelin") in September 2004, to enableMichelin to use discrete components instead of ASICs, in certain TPMSinterrogation equipment. • Integrated systems: The Honeywell November 2004 licence granted rights toproduce integrated systems for TPMS interrogation. This is non-exclusive. Applications The Company is currently targeting a number of immediate applications for itsSAW sensor systems, namely TPMS, torque measurement systems, including EPASsystems and powertrain measurement systems for the automotive industry, as wellas more recently, pressure sensors for non-automotive applications. If four keysensor applications were SAW enabled, for example TPMS, EPAS, flexplate anddriveshaft, then typically up to 15 SAW sensors per vehicle would be required asshown in the diagram below: Key strengths of Transense's products are: • Sensor systems are batteryless powered by interrogating radio waves at MHzfrequencies • Signal transmission is wireless and therefore there are no contacts to wearout • Interrogation can be continuous, up to 4,000 times a second, or periodic, asrequired • Sensors are small, typically 11mm x 3mm in diameter, and light weight, lessthan 2 grams, up to 33 grams less than competitors • Sensors are made from environmentally friendly materials such as steel andquartz and combined with the absence of batteries (lithium or otherwise),present no disposal hazards • Sensors are robust and tests have demonstrated durability under extreme heatand vibration conditions • Piezoelectric SAW resonators are fabricated using standard high volumemanufacturing processes developed for SAW filters, as used in mobile phones • Applications are typically environmentally beneficial facilitating improvedfuel consumption and component longevity by better control of engines,transmissions and tyre pressures, meeting the requests of current vehiclemanufacturers. Tyre Pressure Monitoring System ("TPMS") Transense has developed a TPMS which remotely monitors the tyre pressure withina tyre on a vehicle and alerts a user when the pressure within the tyre fallsbelow or rises above certain parameters. Sensors can be embedded within the tyreitself or mounted on the back of the valve to measure directly the air pressureand temperature in the tyre. Measurements can be obtained using either anon-board monitoring system or an external monitoring system. Using an on-boardmonitoring system, a signal is passed from the tyre pressure sensor to a smallantenna situated within the wheel arch which updates a main control system toalert the driver to a change in tyre pressure. External monitoring devices canalso be used to identify the change in tyre pressure. The Company has providedtechnology and prototypes for two external systems: handheld transponders andkerbside transponders. Market There are two principal reasons for using tyre pressure sensors: safety and costsavings. Following a series of fatal road accidents caused by tyre failures in2000, the US National Highway Traffic Safety Administration ("NHTSA") put inplace the Transportation Recall Enhancement Accountability and Documentation ("TREAD") Act, which mandated that every new car produced in the United Statesfrom September 2007 be equipped with a basic TPMS which will warn the driverwhen tyre pressure(s) vary by 25 per cent. from their recommended level. Carmanufacturers are therefore under extreme pressure to make purchasing decisionson TPMS in order to comply with the TREAD Act. The second reason is that byhaving tyres under-inflated by 25 per cent. or more, fuel economy can bedecreased by 3-4 per cent. and tyre life reduced by 40 per cent., demonstratinga large cost saving in having correctly inflated tyres. As well as complyingwith new laws and regulations concerning safety and the environment, carmanufacturers need to make their offerings more attractive, encourage customerloyalty and boost their profits through product differentiation and faster nextgeneration model development. Tyres are key to satisfying these requirements.According to Michelin, the global truck tyre market currently represents 166million tyres, of which 85 per cent. are replacement tyres. This is a 3 percent. growth on the truck tyre market in 2006. Similarly the passenger car tyremarket and light truck tyre market, which currently consist of 1.1 billiontyres, has grown 2.7 per cent. annually and is expected to reach 1.4 billion by2016. This represents a vast market for Transense of over 1.2 billion tyrestoday. Michelin's penetration of the US truck market with Transense's TPMS iscurrently very small; however Michelin's share of the US truck tyre market isapproximately 20 per cent. The Directors and Proposed Directors believe thatfleet operators could make a significant cost saving through the bettermanagement of tyres enabled with TPMS. TPMS IP/Patents Transense has filed a number of patents covering TPMS including: interrogationof SAW devices, pressure monitor incorporating SAW devices, SAW device withintegral patch antenna, valve antenna, interrogation method for passive sensormonitoring system and SAW pressure and temperature sensor using part of thesubstrate as a diaphragm. Patents have been filed in Europe, US, China, Japanand in specific instances are extended to further areas, such as Taiwan. TPMS licences The Company currently has in place four TPMS licences: • Michelin: A licence was signed with Michelin in June 2001, which grantedMichelin exclusivity where the SAW sensor is embedded in, or attached to, therubber tyre. This was varied in May 2007, to enable Transense to pursue interestfrom other parties for passenger vehicle applications. The 2001 agreement alsogranted non-exclusive rights for on-the-wheel and behind-the-valve TPMS.Transense assigned its 'Drive-by' patent to Michelin and, by a supplementalagreement in July 2004, Michelin was licensed technology for this application.In November 2006, Michelin launched eTire II TPMS to the North American truckmarket incorporating Transense's technology. Michelin's eTire II TPMS improvesvehicle safety, tyre and fuel consumption. Honeywell supplies Michelin with allthe sensor systems, hand-held and drive-by readers. • Honeywell: Under the November 2004 agreement, Honeywell is licensed tomanufacture Transense's TPMS sensors and systems for automotive applications.Honeywell has been working closely with Michelin to industrialise Transense'stechnology for the North American truck market and has a dedicated productionfacility in its Intellisense plant in China. • Lear Corporation ("Lear"): A non-exclusive TPMS agreement was signed inSeptember 2006, enabling Lear and Transense to work together to develop anindustrialisation process for passenger cars and trucks worldwide. Lear iscurrently a supplier of battery TPMS. SAW systems have been installed in twodemonstration vehicles in North America. Initial funded development work hasbeen undertaken and, pending the outcome of a project review in October, afurther licence may be granted. Meanwhile, Transense is progressing developmentsdirectly with the targeted vehicle manufacturers. • Stack Limited ("Stack"): Stack is a specialist supplier to the motorsportindustry which has recently been acquired by a US tier one/aftermarket group,Auto Meter. The licence, signed in October 2004, enables Stack to supplymotorsport and low volume requirements, taking the sensor from Honeywell. Anumber of Formula One, motor cycle and racing applications are being developed.Transense has also established key relationships within the automotive industry.These relationships include TST, General Motors, Ford, Chrysler and BMW. Intelliband Intelliband is a safety band for road wheels integrated with Transense's TPMSsensor. Installing a basic safety band to an existing wheel provides any tyrewith run flat capabilities by covering the circumferential wheel well. Thisenables the tyre to remain on the rim should it deflate at speed. By fittingTransense's tiny TPMS sensor to the band, the active safety of the band andpassive safety of the sensor are combined into a single product. The applicationis pertinent to the after-market and especially to vehicles entrusted withvaluable cargoes be they human or material. Licences are currently innegotiation. Torque measurement sensors Torque sensors use SAW technology to measure the mechanical strains due totorque and temperature and hence calculate the temperature compensated torque inspecific automotive applications. The Company's sensors are being offered intotwo areas, electric power assisted steering and powertrain. Electric power assisted steering Transense's SAW sensors measure torque in the steering column, which is a vitalinput to enable the EPAS control system to function correctly. Unlike existingEPAS torque sensors, the SAW approach does not require a low stiffness 'torsionbar', over which to measure the twist, coupled with mechanical over-torqueprotection. Instead, the SAW sensor is stiff and can be a simple modification ofa section of the steering column. Compared with conventional hydraulic powerassisted steering ("HPAS") systems, in which the engine driven power assistedsteering pump is always consuming power, EPAS systems only take power whenneeded (at parking speeds primarily) from the vehicle battery. This results inimproved fuel economy (2-3 per cent. savings) and therefore cost savings,reduced weight and easier installation. Powertrain In a typical modern vehicle's Engine Control Unit ("ECU"), torque is inferredfrom in-vehicle sensors measuring air and fuel flow, temperature and ignitiontiming in conjunction with 'look-up tables' derived from dynamometer tests ofsample engines by the vehicle manufacturer. The problems associated with thisapproach are that, due to manufacturing tolerances, engines are not identicaland they change their characteristics over their service life. Accuratereal-time torque measurement can improve engine control, resulting in betterfuel efficiency and can also provide for smoother ratio changes within automatictransmissions improving NVH (noise, vibration and harshness) and perceivedquality. Torque measurement in driveshafts and torque splitters enables bettercontrol of actual torque to the individual road wheels for stability andtraction control in four wheel drive vehicles. Specific applications ofTransense's SAW torque sensors ("Powertrain") include: • Flexplate: situated between the crankshaft and torque convertor, the flexplatesensor provides direct measurement of engine output torque for engine andtransmission control • Transmission output shaft: provides real time torque information to optimisethe control of automatic transmissions • Torque splitter: enables optimised torque distribution between axles in 4WDapplications • Driveshaft: individual sensors enable torque vectoring for improved stabilitycontrol during cornering Market Forecasts from industry analysts CSM Worldwide suggest that light vehicleproduction will grow from 62.2 million vehicles in 2005 to 77.6 million globallyby 2012, with aggressive growth forecast in emerging markets. While industrygrowth will inevitably play a part, the Directors and Proposed Directors believeit will be less important to the Company than the rate at which the automotiveindustry adopts innovative new technologies. IP/Patents The Company has filed a number of patents covering its torque sensors including:interrogation of passive sensors, SAW sensor with improved temperaturestability, electrical signal coupling device, rotary signal 21 coupler,split-ring rotary coupler incorporating dual resonant sensors, flexplate torquesensor and SAW sensor for measurement of torque within a powertrain. Patentshave been filed in Europe, US, China, Japan and in specific instances areextended to further areas, such as Taiwan. Contracts/Licences The Directors and the Proposed Directors believe that automotive torqueapplications will far outnumber pressure applications. Transense currently hasgranted two torque licences: • Honeywell: In November 2004, Honeywell signed a licence agreement for theCompany's SAW torque technology with exclusivity for powertrain applications andnon-exclusive rights for other automotive torque applications. Transense issupporting Honeywell working with two large US OEMs (with a third indiscussions) to provide direct torque measurement systems for engine,transmission and driveline control, while in Europe a project with a prestigecar manufacturer for driveshaft torque sensing is proceeding. Measurementperformance of all these systems has exceeded OEM expectations and has generateda great amount of interest as a result of the federal/industry study in NorthAmerica referred to earlier. • Stack: Stack has rights to exploit motorsport and limited volume torqueapplications and the Directors and Proposed Directors anticipate that Stack willsupport Transense in working directly with a large US OEM's race engineeringteam. Products in development The US sensor market is still expanding with automotive and industrial sectorsrepresenting 51.6 per cent. of the market. The Company is continuing to developits sensors for applications in the industrial market of which pressure andtemperature respectively represent 9 per cent. and 8 per cent. of the entiremarket. Non-automotive applications currently under consideration include liquidfood processing (in conjunction with one of Transense's licensees), and medical.Further opportunities extend to the aeronautical and petro-chemical industries. 4. Information on Bishop Bishop is a leading global technology licensing and know-how company serving theautomotive industry. This historically family run business, founded in 1975, hasits headquarters in Australia and employs 115 people around the globe (excludingpeople employed in its joint ventures). Bishop supplies intellectual property,tooling, special purpose machines and components to a number of automotive OEMsand tier one suppliers globally. Specifically, Bishop is focused on the steeringgear industry for passenger motor vehicles, with its technology beingincorporated in approximately 24 per cent. of all motor vehicles manufacturedannually around the world. Bishop, through its joint ventures, is the onlyglobal independent steering rack supplier. Revenue model Bishop derives its revenue from three main sources: royalties/licence fees,provision of automotive engineering services and the sale of specialist machinesand tooling (protected by patents covering both products and processes).Licences traditionally generate two forms of revenue stream, a one-off upfrontpayment (licence fee) and a royalty stream, which represents an ongoing annuitybased on a per piece rate for use of Bishop's technology in the OEMs or tier onemanufacturing process. This proven technology underpins lucrative long termagreements of up to eight years with OEMs. Significant demand for Bishopproducts and services is derived from Bishop's two joint ventures created withstrategic partners that supply both the automotive OEMs and tier one suppliersof automotive components. In the financial year ended 30 June 2007, Bishopearned 44 per cent. of its sales, royalties and licence revenues in the US (yearended 30 June 2006: 46 per cent.; year ended 30 June 2005: 42 per cent.); 23 percent. of its sales, royalties and licence revenues in Europe (year ended 30 June2006: 30 per cent.; year ended 30 June 2005: 10 per cent.); and 33 per cent. ofits sales, royalties and licence revenues in Asia (year ended 30 June 2006: 24per cent.; year ended 30 June 2005: 48 per cent.). These figures are sourcedfrom management accounts and have not been audited. The Bishop Technology Groupis split into three operating divisions: Bishop Steering Technology, BishopInnovation and Bishop Manufacturing Technology. Bishop Steering Technology Bishop Steering Technology comprises Bishop Steering Technology Limited andBishop Steering Technology Inc. Bishop Steering Technology Limited ("BST") BST is a leading participant in the automotive steering gear technologyinnovation market. With offices serving Europe, Asia-Pacific, North and SouthAmerica, BST offers OEMs and component suppliers integrated IP and manufacturingknow-how solutions. BST is recognised around the world as a successful innovatorin automotive steering, from concept development and engineering design, throughto marketing and IP protection. BST's extensive research and developmentcapabilities help provide manufacturers with superior product performance atminimum production costs. BST has developed a warm forging manufacturingprocess. This process can be applied to a number of automotive components andhas ultimate application in other fields. BST originally developed this processto manufacture variable ratio gear forms for steering racks. The BST warmforging process enables the manufacture of net shape accurate gear forms,without the need to remove excess material or 'flash' commonly found with otherforging processes. This reduces the weight of the product, the cost of materialsand increases overall strength. It is a very clean, precision process and thesurface finish is such that the gear teeth require no further manufacturingprocesses. Due to the strength of this manufacturing process, Bishop decided tocommercialise this technology through a joint venture/licensing combination,rather than taking a licensing only approach. • BMB Steering Innovation GmbH, Germany - BMB was established as a 50/50 jointventure between Bishop Steering Technology GmbH (a wholly owned subsidiary ofBST), and Mercedes Benz in 1998. Mercedes Benz has since sold its 50 per cent.stake to ThyssenKrupp Presta Steertec GmbH. Through this joint venture, Bishoplicenses its technology know-how and IP to BMB. With these patented technologyprocesses, BMB manufactures steering racks for the passenger car market and isthe largest tier two supplier of steering racks in Europe. The Board of BMBagreed to expand its operations into North America in 2005 and establish asubsidiary, BMB Steering Innovation Inc. ("BMB US"). Bishop provided a newnon-exclusive licence to BMB US to allow it to manufacture and market steeringracks in North America for sale around the world. BMB US has opened a newfacility in a 255,000 sq ft building which is owned by it at Fort Mill, SouthCarolina which is expected to start production in 2008. Bishop does theworldwide marketing for BMB for a commission on each rack sold. The Directorsand Proposed Directors believe that, by the end of 2008, BMB US will have thecapacity to produce circa 1.2 million steering racks annually. • Bishop Hando Steering Components Limited, Korea - Bishop has been advised bytheir tier one customers in Asia that they need a tier two supplier of steeringracks. This is because they are supplying global platforms and need localdelivery of racks to a consistent design, quality and price. In January 2006,BST signed a 50/50 joint venture agreement with Hando Machinery Company Limitedto set-up a manufacturing facility in Korea. BHSC, through licensing IP fromBishop, manufactures steering gear components for the global automotive market.The joint venture commenced production in January 2007. BHSC is an outsourcedmanufacturing facility in Korea which supports the needs of steering gearmanufacturers. The Directors and Proposed Directors believe that, by mid 2009,BHSC will have the capacity to produce circa 2 million steering racks annually. Bishop Steering Technology Inc. ("BST Inc") BST Inc, situated in Indianapolis, serves Bishop's existing customers in NorthAmerica. BST Inc primarily provides consultancy services and support to majortier one automotive component suppliers and OEMs including Ford, General Motors,Delphi and ThyssenKrupp and also in the aeronautical sector to RaytheonIncorporated and Triumph Controls Incorporated. BST Inc provides prototyping andassociated precision engineering work and will assist BMB's expansion into NorthAmerica. Bishop Innovation Limited ("BI") Based in Australia, BI is a technology division that develops and commercialisesproducts and processes that are potentially of real benefit to Bishop's globalmarket. BI identifies, generates and protects socially beneficial innovation inthe area of transportation technology. Bishop Manufacturing Technology Limited ("BMT") Based in Australia, BMT is a technology innovation business that manufacturesprecision tools and special purpose equipment and offers precision engineeringservices leveraging Bishop's overall know-how and IP. With a broad range ofengineering and precision toolmaking skills and a reputation for innovation anddesign, BMT offers solutions to production problems and is a reliable andversatile engineering partner for customers in the automotive, aerospace,defence, medical devices and telecommunications industries. Customers includeCochlear, ResMed and Portland Orthopaedics as well as internal customers such asBMB and BHSC. Applications and processes Over its lifetime, Bishop has developed a number of patented products andprocesses principally for steering gear in passenger motor vehicles. Thecreation of these IP protected products and processes has established Bishop asone of the largest independent suppliers of technology in this market segment.Bishop has also been able to successfully create IP that is applicable to othermarket opportunities as illustrated below. • Bishop variable ratio rack & pinion steering: Bishop was the inventor ofvariable ratio steering. The variable ratio reduces the "twitchiness" of thevehicle at high speed driving but also provides greater assistance with parking. • F1 titanium rack: Bishop supplies vehicle dynamics consulting services andproduces steering racks for a number of the Formula One ("F1") teams. Theseracks are variable ratio and provide improved handling performance in racing. • Patented precision rack warm forging process: Bishop developed a uniqueprecision warm forging process that can be used for a number of components thattoday are typically machined. This process is "net shape" meaning that there isno further work needed on the part. • Bishop warm forging Y-Die: The patented Bishop Y-Die was the first diedeveloped to make use of the warm forging process. This is a complex closed diewhich incorporates hydraulic and mechanical components. All the elements of thedie close together on the material to produce a Y form variable or constantratio steering rack. • Bishop warm forging D-Die: Bishop recently developed the patented D-die tofurther make use of the warm forging process. This constant diameter D shapeallows direct inter-changeability with existing broached rack designs. Furthervariations of this rack include; dual diameter which allows for downsizing therack for weight reduction; U form which offers wider teeth for better strength,mesh, quality and stability. • Bishop on-centre detent system: Bishop developed this 'bolt-on' technologymainly for the sports utility vehicle market in North America. The on-centredetent system provides a firmer feel to the steering in the on-centre region. • ATS hydraulic power steering valve: The ATS Power Steering Valve was developedby Bishop to provide a quieter valve which was still able to be manufactured ona very efficient high volume manufacturing process that Bishop had previouslydeveloped. • Bishop air balance valve centring machine: All hydraulic power steering valveshave to be centred, balanced and tested during manufacture. Bishop developed aunique machine which uses air as the balancing medium instead of oil. This istherefore a cleaner and faster process. When the valve is balanced it is thenpinned before assembly into the steering gear. • Bishop SS11- CNC sleeve slot machine: Bishop invented this process to cutslots on the sleeves of power steering valves. It is a unique machine whichmoves the cutting tool through an arcuate movement to cut the slot very quickly.Previously all sleeves manufactured were in three pieces. With the Bishopprocess, they can be manufactured in one piece. • Bishop CNC feather edge grinding machine: Bishop invented this process whichgrinds metering edges on to power steering valve input shafts in a very fastcycle time. These metering edges are ground to an accuracy of half a micronwhich the Directors and Proposed Directors believe is the most accurate inputshaft grinding process in the world. • Bishop rotary valve for internal combustion engines: Bishop has developed andpatented a unique rotary valve for internal combustion engines. This valve wasoriginally developed for the V10 F1 engine until the Federation Internationalede L'Automobile revised the rules. Bishop had a licence agreement with MercedesHigh Performance Engines which has now lapsed due to the change in rules. Bishophas substantially reduced the ongoing development cost and is now focused on themotor cycle engine market. • Bishop crown wheel forging Die: Bishop has patented a forging die tomanufacture crown wheels. The crown wheel is a critical component of thedifferential in the rear axle of every rear wheel drive car. Bishop has not yetmanufactured a crown wheel forging die due to the investment required. Bishophas carried out extensive experimentation and simulation to give assurance ofthe feasibility of this process. A number of very large axle manufacturers arecurrently showing interest in this process. Market The automotive market is under cost pressure and is consolidating. Bishop isprotected from these industry pressures with its IP development andcommercialisation through its joint ventures. Currently Bishop's steering racksales through its joint ventures account for 7 per cent. of the world's totalsteering rack market. Through Bishop's German based joint venture BMB, 60 percent. of Bishop's total rack sales are concentrated in Europe. The Asia Pacificregion, which is one of the fastest growing markets, only accounts for 12 percent. of Bishop's total rack sales. Of the three largest steering gear markets,the Asia Pacific region accounts for 39 per cent., North America 29 per cent.and the balance of 32 per cent. is accounted for by Western Europe. Thisillustrates the growing potential for penetration into the Asia Pacific regionand North America leveraging off Bishop's proven technology. This also supportsthe expansion into these key regions through the upside potential of BHSC andBMB US. The total steering gear market value (of which steering racks form asubset) is forecast at €9.5 billion in 2008, which is set to grow alongsidelight vehicle production, which is expected to grow from 62.2 million vehiclesin 2005 to 77.6 million vehicles globally by 2012. IP/Patents Vehicle and component manufacturers are continually striving to create moreefficient, higher performance and safer products, while at the same timereducing costs. Bishop has invested over £10 million on research and developmentto assist its professional and dedicated team to achieve this goal. Bishopdesigns innovative products and associated manufacturing processes, drawing onmore than 40 years' of experience, and over 300 patents and patent applicationsworldwide. Contracts/Licences Bishop currently has over 14 licences in place across the globe. Europeanlicensees include teDrive GmbH, ZF Lenksysteme GmbH and Adwest Engineering.Bishop's IP and processes deliver products into 24 per cent. of all carsmanufactured today and can be seen in vehicles made by Mercedes Benz, BMW, SAAB,Ferrari, Audi, Ford, Jaguar, Bentley, Landrover, Mazda, Cadillac, Lincoln,Pontiac, Volvo, Nissan, Mitsubishi, Chevrolet, General Motors and Chrysler.Other key customers include NSK, Mando, TRW and JTEKT. 5. Potential synergies between Transense and Bishop Safety and vehicle dynamics Transense and Bishop are both technology licensing companies to the globalautomotive industry. Individually they are focused on innovation for safetycritical aspects of commercial and passenger motor vehicles. The Directors andProposed Directors believe that steering and tyres are two of the most safetycritical aspects of any motor vehicle. Bishop has developed a strong marketposition in the supply of IP for products and processes for components which arecritical to the steering performance of passenger motor vehicles, whileTransense has developed a strong market position in the supply of IP forproducts and processes for components to enable tyre pressure monitoring andtorque sensing for improved vehicle control characteristics. Bishop has marketedits IP and know-how to end customers by explaining the component or systemperformance in the context of the total vehicle dynamics performance. Forexample, a vehicle manufacturer needs to understand how a variable ratiosteering rack (Bishop technology) will improve the handling of its vehicle. Bishop has an experienced professional team consisting of 5 PhD, 3 MSc and 38BSc/BEng qualified engineers. The Directors and Proposed Directors believe thatBishop's vehicle dynamics expertise can be applied to the analysis ofTransense's TPMS to determine the importance of correct tyre pressure on thevehicle performance and safety. The Enlarged Group will be in a position to takea combined approach to marketing the importance of steering, tyres and stabilitycontrol systems to a vehicle's performance to the major vehicle manufacturers.This can be implemented through Bishop's regional offices in North America,Europe and Asia. Environmental improvements in vehicle performance Transense and Bishop have a secondary focus on fuel efficiency aspects of motorvehicles. Transense's SAW based torque sensing technology provides cumulativefuel consumption benefits by the combination of TPMS, EPAS and real time enginetorque monitoring. Bishop's vehicle dynamics expertise (summarised above) couldalso be employed to quantify the impact of tyre inflation pressure on vehiclehandling and safety. Future steering developments incorporating both Bishop and Transense technology EPAS is growing faster than HPAS and is expected to reach a total value inWestern Europe, the Asia Pacific region and North America of €3.1 billion in2011 from €1.9 billion in 2006. HPAS in the same three markets will grow from€5.1 billion in 2006 to €5.4 billion in 2011. Combined UK based management and technical expertise Transense has significant electronic and software engineering expertise whileBishop has significant mechanical engineering expertise. The combination ofthese two talent pools provides a very comprehensive mechatronics capabilityfocused on the creation of IP in the field of automotive engineering. Bishopalso has a precision engineering operation in Sydney capable of providingdesign, tooling and prototyping services for the Enlarged Group. The EnlargedGroup's management will be located in England to make 'real' time decisions forthe global business. Global marketing Bishop has a global presence, with operations in Indianapolis serving North andSouth America, Magdeburg, Germany serving Europe and Sydney serving Asia. Bishopalso has representatives in Japan and China. Bishop and Transense generally dealwith different tier one suppliers around the world, however Bishop's globaloffices will provide back-office functions for Transense when it needs to expandits local marketing activities. Formula One business Bishop and Transense are currently marketing their technologies to the F1 teamsacross Europe. Bishop is supplying variable ratio steering racks to four F1teams, while Transense is offering both TPMS and torque sensing technologies.The Directors and the Proposed Directors believe that via a combined approach tomotor sport the Enlarged Group's penetration into F1 could be expanded. 6. Strategy of the Enlarged Group The Acquisition will create an integrated global sensor and automotivetechnology group, with international IP poised for growth. The relocation of theProposed Directors to the UK will enhance an experienced UK based managementteam and offer succession planning for the Enlarged Group, supported by a worldclass research and development operation. The Enlarged Group will use itsvehicle dynamics capability to market safety critical IP protected products toglobal vehicle manufacturers and appropriate selected tier one automotivecomponent suppliers. The Enlarged Group will also market key components such assteering, torque sensing for powertrain, TPMS and internal combustion enginerotary valves on the basis of enhancements to safety, environment andperformance. The Enlarged Group has very experienced electronics and mechanicalengineering IP creation capability which will enable it to employ a licensingand joint venture strategy to extract the maximum profit return from each IPinvestment. 7. Transense audited results for the year ended 31 December 2006 The Company announced its preliminary results for the year ended 31 December2006 on 30 March 2007. These results showed that during the year ended 31December 2006, Transense reported a revenue of £0.60 million (year ended 31December 2005: £0.55 million). This revenue generated gross profit of £0.55million in 2006 (year ended 2005: £0.47 million) and the Company made a lossafter tax of £1.21 million (year ended 2005: loss of £1.05 million). 8. Transense audited results for the six months ended 30 June 2007 The Company announced its audited results for the six months ended 30 June 2007on 28 September 2007. During this period Transense generated a revenue of £0.14million (six months ended 30 June 2006: £0.02 million), gross profit of £0.12million (six months ended 30 June 2006: £0.003 million) and the Company made aloss after tax of £0.76 million (six months ended 30 June 2006: loss of £0.81million). 9. Bishop audited results for the year ended 30 June 2007 Bishop reported revenue of Au$25.1 million for the year ended 30 June 2007 on 28September 2007 (year ended 30 June 2006: Au$29.5 million). This revenuegenerated gross profit of Au$15.2 (year ended 30 June 2006: Au$17.3) and Bishopmade a loss after tax of Au$1.6 million (year ended 30 June 2006: profit ofAu$2.3 million). Bishop incurred one off costs for the year ended 30 June 2007 of Au$2.3 million(year ended 30 June 2006: Au$0.1 million). The adjusted profit after taxexcluding these one off costs for the year ended 30 June 2007 was Au$0.8 million(year ended 30 June 2006: Au$2.4 million). These one off costs incurred in 2007were due to adjustments required to stock, recognition of foreign exchangemovements and start up costs incurred in relation to creating BMB US. These oneoff costs are explained in further detail below. (a) Stock write offs Bishop's manufacturing operation builds special purpose machinery and tooling.Items not sold immediately are placed into stock ready for future sale. Eachquarter the carrying value of this stock is reviewed and if required items arereduced in value in line with their net realisable value. These write downs aretypically very small, less than one per cent. of the total carrying value, butare required to ensure compliance with accounting standards. The year ended 30June 2007 had an exceptional write off due to the delay of opening BMB US.Adjustments in 2007 equated to Au$640,000. (b) Foreign exchange movements Bishop has some exposure in relation to transactions undertaken that are not inAustralian dollars. With the use of hedging and forward contracts the impact ofmovements in relation of the translation of foreign currencies to Australiandollars can be managed, however, there are other theoretical translations thatoccur due to the need to consolidate foreign controlled entities into the BishopTechnology Group results. These translations are non cash but any gains orlosses must be recognised in the accounts. In the past these gains or losseswere recognised in the profit and loss. In 2007, under the new accountingstandards, the foreign exchange movements relating to specific accounts are nowto be recognised in the balance sheet. For the financial year ending 30 June2007, a one off adjustment was required to correct foreign exchange gains inrelation to translation of the Bishop US dollar loan, the net result was a oneoff adjustment to the profit and loss account. Adjustments in 2007 equated toAu$786,000. (c) BMB US As discussed above, in recognition of the market potential for the sale of racksin North America, BMB has decided to build a new facility in Fort Mill, SouthCarolina. Prior to the start of production there are start up losses associatedwith creating this new venture. These are recognised in the 2007 accounts.Adjustments in 2007 equated to Au$918,000. 10. Current trading and future prospects Transense Current trading Trading remains in line with management expectations. Transense has reached anadvanced stage with another licensee to make TPMS SAW devices. The Directors andProposed Directors expect the licence to be signed on the acceptance of workingdevices by the Company. Under the terms of the licence, Transense will receivean up front payment followed by a royalty on all sales. Transense continues towork closely on torque sensing with Honeywell and the Company has recentlyhosted three Honeywell engineers to transfer technology in readiness for volumeproduction. Future prospects The Company has recently been focussing on three major projects - two with largeUS auto manufacturers for engine and transmission torque applications and onewith a major European premium car manufacturer for drive-shaft torque sensing.The engine and transmission programs have now completed two years of inlab dynotesting and are moving to road trials. One company is pushing for productionready systems by the end of next year while the other plans, in addition, toproliferate the SAW technology into other torque and TPMS applicationsthroughout the Group. Michelin is now marketing the Company's TPMS technology intruck tyres and several thousand sensors have been ordered to start marketing inthe off-highway and agricultural vehicle sector. The Company is still finetuning its batteryless TPMS technology for passenger vehicles and, although itis taking longer than anticipated to bring to the OEM market, the Board istargeting smaller specialist after-market suppliers and working towards marketentry over the next twelve months. Apart from the automotive sector, the Boardhas identified that customers for pressure sensors in the industrial market arealso showing a keen interest. Bishop Bishop's revenue has displayed a declining trend from June 2005 to June 2007.Management attributes the decline to invoicing in US$, a weakening currencycompared to the Au$. Further, Bishop's slowdown in revenues in 2007 was directlyattributable to the delay in commencement of BMB's new North American warmforging rack manufacturing joint venture. This BMB joint venture is now underwayand will commence production in 2008 with 75 per cent. of capacity alreadycommitted. In addition to this, Bishop is expected to complete negotiations foran additional facility in Asia in 2008. As explained earlier, a number of oneoff costs were incurred by Bishop in 2007, totalling Au$2.3 million and havetherefore affected Bishop's profit after tax figures for the year ended June2007. These one off costs incurred in 2007 were due to adjustments required tostock, recognition of foreign exchange movements and start up costs incurred inrelation to creating the joint venture in the US. In addition, a Au$3.3 millionorder (gross contribution Au$1.2 million) was taken but not delivered due to thedelay in setting up BMB US. 11. Principal terms of the Acquisition The Company has agreed to acquire the entire issued share capital of Bishop. Theacquisition price is to be satisfied by the issue of 37,535,553 ConsiderationShares to the Vendors. In connection with the Acquisition Bruce Grey and DaimlerAG have agreed to cancel options to acquire shares in the capital of Bishop. Theconsideration for the cancellation is to be satisfied by the issue of 445,823Consideration Shares to Bruce Grey and 397,425 Consideration Shares to DaimlerAG. The Acquisition Agreement is conditional, inter alia, upon: (a) Second Admission occurring on or before 5.00 p.m. on 4 December 2007; (b) no fact or circumstance having occurred which would amount to a materialbreach of any of the warranties contained in the Acquisition Agreement; and (c) the passing of the Resolution by Shareholders to approve the Acquisition andthe Placing at the GM to be held at the offices of Travers Smith, 10 Snow Hill,London EC1A 2AL on 16 November 2007 at 11.00 a.m., notice of which is set out atthe end of the admission document. It is expected that completion of the Acquisition and Second Admission will takeplace on 20 November 2007. Further details of the Acquisition Agreement arecontained in paragraph 14(v) of Part VI of the admission document. 12. Board of the Enlarged Group The Board of Transense currently consists of Peter Woods, James Perry, HowardPearl, Graham Eves, Raymond Lohr, Antony Baldry and Rodney Westhead: • Peter Woods Non-Executive Chairman- Peter was until recently a SeniorInvestment Advisor with the Exports to Japan Unit, British Trade International.He was President of Rover Japan Ltd, Regional Director Overseas of Rover GroupLtd and in 1996 received the OBE for services to Export. He is alsoNon-executive Chairman of Image Scan Holdings plc and of Mastermailer Holdingsplc. Peter joined Transense in November 2000. • James Perry Chief Executive Officer- Jim is responsible for the day-to-dayrunning of the Company and carrying out the function of Chief Executive. He hasconsiderable experience in the financing and development of smaller companies.He is also a Non-executive Director of Mastermailer Holdings plc. Jim foundedthe Company in 1991. • Howard Pearl Finance Director- Howard is a Chartered Accountant with abackground in the oil industry. He spent 26 years with Ultramar PLC and thenLasmo PLC in New York, London and Montreal. In 1994 he joined the managementteam that started MMS Petroleum PLC, which went to AIM in 1996. MMS was takenover in 1998. Howard joined the Company in November 1999. • Graham Eves Commercial Director- Graham has considerable experience within theautomotive technology market place with an extensive network of contactsthroughout the world in that industry. He was formerly with GKN for 13 years intheir international operations and held a number of directorships. He is amember of the AIM Advisory Committee of the London Stock Exchange. Graham joinedthe Company in September 1998. • Dr Raymond Lohr Technical Director- After completing a PhD at BristolUniversity in 1978, Ray joined Instron progressing to Technical Director andfinally Corporate Research Director. A Visiting Professor at Oxford University,he represents the UK internationally for materials testing standards. Ray joinedthe Company in May 2002. • Antony Baldry MP Non-Executive Director- Tony is the Member of Parliament forBanbury and North Oxfordshire and formerly a Foreign Office Minister of eightyears in the last Conservative government. He is a member of the Commons Tradeand Industry Select Committee and a Barrister at Law specialising inconstruction, commercial and international matters. Tony joined the Company inNovember 1999. • Rodney Westhead Non-Executive Director- Rodney is a Chartered Accountant bytraining and until 2005 was Chief Executive of Ricardo plc, the major automotiveconsulting engineering group with sales of £150 million a year. He is alsoChairman and interim Chief Executive of Carter & Carter plc, Chairman of CleanAir Power plc and Non-executive Director of Mouchel Parkman plc and AEATechnology plc. Rodney joined the Company in April 2007. Transense has made significant progress with its technology over recent years,and the Board feel it is now the right time to strengthen the management teamand importantly secure its succession. Bruce Grey will become Chief ExecutiveOfficer of the Enlarged Group and James Perry, the current Chief ExecutiveOfficer, will move to Non-Executive Deputy Chairman position. Tim Renfrey willbecome the Finance Director of the Group. These changes will become effectiveonce the two new executives have completed their planned resettlement in the UK.Howard Pearl, who is currently employed part time as Transense Finance Director,will continue to provide support until the new team has fully settled in. Subject to the changes outlined above, the Board, following Second Admission,will consist of the Directors and the Proposed Directors: • Bruce Grey Chief Executive Officer of Bishop (Proposed Chief ExecutiveOfficer) (aged 61) - Bruce has been with Bishop for 11 years. He has 35 yearsexperience in senior management positions in engineering, manufacturing andinternational market development. He is a fellow of the Australian Academy ofTechnological Scientists and Engineers (FTSE). • Tim Renfrey Chief Financial Officer of Bishop (Proposed Finance Director)(aged 38) - Tim has been with Bishop for 7 years. He has 20 years experience inaccounting and financial management with engineering and service companies. 13. Share Option Schemes The Directors recognise the importance of ensuring that employees are wellmotivated and identify closely with the success of the Company. Accordingly, theCompany has in place, at the date of the admission document, the Share OptionSchemes detailed in paragraphs 4.1 to 4.3 of Part VI of the admission document. On Second Admission, the Company will (excluding the proposed grants referred tobelow) have 2,778,850 Ordinary Shares, representing 2.3 per cent. of theEnlarged Share Capital under option under the Share Option Schemes. TheDirectors have determined that after Second Admission, subject to Shareholderapproval of the 2007 Unapproved Scheme at the GM, further options under the 2007Unapproved Scheme and the Transense Technologies plc 2005 Enterprise ManagementIncentive Share Option Contract may be granted to selected employees anddirectors of the Enlarged Group (such options not to exceed the maximum limits(statutory or otherwise) set out in the 2007 Unapproved Scheme and the TransenseTechnologies plc 2005 Enterprise Management Incentive Share Option Contract,further details of which are set out in paragraphs 4.3 and 4.4 of Part VI of theadmission document). Under the Transense Technologies plc 2005 Enterprise Management Incentive ShareOption Contract, the Company proposes to grant the following: (a) after close of business on the date of the admission document, the Companyproposes to grant options over that number of Ordinary Shares equal to £215,000divided by the market value of an Ordinary Share at close of business on thedate of the admission document (each grant being rounded up to the nearest 5,000Ordinary Shares) in aggregate to existing Transense employees; and (b) immediately following Second Admission, the Company proposes to grantoptions over that number of Ordinary Shares equal to £100,000 divided by themarket value of an Ordinary Share at close of business on the date of SecondAdmission (each grant being rounded down to the nearest whole Ordinary Share) toeach of the Proposed Directors. Immediately following Second Admission, the Company proposes to grant optionsover the following numbers of Ordinary Shares under the 2007 Unapproved Scheme: (a) an aggregate of 1,250,000 Ordinary Shares to the Proposed Directors andRaymond Lohr; and (b) an aggregate of 1,140,000 Ordinary Shares to Bishop employees. 14. Corporate governance Board The Board is responsible for establishing the strategic direction of theCompany, monitoring the Company's performance against its business plan and itstrading performance. The Board currently consists of four Executive Directorsand three Non-Executive Directors and, following Second Admission, the Boardwill consist of six Executive Directors and three Non-Executive Directors. The Board has a procedure through which the Directors are able to takeindependent advice in the furtherance of their responsibilities. The Directorshave access to the advice and services of the Company Secretary, WatlingtonSecurities Limited, who are responsible for ensuring that Board procedures arefollowed and compliance with applicable rules and regulations. The Company complies with the Combined Code so far as is reasonably practicablefor a company of its size. Where full compliance is not appropriate, the Boardrefers to guidance issued by the Quoted Companies Alliance. The Board meets regularly throughout the year and all necessary information issupplied to the Directors on a timely basis to enable them to discharge theirduties effectively. Additionally, special meetings take place or otherarrangements are made when Board decisions are required in advance of regularmeetings. The Board has established guidelines requiring specific matters to besubject to a decision by the full Board (with other matters delegated to Boardcommittees). The Board is responsible for leading and controlling the Group andfollowing completion of the Acquisition, the Enlarged Group and, in particular,for formulating, reviewing and approving its strategy, budget, major items ofcapital expenditure and acquisitions and disposals. In addition, the Board hasestablished a remuneration committee and an audit committee with formallydelegated duties and responsibilities, which have written terms of reference assummarised below. All of the Non-Executive Directors are deemed to be independent non-executivedirectors for the purposes of the Combined Code. Each of the Non-ExecutiveDirectors holds options in the Company, but as no Non-Executive Director holdsoptions exceeding one per cent. of the Existing Ordinary Shares, the Board issatisfied that their independence is not compromised. Following Second Admission, Jim Perry will hold 1,955,892 Ordinary Shares,equating to1.6 per cent. of the issued Ordinary Shares, and hold 640,000 optionsin the Company. Due to the size of his interest in the Company, Jim will not beconsidered an independent Non-Executive Director. The remuneration committee This committee is chaired by Peter Woods. Its other members are Tony Baldry andRodney Westhead. Only Non-Executive Directors will be on the remunerationcommittee. The remuneration committee meets formally at least once a year andotherwise as required. The remuneration committee, within agreed terms ofreference, considers all material elements of remuneration policy, remunerationand incentives of Executive Directors (including pension rights and compensationpayments) and senior management with reference to independent remunerationresearch and professional advice. The Board is then responsible for implementingthe recommendations and agreeing the remuneration packages of individualDirectors and senior management. Whilst the actual grant of options under theShare Option Schemes is made by the Board, it is the remuneration committee thatis responsible for making recommendations for the grants of options to the Boardas well as, where appropriate, setting performance conditions attached to thegrant of options. The remuneration committee also has responsibility forconsidering the advice of the Chief Executive on the terms and conditions of theappointment of Directors and to review Directors' fees and other payments,including approved and unapproved options and for considering and reviewing theadvice of the Chief Executive on the general remunerations policies of theCompany, including the approved option scheme. The audit committee The audit committee is chaired by Rodney Westhead and also comprises Peter Woodsand Tony Baldry. It meets whenever there is business to discuss and at leasttwice each year. The audit committee is responsible for ensuring that thefinancial performance of the Group (and following completion of the Acquisition,the Enlarged Group) is properly monitored, controlled and reported on. It alsomeets the auditors and reviews reports from the auditors relating to accountsand internal control systems. The Guidance published by the Institute ofChartered Accountants in England and Wales (commonly known as the TurnbullReport) concerning the internal control requirements of the Combined Code hasbeen brought to the attention of the Directors. In line with the TurnbullReport, the Board keeps under regular review key business risks in addition tothe financial risks facing the Group in the operation of its business. TheDirectors comply with Rule 21 of the AIM Rules for Companies relating todealings by directors and applicable employee(s) dealings in the Company'ssecurities and, to this end, the Company has adopted an appropriate sharedealing code. Internal controls The Board will be responsible for establishing and maintaining the EnlargedGroup's system of internal controls and places importance on maintaining astrong control environment. The key procedures which the Board intends toestablish with a view to providing effective internal controls are expected tobe as follows: • the Board will be responsible for identifying the major business risks facedby the Enlarged Group and for determining the appropriate courses of actionrequired to manage those risks; • the Enlarged Group's organisational structure will have clear lines ofresponsibility and reporting; and • the Enlarged Group will prepare a comprehensive annual budget that is approvedby the Board. Monthly results will be reported against the budget and varianceswill be closely monitored by the Board. The Directors and the Proposed Directorsrecognise, however, that such a system of internal controls will only providereasonable, not absolute, assurance against material misstatement or loss. TheBoard has reviewed the effectiveness of the system of internal controls as itwill be operated by the Enlarged Group. 15. Dividend policy In the short term, the Board does not intend to declare a dividend but willreconsider this as and when the growth and profitability of the Company allow.The declaration and payment of any future dividends by the Company and thequantum thereof will be dependent upon the Enlarged Group's results, financialposition, cash requirements, future prospects, profits available fordistribution and factors deemed by the Board to be relevant at the time. 16. Details of the Placing The Company and Noble have today entered into the Placing Agreement pursuant towhich Noble, as agent for the Company, has agreed, subject to the fulfilment ofcertain conditions, to use its reasonable endeavours to procure subscribers forthe Placing Shares at the Placing Price. The obligations of Noble under the Placing Agreement are conditional upon, interalia, First Admission taking place by 8.00 a.m. on 19 November 2007 (or suchlater date, being not later than 5.00 p.m. on 4 December 2007, as the Companyand Noble may agree). The Placing is intended to raise up to £4.4 million for the Company (net ofexpenses). The Placing Shares (assuming the maximum number of Placing Shares areplaced) will represent 21 per cent. of the Enlarged Share Capital of the Companyimmediately following Second Admission. The Placing Price represents a discountof approximately 35 per cent. to 35.25 pence per share, the share price at 18October 2007 (being the latest practicable date prior to the publication of theadmission document). The Placing Shares will, on Admission, rank in full for all dividends and otherdistributions declared, paid or made in respect of the issued ordinary sharecapital of the Company and otherwise will rank pari passu in all respects withthe Existing Ordinary Shares and the Consideration Shares in issue. It is expected that the proceeds of the Placing will be received by the Companyon or around 26 November 2007. The Placing is not being underwritten but hasbeen pre-placed with institutional and other investors. Further details of thePlacing Agreement are set out in paragraph 12 of Part VI of the admissiondocument. 17. Reasons for the Placing and use of proceeds The net proceeds of the Placing will be used as working capital for Transense toaccelerate its commercialisation process, assist in targeting major tier one andtwo automotive component manufacturers and fund the continuing development ofSAW technology. The net proceeds will also be used as working capital for Bishopto reduce long term debt and assist in funding for a high speed warm forgefacility in Asia. These net proceeds of the Placing will be used to provide theEnlarged Group with sufficient working capital to enable it to implement itsorganic growth strategy. 18. Taxation General information relating to UK taxation with regards to Admission and thePlacing is summarised in paragraph 13 of Part VI of the admission document. AShareholder or potential Shareholder who is in any doubt as to their taxposition, or is subject to tax in a jurisdiction other than the United Kingdom,should consult their professional advisers immediately. 19. Admission to AIM and dealings The Acquisition constitutes a reverse takeover under the AIM Rules and istherefore dependent upon the approval of Shareholders being given at the GeneralMeeting, notice of which is set out at the end of the admission document. AResolution will be proposed at the GM, inter alia, to approve the Acquisition.If the Resolution is duly passed at the GM, and the other conditions set out inthe Acquisition Agreement and in the Placing Agreement are met, application willbe made for the Existing Ordinary Shares to be readmitted to trading on AIM andthe Placing Shares and the Consideration Shares to be admitted to trading onAIM. It is anticipated that the First Admission will become effective and thatdealings will commence in the Existing Ordinary Shares and the New EIS Shares at8 a.m. on 19 November 2007, that Second Admission will become effective and thatdealings will commence in the Consideration Shares and Non-EIS Shares at 8 a.m.on 20 November 2007. The reason for the two admissions is to enable the companyto issue eligible shares whilst the Group's gross assets are less than£7,000,000 pre-investment and £8,000,000 post investment to individualsinvesting under the EIS, following the introduction of the £2,000,000 annualinvestment limit introduced by the Finance Act 2007. 20. General Meeting Set out at the end of the admission document is a notice convening an GeneralMeeting of the Company to be held at the offices of Travers Smith, 10 Snow Hill,London EC1A 2AL at 11.00 a.m. on 16 November 2007. A Form of Proxy to be used inconnection with the General Meeting is enclosed. The purpose of the GeneralMeeting is to seek Shareholder approval of the Resolution to: (i) approve the Acquisition, in accordance with the terms of the AcquisitionAgreement; (ii) increase the authorised share capital of the Company from £7,000,000 to£18,000,000 by the creation of an additional 110,000,000 Ordinary Shares,representing an increase of approximately 157 per cent. of the currentauthorised share capital; (iii) authorise the Directors, for the purposes of section 80 of the Act, toallot (a) relevant securities up to an aggregate nominal amount of £6,229,944.50(62,299,445 New Ordinary Shares) pursuant to the Acquisition and the Placing(representing approximately 110 per cent. of the number of Existing OrdinaryShares and approximately 52 per cent. of the Enlarged Share Capital) and (b) anamount equal to £3,575,028.33 (provided that, to the extent that such nominalamount represents more than one-third of the nominal value of the issued sharecapital immediately following Second Admission, the Directors undertake not toexercise such power), such authority to expire, unless sooner revoked or variedby the Company in general meeting, at the conclusion of the next annual generalmeeting of the Company; (iv) disapply the statutory provision of section 89 of the Act to allow (a) thePlacing Shares to be issued for cash other than on a pre-emptive basis and (b)the allotment of equity securities up to an aggregate nominal amount of£595,838.06 (provided that to the extent that such nominal amount representsmore than 5 per cent. of the nominal value of the issued share capitalimmediately following Second Admission, the Directors undertake not to exercisesuch power); and (v) adopt the 2007 Unapproved Scheme, further details of which are set out inparagraph 4.4 of Part VI of the admission document. The Resolution will be proposed as a special resolution and, accordingly, willrequire the approval of 75 per cent. of Shareholders voting in person or byproxy at the GM. 21. Irrevocable undertakings The Company has received irrevocable undertakings from existing institutionalshareholders and the Directors to vote, or to procure the votes of OrdinaryShares held, in favour of the Resolution to be proposed at the GM in respect ofa total of 8,444,712 Ordinary Shares representing, approximately 14.8 per cent.of the Existing Ordinary Shares. 22. EIS Qualifying Investment Status On the basis of the information provided, HMRC has given provisionalconfirmation that Transense will comply with the requirements of Chapter four ofPart VI of the Income Tax Act 2007. Furthermore, on the basis of informationprovided to HMRC, the Company has received provisional approval that aproportion of the Placing Shares should be eligible for EIS purposes, subject tothe submission of the relevant claim form in due course. Such a claim by theCompany does not guarantee EIS qualification for an individual, whose claim forrelief will be conditional upon his circumstances and is subject to holding thePlacing Shares throughout the three year relevant period. In addition, for EISrelief not to be withdrawn, the Company and the individual must comply with anumber of conditions throughout the qualifying period relating to those shares,and no guarantee can be given that the Company will so comply. 23. Further information Your attention is drawn to Parts I and III to VI of the admission document whichprovide additional information on the Group and on the Bishop Technology Group. 24. Action to be taken Whether or not you intend to be present at the General Meeting, as a Shareholderyou are requested to complete and return the accompanying Form of Proxy which isenclosed with the admission document, in accordance with the instructionsprinted thereon, as soon as possible and in any event so as to be received bythe Company's registrars, Capita Registrars, The Registry, 34 Beckenham Road,Beckenham, Kent BR3 4TU not later than 11.00 a.m. on 14 November 2007.Completion and return of the Form of Proxy will not prevent you, as aShareholder, from attending the General Meeting and voting in person should youwish to do so. In the event that the Resolution is not approved at the GM, and subject to thedevelopment of royalties, up front licence fees and engineering support, it islikely that within 12 months Transense would be required to conduct a newfundraising exercise to develop its business and to generate cash resources.Transense's capital requirements will depend on numerous factors, including itsability to develop and expand its existing business. The Directors believe thatas Transense grows it will naturally require additional working capital untilgrowth of revenue and licence income allows it to become self sufficient. Inaddition, in the medium term, Transense would need to secure and develop a newmanagement team to lead the business. 25. Recommendation The Directors, who have been advised by Noble, consider the terms of theAcquisition to be fair and reasonable so far as Shareholders as a whole areconcerned. In giving its advice, Noble has taken into account the Directors'commercial assessments. Accordingly, the Directors unanimously recommend thatShareholders vote in favour of the Resolution to be proposed at the GM, as theyhave irrevocably undertaken to do in respect of their own beneficialshareholdings amounting to, in aggregate, 2,559,648 Ordinary Shares(representing 4.5 per cent. of the Existing Ordinary Shares). Combined withthose shares in respect of which irrevocable undertakings have been given, asdescribed in paragraph 21 above, Shareholders who in aggregate own 8,444,712Existing Ordinary Shares, representing approximately 14.8 per cent. of theExisting Ordinary Shares, have irrevocably undertaken to vote in favour of theResolution. DEFINITIONS In the admission document, where the context permits, the expressions set outbelow shall bear the following meanings: "2006 Act" Companies Act 2006 "2007 Unapproved Scheme" Transense Technologies 2007 Unapproved Discretionaryshare Option Scheme, further details of which are set out in paragraph 4.4 ofPart VI of the admission document "Acquisition" proposed acquisition, by the Company, of the entire issued sharecapital of Bishop and the proposed cancellation of options to acquire shares inBishop "Acquisition Agreement" conditional agreement, dated 22 October 2007, betweenthe Vendors and the Company relating to the sale and purchase of the entireissued share capital of Bishop and the cancellation of options to acquire sharesin Bishop, more particularly described at paragraph 14 of Part VI of theadmission document "Act" Companies Act 1985, as amended "Admission" First Admission and/or Second Admission, as the context may requireor permit "AIM" AIM, an exchange regulated market operated by the London Stock Exchange "AIM Rules" AIM Rules for Companies and the AIM Rules for Nominated Advisers "AIM Rules for Companies" rules for AIM companies, as published by the LondonStock Exchange from time to time "AIM Rules for Nominated Advisers" rules for the nominated advisers to AIMcompanies, as published by the London Stock Exchange from time to time "Articles" articles of association of the Company in force as at the date of theadmission document "Au$" Australian dollars, the lawful currency of Australia "Bishop" Bishop Technology Group Limited, a company incorporated in Australiaunder registered number ABN 95 002 954 672 "Bishop Technology Group" Bishop and its subsidiary undertakings at the date ofthe admission document, details of which are set out in paragraph 9 of Part VIof the admission document "Board" or "Directors" existing directors of Transense, being Peter Woods, JamesPerry, Howard Pearl, Antony Baldry, Graham Eves, Rodney Westhead and Ray Lohr "Combined Code" combined code on corporate governance issued by the FinancialReporting Council, as amended from time to time "Company" or "Transense" Transense Technologies plc, a company incorporated inEngland and Wales under registered number 1885075 "Consideration Shares" 37,535,553 new Ordinary Shares to be issued to theVendors pursuant to the Acquisition Agreement "CREST" the relevant system (as defined in the CREST Regulations) in respect ofwhich Euroclear UK & Ireland is the operator "CREST Regulations" Uncertificated Securities Regulations 2001 (SI 2001/3755)(as amended) "•" Euros, the unit of money used in all European Union countries which haveadopted the single European currency unit "EIS" Enterprise Investment Scheme "Enlarged Group" Group as enlarged by the acquisition of Bishop "Enlarged Share Capital" ordinary share capital of the Company immediatelyfollowing Second Admission, as enlarged by the issue of the New Ordinary Shares "EPAS" electric power assisted steering "Euroclear UK & Ireland" Euroclear UK & Ireland Limited, the operator of CREST "Existing Ordinary Shares" existing Ordinary Shares in issue at the date of theadmission document "First Admission" re-admission of the Existing Ordinary Shares and the admissionof the New EIS Shares to trading on AIM becoming effective in accordance withthe AIM Rules for Companies "First Placing" proposed placing of New EIS Shares pursuant to the PlacingAgreement "Form of Proxy" form of proxy accompanying the admission document for use byShareholders in connection with the GM "FSA" Financial Services Authority, the regulator under the FSMA "FSMA" Financial Services and Markets Act 2000, as amended "General Meeting" or "GM" general meeting of the Company to be held at 11.00a.m. on 16 November 2007, at the offices of Travers Smith, 10 Snow Hill, London,EC1A 2AL, notice of which is set out at the end of the admission document "Group" Transense and its subsidiary undertakings at the date of the admissiondocument, details of which are set out in paragraph 9 of Part VI of theadmission document "Hertz" or ("Hz") a unit of frequency of one cycle per second "HMRC" Her Majesty's Revenue and Customs "HPAS" hydraulic power assisted steering "IP" intellectual property "kHz" one thousand Hertz "Lock-in Agreement" conditional agreement dated 22 October 2007 between Noble,the Company, the Directors and Bruce Grey pursuant to which the Directors andBruce Grey have undertaken, inter alia, not to dispose of their Ordinary Shares(subject to limited exceptions) for a period of 12 months following FirstAdmission, summary details of which are set out in paragraph 12 of Part VI ofthe admission document "London Stock Exchange" London Stock Exchange plc "MHz" one million Hertz "New Ordinary Shares" 62,299,445 new Ordinary Shares to be issued pursuant tothe Acquisition Agreement and the Placing, being the Consideration Shares andthe Placing Shares (assuming all the Placing Shares are placed) "New EIS Shares" up to 130,435 new Ordinary Shares which are to be placed withcertain qualifying investors under the EIS "Noble" Noble & Company Limited, which is authorised and regulated by theFinancial Services Authority "Non-EIS Shares" up to 24,633,457 new Ordinary Shares which are to be placedother than the New EIS Shares "OEM" original equipment manufacturer "Official List" Official List of the Financial Services Authority "Ordinary Shares" ordinary shares of 10p each in the capital of the Company "Placing" placing, by Noble on behalf of the Company, of the Placing Shares atthe Placing Price pursuant to the Placing Agreement "Placing Agreement" conditional agreement dated 22 October 2007, between theCompany and Noble relating to the Placing, summary details of which are set outin paragraph 12 of Part VI of the admission document "Placing Price" 23 pence per Placing Share "Placing Shares" New EIS Shares and the Non-EIS Shares "Proposed Directors" Bruce Grey and Tim Renfrey, being proposed directors ofTransense "Prospectus Rules" the prospectus rules made by the FSA under Part VI of theFSMA "Resolution" the resolution set out in the notice of General Meeting "SAW" surface acoustic wave "Second Admission" admission of the Non-EIS Shares and the Consideration Sharesto trading on AIM becoming effective in accordance with the AIM Rules forCompanies "Second Placing" proposed placing of Non-EIS Shares pursuant to the PlacingAgreement "Shareholders" holders of Ordinary Shares "Share Option Schemes" the Transense Technologies plc 2005 UnapprovedDiscretionary Share Option Scheme, the Transense Technologies plc 2004Enterprise Management Incentive Share Option Plan and the Transense Technologiesplc 2005 Enterprise Management Incentive Share Option Plan, further details ofwhich are set out in paragraphs 4.1 to 4.3 of Part VI of the admission document "TPMS" tyre pressure monitoring system "US$" US dollars, the lawful currency of the United States of America "Vendors" Lawrence Bishop, John Baxter, Klaus Roeske, Daimler AG, Glory B PtyLtd as trustee of the Bishop Family Trust and Bruce Grey This information is provided by RNS The company news service from the London Stock Exchange