PROPOSED RIGHTS ISSUE OF SHARES WITH WARRANTS; PROPOSED SHARE ISSUANCE SCHEME; PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; AND PROPOSED AMENDMENT

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1 SUNZEN BIOTECH BERHAD ( SUNZEN OR THE COMPANY ) (I) (II) (III) (IV) PROPOSED RIGHTS ISSUE OF SHARES WITH WARRANTS; PROPOSED SHARE ISSUANCE SCHEME; PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; AND PROPOSED AMENDMENT 1. INTRODUCTION On behalf of the Board of Directors of Sunzen ( Board ), TA Securities Holdings Berhad ( TA Securities ) wishes to announce that the Company proposes to undertake the following: (i) (ii) (iii) (iv) proposed renounceable rights issue of up to 192,579,515 new ordinary shares of RM0.10 each in Sunzen ( Sunzen or ) ( Rights ) on the basis of three (3) Rights for every five (5) existing Sunzen held, together with up to 192,579,515 free detachable warrants ( Warrants ) on the basis of one (1) Warrant for every one (1) Rights Share subscribed at an entitlement date to be determined later ( Entitlement Date ) ( Proposed Rights Issue of with Warrants ); proposed establishment of a share issuance scheme ( SIS ) of up to thirty percent (30%) of the Company s issued and paid-up share capital (excluding treasury shares) at any one time during the duration of the SIS for the eligible Directors and employees of Sunzen and its subsidiaries ( Sunzen Group or Group ) (excluding dormant subsidiaries) ( Proposed SIS ); proposed increase in authorised share capital of Sunzen from RM50,000,000 comprising 500,000,000 Sunzen to RM100,000,000 comprising 1,000,000,000 Sunzen ( Proposed Increase in Authorised Share Capital ); and proposed amendment to the Memorandum of Association of Sunzen to facilitate the Proposed Increase in Authorised Share Capital ( Proposed Amendment ) (collectively referred to as the Proposals ). The details of the Proposals are set out in the ensuing sections of this announcement. 2. DETAILS OF THE PROPOSALS 2.1 Proposed Rights Issue of with Warrants Details of the Proposed Rights Issue of with Warrants The Proposed Rights Issue of with Warrants entails the issuance of up to 192,579,515 Rights on the basis of three (3) Rights for every five (5) existing Sunzen held, together with up to 192,579,515 Warrants on the basis of one (1) Warrant for every one (1) Rights Share subscribed by the shareholders of Sunzen whose names appear in the Record of Depositors of the Company as at the close of business on the Entitlement Date ( Entitled Shareholders ). 1

2 For illustrative purposes only, the maximum number of 192,579,515 Rights and 192,579,515 Warrants are arrived at based on the enlarged issued and paid-up share capital of Sunzen of RM32,096, comprising 320,965,859 Sunzen after taking into consideration of the following: (i) the existing issued and paid-up share capital outstanding of Sunzen as at 25 August 2015 (being the latest practicable date prior to this announcement ( LPD )) of RM28,907, comprising 289,071,448 Sunzen (i.e, after excluding the 248,000 Sunzen held as treasury shares by the Company ( Treasury ) as at the LPD); (ii) (iii) assuming all the Treasury are resold in the open market by Sunzen on or prior to the Entitlement Date; and assuming 31,646,411 new Sunzen are issued pursuant to the full exercise of the 31,646,411 warrants issued but remain un-exercised as at the LPD as constituted by the deed poll dated 28 March 2014 ( Existing Deed Poll ) ( Warrants 2014/2019 ) on or prior to the Entitlement Date. The actual number of Rights with Warrants to be issued will only be determined on the Entitlement Date. The entitlements for the Rights with Warrants are renounceable in full or in part. However, the Rights and the Warrants cannot be renounced separately. Should the Entitled Shareholders renounce all of their entitlements to the Rights under the Proposed Rights Issue of with Warrants, they will not be entitled to the Warrants. However, if the Entitled Shareholders accept only part of their entitlements to the Rights under the Proposed Rights Issue of with Warrants, they shall be entitled to the Warrants in proportion of their acceptances of the Rights entitlements. In determining the shareholders entitlements to the Rights with Warrants under the Proposed Rights Issue of with Warrants, fractional entitlements, if any, will be dealt with by the Board in such manner at its discretion as it may deem fit or expedient and in the best interest of the Company. The Rights with Warrants which are not taken up or validly taken up shall be made available for excess applications by the Entitled Shareholders and/or their renouncee(s) (if applicable). It is the intention of the Board to allocate the excess Rights in a fair and equitable manner on a basis to be determined by the Board and announced later by the Company. The Warrants will be immediately detached from the Rights upon issuance and separately traded from the Rights on Bursa Malaysia Securities Berhad ( Bursa Securities ). The Warrants will be issued in registered form and constituted by a deed poll to be executed by Sunzen ( Deed Poll ). 2

3 2.1.2 Basis of determining and justification for the issue price of the Rights and the exercise price of the Warrants (i) Rights The Board has fixed the issue price of the Rights at RM0.25 each after taking into consideration, amongst others, the following: (a) (b) (c) the theoretical ex-all price ( TEAP ) of Sunzen of RM based on the five (5)-day volume weighted average market price ( 5D-VWAP ) of Sunzen up to and including the LPD of RM and the exercise price of the Warrants of RM0.25 as set out in item (ii) below; the par value of Sunzen of RM0.10 each; and the funding requirements of the Sunzen Group, details of which are set out in Section of this announcement. For illustrative purposes only, the issue price of RM0.25 per Rights Share represents a discount of RM or 22.09% to the TEAP of Sunzen of RM (ii) Warrants The Warrants will be issued at no cost to the Entitled Shareholders who successfully subscribe for the Rights. The Board has fixed the exercise price of the Warrants at RM0.25 each after taking into consideration, amongst others, the following: (i) (ii) the theoretical ex-rights price ( TERP ) of Sunzen of RM based on the 5D-VWAP of Sunzen up to and including the LPD of RM0.4060; and the par value of Sunzen of RM0.10 each. For illustrative purposes only, the exercise price of RM0.25 per Warrant represents a discount of RM or 28.06% to the TERP of Sunzen of RM Ranking of the Rights and/or the new Sunzen to be issued pursuant to the exercise of the Warrants and/or additional Warrants 2014/2019 to be issued pursuant to the adjustment in accordance with the provisions of the Existing Deed Poll ( Adjustment Warrants ) The holders of the Warrants and/or Adjustment Warrants will not be entitled to any voting right and/or participation in any form of distribution and/or offer of further securities in the Company until and unless such holders of the Warrants and/or Adjustment Warrants exercise their Warrants and/or Adjustment Warrants into new Sunzen. 3

4 The Rights and/or the new Sunzen to be issued arising from the exercise of the Warrants and/or Adjustment Warrants shall, upon issuance and allotment, rank pari passu in all respects with the then existing Sunzen, save and except that the Rights and/or the new Sunzen shall not be entitled to any dividends, rights, allotments and/or other forms of distribution, the entitlement date of which is prior to the date of allotment and issuance of the Rights and/or the new Sunzen to be issued arising from the exercise of the Warrants and/or Adjustment Warrants Listing of and quotation for the Rights, Warrants, Adjustment Warrants and the new Sunzen to be issued arising from the exercise of the Warrants and/or Adjustment Warrants An application will be made to Bursa Securities for the admission of the Warrants to the Official List of the ACE Market of Bursa Securities and the listing of and quotation for the Rights, Warrants, Adjustment Warrants and the new Sunzen to be issued pursuant to the exercise of the Warrants and/or Adjustment Warrants on the ACE Market of Bursa Securities Salient terms of the Warrants The salient terms of the Warrants are as follows: Terms Issue size Form and denomination Exercise period Exercise price Expiry date Exercise rights Details : Up to 192,579,515 Warrants. : The Warrants which are free will be issued in registered form and will be constituted by the Deed Poll. : The Warrants may be exercised at any time during the tenure of the Warrants of five (5) years commencing on and including the date of issuance of the Warrants until 5.00 p.m. on the expiry date. Warrants not exercised during the exercise period will thereafter lapse and cease to be valid. : The exercise price of the Warrants is RM0.25 each. : The day immediately preceeding the fifth (5 th ) anniversary date of the issuance of the Warrants, provided that if such day falls on a day which is not a market day, then on the preceding market day. : Each Warrant shall entitle the registered holder of the Warrants to subscribe for one (1) new Sunzen Share at any time during the exercise period at the exercise price (subject to the adjustments in accordance with the provisions of the Deed Poll). 4

5 Terms Mode of exercise Details : The registered holder of the Warrants is required to lodge an exercise form, as set out in the Deed Poll, with the Company s registrar, duly completed, signed and duly stamped in accordance with any law for the time being in force relating to stamp duty together with payment of the exercise price for the new Sunzen subscribed for by banker s draft or cashier s order or money order or postal order in Ringgit Malaysia drawn on a bank or post office operating in Malaysia. Board lot : For the purpose of trading on Bursa Securities, one (1) board lot of Warrant shall comprise of one hundred (100) Warrants carrying the right to subscribe for one hundred (100) new Sunzen at any time during the exercise period, or such other denomination as determined by Bursa Securities from time to time. Adjustments in the exercise price and/or number of the Warrants Rights of the Warrants holders Modification to the terms of the Warrants : Subject to the provisions in the Deed Poll, the exercise price and/or the number of Warrants held by each Warrant holder shall be adjusted by the Board in consultation with the approved adviser and certification by the external auditors. : The Warrant holders are not entitled to any voting rights or participation in any form of distribution and/or offer of securities in the Company until and unless such Warrant holders exercise their Warrants into new Sunzen. : Subject to the terms on modification of rights, save for manifest error, any modification, amendment, deletion or addition to the Deed Poll, shall require the approval of the Warrant holders sanctioned by special resolution and may be effected only by deed poll, executed by the Company and expressed to be supplemental thereto and subject to the approval of the relevant authorities, if necessary. A memorandum of every such supplemental deed shall be endorsed on the Deed Poll. Rights in the event of winding-up, liquidation, compromise and/or arrangement : If a resolution is passed for a members voluntary winding up of the Company or there is a compromise or arrangement, whether or not for the purpose of or in connection with a scheme for the reconstruction of the Company or the amalgamation of the Company with one or more companies, then: (i) for the purposes of such winding-up, compromise or arrangement (other than a consolidation, amalgamation or merger in which the Company is the continuing corporation) to which the Warrant holder (or some person designated by them for such purpose by special resolution) will be a party, the terms of such winding up, compromise and arrangement shall be binding on all the Warrant holders; and 5

6 Terms Listing status Governing law Details (ii) in any other case, every Warrant holder shall be entitled upon and subject to the conditions at any time within six (6) weeks after the passing of such resolution for a members voluntary winding-up of the Company or within six (6) weeks after the granting of the court order approving the compromise or arrangement (as the case may be), to exercise their Warrants by submitting the exercise form duly completed together with payment of the relevant exercise price to elect to be treated as if he had immediately prior to the commencement of such winding-up exercised the exercise rights to the extent specified in the exercise form(s) and had on such date been the holder of the new to which he would have become entitled pursuant to such exercise and the liquidator of the Company shall give effect to such election accordingly. : The Warrants will be listed and traded on the ACE Market of Bursa Securities. An application will be made for the admission of the Warrants to the Official List of the ACE Market of Bursa Securities and the listing of and quotation for the Warrants and the new Sunzen to be issued pursuant to the exercise of the Warrants on the ACE Market of Bursa Securities. : The laws of Malaysia Shareholders undertakings and underwriting arrangement The Proposed Rights Issue of with Warrants will be implemented on a minimum level of subscription of 110,024,200 Rights together with 110,024,200 Warrants ( Minimum Subscription Level ). Based on the issue price of RM0.25 per Rights Share, the Company will raise minimum gross proceeds of RM27.51 million from the Proposed Rights Issue of with Warrants. The minimum gross proceeds of RM27.51 million to be raised were determined by the Board after taking into consideration, inter-alia, the funding requirements of the Sunzen Group. To meet the Minimum Subscription Level, Sunzen has obtained written unconditional and irrevocable undertakings from its shareholders, namely Hong Choon Hau, Tracy Lim Hwee Teng and Lim Eng Chai ( Undertaking Shareholders ) that they will not dispose any of their Sunzen following this announcement up to the completion of the Proposed Rights Issue of with Warrants and that they will subscribe in full for their entitlements to the Rights with Warrants ( Undertakings ). The Company will also procure underwriting arrangements for 55,000,000 Rights together with 55,000,000 Warrants, for which no unconditional and irrevocable written undertaking to subscribe has been obtained from other shareholders of the Company ( Underwriting ) so that the Minimum Subscription Level will be achieved. 6

7 Details of the Undertakings and Underwriting under the Minimum Subscription Level are as follows: As at the LPD % Rights entitlement No. of Rights % (1) Undertaking Shareholders Hong Choon Hau 79,569, ,741, Tracy Lim Hwee Teng 138, , Lim Eng Chai 12,000, ,200, ,707, ,024, Underwriter(s) ,000, Total 91,707, ,024, Note: (1) Percentages are calculated based on 110,024,200 Rights available for subscription under the Minimum Subscription Level. The Underwriting will be finalised at a later date prior to the implementation of the Proposed Rights Issue of with Warrants. Accordingly, the terms of the Underwriting have not been finalised and the relevant agreement(s) have not been entered into at this juncture. After taking into consideration of the Undertakings and the Underwriting, the subscription of the Rights by the Undertaking Shareholders will not give rise to any consequences of mandatory general offer obligation pursuant to the Malaysian Code on Take-Overs and Mergers 2010 ( Code ). Nonetheless, the Undertaking Shareholders have given their respective confirmations to observe and comply at all times with the provisions of the Code. [The rest of the page has been intentionally left blank] 7

8 2.1.7 Utilisation of proceeds Based on the issue price of RM0.25 per Rights Share, the gross proceeds of up to RM48.15 million from the Proposed Rights Issue of with Warrants will be utilised in the following manner based on the scenarios as illustrated below: Minimum Scenario Maximum Scenario : Assuming only the Undertaking Shareholders fully subscribe for their entitlements of the Rights with Warrants pursuant to the Undertakings while the underwriter(s) subscribe for 55,000,000 Rights with Warrants pursuant to the Underwriting. : Assuming all the outstanding Treasury are resold in the open market and full exercise of the Warrants 2014/2019 prior to the Entitlement Date and all Entitled Shareholders fully subscribe for their entitlements of the Rights with Warrants. Descriptions Note Minimum Scenario RM 000 Maximum Scenario RM 000 Expected time frame for utilisation of proceeds (from the date of listing of the Rights ) Purchase of machineries (1) 11,000 17,000 Within 6 months Upgrade of existing factory (2) 1,300 2,800 Within 6 months cum office building Working capital (3) 14,556 27,695 Within 12 months Estimated expenses in (4) Within 2 weeks relation to the Proposals Total estimated proceeds 27,506 48,145 Notes: (1) The Sunzen Group is principally involved in the business of biotechnology research and development ( R&D ), manufacturing and marketing of animal feed supplement products, manufacturing, marketing and trading of veterinary and animal health products, R&D and commercialisation of in-feed anti bacterial products and supplements for animal health products as well as wholesaling and trading in animal health products. In line with the Group s plans to expand its business via, amongst others, increase in product offerings and marketing and promotional activities ( Expansion Plan ), the Group intends to utilise up to RM17.00 million of the proceeds to purchase the following machineries: Minimum Scenario Maximum Scenario Name Notes Units RM 000 Units RM 000 Acidifier and lecithin spray (a) 1 2, ,000 mixers Premix medicated powder (b) 1 3, ,000 mixer Double fat machines (c) 2 6, ,000 Powder Fat machine (d) ,000 Total 11,000 17,000 8

9 (a) (b) (c) (d) The Group intends to purchase up to two (2) units of acidifier and lecithin spray mixers for the production of its Orgacids range of products. Orgacids, a non-antibiotic feed additive, is an organic acid compound which promotes the growth of animal and improves feed efficiency. The Group s production capacity of Orgacids range of products is expected to increase from one (1) metric tonne per hour to three (3) metric tonnes per hour with each new mixer. The Group intends to purchase one (1) unit of premix medicated powder mixer for the production of its premix products. The Group s production capacity of premix products is expected to increase from two (2) metric tonnes per hour to six (6) metric tonnes per hour with the new mixer. The Group intends to purchase up to three (3) units double fat machines for the production of its new product, namely palm stearin being the raw materials of Powder Fat (a granular form of stearin which is widely used as a source of energy for ruminant species such as dairy and beef cattle monogastric animals such as swine and poultry). The three (3) units of new double fat machines will enable the Group to produce between 30 and 50 metric tonnes of palm stearin per day. The Group intends to purchase one (1) unit of Powder Fat machine under the Maximum Scenario for the production of Powder Fat. The Group s production capacity of Powder Fat is expected to increase from approximately 20 metric tonnes per day to approximately 32 metric tonnes per day with new Powder Fat machine. Any surplus or shortfall for the purchase of machineries will be adjusted accordingly to/from the working capital of the Sunzen Group. (2) The Sunzen Group intends to utilise up to RM2.80 million as follows: Setting up of showroom cum presentation hall and R&D lab as well as renovating the existing management office Note Minimum Scenario (RM 000) Maximum Scenario (RM 000) (a) 700 1,000 Upgrade of warehouse and storage system (b) 600 1,800 Total 1,300 2,800 (a) The Group intends to set up a showroom cum presentation hall in its existing factory cum office building in Shah Alam, Selangor Darul Ehsan ( Building ) which will enable the Group to display and present its products to existing and potential customers as well as facilitate marketing activities. The Group also intends to set up a R&D lab in the Building to facilitate its R&D activities. In addition, the Group intends to renovate and enlarge its existing management office within the Building to accommodate the expected increase in headcounts of the Group following the Expansion Plan. 9

10 (b) Currently, the Group applies a first-in-first-out ( FIFO ) inventory system to its existing warehouse within the Building to ensure that the oldest inventories are distributed before the newer ones. In view of the anticipated increase in production capacity following the Expansion Plan, the Sunzen Group intends to expand its storage and inventory handling capacity by, among others, upgrading and installing additional rack systems in its warehouse which are expected to increase its storage capacity from 340 metric tonnes to 1,000 metric tonnes. In addition, the Group intends to implement a coding and scanning system to its inventories in order to have better control of its inventories, thus improving its efficiency in managing inventories. Any surplus or shortfall for the above will be adjusted accordingly to/from the working capital of the Sunzen Group. (3) The Group intends to utilise up to RM27.70 million of the proceeds for the Group s day-to-day operations as follows: Minimum Scenario (RM 000) Maximum Scenario (RM 000) Description Notes Purchase of raw materials (a) 5,500 14,000 Purchase of inventories (b) 5,500 8,500 Wages and staff benefits (c) Marketing expenses (d) 2,956 3,220 Other administrative and operating (e) - 1,035 expenses Total 14,556 27,695 (a) (b) (c) (d) (e) Comprise chemical materials such as minerals, vitamins and carrier (being special chemical used to enable raw materials to combine homogeneously) and stearin (a co-product of palm oil fractionation). Comprise products from Zoetis Malaysia Sdn Bhd, a global animal health company and a major supplier of Sunzen, for distribution by the Group. Comprise payment of wages, Employees Provident Fund and social security organisation contributions to the staff of the Group. Comprise payment for advertising and promotional activities such as organising roadshows, participating in trade exhibitions, conducting seminars and workshops, media engagement and creating advertising and promotion programmes to be undertaken by the Group. Comprise payment for general and other operating expenses for the Group such as upgrading of software facilities, machinery maintenance, transportations, utilities and other sundry expenses. (4) The estimated expenses consist of professional fees, fees payable to the relevant authorities, expenses to convene the extraordinary general meeting ( EGM ) and other ancillary expenses. Any surplus or shortfall of estimated expenses in relation to the Proposals will be adjusted accordingly to/from the working capital of the Group. The actual proceeds to be raised from the Proposed Rights Issue of with Warrants are dependent on the actual number of Rights to be issued. Any variation in the actual proceeds raised will be adjusted to/from the proceeds allocated for the working capital of the Group. 10

11 Pending utilisation of the proceeds from the Proposed Rights Issue of with Warrants for the abovementioned purposes, the proceeds will be placed in deposits with financial institution or short-term money market instruments as the Board may deem fit. The interest derived from the deposits with the financial institution or any gain arising from the short-term money market instruments will be used as working capital of the Group. The exact quantum of proceeds that may be raised by Sunzen pursuant to the exercise of the Warrants and/or Adjustment Warrants will depend upon the the actual number of Warrants and/or Adjustment Warrants exercised during their respective tenures. The proceeds to be raised from the exercise of the Warrants and/or Adjustment Warrants shall be utilised for the working capital of the Sunzen Group of which the exact timeframe and the breakdown for the utilisation cannot be determined at this juncture. 2.2 Details of the Proposed SIS The Proposed SIS will involve the granting of options ( SIS Options ) to the Directors and employees of the Sunzen Group (excluding dormant subsidiaries) who meet the criteria of eligibility for participation in the Proposed SIS ( Eligible Persons ), to subscribe for new Sunzen in accordance with the bylaws governing the Proposed SIS ( Bylaws ). For the avoidance of doubt, it is the intention of the Board to implement the Proposed SIS only after the completion of the Proposed Rights Issue of with Warrants. The SIS will be administered by a committee to be duly appointed by the Board ( Option Committee ). The decision as to whether or not to stagger the allocation of the SIS Options over the duration of the Proposed SIS will be determined by the Option Committee at a later date. The salient terms and conditions of the Bylaws are as follows: Maximum number of new Sunzen available under the Proposed SIS The total number of new Sunzen to be offered and issued under the Proposed SIS ( SIS ) shall not in aggregate exceed thirty percent (30%) of the issued and paid-up share capital of Sunzen (excluding treasury shares) at any one time during the duration of the Proposed SIS, as provided in the Bylaws Maximum allowable allotment and basis of allocation The aggregate number of SIS that may be offered under the SIS Options to the Eligible Persons shall be determined at the sole and absolute discretion of the Option Committee after taking into consideration, amongst others, the position, ranking, performance, seniority and length of service of the Eligible Persons, and such other factors that the Option Committee may in its sole and absolute discretion deem fit, subject to the following: (i) the Directors and senior management of the Sunzen Group (excluding dormant subsidiaries) do not participate in the deliberation or discussion of their own allocation of SIS Options; and 11

12 (ii) (iii) the number of SIS allocated, in aggregate, to the Directors and senior management of Sunzen Group (excluding dormant subsidiaries) shall not exceed eighty percent (80%) of the total number of SIS to be issued at any one time during the duration of the Proposed SIS; and not more than ten percent (10%) of the total number of SIS Options shall be allocated to any Eligible Person, who, either singly or collectively through persons connected with the Eligible Person, holds twenty percent (20%) or more of the issued and paid-up share capital of Sunzen (excluding treasury shares), provided always that it is in accordance with any prevailing guidelines, rules or regulations issued by Bursa Securities, the ACE Market Listing Requirements of Bursa Securities ( Listing Requirements ) or any other requirements of the relevant authorities as amended from time to time. The actual number of SIS which may be offered to any Eligible Person shall be at the discretion of the Option Committee and the number of SIS so offered shall not be less than one hundred (100) nor more than the maximum allowable allocation of such Eligible Person and shall be in multiples of one hundred (100) Eligibility Any employee of the Group (excluding dormant subsidiaries) shall be eligible to participate in the Proposed SIS if, as at the date of the offer of SIS Options ( Offer ) ( Date of Offer ), the employee: (i) (ii) (iii) (iv) (v) (vi) is at least eighteen (18) years of age; is not an undischarged bankrupt nor subject to any bankruptcy proceedings; is employed on a full-time basis and is on the payroll of a company in the Group which is not dormant and has not served a notice to resign and received a notice of termination; must have been confirmed in service and have served at least six (6) months in the employment of the eligible company (unless the Option Committee under certain circumstances and at its sole discretion reduces the period of six (6) months to a lesser period as it deems fit); where the employee is under an employment contract, the contract is for a duration of at least one (1) year and shall have not expired within three (3) months from the Date of Offer; and fulfills any other criteria that the Option Committee may from time to time determine at its discretion. Any Director of the Group (excluding dormant subsidiaries) shall be eligible to participate in the Proposed SIS if, as at the Date of Offer, such Director: (i) (ii) is at least eighteen (18) years of age; is not an undischarged bankrupt nor subject to any bankruptcy proceedings; 12

13 (iii) (iv) has been appointed as a Director of a company within the Sunzen Group, which is not dormant and has not served a notice to resign and received a notice of termination; and fulfills any other criteria that the Option Committee may from time to time determine at its discretion. Directors, major shareholders or the chief executive of Sunzen or its holding company (if any) or persons connected with any of them shall not be eligible to participate in the Proposed SIS unless their respective entitlement under the Proposed SIS has been approved by the shareholders of the Company in a general meeting prior to allocation of the SIS Options. Subject to the Bylaws, there are no performance targets to be achieved by the Eligible Persons or vesting period for the Options, unless otherwise stated in the Offer as determined by the Option Committee from time to time. The SIS Options offered to an Eligible Person may, subject to the compliance or fulfilment by the Eligible Person of the vesting conditions (if any) to be determined by the Option Committee, be vested in the Eligible Person in such number of tranche or tranches and in such number of SIS Options in each tranche as shall be determined by the Option Committee. Eligibility does not confer on an Eligible Person a claim or right to participate in the Proposed SIS unless an Offer has been made in writing by the Option Committee to the Eligible Person and the Eligible Person has accepted the Offer in accordance with the provisions of the Bylaws Subscription price Subject to any adjustments in accordance with the Bylaws, the price at which the grantee is entitled to subscribe for the SIS ( Subscription Price ), shall be the higher of the following: (i) (ii) the 5D-VWAP of Sunzen immediately preceding the Date of Offer, as quoted on Bursa Securities, with a discount of not more than ten percent (10%); or the par value of Sunzen Ranking of the SIS The SIS shall, upon issuance and allotment, rank pari passu in all respects with the then existing Sunzen, save and except that the SIS shall not be entitled to any dividends, rights, allotments and/or any other forms of distribution, the entitlement date of which is prior to the date of allotment and issuance of such SIS Duration of the Proposed SIS The effective date of the implementation of the Proposed SIS shall be the date of the last of the following conditions have been obtained and/or complied with ( Effective Date ): 13

14 (i) (ii) (iii) (iv) (v) the submission to Bursa Securities of the final copy of the Bylaws together with a letter of compliance pursuant to Rule 2.12 of the Listing Requirements and a checklist showing compliance with Appendix 6E of the Listing Requirements; receipt of approval-in-principle, for the listing of and quotation for the SIS to be issued under the Proposed SIS from Bursa Securities; the approval of shareholders of the Company for the Proposed SIS; the approval of any other relevant authorities for the Proposed SIS (if any); and the conditions attached to the above approvals, if any. The Proposed SIS shall be in force for a period of five (5) years from the Effective Date, subject to any extension for a further period of five (5) years or such shorter period at the discretion of the Board upon the recommendation of the Option Committee, subject always that the duration of the Proposed SIS shall not in aggregate exceed ten (10) years Rights of a grantee The SIS Options shall not carry any rights to vote at any general meeting of the Company. The grantee shall not in any event be entitled to any dividends, rights, allotments and/or other entitlements on his unexercised SIS Options Retention period The SIS to be allotted and issued to the grantee pursuant to the exercise of any SIS Options under the Proposed SIS will not be subject to any retention period unless otherwise impose by the Option Committee in their absolute discretion and subject to the terms of the Bylaws. However, grantees are encouraged to hold the new Sunzen as an investment rather than to realise immediate gains from disposal. Notwithstanding this, an eligible Director who is non-executive Director in Sunzen Group shall not sell, transfer or assign the Sunzen obtained through the exercise of SIS Options offered to him within one (1) year from the Date of Offer Alteration of share capital during the Option Period In the event of any alteration in the issued and paid-up capital structure of the Company during the duration of the SIS, whether by way of a rights issue, bonus issue or other capitalisation issue, consolidation or subdivision of or reduction of capital or any other variation of capital, the Company shall cause such adjustment to be made to: (i) (ii) the number of SIS Options granted to each grantee (excluding the SIS Options already exercised); and/or the Subscription Price. Save for any alteration in the capital structure of the Company during the Option Period arising from bonus issues, all adjustments shall be made at the discretion of the Option Committee and confirmed in writing by the relevant parties. 14

15 The Company shall ensure that any adjustments made must be in compliance with the provisions for adjustment as provided in Bylaws Amendment and/or modification of the SIS The Option Committee may at any time and from time to time recommend to the Board any amendment to or modification of the Bylaws as it shall in its absolute discretion think fit, and the Board shall have the power by resolution to amend or delete all or any of the Bylaws upon such recommendation PROVIDED ALWAYS THAT no such amendment or modification shall be made which would either: (i) (ii) materially prejudice the rights then accrued to any grantees without his/her prior consent; or alter to the advantage of any grantee without the prior approval of the shareholders in a general meeting, the provisions set out in the Bylaws. Subject to the compliance with the Listing Requirements and any other relevant rules and regulations, the prior approval of Bursa Securities and/or any other relevant authorities is not required for any subsequent amendment or modification to the Bylaws. However, a letter of compliance together with the amended Bylaws shall be submitted to Bursa Securities in the manner prescribed by the Listing Requirements, each time an amendment or modification is made, stating that the amendment or modification is in compliance with the provisions of the Listing Requirements and the Rules of Bursa Malaysia Depository Sdn Bhd as issued pursuant to the Securities Industry (Central Depositories) Act, Utilisation of proceeds The proceeds arising from the exercise of the SIS Options will be utilised for the working capital purposes of the Group as and when the SIS Options are exercised and the proceeds are received throughout the duration of the Proposed SIS, as the Board may deem fit. However, the amount of proceeds arising from the exercise of the SIS Options cannot be determined at this juncture as these will depend on, amongst others, the number of SIS Options granted and exercised at the relevant point in time and the Subscription Price Listing of and quotation for the SIS An application will be made to Bursa Securities for the listing of and quotation for the SIS on the ACE Market of Bursa Securities. 2.3 Details of the Proposed Increase in Authorised Share Capital As at the LPD, the authorised share capital of the Company is RM50,000,000 comprising 500,000,000 Sunzen, of which RM28,931, comprising 289,319,448 Sunzen have been issued and fully paid-up. In order to accommodate the issuance of the Rights pursuant to the Proposed Rights Issue of with Warrants and any future issuance of new Sunzen arising from the exercise of the Warrants, Adjustment Warrants and SIS Options, the Company proposes to increase its authorised share capital to RM100,000,000 comprising 1,000,000,000 Sunzen. 15

16 2.4 Details of the Proposed Amendment In order to facilitate and to reflect the Proposed Increase in Authorised Share Capital, the Memorandum of Association of Sunzen shall be amended by deleting the existing Clause 5 in its entirety and replace with the following new Clause 5: Memorandum of Association Clause No Existing provision Proposed provision 5 The capital of the Company is The capital of the Company is RM50,000, divided into RM100,000, divided into 500,000,000 ordinary shares of 1,000,000,000 ordinary shares of RM0.10 each. The shares in the original or any increased capital may be divided into several classes and RM0.10 each. The shares in the original or any increased capital may be divided into several classes and there may be attached thereto there may be attached thereto respectively any preferential, respectively any preferential, deferred deferred or other special rights, or other special rights, privileges, privileges, conditions or restrictions conditions or restrictions as to as to dividends, capital, voting or dividends, capital, voting or otherwise. otherwise. 3. RATIONALE FOR THE PROPOSALS 3.1 Proposed Rights Issue of with Warrants After due consideration of the various methods of fund raising available for the purposes as stated in Section of this announcement, the Board is of the opinion that the Proposed Rights Issue of with Warrants is currently an appropriate avenue after taking into consideration the following: (i) (ii) (iii) (iv) (v) it allows the Company to raise capital without incurring interest costs as compared to other means of financing, such as bank borrowings or the issuance of debt instruments; it enhances the cash flow of the Group and enables the Group to fund the purposes set out in Section of this announcement which are expected to contribute positively to the future earnings of the Group and improve its financial performance; it involves the issuance of new Sunzen without diluting the existing shareholders equity interest, assuming all Entitled Shareholders fully subscribe for their respective entitlements and exercise their Warrants subsequently; it provides an opportunity for the existing shareholders to increase their equity participation in the Company from the subscription of the Rights with Warrants; and the Warrants will provide the shareholders with an attractive option to increase their equity participation in the Company at a pre-determined price during the tenure of the Warrants. In addition, proceeds from the exercise of the Warrants in the future will provide an additional source of funds to be used for the Sunzen Group s business. 16

17 3.2 Proposed SIS The Proposed SIS will provide the Eligible Persons with an opportunity to have equity participation in the Company and help achieve the following objectives: (i) (ii) (iii) (iv) (v) to recognise and reward the contributions and services of the Eligible Persons that are considered vital to the operation and continued growth of the Sunzen Group; to align the Eligible Persons interests to those of the shareholders of Sunzen to drive longer term shareholders value enhancement; to reinforce the Eligible Persons sense of loyalty and belonging to the Sunzen Group by enabling them to participate directly in the equity of Sunzen and thereby provide incentive for the Eligible Persons to participate more actively in the operations and future growth of the Sunzen Group and motivate them to further contribute to the growth and success of the Sunzen Group; to serve as an alternative form of employee remuneration which does not result in cash outflow for the Sunzen Group but instead allows for fundraising upon exercise of the SIS Options by the Eligible Persons; and to attract and retain high calibre Eligible Persons, hence ensuring that the loss of key personnel is kept to a minimum level. The Proposed SIS is also extended to the eligible non-executive Directors of the Group (excluding dormant subsidiaries). The Proposed SIS serves as a tool to recognise their contributions relating to their oversight responsibilities as independent members to the respective board and/or board committees, which are considered vital to the governance of the Group. 3.3 Proposed Increase in Authorised Share Capital The Proposed Increase in Authorised Share Capital is to accommodate the issuance of the Rights, any future issuance of new Sunzen arising from the exercise of the Warrants, Adjustment Warrants and SIS Options as well as to cater for any increases in share capital of Sunzen pursuant to any other future corporate exercises. 3.4 Proposed Amendment The Proposed Amendment is to facilitate and to reflect the consequence of the Proposed Increase in Authorised Share Capital. [The rest of this page has been intentionally left blank] 17

18 4. EFFECTS OF THE PROPOSALS The Proposed Increase in Authorised Share Capital and Proposed Amendment will not have any effect on the issued and paid-up share capital of the Company, earnings per Share ( EPS ), the net assets attributable to ordinary equity holders of the Company ( NA ) and gearing of the Group as well as the substantial shareholder s shareholding in the Company. 4.1 Issued and paid-up share capital Until such time when the SIS Options are exercised into SIS, the Proposed SIS will not have an immediate effect on the issued and paid-up share capital of Sunzen. The issued and paid-up share capital of the Company will increase progressively depending on the quantum of the SIS Options granted and exercised and the number of new Sunzen issued pursuant thereto. The pro forma effects of the Proposed Rights Issue of with Warrants and Proposed SIS on the issued and paid-up share capital of Sunzen are as follows: Minimum Scenario Maximum Scenario RM RM Issued and paid-up share capital as at the LPD 289,319,448 28,931, ,319,448 28,931,945 Assuming full exercise of the Warrants 2014/ ,646,411 3,164,641 To be issued pursuant to the Proposed Rights Issue of with Warrants Assuming full exercise of the Warrants 2014/2019 and Adjustment Warrants ,319,448 28,931, ,965,859 32,096, ,024,200 11,002, ,579,515 19,257, ,343,648 39,934, ,545,374 51,354,538 35,395,809 (1) 3,539, ,739,457 43,473, ,545,374 51,354,538 Assuming full exercise of the Warrants 110,024,200 11,002, ,579,515 19,257, ,763,657 54,476, ,124,889 70,612,490 Assuming full exercise of the SIS Options 163,354,600 16,335, ,837,400 21,183,740 Enlarged issued and paid-up share capital 708,118,257 70,811, ,962,289 91,796,230 Note: (1) Assuming the number of Warrants 2014/2019 is adjusted from 31,646,411 to 35,395,809, subject to the certification by the auditors pursuant to the Existing Deed Poll.

19 4.2 NA and gearing The pro forma effects of the Proposed Rights Issue of with Warrants on the NA and gearing of the Sunzen Group based on the audited consolidated financial statements of Sunzen as at 31 December 2014 are as follows: Minimum Scenario (Audited) (I) (II) (III) After (I) and the After (II) and assuming full Proposed Rights Issue exercise of the Warrants Subsequent events up of with 2014/2019, Adjustment to the LPD (1) Warrants Warrants and Warrants (RM) (RM) (RM) As at 31 December 2014 (RM) Share capital 16,576,667 28,931,945 39,934,365 54,476,366 Share premium 7,154,556-15,853,630 (2) 32,357,260 Treasury shares (39,000) (87,873) (87,873) (87,873) Revaluation reserve 15,650,589 15,650,589 15,650,589 15,650,589 Warrants reserve ,969,392 (3) - Other reserve - - (19,969,392) - Merger deficit (8,397,548) (8,397,548) (8,397,548) (8,397,548) Currency translation reserves (30,123) (30,123) (30,123) (30,123) Retained profits 19,393,552 16,830,670 16,830,670 16,830,670 Shareholders funds / NA 50,308,693 52,897,660 79,753, ,799,341 outstanding (i.e, 165,618, ,071, ,095, ,515,657 after excluding the Treasury ) NA per Share (RM) Total borrowings 4,979,970 4,979,970 4,979,970 4,979,970 Gearing (times) Notes: (1) Taking into consideration of the bonus issue of 95,209,113 new Sunzen which was completed on 6 May 2015 ( Bonus Issue of ), expenses incurred for the Bonus Issue of of RM196,527, subsequent exercise of the 28,343,669 Warrants 2014/2019 into new Sunzen at an issue price of RM0.10 each and 100,000 Sunzen bought back from the open market on 18 June 2015 for a consideration of RM48, by the Company. (2) After netting off the estimated expenses of RM0.65 million for the Proposals. (3) Arising from the issuance of 110,024,200 Warrants at an indicative fair value of RM each. 19

20 Maximum Scenario (Audited) (I) (II) (III) (IV) (V) After (I) and After (II) and assuming disposal assuming full After (III) and the After (IV) and Subsequent of Treasury exercise of the Proposed Rights assuming full events up to the in the Warrants Issue of exercise of the LPD (1) open market 2014/2019 with Warrants Warrants (RM) (RM) (RM) (RM) (RM) As at 31 December 2014 (RM) Share capital 16,576,667 28,931,945 28,931,945 32,096,586 51,354,538 70,612,490 Share premium 7,154,556-12,815 12,815 28,249,742 (2) 57,136,669 Treasury shares (39,000) (87,873) Revaluation reserve 15,650,589 15,650,589 15,650,589 15,650,589 15,650,589 15,650,589 Warrants reserve ,895,408 (3) - Other reserve (34,895,408) - Merger deficit (8,397,548) (8,397,548) (8,397,548) (8,397,548) (8,397,548) (8,397,548) Currency translation reserves (30,123) (30,123) (30,123) (30,123) (30,123) (30,123) Retained profits 19,393,552 16,830,670 16,830,670 16,830,670 16,830,670 16,830,670 Shareholders funds / NA 50,308,693 52,897,660 52,998,348 56,162, ,657, ,802, ,618,666* 288,071,448* 288,319, ,965, ,545, ,124,889 outstanding NA per Share (RM) Total borrowings 4,979,970 4,979,970 4,979,970 4,979,970 4,979,970 4,979,970 Gearing (times) Notes: * Excluding the Treasury. (1) Taking into consideration of the Bonus Issue of, expenses incurred for the Bonus Issue of of RM196,527, subsequent exercise of the 28,343,669 Warrants 2014/2019 into new Sunzen at an issue price of RM0.10 each and 100,000 Sunzen bought back from the open market on 18 June 2015 for a consideration of RM48, by the Company. (2) After netting off the estimated expenses of RM0.65 million for the Proposals. (3) Arising from the issuance of 192,579,515 Warrants at an indicative fair value of RM each. 20

21 The effect of the Proposed SIS on the Group s NA would depend on factors such as the number of SIS Options granted and the fair value of the SIS Options after taking into account, inter-alia, the Subscription Price as well as any vesting conditions. Whilst the granting of the SIS Options under the Proposed SIS is expected to result in recognition of a charge in the statement of comprehensive income of the Group pursuant to Malaysian Financial Reporting Standard 2 Share-based Payment ( MFRS-2 ), the recognition of such MFRS-2 charge would not impact on the NA of the Group as the corresponding amount will be classified as an equity compensation reserve which forms part of the shareholders equity. In the event none of the granted SIS Options are exercised within the duration of the Proposed SIS, the amount outstanding in the said equity compensation reserve would be transferred into the Group s retained earnings. On the other hand, if the granted SIS Options are exercised, the amount outstanding in the said equity compensation reserve would be transferred into the share premium account of the Company. The Proposed SIS will not have any immediate effect on the consolidated NA per Share until such time when the SIS Options are exercised. The consolidated NA per Share following the exercise of the SIS Options will increase if the Subscription Price exceeds the consolidated NA per Share at the point of exercise of the SIS Options and conversely will decrease if the Subscription Price is below the consolidated NA per Share at the point of the exercise of the SIS Options. The Proposed SIS is not expected to have an immediate effect on the gearing level of the Group until such time when the SIS Options are granted and exercised. The effect on the gearing will depend on the change in the NA, which in turn will depend on the actual number of the SIS to be issued as well as the Subscription Price payable upon the exercise of the SIS Options. 4.3 Earnings and EPS The Proposed Rights Issue of with Warrants is not expected to have an immediate material effect on the consolidated earnings and EPS of Sunzen for the financial year ending 31 December 2015 as it is only expected to be completed in the fourth quarter (4 th ) of Moving forward, the Proposed Rights Issue of with Warrants is expected to contribute positively to the future earnings of the Group when the benefits of the utilisation of proceeds are realised. The Proposed SIS is not expected to have any immediate material effect on the earnings of the Sunzen Group for the financial year ending 31 December 2015, save for the possible impact of the MFRS-2 upon granting of the SIS Options. However, any potential effect on the EPS of the Sunzen Group in the future would depend on the impact of MFRS-2, the number of SIS Options granted and exercised as well as the utilisation of the proceeds raised from the exercise of the SIS Options. Under the MFRS-2, the potential cost arising from the issuance of the SIS Options, which is measured by the fair value of the SIS Options after taking into account, inter-alia, the number of SIS Options granted and vested and the Subscription Price will need to be measured at the grant date and to be recognised as an expense over the vesting period, and therefore may affect the future earnings of the Sunzen Group, the quantum of which can be determined only at the grant date. However, the estimated cost does not represent a cash outflow by the Company as it is merely an accounting treatment. 21