Atuyi Logistics Monday 6 August, 2018 ‘The Managing Director Embedded Power & Energy Limited 55 Norman Williams Street Tkoyi Lagos Attention: Mr. Tony Jibunoh Dear Sir, PROPOSAL FOR DEVELOPMENT OF A FEASIBILITY STUDY ON IPWA Your recent request concerning the above subject matter refers. Background Feasibility Study is an assessment of the practicality of a proposed project or system. A feasibility study aims to objectively and rationally uncover the strengths and weaknesses of an existing business or proposed venture, opportunities and threats present in the natural environment, the resources required to carry through, and ultimately the prospects for success, In its simplest terms, the two criteria to judge feasibility are cost required and value to be attained. A well-designed feasibility study should provide a historical background of the business or project, a description of the product or service, accounting statements, details of the operations and management, marketing research and policies, financial data, legal requirements and tax obligations. Generally, feasibility studies precede technical development and project implementation. A feasibility study evaluates the project's potential for success; therefore, perceived objectivity is an important factor in the credibility of the study for potential investors and lending institutions. It must therefore be conducted with an objective, unbiased approach to provide information upon which decisions can be based. It is on this premise that this Feasibility Study initiative is hatched. The goals of this Feasibility Study are to: 321 Road, C Close, House 18, Festac Town, Lagos Tel: +2348033034504, 8100991946 E-mail: amkeji@yahoo.com+ Streamline the creation of the feasibility study in order to add value to the decision- making process based on the results of the planning and design efforts; + Recognize the role of the feasibility study in supporting resource requests for proposed investments; + Introduce the concept of time value of money by incorporating Net Present Value, Internal Rate of Return, and Breakeven Analysis financial measures in the suggested format of the Cost/Benefit Analysis; + Provide formats for clear and concise short and long-term business plans that will assists in investment decisions; Methodology In achieving the objectives of this exercise, we shall examine the following frames of analysis of the given project. Which are: ‘Technical, Customer/Sales, Legal /Material contract Operational Scheduling Financial matters Employee/Management issues Regulatory issues Property ee ‘Technical Feasibility ‘This part shall focus on the quality of the company's technology and technical expertise available in the company. This area of due diligence shall focus on the following area of inquiry: + A brief description of the business to assess more possible factors which could affect the operation of the company; + Are there copyright products and materials in use, controlled, or owned by the company;+ Does the business depend on the maintenance of any trade secrets, and if so what steps has the company taken to preserve their secrecy? + Isthere any registered and common law trademarks and service mark? + What indemnities/guarantees has the company provided to third parties with respect to property disputes or problems? + Isthe company involved in any property litigation or other disputes? + Isthere any software that is crucial to the company’s operations, and does the company have appropriate licenses for that software? + The human and economic factor; + The possible solutions to the problem; ‘The technical feasibility assessment shall focus on gaining an understanding of the present technical resources of the organization and their applicability to the expected needs of the proposed system. It is an evaluation of the ‘hardware and software’ and how it meets the need of both short and long-term plans. This phase of the study shall also examine the proposed methods of production looking at why the current method is preferred to other available production methods with emphasis on the following: + Availability of inputs or raw materials vis-a-vis quality and prices; + Availability of markets for outputs of the preferred method of production and the expected prices for these outputs; + Other efficiency factors. Project requirements Once the best method of production and technique are determined, the study shall determine the company's operating requirements on short and long-term basis. ‘This includes: + Determination of tools and equipment needed by the company; + Determination of necessary constructions such as buildings, storage in addition to internal designs for these requirements; + Determination of the company's requirements for skilled and unskilled labor and managerial and financial labor; + Evaluation of construction period with associated costs of designs and consultations, costs of constructions and other tools.Custor ‘The fu mers/Marketing ind provider needs to fully understand the target company’s customer base including the level of concentration of the largest customers as well as the sales pipeline. Factors 's to be considered include the following: Who are the major customers and what revenues are generated from each of them? What customer concentration issues/risks are there? Will there be any issues in keeping customers after the injection of additional fund? How satisfied are the customers with their relationship with the company? Are there any warranty issues with current or former customers? What is the customer backlog? What are the sales terms/policies, and have there been any unusual levels of returns/exchanges/refunds? How are the marketer compensated /motivated, and what effect will the injection of fund have on the financial incentives offered to employees? What seasonality in revenue and working capital requirements does the company typically experience? Legal/ Material contract We shall look further at the Legal and material contract of the company before and possible outcome after the injection of fund. The objective of this aspect of the due diligen ce is to determine whether the proposed injection of fund conflicts with legal requirements of some of the existing material contracts which may include any of the followi ing: O Guarantees, loans, and credit agreements CO Customer and supplier contracts OG Agr ‘eements of partnership or joint venture; limited liability company or operating agreements P: Ind Emy oooo0o00g. Contracts involving payments over a material dollar threshold Settlement agreements. acquisition agreements ipment leases lemnification agreements ployment agreements Agreements imposing any restriction on the right or ability of the company (or a buyer) to compete in any line of business or in any geographic region with any other personC Real estate leases/purchase agreements C. License agreements © Powers of attorney © Franchise agreements CO Equity finance agreements © Distribution, dealer, sales agency, or advertising agreements C Non-competition agreements C Union contracts and collective bargaining agreements O Contracts the termination of which would result in a material adverse effect on the company C Filed or pending litigation, together with all complaints and other pleadings © Litigation settled and the terms of settlement Ci Claims threatened against the company O Consent decrees, injunctions, judgments, or orders against the company C2 Insurance covering any claims, together with notices to insurance carriers © Matters in arbitration CJ Pending or threatened governmental proceedings against the company Operational Feasibility We shalll also look at the operational feasibility of the project which is a measure of how well a proposed system solves the problems, and takes advantage of the opportunities identified during scope definition and how it satisfies the requirements identified in the requirements analysis phase of business development. ‘The operational feasibility assessment shall focus on the following: + List of the company’s most significant subcontractors, including the dollar volume of business and the type of services or products supplied by each subcontractor + List of the company’s largest suppliers with the amount and type of products purchased from each during the most recent fiscal years and year-to-date, as well as whether or not the supplier is the sole source of such products + Monthly manufacturing yield summaries, by product + Schedule of backlog showing customers, products, and requested /scheduled shipping dates + Copies of inventory reports + Supplies or materials used by the company to produce or develop products that are in short supply or subject to shortages + Product service programs and copies of standard form of service contract and any contracts with service providers + Information regarding backlogs and levels of plant operation + All agreements and other arrangements related to the research, development, manufacturing, and testing of the company’s productsSchedule Feasibility We shall also look at the schedule feasibility which addresses the proposed timeline of the project taking into cognizance the technical and operational aspect of the project. Financial Matters ‘Taking into the cognizance all the aforementioned areas, the fund provider will be concerned with all of the company’s historical financial statements and related financial indices, as well as the reasonableness of the projections of its future performance, Items for inquiry or concern will include the following: + What do the company’s annual, quarterly, and (if any) monthly financial statements for the last three years reveal about its financial performance and condition? + Are the company’s financial statements audited, and if so for how long? + Do the financial statements and related notes set forth all liabilities of the company, both current and contingent? + Are the margins for the business growing or deteriorating? + Are the company’s projections for the future and underlying assumptions reasonable and believable? + How do the company’s projections for the current year compare to the board- approved budget for the same period? + What normalized working capital will be necessary to continue running the business? + How is “working capital” determined for purposes of injection of fund? + What capital expenditures and other investments will need to be made to continue growing the business, and what are the company’s current capital commitments? + What is the condition of assets and liens thereon? + What indebtedness is outstanding or guaranteed by the company, what are its terms, and when does it have to be repaid? + Are there any unusual revenue recognition issues for the company or the industry in which it operates? + What is the aging of accounts receivable, and are there any other accounts receivable issues? + Are the capital and operating budgets appropriate, or have necessary capital expenditures been deferred? + Does the company have sufficient financial resources to both continue operating in the ordinary course and cover its transaction expenses between the time of diligence and the anticipated closing date of injection of fund? Other financial consideration + Financing of the project in terms of its capital structure, debt to equity ratio and investor's share of equity+ Existing investment by the investors in the company’s other businesses + Projected cash flow and profitability The ancial viability of the project will provide the following information. Full details of the assets to be financed; Business Plan comprises of short and long-term of the company; Project's funding potential and return on capital employed; Sensitivity in the repayments capability to the following factors: «Mild slowing of sales. Acute reduction/slowing of sales. Small increase in cost. Large increase in cost. Adverse economic conditions. Draft Timeline We propose a timeline of 6 — 8 weeks for the completion of the Feasibility Study. Professional Fee Our fee for this assignment shall be Twelve Million Five Hundred Thousand Naira (N12,500,000) excluding VAT but inclusive of Disbursements. Payment Terms Payment of 50% of agreed fee on commencement, 25% on presentation of draft report and 25% on submission of final report. Conclusion While we look forward to working with you on this assignment, please be assured of our best professional services always. Yours faithfully / ATUYTLO