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1 PNE PCB BERHAD ( PNE OR COMPANY ) (I) (II) (III) (IV) (V) (VI) PROPOSED PAR VALUE REDUCTION; PROPOSED BONUS ISSUE; PROPOSED RIGHTS ISSUE WITH WARRANTS; PROPOSED ESOS; PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; AND PROPOSED AMENDMENTS. (COLLECTIVELY REFERRED TO AS THE PROPOSALS ) (In this announcement, the definition of Share(s) or PNE Share(s) may refer to ordinary shares of the Company with par value of RM1.00 each prior to the Proposed Par Value Reduction (as defined herein) or ordinary shares of the Company with par value of RM0.20 after the Proposed Par Value Reduction (as defined herein), as the context so requires.) 1. INTRODUCTION On behalf of the Board of Directors of PNE ( Board ), Mercury Securities Sdn Bhd ( Mercury Securities ) wishes to announce that the Company proposes to undertake the following:- (i) (ii) (iii) (iv) (v) (vi) par value reduction via the cancellation of RM0.80 from the par value of every existing ordinary share of RM1.00 each in the issued and paid-up share capital of the company pursuant to Section 64 the Companies Act, 1965 ( Act ) ( Proposed Par Value Reduction ); bonus issue of up to 65,748,500 new ordinary shares of RM0.20 each in PNE (after the Proposed Par Value Reduction) ( Bonus Shares ) on the basis of one (1) Bonus Share for every one (1) existing Share held by entitled shareholders of the company ( Entitled Shareholders ) on an entitlement date to be determined ( Bonus Entitlement Date ) ( Proposed Bonus Issue ); renounceable rights issue of up to 262,994,000 new Shares ( Rights Shares ) together with up to 197,245,500 free warrants ( Warrants ) on the basis of four (4) Rights Shares together with three (3) Warrants for every two (2) existing Shares held by the Entitled Shareholders on an entitlement date to be determined (after the Proposed Bonus Issue) ( Rights Entitlement Date ) ( Proposed Rights Issue with Warrants ); establishment of an employee share option scheme ( ESOS or Scheme ) involving up to 15% of the issued and paid-up share capital of PNE for eligible Directors and employees of the company and its subsidiaries ( Eligible Persons ) ( Group or PNE Group ) ( Proposed ESOS ); increase in the authorised share capital of PNE from RM100,000,000 comprising 100,000,000 ordinary shares of RM1.00 each to RM200,000,000 comprising 1,000,000,000 ordinary shares of RM0.20 each ( Proposed Increase in Authorised Share Capital ); and amendments to the Memorandum and Articles of Association of the company ( Proposed Amendments ). [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 1

2 2. DETAILS OF THE PROPOSALS 2.1 Proposed Par Value Reduction The Proposed Par Value Reduction entails the reduction of the par value of every existing PNE Share via the cancellation of RM0.80 from the existing par value of RM1.00 of every existing PNE Share pursuant to Section 64 of the Act, giving rise to a credit of RM52.6 million. The credits arising from the Proposed Par Value Reduction will be credited to the retained profits of the Company which shall be utilised in a manner to be determined by the Board at a later date and in the best interest of the Company as permitted by the relevant and applicable laws including but not limited to the capitalisation of the Proposed Bonus Issue as well as to set-off against accumulated losses by the Company. For information, as at 30 September 2014, the Company has audited accumulated losses of RM27.2 million. The Proposed Par Value Reduction will be effective upon lodgement of an office copy of the order of the High Court confirming the cancellation of share capital with the Companies Commission of Malaysia. As at 15 October 2015, being the latest practicable date prior to this announcement ( LPD ), the authorised share capital of the Company is RM100,000,000 divided into 100,000,000 PNE Shares with par value of RM1.00 each, out of which RM65,748,500 comprising 65,748,500 PNE Shares have been issued and fully paid-up. The Proposed Par Value Reduction, per se:- (i) (ii) will not result in any adjustment to the share price of the Company or the number of PNE Shares held by the shareholders of the Company ( Shareholders ); the authorised share capital of the Company will remain intact at RM100,000,000 but will be divided into 500,000,000 Shares of par value of RM0.20 each; and (iii) the total number of issued and paid-up Shares will remain intact at 65,748,500 Shares but will comprise Shares of RM0.20 par value each. The effects of the Proposed Par Value Reduction on the share capital of the Company upon its completion are further illustrated in Section 6 of this announcement. For illustrative purposes, the effects of the Proposed Par Value Reduction on the accumulated losses and retained earnings of the Company and the Group based on the latest audited financial statements of the Company for the financial year ended 30 September ( FYE ) 2014 and latest unaudited financial statements of the Company for the nine (9)-month financial period ended 30 June ( FPE ) 2015, are as follows:- Audited as at FYE 2014 Company level Unaudited as at FPE 2015 Audited as at FYE 2014 Group level Unaudited as at FPE 2015 RM 000 RM 000 RM 000 RM 000 Accumulated losses (27,242) (17,527) (9,181) (8,351) Add: Credit arising from the Proposed Par Value Reduction 52,599 52,599 52,599 52,599 Resultant retained profits 25,357 35,072 43,418 44,248 2

3 2.2 Proposed Bonus Issue Basis and number of Bonus Shares to be issued The Proposed Bonus Issue entails the issuance of up to 65,748,500 Bonus Shares to be credited as fully paid-up on the basis of one (1) Bonus Share for every one (1) existing Share held by the Entitled Shareholders on the Bonus Entitlement Date. The Proposed Bonus Issue will be undertaken after completion of the Proposed Par Value Reduction and prior to the Proposed Rights Issue with Warrants. After the Proposed Par Value Reduction, the issued and paid-up share capital of the Company will be RM13,149,700 comprising 65,748,500 PNE Shares. Based on the foregoing, the Proposed Bonus Issue entails the issuance of up to 65,748,500 Bonus Shares. In any event, the actual number of Bonus Shares to be issued will be determined based on the issued and paidup share capital of PNE on the Bonus Entitlement Date.. The Bonus Entitlement Date will be determined and announced at a later date upon the receipt of all relevant approvals for the Proposed Bonus Issue. The Proposed Bonus Issue is not intended to be implemented in stages over a period of time. There will be no fractional entitlements arising from the Proposed Bonus Issue as the basis of this exercise is one (1) Bonus Share for every one (1) existing Share held Capitalisation of reserves The Proposed Bonus Issue is to be effected by way of capitalising the Company s capital reserve arising from the Proposed Par Value Reduction. For illustrative purposes, the Proposed Bonus Issue shall be capitalised from the retained profits of the Company as follows:- Company level Unaudited FPE 2015 RM 000 Audited FYE 2014 RM 000 Retained profits after the Proposed Par Value Reduction 35,072 25,357 Less:- Capitalisation for the Proposed Bonus Issue (13,150) (13,150) Resultant retained profits 21,922 12,207 Pursuant to Paragraph 6.30(1) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Securities ) ( Listing Requirements ), a listed issuer intending to make a bonus issue of securities must ensure that the necessary reserves required for capitalisation of the bonus issue are unimpaired by losses on a consolidated basis, where applicable, based on the listed issuer s latest audited financial statements as well as its latest quarterly report. The Board confirms that based on the Group s latest audited financial statements for FYE 2014 and latest unaudited financial statements for FPE 2015 as well as after the adjustments set out in the table above, the Group s reserves required to be capitalised for the purposes of the Proposed Bonus Issue is unimpaired by losses on a consolidated basis, in compliance with Paragraph 6.30(1) of the Listing Requirements. 3

4 The Board also confirms that based on the Group s latest audited financial statements for FYE 2014 and latest unaudited financial statements for FPE 2015 as well as after the adjustments set out in the table above, the Company has sufficient reserves at both Group and Company levels for the capitalisation of the Proposed Bonus Issue Ranking of the Bonus Shares The Bonus Shares shall, upon allotment and issuance, rank pari passu in all respects with the then existing Shares, save and except they shall not be entitled to any dividends, rights, allotments and/or other distributions which may be declared, made or paid to shareholders, where the entitlement date precedes the date of allotment of the Bonus Shares. 2.3 Proposed Rights Issue with Warrants Basis and number of Rights Shares and Warrants to be issued The Proposed Rights Issue with Warrants involves the issuance of up to 262,994,000 Rights Shares together with up to 197,245,500 free Warrants is to be implemented on a renounceable basis of four (4) Rights Shares together with three (3) free Warrants for every two (2) existing Shares held by Entitled Shareholders at an issue price to be determined by the Board at a later date. For the avoidance of doubt, the Proposed Rights Issue with Warrants will be undertaken after completion of the Proposed Par Value Reduction and Proposed Bonus Issue. The Rights Shares and Warrants will be provisionally allotted and issued to the Entitled Shareholders. The Rights Entitlement Date shall be determined by the Board after obtaining all approvals for the Proposed Rights Issue with Warrants. The Warrants are attached to the Rights Shares without any cost and will be issued only to the Entitled Shareholders and/or their renouncees who subscribe for the Rights Shares. Each Warrant will entitle its holder to subscribe for one (1) new Share at an exercise price to be determined by the Board at a later date. The Warrants will be immediately detached from the Rights Shares upon issuance and traded separately. The Warrants will be issued in registered form and constituted by a Deed Poll. The entitlements for the Rights Shares together with the Warrants are renounceable in full or in part. Accordingly, the Entitled Shareholders may fully or partially renounce their entitlements under the Proposed Rights Issue with Warrants. However, the Rights Shares and Warrants cannot be renounced separately and only the Entitled Shareholders who subscribe for the Rights Shares will be entitled to the Warrants. As such, Entitled Shareholders who renounce all of their Rights Shares entitlement, they shall be deemed to have renounced the accompanying entitlement to the Warrants to be issued together with the Rights Shares. If the Entitled Shareholders accept only part of their Rights Shares entitlement, they shall be entitled to the Warrants in proportion to their acceptance of their Rights Shares entitlement. 4

5 Any Rights Shares which are not taken up or validly taken up shall be offered to other Entitled Shareholders and/or their renouncee(s) under excess applications and to such other persons as the Board shall determine. It is the intention of the Board to allocate excess Rights Shares in a fair and equitable manner and on a basis to be determined by the Board and announced later by the Company. PNE intends to raise at least RM6.5 million from the Proposed Rights Issue with Warrants to meet the funding requirements of the PNE Group. In view of this, the Board has determined that the Proposed Rights Issue with Warrants will be undertaken via the minimum subscription level for the Proposed Rights Issue with Warrants of 32,500,000 Rights Shares together with 24,375,000 Warrants ( Minimum Subscription Level ) based on an illustrative issue price of RM0.20 per Rights Share, which will be met via the Undertakings as detailed in Section of this announcement. Fractional entitlements arising from the Proposed Rights Issue with Warrants, if any, will be dealt with by the Board in such manner and on such terms and conditions as the Board at its absolute discretion may deem fit or expedient and in the best interests of the Company Indicative salient terms of the Warrants Issuer : PNE Issue size : Up to 197,245,500 Warrants to be issued pursuant to the Proposed Rights Issue with Warrants Form and detachability : The Warrants will be issued for free in registered form and constituted by the Deed Poll to be executed by the Company. The Warrants which are to be issued with the Rights Shares will be immediately detached from the Rights Shares upon allotment and issuance and will be traded separately on Bursa Securities. Board lot : For the purpose of trading on Bursa Securities, a board lot of the Warrants shall be 100 units of the Warrants, or such other number of units as may be prescribed by Bursa Securities. Tenure of the Warrants Exercise Period Exercise Price : Three (3) years from the date of issuance of the Warrants. : The Warrants may be exercised at any time within a period of three (3) years commencing from and including the date of issue of the Warrants to the close of business at 5.00 p.m. on the market day, being any day on which Bursa Securities is open for trading in securities, immediately preceding the date which is the third (3rd) anniversary from the date of issue of the Warrants. Any Warrants not exercised during the Exercise Period will thereafter lapse and cease to be valid for any purpose. : The exercise price of the Warrants shall be determined by the Board at a later date after obtaining the relevant approvals but before the Rights Entitlement Date. The exercise price and/or the number of Warrants in issue during the Exercise Period shall however be subject to 5

6 adjustments under certain circumstances in accordance with the terms and provisions of the Deed Poll to be executed by the Company. Exercise rights Mode of exercise Adjustments in the Exercise Price and/or the number of the Warrants in the event of alteration to the share capital Rights of the Warrant holders Ranking of the new PNE Shares to be issued pursuant to the exercise of the Warrants Rights of the Warrant holders in the event of winding up, liquidation, compromise and/or arrangement : Each Warrant shall entitle its registered holder to subscribe for one (1) new PNE Share at any time during the Exercise Period at the Exercise Price, subject to adjustments in accordance with the provisions of the Deed Poll. : The holders of the Warrants shall pay by way of Banker s Draft or Cashier s Order or Money Order or Postal Order drawn on a bank or post office in Malaysia for the aggregate of the Exercise Price payable when exercising their Warrants to subscribe for new PNE Shares. : Subject to the provisions of the Deed Poll, the Exercise Price and/or the number of Warrants in issue may be subject to adjustments by the Board in consultation with an approved adviser appointed by the Company for the purposes of the Deed Poll and certified by the auditors in the event of any alteration in the share capital of the Company at any time during the tenure of the Warrants, whether by way of, amongst others, rights issue, bonus issue, consolidation of shares, subdivision of shares or reduction of capital (excluding any reduction in par value), in accordance with the provisions of the Deed Poll. : The Warrants do not confer on their holders any voting rights or any right to participate in any distribution and/or offer of further securities in the Company until and unless such holders of the Warrants exercise their Warrants and are allotted and issued new PNE Shares arising from their exercise of the Warrants. : The new PNE Shares to be issued pursuant to the exercise of the Warrants shall, upon allotment, issuance and full payment of the Exercise Price of the Warrants, rank pari passu in all respects with the then existing issued and fully paid-up PNE Shares, save and except that the new PNE Shares shall not be entitled to any dividends, rights, allotments and/or other distributions which may be declared, made or paid prior to the date of allotment of the new PNE Shares arising from the exercise of the Warrants. : (a) Where a resolution has been passed by the Company for a members voluntary winding-up of the Company, or where 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 (1) or more companies, then:- [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 6

7 (i) (ii) 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 holders of the Warrants (or some other persons designated by them for such purpose by special resolution of the holders of the Warrants) shall be a party, the terms of such winding-up, compromise and arrangement shall be binding on all the holders of the Warrants; in any other cases, every Warrants holder shall be entitled 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 winding-up, compromise or arrangement, elect to be treated as if he had immediately prior to the commencement of such winding-up, compromise or arrangement exercised the Exercise Rights represented by his Warrants and be entitled to receive out of the assets of the Company which would be available in liquidation as if he had on such date been the holder of the new PNE Shares to which he would have become entitled pursuant to such exercise. Upon the expiry of the above six (6) weeks, all Exercise Rights of the Warrants shall lapse and cease to be valid for any purpose. Modification of rights of the Warrants holders : Save as otherwise provided in the Deed Poll, a special resolution of the Warrants holders is required to sanction any modification, alteration or abrogation in respect of the rights of the Warrants holders. Modification : Any modification to the terms and conditions of the Deed Poll may be effected only by a further deed poll, executed by PNE and expressed to be supplemental hereto. Any of such modification shall however be subject to the approval of Bursa Securities (if so required). PNE in consultation with an approved adviser, appointed by the Company for the purposes of the Deed Poll, may from time to time without the consent or sanction of the Warrants holders make any modification (except to provisions for convening meetings of the Warrants holders) to the Deed Poll which will not be materially prejudicial to the interest of the Warrants holders or is to correct a manifest error or to comply with mandatory provisions of the laws of Malaysia. 7

8 Listing : Approval will be sought from Bursa Securities for the admission of the Warrants to the official list of the Main Market of Bursa Securities ( Official List ) as well as the listing and quotation of the Warrants and new Shares arising from the exercise of the Warrants on the Main Market of Bursa Securities. The listing and quotation of the Warrants on the Main Market of Bursa Securities is subject to a minimum of 100 holders of Warrants. Transferability : The Warrants shall be transferable in the manner provided under the Securities Industry (Central Depositories) Act, 1991 of Malaysia and the Rules of Bursa Malaysia Depository Sdn Bhd. Governing laws : The Warrants and the Deed Poll shall be governed by the laws of Malaysia Minimum subscription level and undertakings PNE intends to raise a minimum of RM6.5 million from the Proposed Rights Issue with Warrants to meet the funding requirements of the Group, which will be channelled towards the proposed utilisation as set out in Section 3 of this announcement. In view of the above, the Board has determined to undertake the Proposed Rights Issue with Warrants based on a Minimum Subscription Level. The Minimum Subscription Level will be met via shareholders undertakings from Mr Cheng Kim Liang and Mr Ho Jien Shiung, who are Executive Directors of the Company ( Undertaking Shareholders ) ( Undertakings ), to subscribe in full for their respective entitlements under the Proposed Rights Issue with Warrants at the Rights Entitlement Date together with any Rights Shares by way of excess shares application (if applicable) to arrive at the Minimum Subscription Level, based on an illustrative issue price of RM0.20 per Rights Share and their existing direct shareholdings of the Company after the Proposed Bonus Issue. Minimum Scenario Maximum Scenario : Assuming that the Proposed Rights Issue with Warrants is undertaken on the Minimum Subscription Level. : Assuming that all the Entitled Shareholders and/or their renouncee(s) fully subscribe for their respective entitlements under the Proposed Rights Issue with Warrants. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 8

9 Undertaking Shareholders Based on the above scenarios, the details of the Undertakings are as follows:- Minimum Scenario Existing direct shareholdings after the Proposed Bonus Issue Shares held after the Proposed Bonus Issue Minimum Rights Shares to be subscribed for pursuant to the Undertakings (2) % (1) Subscription based on entitlement Subscription based on excess shares application Total Assuming none of the other Entitled Shareholders subscribe for their Rights Shares Shares held after % (3) Proposed Rights Issue With Warrants Ho Jien Shiung 3,254, ,508,800 9,741,200 16,250,000 19,504, Cheng Kim Liang 1,116, ,232,000 14,018,000 16,250,000 17,366, Notes: - (1) Based on the enlarged issued and paid-up share capital of 131,497,000 Shares after the Proposed Bonus Issue. (2) Based on an illustrative issue price of RM0.20 per Rights Share. (3) Based on the enlarged issued and paid-up share capital of 163,997,000 Shares pursuant to the Undertakings. Maximum Scenario Undertaking Shareholders Existing direct shareholdings after the Proposed Bonus Issue Shares held after the Proposed Bonus Issue Subscription based on entitlement Assuming all other Entitled Shareholders subscribe for their Rights Shares % (1) Rights Shares (2) Shares held after Proposed Rights Issue With Warrants % (2) Ho Jien Shiung 3,254, ,508,800 9,763, Cheng Kim Liang 1,116, ,232,000 3,348, Notes:- (1) Based on the enlarged issued and paid-up share capital of 131,497,000 Shares after the Proposed Bonus Issue. (2) Based on the enlarged issued and paid-up share capital of 394,491,000 Shares after the Proposed Rights Issue with Warrants under the Maximum Scenario. 9

10 Pursuant to the Undertakings, the Undertaking Shareholders have:- (i) (ii) irrevocably and unconditionally warranted that they shall not sell or in any other way dispose of or transfer his existing interest in PNE or any part thereof during the period commencing from the date of the Undertakings to the Rights Entitlement Date; and confirmed that they have sufficient financial means and resources to subscribe for their entitlement and take up additional Rights Shares not taken up by other Entitled Shareholders by way of excess applications, to the extent such that their aggregate subscription of Rights Shares under the Proposed Rights Issue with Warrants including the subscription for the excess applications amounting to not less than RM3.25 million each under the Minimum Scenario. For illustrative purposes, the Undertaking Shareholders will be subscribing for 16,250,000 Shares each based on an illustrative issue price of RM0.20 per Rights Share. Mercury Securities has verified the sufficiency of financial resources of the Undertaking Shareholders for the purpose of subscribing the Rights Shares pursuant to the Undertakings. The Undertaking Shareholders have confirmed that the Undertakings will not give rise to any consequence of a mandatory offer obligation pursuant to the Malaysian Code on Take-Overs and Mergers, 2010 ( Code ) immediately after the Proposed Rights Issue with Warrants. In the event that the Undertaking Shareholders trigger an obligation to undertake a mandatory offer under the Code pursuant to the Undertakings, a separate announcement will be made. Nonetheless, the Undertaking Shareholders have confirmed that they will at all times observe and ensure compliance with the provisions of the Code and will seek from the Securities Commission Malaysia ( SC ) the necessary exemptions from undertaking such mandatory offer, if required. As the Proposed Rights Issue with Warrants will be undertaken on the Minimum Subscription Level basis via the Undertakings, PNE will not procure any underwriting arrangement for the remaining Rights Shares not subscribed for by other Entitled Shareholders Basis and justification of determining the issue price of the Rights Shares and the exercise price of the Warrants (i) Issue price of the Rights Shares The issue price of the Rights Shares shall be determined by the Board at a later date after taking into consideration, amongst others, the following:- (a) the funding requirements of the Group as set out in Section 3 of this announcement; (b) (c) (d) (e) the par value of PNE Shares (after the Proposed Par Value Reduction) of RM0.20 each; the reference price of PNE Shares (after the completion of the Proposed Bonus Issue); the theoretical ex-all price ( TEAP ) of existing PNE Shares; the historical share price and volatility of existing PNE Shares; and 10

11 (f) the trading and liquidity of existing PNE Shares. In any event, the issue price of the Rights Shares shall not be lower than the par value of PNE Shares (after the Proposed Par Value Reduction) of RM0.20 each. Based on the illustrative issue price of the Rights Shares of RM0.20 per Rights Share, this represents a discount of approximately 24.8% to the TEAP of existing PNE Shares of RM0.2659, calculated based on the five (5)-day volume weighted average price ( VWAP ) of existing PNE Shares up to and including the LPD of RM and after adjusting for the effects of the Proposed Bonus Issue as well as the illustrative exercise price of the Warrants of RM0.20 per Warrant. (ii) Exercise price of the Warrants The exercise price of the Warrants shall be determined by the Board at a later date after taking into consideration, amongst others, the following:- (a) (b) the par value of PNE Shares (after the Proposed Par Value Reduction) of RM0.20 each; and the theoretical ex-rights price ( TERP ) of existing PNE Shares. In any event, the exercise price of the Warrants shall not be lower than the par value of PNE Shares (after the Proposed Par Value Reduction) of RM0.20 each. Based on the illustrative exercise price of the Warrants of RM0.20 per Warrant C represents a discount of approximately 24.8% to the TERP of existing PNE Shares of RM0.2659, calculated based on the five (5)- day VWAP of existing PNE Shares up to and including the LPD of RM and after adjusting for the effects of the Proposed Bonus Issue Ranking of the Rights Shares and new PNE Shares arising from the exercise of the Warrants (i) Rights Shares The Rights Shares shall, upon allotment, issuance and full payment, rank pari passu in all respects with the then existing issued and fully paid-up PNE Shares, save and except that the Rights Shares shall not be entitled to any dividends, rights, allotments and/or other distributions which may be declared, made or paid to the Shareholders, the entitlement date of which is prior to the date of allotment of the Rights Shares. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 11

12 (ii) New PNE Shares arising from the exercise of the Warrants 2.4 Proposed ESOS The new PNE Shares to be issued pursuant to the exercise of the Warrants shall, upon allotment, issuance and full payment of the exercise price of the Warrants, rank pari passu in all respects with the then existing issued and fully paid-up PNE Shares, save and except that the new PNE Shares shall not be entitled to any dividends, rights, allotments and/or other distributions which may be declared, made or paid to the Shareholders, the entitlement date of which is prior to the date of allotment of the new PNE Shares arising from the exercise of the Warrants Details of the Proposed ESOS The Company proposes to establish and implement the Proposed ESOS which involves granting of the options ( Options ) to all Eligible Persons as set out in the By-Laws. The Options granted under the Scheme shall entitle the Eligible Persons to subscribe for new PNE Shares at an exercise price to be determined at a later date ( Option Price ). The Scheme will be administered by the committee to be duly appointed and authorised by the Board from time to time to administer the Scheme in accordance with the By-Laws ( ESOS Committee ). The ESOS Committee will have the absolute discretion in administering the Scheme. Any liberty, power or discretion which may be exercised or any decision or determination which may be made by the ESOS Committee (including any selection) pursuant to the By-Laws may be exercised in the ESOS Committee s sole and absolute discretion having regard to the terms of reference which the Board may establish to regulate and govern the ESOS Committee s functions and responsibilities under the By-Laws Maximum number of PNE Shares available under the Scheme The maximum number of new PNE Shares that may be issued and allotted under the Scheme shall not exceed 15% of the Company s total issued and paid-up share capital (excluding treasury shares, if any) at any point of time during the duration of the Scheme Basis of allocation and maximum entitlement Subject to any adjustments as may be made under the By-Laws, the maximum number of new PNE Shares that may be allotted to the Eligible Persons shall be determined at the discretion of the ESOS Committee after taking into consideration, amongst others, the Eligible Persons performance and seniority subject to the following conditions:- (i) (ii) any ESOS Committee member shall neither participate in the deliberation or discussion of nor vote on their own allocation of Options; not more than 10% of the Options available under the Scheme shall be allocated to any individual Eligible Persons who, either singly or collectively through persons connected with Eligible Persons, hold 20% or more of the issued and paid-up share capital of the Company (excluding treasury shares, if any); and 12

13 (iii) not more than 70% of the Options available under the Proposed ESOS shall be allocated in aggregate to the Directors and senior management of the companies in the Group (which are not dormant). provided always that it is in accordance with any prevailing guidelines, rules or regulations issued by Bursa Securities, Listing Requirements or any other requirements of the relevant authorities as amended from time to time. As set out above, senior management shall refer to an employee of the Group holding the position of senior manager (including executive Director) and above or other senior position and shall be subject to criteria to be determined by the ESOS Committee that may change from time to time and person(s) connected shall have the same meaning as defined in Paragraph 1.01 of the Listing Requirements. The ESOS Committee also has the discretion to determine, amongst others:- (i) (ii) (iii) (iv) whether or not to stagger the Offer over the duration of the Scheme and each Offer shall be separate and independent from the others; the number of Options to be offered in each Offer; whether or not the Options are subject to any vesting period and if so, the vesting conditions and whether such vesting is subject to any performance target; and such other terms and conditions as it shall deem fit and appropriate to be imposed for the participation in the Scheme Eligibility to participate in the Scheme An employee / director of the Group, excluding the subsidiaries which are dormant, shall be eligible to participate in the Scheme if, as at the date of Options to the Eligible Persons ( Offers ):- (i) (ii) he / she is at least 18 years of age and he / she is not an undischarged bankrupt or subject to any bankruptcy proceedings; he / she is employed:- (a) (b) full time by and on the payroll of any company in the Group and his / her employment has been confirmed by any company in the Group; or under an employment contract for a fixed duration and has been in the employment of the Group for such period as may be determined by the ESOS Committee prior to and up to the Date of Offer; and (iii) falls within such other categories and complies with such criteria that the ESOS Committee may decide at its absolute discretion for the purposes of selecting Eligible Persons from time to time. If the employee / director is employed by a company which is acquired by the Group during the Scheme and becomes a subsidiary whether directly or indirectly held by the Company upon such acquisition, the employee / director must fulfil the following as at the Date of Offer:- (a) he / she is at least 18 years of age and he / she is not an undischarged bankrupt or subject to any bankruptcy proceedings; 13

14 (b) (c) he / she is employed full time by and on the payroll of the newly acquired company and his / her employment has been confirmed by the newly acquired company; and he / she has been an employee of the newly acquired company for such period as may be determined by the ESOS Committee prior and up to the date of Offer. (iv) The employee / director must fulfil any criteria and/or fall within such category as may be determined by the ESOS Committee from time to time. Subject to the provisions of the By-Laws, there are no performance targets to be achieved by any Eligible Person who has accepted an Offer ( Grantee ) before the Options can be exercised, unless otherwise stated in the Offer as determined by the ESOS Committee from time to time. The eligibility to participate in the Scheme does not confer upon an Eligible Person a claim or right to participate in or any rights under the Scheme and an Eligible Person does not acquire or have any rights over or in connection with the Options or the Shares unless the ESOS Committee has made an Offer to the Eligible Persons and such Eligible Person has accepted the Offer in accordance with the terms of the By-Laws. Notwithstanding the foregoing, the selection of any Eligible Person for participation in the Scheme as well as the allocation of Options to any Eligible Person shall be at the sole and absolute discretion of the ESOS Committee and the decision of the ESOS Committee shall be final and binding Duration of the Proposed ESOS The Scheme shall be in force for a duration of five (5) years from the effective date of the Scheme, being the date of full compliance with all relevant requirements stipulated in the Listing Requirements, and may be extended by the ESOS Committee at its discretion, without having to obtain approval from Shareholders, provided that the initial period of the Scheme and such extension of the Scheme made shall not in aggregate exceed the duration of ten (10) years from the effective date. In the event the Scheme is extended, the ESOS Committee shall furnish a written notification to all Grantees and the Company shall make the necessary announcements through Bursa Securities prior to the proposed extension of the Scheme. Any extended Scheme under this provision shall be implemented in accordance with the terms of the By-Laws, subject to any revisions and/or changes to the relevant laws and/or regulations then in force Option Price Subject to any adjustments that may be made in accordance with the By-Laws, varied or supplemented from time to time, the Option Price shall be based on the higher of the following:- [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 14

15 (i) (ii) a price to be determined by the Board upon recommendation of the ESOS Committee based on the five (5)-day VWAP of the Shares immediately preceding the date of Offer with a discount of not more than ten percent (10%) or such other percentage of discount as may be permitted by Bursa Securities or any other relevant authorities from time to time during the duration of the Scheme; or the par value of PNE Shares Ranking of the new PNE Shares to be issued pursuant to the exercise of the Options The new PNE Shares arising from the exercise of the Options shall, upon allotment and issue, rank pari passu in all respects with the then existing PNE Shares, save and except that the new PNE Shares shall not be entitled to any dividends, rights, allotment and/or other distribution which may be declared, made or paid to Shareholders, the entitlement date of which is prior to the date of allotment of such new PNE Shares. The new PNE Shares will be subject to all the provisions of the Articles of Association of the Company including those relating to the transfer, transmission and otherwise of the PNE Shares Retention period The new PNE Shares to be allotted and issued to the Eligible Persons pursuant to the exercise of an Option will not be subject to any retention period or restriction on transfer save for those (if any) as may be provided in the Articles of Association of the Company for the time being. However, Grantees are encouraged to hold the Shares as an investment rather than for any speculative purposes and/or for the realisation of any immediate gain. Notwithstanding the above, a Grantee who is a non-executive Director must not sell, transfer or assign his / her Shares obtained through the exercise of the Options offered to him / her pursuant to the Scheme within one (1) year from the date of Offer or such period as may be prescribed by Bursa Securities Modification, variation and/or amendment to the Scheme Subject to the compliance with the Listing Requirements and any other relevant authorities, the ESOS Committee may at any time recommend to the Board any addition or amendment to or deletion of the By-Laws as it shall think fit. The Board shall have the power by resolutions to add to, amend or delete all or any of the By-Laws upon such recommendation provided that no addition or amendment to or deletion of the By-Laws shall be made which will alter to the advantage of the Eligible Persons any provisions of the By-Laws as set out in Appendix 6E of the Listing Requirements without prior approval of the Shareholders in a general meeting. 2.5 Proposed Increase in Authorised Share Capital As at the LPD, the authorised share capital of PNE is RM100,000,000 comprising 100,000,000 PNE Shares. The Company proposes to increase its authorised share capital to RM200,000,000 comprising 1,000,000,000 PNE Shares. 15

16 2.6 Proposed Amendments The Proposed Amendments entails the consequential amendments to the Memorandum and Articles of Association of PNE:- (i) (ii) (iii) to reflect the change in the par value of each PNE Share from RM1.00 each to RM0.20 each, as a result of the Proposed Par Value Reduction; to facilitate the implementation of the Proposed Increase in Authorised Share Capital; and to allow all Directors of the Company to participate in the ESOS. The details of the Proposed Amendments of the Company are as follows:- Memorandum Association Clause 5 of Existing provisions The Capital of the Company is RM100,000, divided into 100,000,000 shares of RM1.00 each. The Company shall have the power to increase or reduce its capital, to consolidate of sub-divide the shares into shares of larger or smaller amounts, and to divide the shares forming the capital (original, increase or reduce) of the Company into several classes and to attached thereto respectively, preferential, deferred or special rights, privileges or conditions as may be determined by, or in accordance with the regulations for the time being of the Company and to issue additional capital with any such rights privileges or conditions as aforesaid, and any preference share may be issued on the terms that it is or at the option of the Company is liable, to be redeemed. Amended provisions The Capital of the Company is RM200,000, divided into 1,000,000,000 shares of RM0.20 each. The Company shall have the power to increase or reduce its capital, to consolidate of sub-divide the shares into shares of larger or smaller amounts, and to divide the shares forming the capital (original, increase or reduce) of the Company into several classes and to attached thereto respectively, preferential, deferred or special rights, privileges or conditions as may be determined by, or in accordance with the regulations for the time being of the Company and to issue additional capital with any such rights privileges or conditions as aforesaid, and any preference share may be issued on the terms that it is or at the option of the Company is liable, to be redeemed. Articles Association Article 5(b) of Existing provisions Every issue of the shares or options to employees of the Company and/or the Company s subsidiary and/or Directors shall be approved by shareholders in a general meeting and such approval shall specifically detail the amount of shares or options to be issued to each Director. Only Directors holding office in an executive capacity shall participate in such an issue of shares or options. However, Directors not holding office in an executive capacity may so participate in an issue of shares pursuant to a public issue or public offer; Amended provisions Every scheme for the issuance of shares or option to employees and/or Directors of the Company (including executive and non-executive directors) shall be approved by the shareholders in general meeting and no Director shall participate in such issue of shares or options unless the Members in general meeting have approved the specific allotment to be made to such a Director; [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 16

17 3. UTILISATION OF PROCEEDS Based on an illustrative issue price of RM0.20 per Rights Share, the gross proceeds to be raised from the Proposed Rights Issue with Warrants will be utilised in the following manner based on the scenarios below:- Proposed utilisation of proceeds Expected timeframe for utilisation from completion of Proposed Rights Issue with Warrants Minimum Scenario RM 000 (1) Maximum Scenario RM 000 (i) (ii) (iii) Upgrading of existing production lines Installation of New Product (as defined herein) manufacturing lines Acquisition and/or investment in other complementary businesses and/or assets Within 24 months 4,000 15,000 Within 24 months - 12,000 Within 24 months - 15,000 (iv) Working capital Ongoing 2,000 10,099 (v) Estimated expenses Immediate Total 6,500 52,599 Note:- (1) Any additional proceeds raised in excess of the RM6.5 million under the Minimum Scenario will be allocated up to its respective maximum allocation in the following order:- (i) Upgrading of existing production lines (ii) Installation of New Product manufacturing lines (iii) Working capital (iv) Acquisition and/or investment in other complementary businesses and/or assets (i) Upgrading of existing production lines The Company intends to utilise the proceeds of up to RM 15.0 million to upgrade the existing production lines. Currently, the Company has two (2) production facilities, namely factory located at 6, Jalan Firma 2/1, Kawasan Perindustrian Tebrau, Johor Bahru, Johor, Malaysia ( Johor Bahru Factory ), which has a production capacity of 100,000 sqm per month, and factory located in the Third Industrial Zone, Bai Shi Gang, Chang Ping Town, Dong Guan City, Guang Dong Province, the People s Republic of China ( PRC ) ( Dong Guan Factory ), which has a production capacity of 300,000 sqm per month. The Johor Bahru Factory has two (2) production lines, which are on average 13 years old, and the Dong Guan Factory has five (5) production lines, which are on average 12 years old. The Company intends to upgrade the existing production lines to incorporate automation in its production process to improve the efficiency of the current production facilities and to lower the production costs. As the machineries and equipment of the Company are on average 12 years old, the efficiency and accuracy of the production capabilities are no longer at its optimum level. In addition, the current production process also involves manual labour, particularly in quality control. Pursuant to the upgrade of the production lines, the Company expects the costs to be reduced by up to 3%. 17

18 With the new upgrade in the production lines, the Company will be able to automate some of the production process. The automation of these processes reduces labour costs as well as improve the quality control process through reducing wastages arising from manufacturing defects. The upgrade also reduces the machine down time and the Company expects to be able to produce up to 10% more goods than its existing output levels within the same working hour s constraints. This extra capacity will allow the Company to cater for the increase in demand, when the need arises. The Company intends to install new machines that has higher production capacity and are more energy efficient along the existing production lines. This will enable shorter production lines which can free up some existing floor space and allow for further expansion in the future. The proceeds for the upgrade of existing production lines will be utilised in the following manner:- Minimum Scenario Maximum Scenario (RM million) (RM million) (3) Johor Bahru Factory (1) Dong Guan Factory (2) Total Notes:- (1) The upgrade of the production lines in the Johor Bahru Factory includes the purchase and installation of an anti-static clean roller, an Ultra Violet curing machine, double sided etching, ink stripping and dryer with chemical controller for the single and double sided printed circuit board ( PCB ) printing line as well as high speed photo plotter with film conveyor for the development of printing stencil for ink, carbon and silver printing process. The upgrades include also the purchase of three (3) units of 6 spindles computer numerical control ( CNC ) drilling machines for the predrilling process on the PCB, one (1) unit of 6 spindles CNC routing machine for routing process on the PCB, two (2) units of CNC guide hole drilling machine for guide hole drilling process and nine (9) units of tonnes power press machine for punching process, amongst others. (2) The upgrade of the production lines in the Dong Guan Factory includes the purchase of and installation of one (1) unit of EMMA flying probe machine, two (2) units of inverter screw type air compressors, three (3) units of CNC guide hole drilling machines for guide hole drilling process and three (3) units of 6 spindles CNC drilling machines for the predrilling process on the PCB. (3) The estimated costs for the upgrade of existing production facilities in the Dong Guan Factory is based on the BNM exchange rate of RMB1.000:RM as at 1 October Any excess and/or shortfall in the actual amount utilised for the upgrading of existing production lines would be adjusted to/from working capital. 18

19 (ii) Installation of New Product manufacturing lines PCBs have over the years evolved from single sided and double sided to multi-layered PCBs, of which this evolution has fuelled the growth of the electronics and technology industries. As such, as at the LPD, the Board is currently deliberating on expanding their product offering through the installation of new production lines. This allows the Company to introduce a new product, namely the double-sided plated through hole PCB ( New Product ). The New Product is suited for the newer generation of electronics products, which involves slightly more complicated functions. Some of the electronics products include radio systems, TV remote controls, routers, air-conditioners, refrigerators, amongst others. The investment in the installation of the New Product manufacturing lines will allow PNE to tap into the double-sided PCBs market and consequently expand its current customer base. The New Products caters for products which require higher component density on the PCBs as compared to the Company s existing product offerings, namely the singlesided PCBs. These products are mainly used in the medical, industrial, home appliances and automotive industry, amongst others. PNE s existing PCB is produced using a printing process. Comparatively, the New Product will be utilising an additional photo imaging process which allows for more complicated designs with higher accuracy and details of designs. Based on the quotations obtained, the installation of the New Product manufacturing line is expected to cost approximately USD5.5 million to USD6.5 million which is approximately RM24.0 million to RM29.0 million, based on the BNM exchange rate of USD1:RM as at 1 October The Company will utilise up to RM12.0 million of the proceeds raised from the Proposed Rights Issue with Warrants to fund part of the costs for the installation of the New Product manufacturing line. The remaining cost will be financed via bank borrowings to be obtained, of which the quantum, structure, tenure and terms of the bank borrowings will be finalised after discussions with banks and/or financial institutions after the completion of the Proposed Rights Issue with Warrants. The installation cost includes the work panel preparation, the installation of a copper through hole plating line, equipment for pattern-making, a solder mask line, a legend printing line and the machinery setup and running. The New Product manufacturing line is expected to have a production capacity of between 20,000 sqm to 25,000 sqm per month and the selling price of the New Product is approximately three (3) to five (5) times higher than the selling price of PNE s existing products. Although the profit margin is similar to that of PNE s existing products, however, the installation of the new production line to manufacture the New Product is expected to contribute positively to the profit of the Group as it allows the Company to appeal to a larger consumer base. In the event any of the proceeds earmarked for the installation of the New Product manufacturing line is not utilised within 24 months, this balance proceeds will be used for the acquisition and/or investment in other complementary businesses and/or assets. 19