PART A. CIRCULAR TO SHAREHOLDERS in relation to PROPOSED SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the course of action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or other professional adviser immediately. Pursuant to paragraph 4.1 of Practice Note No. 18/2005 of the Listing Requirements of Bursa Malaysia Securities Berhad ( Bursa Securities ), Bursa Securities has only conducted limited review on the Circular to Shareholders in relation to the Proposed Shareholders Mandate for Recurrent Related Party Transactions of A Revenue or Trading Nature, whereby Bursa Securities will only focus on areas which in its opinion poses a high risk in terms of disclosure and/or compliance with the Listing Requirements. (Company No.: A) (Incorporated in Malaysia) PART A CIRCULAR TO SHAREHOLDERS in relation to PROPOSED SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE PART B SHARE BUY-BACK STATEMENT in relation to PROPOSED RENEWAL OF AUTHORISATION TO ENABLE KOBAY TECHNOLOGY BHD. TO PURCHASE UP TO 10% OF THE ISSUED AND PAID-UP ORDINARY SHARE CAPITAL OF THE COMPANY PURSUANT TO SECTION 67A OF THE COMPANIES ACT, 1965 Bursa Securities has not perused the Share Buy-back Statement prior to its issuance and takes no responsibility for the contents of the Share Buy-back Statement, and makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of the Share Buy-back Statement. AND NOTICE OF ANNUAL GENERAL MEETING A relevant extract of the Notice of the Twelfth (12th) Annual General Meeting of the Company which will be held at Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Bayan Lepas, Penang on Wednesday, 20 December 2006 at 3.30 p.m. is enclosed together in this Circular. The Form of Proxy is enclosed in this Circular. The Form of Proxy should be lodged at the Registered Office of the Company at Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Bayan Lepas, Penang, not later than forty-eight (48) hours before the time of the meeting. The lodging of the Form of Proxy will not preclude you from attending and voting in person at the meeting if you subsequently wish to do so. This Circular is dated 28 November 2006

2

3 DEFINITIONS Except where the context otherwise requires, the following definitions shall apply throughout the Circular and Statement (definitions denoting the singular number shall also include the plural number and vice versa, where applicable):- Act : The Companies Act, 1965 AGM : Annual General Meeting Bursa Securities : Bursa Malaysia Securities Berhad ( W) BWE : Bend Weld Engineering Sdn. Bhd. ( P) Code : The Malaysian Code on Take-overs and Mergers, 1998 Elite : Elite Paper Trading Sdn. Bhd. ( U) EPS : Earnings Per Share KA : Kobay Assets Sdn. Bhd. ( M) KEW : Kewjaya Sdn. Bhd. ( P) : Kobay Holdings Sdn. Bhd. ( D) Kobay or the Company : Kobay Technology Bhd. ( A) Kobay Group or the Group : Kobay and its subsidiaries KT : Kobay Tecnica Sdn. Bhd. ( D) KTM : Kobay Tecnica Manufacturing Sdn. Bhd. ( A) Lipo : Lipo Corporation Berhad ( V) Listing Requirements : Listing Requirements of the Bursa Securities LPI : Lipo Precision Industry (Suzhou) Co., Ltd. MAKER : Maker Technologies Sdn. Bhd. ( V) MPS : Megatool Precision (Suzhou) Co. Ltd. MST : Micro Surface Treatment Sdn. Bhd. ( X) NA : Net Assets PIN : Polytool Integration Sdn. Bhd. ( K) PM : Polytool Metal Sdn. Bhd. ( D) PMI : Paradigm Metal Industries Sdn. Bhd. ( X) PPC : Paradigm Precision Components Sdn. Bhd. ( U) i

4 Proposed Shareholders Mandate : Proposed shareholders mandate to be obtained by Kobay pursuant to Chapter 10, Paragraph of the Listing Requirements in relation to RRPTs Proposed Share Buy-back : The proposed purchase and/or held by Kobay of its own shares of up to 10% of its issued and paid-up share capital at any given point in time, if deemed fit and expedient by the Directors of the Company PS : Polytool Systems Sdn. Bhd. (formerly known as Paradigm Precision Industries Sdn. Bhd.) ( T) PT : Polytool Technologies Sdn. Bhd. ( K) Related Party(ies) A Director or major shareholder of Kobay or person connected with such a Director or major shareholder as defined under Chapter 1 and Chapter 10 of the Listing Requirements RM and sen : Ringgit Malaysia and sen respectively RRPTs : Recurrent related party transactions of a revenue and/or trading nature, which are necessary for the day-to-day operations of the Kobay Group, and are in the ordinary course of business of the Kobay Group SC : Securities Commission share(s) : Ordinary share(s) of RM1.00 each UP : Unitedprise Sdn. Bhd. ( P) ii

5 PART A CIRCULAR TO SHAREHOLDERS in relation to PROPOSED SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE CONTENTS PAGE DIRECTORS LETTER TO THE SHAREHOLDERS CONTAINING:- 1. INTRODUCTION PROPOSED SHAREHOLDERS MANDATE Introduction Principal activities of the Kobay Group Details of transacting parties Details of the Proposed Shareholders Mandate Validity period Rationale for and benefit of the Proposed Shareholders Mandate Financial effects of the Proposed Shareholders Mandate Review procedures Statement by the Audit Committee Approval required Directors and major shareholders interests DIRECTORS RECOMMENDATION AGM FURTHER INFORMATION...12 APPENDIX I...13 ENCLOSURE NOTICE OF TWELFTH AGM...21 PROXY FORM...26 REQUEST FORM...28

6 (Company No.: A) (Incorporated in Malaysia) BOARD OF DIRECTORS : REGISTERED OFFICE : Koay Cheng Lye (Executive Chairman / Chief Corporate Affairs Officer) Dato Koay Hean Eng (Managing Director / Chief Executive Officer) Lim Swee Chuan (Executive Director / Chief Financial Officer) Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Bayan Lepas, Penang Ong Teik Kooi (Executive Director) Koay Cheng Hock (Non-Independent Non-Executive Director) Tan Yok Cheng (Independent Non-Executive Director) Dato Abdul Rahman Bin Mohammed Hashim (Senior Independent Non-Executive Director) Dr. Mohamad Zabdi Bin Zamrod (Independent Non-Executive Director) To : The Shareholders of Kobay 28 November 2006 Dear Sir/Madam, PROPOSED SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE 1. INTRODUCTION At the Company s Eleventh (11th) AGM held on the 20 December 2005, the Board of Directors of Kobay had obtained a general mandate from its shareholders to enter into RRPTs. In accordance with the Listing Requirements, this general mandate shall lapse at the conclusion of the forthcoming AGM which has been scheduled to be held on 20 December On 21 November 2006, the Company has announced to Bursa Securities that it proposes to seek its shareholders approval for the Proposed Shareholders Mandate at the forthcoming AGM. The purpose of this Circular is to provide you with the information on the Proposed Shareholders Mandate and to seek your approval for the Ordinary Resolution pertaining to the Proposed Shareholders Mandate to be tabled at the forthcoming AGM to be convened at Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Bayan Lepas, Penang on Wednesday, 20 December 2006 at 3.30 p.m. The Notice of AGM together with the accompanying Form of Proxy are enclosed in this Circular. 2. PROPOSED SHAREHOLDERS MANDATE 2.1 Introduction Under Part E, Paragraph of the Listing Requirements, a listed issuer may seek shareholders mandate in respect of RRPTs subject to the following:- 1

7 (a) (b) (c) the transactions are in the ordinary course of business and are on terms not more favourable to the related party than those generally available to the public; the shareholders mandate is subject to annual renewal and disclosure is made in the annual report of the aggregate value of transactions conducted pursuant to the shareholders mandate during the financial year; and in a meeting to obtain shareholders mandate, the interested director, interested major shareholder or interested person connected with a director or major shareholder and where it involves the interest of an interested person connected with a director or major shareholder, such director or major shareholder must not vote on the resolution approving the transactions. An interested director or interested major shareholder must ensure that persons connected with him abstain from voting on the resolution approving the transactions. The Listing Requirements define director, major shareholder, related party and related party transaction as follows:- Director shall have the meaning given in Section 4 of the Act and includes any person who is or was within the preceding 12 months of the date on which the terms of the transaction were agreed upon, a director of the listed issuer or any other company which is its subsidiary or holding company or a chief executive officer of the listed issuer, its subsidiary or holding company. Major shareholder includes any person who is or was within the preceding 12 months of the date on which the terms of transaction were agreed upon, a major shareholder of the listed issuer as defined under paragraph 1.01 or any other company which is its subsidiary or holding company. Related party means a director, major shareholder or person connected with such director or major shareholder. Related party transaction means a transaction entered into by the listed issuer or its subsidiaries which involves the interest, direct or indirect, of a related party. 2.2 Principal activities of the Kobay Group Kobay is principally an investment holding and management services company, whilst the principal activities of its subsidiaries which are/will be dealing with the transacting parties are as follows:- Subsidiary companies Country of incorporation Effective equity interest Principal activities BWE Malaysia 100% Manufacture of all types of metal works and equipment Elite Malaysia 55% Paper trading KA Malaysia 100% Letting of properties KEW Malaysia 100% Money lending and leasing 2

8 Subsidiary companies Country of incorporation Effective equity interest Principal activities KT Malaysia 61% Investment holding and providing management services KTM, subsidiary of KT Malaysia 61% Manufacture various types of computer numeric controlled ( CNC ) machines MPS China 100% Manufacture, design, sale and after-sale service of precision mould and monotype precise tool and fittings PIN Malaysia 85% Design and manufacture sawing machines, vision and inspection machines/systems, fluid/epoxy dispensing machines and test handling machines PM Malaysia 60% Manufacture and sales of cold forging parts PS Malaysia 85% Design and develop software for automation solutions PT Malaysia 100% Manufacture of measuring devices, industrial equipment, machining parts and toolings UP Malaysia 100% General trading 2.3 Details of transacting parties The details of the transacting parties with whom the Kobay Group is/will be transacting with are as follows:- Company Principal activities Relationship CP Stationery Sdn. Bhd. Trading in stationeries CP Stationery is a wholly owned subsidiary of Mega Publications Holding Sdn. Bhd., a 45% major shareholder of Elite MAKER Mega Publications Holding Sdn. Bhd. Manufacture all kinds of precision moulds and parts Investment holding and management services company MAKER is a 19% owned investment company of Kobay Mega Publications Holding Sdn. Bhd. is a 45% major shareholder of Elite Lipo Investment holding and management services company Lipo is a 45.30% owned associate company of Kobay LPI Manufacture of precision machined parts LPI is a wholly owned subsidiary of Lipo of which in turn is a 45.30% owned associate company of Kobay 3

9 Company Principal activities Relationship MST Precision plating and surface treatment MST is a 88% owned subsidiary of Lipo of which in turn is a 45.30% owned associate company of Kobay PMI Manufacturing of precision metal stamping parts PMI is a wholly owned subsidiary of Lipo of which in turn is a 45.30% owned associate company of Kobay PPC Manufacturing of precision machined components PPC is a wholly owned subsidiary of Lipo of which in turn is a 45.30% owned associate company of Kobay 2.4 Details of the Proposed Shareholders Mandate The RRPTs which are carried out with the Related Parties are mainly for its day-to-day operations. The Related Parties are both good customers as well as reliable suppliers of goods and services required by the Kobay Group. Except for transactions involving payment of rental of office and factory and payment of management fee which occur monthly, other transactions mentioned and disclosed below could arise as and when the situation warrants. The RRPTs are to be entered into at arm s length based on Kobay s normal commercial terms and are not prejudicial to the shareholders nor they are on terms more favourable to the Related Parties than those generally available to the public and are also not to the detriment of the minority shareholders of the Company. Such RRPTs will be subject to the review procedures as set out in Section 2.8. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 4

10 The details of the RRPTs are set out below:- Companies within the Kobay Group Transacting parties Interested parties Nature of transactions *Estimated aggregate value from date of the forthcoming AGM to the date of the next AGM RM Kobay PIN # KT # Elite # PM # Dato Koay Hean Eng, Lim Swee Chuan, Koay Cheng Hock and Payment of management fee by PIN, KT, Elite and PM to Kobay 445,000 Kobay Elite # Dato Koay Hean Eng, Lim Swee Chuan, Koay Cheng Hock and BWE Dato Koay Hean Eng, Koay Cheng Hock and Payment of loan interest by Elite to Kobay Provision of metal works services in respect of stainless steel equipment, clean- room trolleys, custom made cabinet to jig and fixtures, aluminium deck formwork, die set and machine parts by BWE to MAKER Receipt of manufacturing of machining parts services by BWE from MAKER 235,000 20,000 20,000 BWE PIN # PMI + PPC + MST + (1) Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan and Provision of metal works services in respect of stainless steel equipment, clean- room trolleys, custom made cabinet to jig and fixtures, aluminium deck formwork, die set and machine parts by BWE to PIN, PMI, PPC, MST and PM 965,000 PM # BWE PPC + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan and BWE PMI + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan and BWE MST + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan and Supply of precision components by PPC to BWE Manufacturing of precision metal stamping parts from PMI to BWE Receipt of powder coating and chemical finishing services by BWE from MST 150, ,000 26,000 Sub Total c/f 1,965,000 5

11 Companies within the Kobay Group Transacting parties Interested parties Nature of transactions *Estimated aggregate value from date of the forthcoming AGM to the date of the next AGM RM Sub Total b/f 1,965,000 PT MST + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan and PT PMI + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan and Receipt surface treatment by PT from MST Manufacturing and provision of precision metal stamping parts by PMI to PT Manufacturing of machine parts and provision of tooling services by PT to PMI 65, ,000 52,000 PT PM # Dato Koay Hean Eng, Lim Swee Chuan, Koay Cheng Hock and Manufacturing of machine parts and provision of tooling services by PT to MAKER and PM Receipt of manufacturing of machining parts services by PT from MAKER 260, ,000 PT LPI + Dato Koay Hean Eng, Koay Cheng Hock Lim Swee Chuan and PT PPC + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan and Receipt of fabrication of machining parts and precision tooling services by LPI from PT Fabrication of precision components by PPC to PT Receipt of manufacturing of machining parts and provision of tooling services by PPC from PT 65, ,000 65,000 KA PIN # KTM # (2) Lipo + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan, Yee San Khien and Receipt of rental of office building and factory located at Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Penang by KA from PIN, KTM and Lipo 426,000 KA Dato Koay Hean Eng, Koay Cheng Hock and Receipt of rental of office building and factory located at Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Penang by KA from MAKER 20,000 Sub Total c/f 3,334,000 6

12 Companies within the Kobay Group Transacting parties Interested parties Nature of transactions *Estimated aggregate value from date of the forthcoming AGM to the date of the next AGM RM Sub Total b/f 3,334,000 KA PM # Dato Koay Hean Eng, Lim Swee Chuan, Koay Cheng Hock and PIN PT # Dato Koay Hean Eng, Koay Cheng Hock and PIN Dato Koay Hean Eng, Koay Cheng Hock, Yee San Khien and PIN PS # (3) Dato Koay Hean Eng, Lim Swee Chuan, Koay Cheng Hock, Ong Eng Seng and Receipt of rental of office building and factory located at Plot 75, Lintang Kampung Jawa, Bayan Lepas Industrial Estate, Mukim 12, Daerah Barat Daya, Penang by KA from PM Manufacturing and provision of automated machine and automated machine parts services by PIN to PT Receipt of manufacturing of machining parts and provision of tooling services by PIN from PT Receipt of manufacturing of machining parts services by PIN from MAKER Manufacturing and provision of automated machine and automated machine parts services by PIN to MAKER Receipt of software design and development for automation solutions by PIN from PS 221,000 1,040, , ,000 1,000,000 3,900,000 PIN PPC + (4) Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan and Supply of precision component parts by PPC to PIN 390,000 KTM PT # PMI + (5) Dato Koay Hean Eng, Lim Swee Chuan, Koay Cheng Hock and Sale of machine and parts by KTM to PT and PMI 176,000 Sub Total c/f 10,581,000 7

13 Companies within the Kobay Group Transacting parties Interested parties Nature of transactions *Estimated aggregate value from date of the forthcoming AGM to the date of the next AGM RM Sub Total b/f 10,581,000 Elite CP Stationery Sdn. Bhd., wholly-owned subsidiary of Mega Publications Holding Sdn. Bhd. Tan Keng Chang and Mega Publications Holding Sdn Bhd Sale of paper products by Elite to CP Stationery Sdn. Bhd. 1,500,000 Elite Mega Publications Holding Sdn. Bhd., shareholder of Elite Tan Keng Chang Payment of warehouse and storage charges by Elite to Mega Publications Holding Sdn. Bhd. Payment of utilities and facilities charges by Elite to Mega Publications Holding Sdn. Bhd. 312, ,000 Payment of consultancy fee to Mega Publications Holding Sdn. Bhd. 117,000 KEW PM # PIN # Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan, Yee San Khien, and Kobay Payment of lease interest by PM and PIN to KEW 507,000 MPS LPI + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan, and Kobay Receipt of manufacturing of machining parts and provision of tooling and service by LPI from MPS Fabrication of precision components by LPI to MPS 50, ,000 UP PPC + PMI + MST + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan, and Kobay Sales of machine components, general trading of machine and measurement equipment accessories by UP to PPC, PMI & MST 5,000 PM MST + Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan, and Kobay Receipt of plating and surface treatment services by PM from MST 910,000 TOTAL 14,503,000 Notes:- * The estimated transaction values for the period from the date of the forthcoming AGM up to the date of the next AGM are based on the information available at the point of estimation which includes business trend, agreement, orders, project estimate cost and sales forecast. Due to the nature of the transactions, the actual value of transactions may vary from the estimated value disclosed above 8

14 # Subsidiary company of A 19% owned investment company of Kobay + Associate company of Kobay New Transactions not covered by the previous mandate (1) Purchase of metal works and equipment by MST from BWE (2) Receipt of rental of office building and factory located at Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Penang by KA from KTM (3) Receipt of software design and development for automated solutions by PIN from PS (4) Supply of precision component parts by PPC to PIN (5) Sales of machines and parts by KTM to PMI Nature of relationship of the Interested Parties a) is a major shareholder of 26.02% equity interest in Kobay. b) Dato Koay Hean Eng is a Director and Chief Executive Officer of Kobay, director of KT, MPS and Lipo. He has 2.45% direct and 26.02% indirect interest in Kobay by virtue of his 75% equity interest in, a major shareholder of the Company. He also has indirect interest in Lipo through the Company s 45.30% equity interest in Lipo. c) Koay Cheng Lye is a Director of Kobay, PT, BWE, KA, PM, UP, PS, Lipo, PPC, PMI, PIN, MST and LPI. He has 0.87% direct and 26.02% indirect interest in Kobay by virtue of his 15% equity interest in, a major shareholder of the Company. He also has indirect interest in Lipo through the Company s 45.30% equity interest in Lipo. d) Koay Cheng Hock is a Director of Kobay and PT. He has 0.85% direct and 26.02% indirect interest in Kobay by virtue of his 10% equity interest in, a major shareholder of the Company. He also has indirect interest in Lipo through the Company s 45.30% equity interest in Lipo. e) Lim Swee Chuan is a Director of Kobay, MPS, PIN, BWE, Elite, KEW, KA, PM, UP, KT, KTM, PS, Lipo, PPC, PMI, MST and LPI. He has 0.03% direct interest in Kobay. f) Mr. Yee San Khien is a Director of Elite, KA, KEW, KTM and Maker. He has direct and indirect interests of 0.01% in Kobay. He was a major shareholder of PIN and had on reduced his shareholding to 24,999 ordinary shares at RM1/- each represents 4.9% equity interest in PIN. g) Mr. Ong Eng Seng is a Director of PIN. He has direct interest of 10% in PIN and PS. h) Mr. Tan Keng Chang is a Director of Elite, Mega Publications Holding Sdn. Bhd. and CP Stationery Sdn. Bhd. He holds 47.27% equity interest in Mega Publications Holding Sdn. Bhd. i) CP Stationery Sdn. Bhd is a wholly owned subsidiary of Mega Publications Holding Sdn. Bhd., a 45% major shareholder of Elite. 2.5 Validity period If approved at the forthcoming AGM, the Proposed Shareholders Mandate, which is subject to annual renewal, will take effect from the date of the passing of the Ordinary Resolution thereto and will continue to be in force until:- (a) (b) (c) the conclusion of the next AGM of the Company at which time it shall lapse unless by ordinary resolution passed at that meeting, the authority is renewed, either unconditionally or subject to conditions; or the expiration of the period within which the next AGM of the Company after the date it is required to be held pursuant to Section 143(1) of the Act (but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or revoked or varied by resolution passed by the shareholders in a general meeting, whichever is earlier. 9

15 2.6 Rationale for and benefit of the Proposed Shareholders Mandate The Proposed Shareholders Mandate is to enable Kobay to seek mandate for the RRPTs to be entered into by the Group. The RRPTs are necessary for the day-to-day operations of the Group and contribute to its operational sales revenue. By obtaining the Proposed Shareholders Mandate and where appropriate, the subsequent renewal thereof on an annual basis, the necessity to announce or convene separate general meetings from time to time to procure shareholders prior approval for such transactions will not arise. This will reduce substantially the administrative time and expenses associated with the convening of such meetings, without compromising the corporate objectives of the Group or adversely affecting the business opportunities available to the Group. 2.7 Financial effects of the Proposed Shareholders Mandate The Proposed Shareholders Mandate will not have any effect on the issued and paid-up share capital and major shareholders shareholdings of Kobay, and are not expected to have any effect on the earnings and NA of Kobay for the financial year ending 30 June Review procedures To ensure that the RRPTs are undertaken at arm s length basis and on normal commercial terms, which are consistent with Kobay s usual business practices and policies (taking into consideration the prevailing market rate/prices of products/services rendered, preferential rates and discounts for bulk purchases, rental of premises by Related Parties) and are on terms not more favourable to the Related Parties than those extended to third parties/the public and are not to the detriment of the minority shareholders of Kobay, the audit committee ( Audit Committee ) has been tasked with the review and approval of such transactions. The Audit Committee currently comprises of:- Name Tan Yok Cheng Directorate / Position in Audit Committee Independent Non-Executive Director / Chairman Dato Abdul Rahman Bin Mohammed Hashim Senior Independent Non-Executive Director / Member Lim Swee Chuan Dr. Mohamad Zabdi Bin Zamrod Executive Director /Member Independent Non-Executive Director/Member To monitor the RRPTs, the following review procedures have been implemented by the Company:- (i) (ii) (iii) (iv) (v) records will be maintained by the Company to capture all RRPTs which are entered into pursuant to the shareholders mandate; all members of the Board and Audit Committee who are directly or indirectly interested in any RRPTs shall declare their interest and abstain from deliberations and voting in respect of these RRPTs; the internal auditor will review the terms of the RRPTs as part of the annual audit activities; records, agreements, contracts and other relevant documents on all RRPTs will be made available to the Audit Committee for review; transaction prices and rental of such RRPTs to be entered into will always take into account the level of service (ie. in terms of the complexity of jobs), quality of service (ie. in terms of on time delivery and quality of products) and on competitive pricing in the open market and are not more favourable to the Related Parties than those generally available to the public and will not be detrimental to minority shareholders; and 10

16 (vi) the Audit Committee will review half yearly, the RRPTs that may arise within the Group to ensure that such transactions will be carried out at arm s length, and on normal commercial terms, and the terms are not more favourable than those generally available to the public and are not to the detriment of the minority shareholders. The Audit Committee shall assist to ascertain that all procedures established to monitor RRPTs have been complied with. Disclosure will be made in the Company s Annual Report of the breakdown of the aggregate value of transactions conducted, types of transactions made, names of related parties involved and their relationship with the Company pursuant to the Proposed Shareholders Mandate during the financial year, and in the Annual Reports for subsequent financial years that the Proposed Shareholders Mandate continues to be in force. 2.9 Statement by the Audit Committee The Audit Committee of Kobay has considered the review procedures mentioned in Section 2.8 above and is of the view that the said procedures are adequate to ensure that all RRPTs will be carried out at arm s length basis, and on normal commercial terms which are not more favourable to the related parties than those generally available to the public and are not to the detriment of the minority shareholders of the Company. The Audit Committee may, at its discretion adopt new review and disclosure procedures and/or amend the existing procedures to ensure that the RRPTs are at all times, on the terms consistent with the Group s practices Approval required The Proposed Shareholders Mandate is subject to the approval of the shareholders of Kobay at the forthcoming AGM Directors and major shareholders interests No. of shares held in Kobay Name Direct Indirect Directors Dato Koay Hean Eng 1,654, * 17,523, Koay Cheng Lye 586, ** 17,523, Koay Cheng Hock 569, *** 17,523, Lim Swee Chuan 20, Major Shareholders 17,523, Dato Koay Hean Eng 1,654, * 17,523, Koay Cheng Lye 586, ** 17,523, Koay Cheng Hock 569, *** 17,523, The details of the interested Directors and/or major shareholders and their direct and indirect shareholdings in Kobay as at 1 November 2006 are as follows:- Notes:- * Deemed interest by virtue of his 75% direct interest in, a major shareholder of Kobay ** Deemed interest by virtue of his 15% direct interest in, a major shareholder of Kobay *** Deemed interest by virtue of his 10% direct interest in, a major shareholder of The percentage of shareholding is calculated based on the issued and paid-up capital of Kobay of RM68,080,750 comprising 68,080,750 shares and after deduction of 728,200 treasury shares retained by Kobay as at 1 November

17 Accordingly Dato Koay Hean Eng, Koay Cheng Hock and Lim Swee Chuan, who are deemed to be interested in the Proposed Shareholders Mandate have abstained and will continue to abstain from all Board deliberations and voting on the RRPTs at the relevant Board of Directors Meetings. is an interested party by virtue of its shareholders (namely Dato Koay Hean Eng, Koay Cheng Hock and Koay Cheng Lye) directorships in Kobay. is therefore considered as a person connected to Dato Koay Hean Eng, Koay Cheng Lye and Koay Ah Koay Cheng Hock. Lim Swee Chuan is the Executive Director of both Kobay and Lipo of which Kobay is the major shareholder and single largest shareholder of Lipo. Lim Swee Chuan is therefore considered as person connected to Kobay, the major shareholder of Lipo in related transactions. Accordingly, Dato Koay Hean Eng, Koay Cheng Hock, Lim Swee Chuan, and who are deemed to be interested in the Proposed Shareholders Mandate will also abstain from voting in respect of their direct and/or indirect shareholdings in Kobay on the resolution pertaining to the Proposed Shareholders Mandate to be tabled at the forthcoming AGM of the Company. The interested Directors and/or major shareholders have undertaken to ensure that persons connected to them shall abstain from voting on the resolution relating to the Proposed Shareholders Mandate at the forthcoming AGM. Save as disclosed above, none of the other Directors and/or major shareholders of Kobay and/or persons connected with them have any interest, direct or indirect in the RRPTs. 3. DIRECTORS RECOMMENDATION The Directors (except for Dato Koay Hean Eng, Koay Cheng Hock and Lim Swee Chuan who are deemed to be interested in the Proposed Shareholders Mandate and have abstained from expressing any opinion and recommendation in relation to the Proposed Shareholders Mandate) are of the opinion that the Proposed Shareholders Mandate is in the best interest of the Company. Accordingly, the aforesaid Directors recommend that you vote in favour of the resolution relating to the Proposed Shareholders Mandate to be tabled at the forthcoming AGM. 4. AGM The relevant extract of the Notice convening the Twelfth AGM of the Company for the Proposed Shareholders Mandate is enclosed. The AGM will be held at Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Bayan Lepas, Penang on Wednesday, 20 December 2006 at 3.30 p.m. for the purpose of considering and if thought fit, passing the resolution to approve the Proposed Shareholders Mandate. If you are unable to attend and vote at the AGM in person, please complete, sign and return the Form of Proxy in accordance with the instructions printed thereon as soon as possible and in any event, so as to arrive at the Registered Office of the Company not later than forty eight (48) hours before the time appointed for holding the AGM. The completion, signing and return of the Form of Proxy will not preclude you from attending and voting in person at the AGM should you subsequently wish to do so. 5. FURTHER INFORMATION Shareholders are advised to refer to the attached Appendix I for further information. Yours faithfully, For and on behalf of the Board of Directors KOBAY TECHNOLOGY BHD. DATO ABDUL RAHMAN BIN MOHAMMED HASHIM Senior Independent Non-Executive Director 12

18 FURTHER INFORMATION APPENDIX I 1. DIRECTORS RESPONSIBILITY STATEMENT This Circular has been seen and approved by the Directors of Kobay and they collectively and individually accept full responsibility for the accuracy of the information given and confirm that after making all reasonable enquiries, to the best of their knowledge and belief, there are no other facts, the omission of which would make any statement herein misleading. 2. MATERIAL LITIGATION Save as disclosed below, neither Kobay nor its subsidiary companies are engaged in any material litigation, claims or arbitration either as plaintiff or defendant, and as at the date of this Circular, the Directors of Kobay are not aware of any proceeding pending or threatened against the Company or its subsidiary companies or of any facts likely to give rise to any proceeding which may materially affect the position or business of Kobay or its subsidiary companies. (a) Kobay Tecnica Sdn. Bhd. ( D) ( KT ), a 61% owned subsidiary of Kobay Technology Bhd. ( Kobay / the Company ) and Kobay Tecnica Manfuacturing Sdn. Bhd. ( A)( KTM ), a wholly owned subsidiary of KT have filed in a Statement of Claim in the Kuala Lumpur High Court against one of the shareholders cum Ex-Managing Director of KT, namely Ricky Tseng Sheng Lung ( Ricky ) and others on 24 July KT and KTM have claimed against Ricky for breaching his fiduciary duties as Managing Director of KT and KTM, and together with five (5) other Defendants, either acting by himself or in collusion committed fraudulent or negligent acts causing a loss of profit in KTM for approximately RM241,633, actual loss of approximately RM72,786, and other loss or damages to be assessed by the Court. On 8 October 2003, Kobay, KT and its principal officers have received the defence from Ricky, denying all the claims and have made counter-claimed against Kobay, KT and others for fraud, deceits and oppression and breaching of the Shareholders Agreement and his Service Agreement with a claim of RM15,703 together with interest on the rate of 8% per annum accruing from until full settlement and general damages. The Company had been advised by its solicitors that the claims are purely based on conjectures and is not substantiated by any facts and is therefore void of merits. The claims are still pending Court hearing and not expected to have any material financial impact on the Company. 3. MATERIAL CONTRACTS Save for the followings, there are no other material contracts (not being contracts entered into in the ordinary course of business) which have been entered into by Kobay and/or its subsidiary companies within the two (2) years immediately preceding the date of this Circular:- (a) (b) On 28 April 2005, the Company had granted a temporary cash advance of RM3,000,000 at an interest rate of 6% per annum to its 55% owned subsidiary, Elite Paper Trading Sdn. Bhd. to fund its working capital while pending the release of trade facilities of RM3,000,000 from its banker, EON Bank Berhad. Mr. Lim Swee Chuan is a director of the Company and Elite Paper Trading Sdn. Bhd. On 11 May 2005, a 85% owned subsidiary of the Company, Polytool Automation Sdn. Bhd. had granted an interest-free loan amounting to RM320,000 which was derived from its excess fund, to its shareholders in proportion to their shareholding as follows: 13

19 Name of shareholders of Polytool Automation Sdn. Bhd. Number of shares of RM1.00 each held by the shareholders in Polytool Automation Sdn. Bhd. Amount of interest-free loan granted by Polytool Automation Sdn. Bhd. to the shareholders Kobay Technology Bhd. 1,020,000 RM272,000 Ong Eng Seng 120,000 RM32,000 Yee San Khien 60,000 RM16,000 Mr. Koay Cheng Lye and Mr. Lim Swee Chuan are the common directors of Polytool Automation Sdn. Bhd. and the Company. 4. DOCUMENTS FOR INSPECTION Copies of the following documents will be made available for inspection during normal business hours at the Registered Office of Kobay at Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Bayan Lepas, Penang, from the date of this Circular up to and including the date of the AGM:- (a) (b) (c) Memorandum and Articles of Association of Kobay; The material contracts referred to in Section 3 above; The material litigation referred to in Section 2 above; and (d) The audited accounts of Kobay for the past two (2) financial years ended 30 June 2005 and The quarterly report on the unaudited 3 months results for the period ended 30 September 2006 will be available for inspection only upon it is approved by the Directors of Kobay and submitted to Bursa Securities latest by 30 November

20 PART B SHARE BUY-BACK STATEMENT in relation to PROPOSED RENEWAL OF AUTHORISATION TO ENABLE KOBAY TECHNOLOGY BHD. TO PURCHASE UP TO 10% OF THE ISSUED AND PAID-UP ORDINARY SHARE CAPITAL OF THE COMPANY PURSUANT TO SECTION 67A OF THE COMPANIES ACT, 1965 CONTENTS PAGE 1 INTRODUCTION DETAILS OF THE PROPOSED SHARE BUY-BACK Rationale of the Proposed Share Buy-back Potential advantages and disadvantages of the Proposed Share Buy-back The amount of retained profits and share premium Source of funds, repayment capabilities and cash flow impact Interest of Directors and substantial shareholders FINANCIAL EFFECTS OF THE PROPOSED SHARE BUY-BACK Share capital Earnings Dividends NA Working capital IMPLICATIONS RELATING TO THE CODE PURCHASES MADE IN THE LAST FINANCIAL YEAR PUBLIC SHAREHOLDING SPREAD DIRECTORS RECOMMENDATION...20 ENCLOSURE NOTICE OF TWELFTH AGM...21 PROXY FORM...26 REQUEST FORM...28

21 PROPOSED RENEWAL OF AUTHORISATION TO ENABLE KOBAY TECHNOLOGY BHD. TO PURCHASE UP TO 10% OF THE ISSUED AND PAID-UP ORDINARY SHARE CAPITAL OF THE COMPANY PURSUANT TO SECTION 67A OF THE COMPANIES ACT, INTRODUCTION At the Company s Eleventh (11th) AGM held on the 20 December 2005, the Board of Directors of Kobay had obtained its shareholders approval to authorise the Company to purchase and/or hold its own shares up to a maximum of ten per cent (10%) of the total issued and paid-up share capital of Kobay through Bursa Securities. In accordance with the Listing Requirements, this authority shall lapse at the conclusion of the forthcoming AGM which has been scheduled to be held on 20 December On 21 November 2006, the Company has announced to Bursa Securities that it proposes to seek a renewal of the authorisation for the Proposed Share Buy-back from its shareholders at the forthcoming AGM. The purpose of this Statement is to provide you with the information on the Proposed Share Buy-back and to seek your approval for the Ordinary Resolution pertaining to the renewal of the authorisation on Proposed Share Buy-back to be tabled at the forthcoming Twelfth AGM of the Company to be convened at Plot 30, Hilir Sungai Kluang Satu, Bayan Lepas Industrial Park, Phase 4, Bayan Lepas, Penang on Wednesday, 20 December 2006 at 3.30 p.m. The Notice of Twelfth AGM together with the accompanying Form of Proxy are enclosed in this Statement. 2. DETAILS OF THE PROPOSED SHARE BUY-BACK 2.1 Rationale of the Proposed Share Buy-back The Proposed Share Buy-back would enable Kobay to utilise its financial resources, which are not immediately required, for the purpose of purchasing its own shares, if deemed fit and expedient by the Directors of the Company. The Proposed Share Buy-back may enhance the EPS and reduce the liquidity level of the shares of the Company on Bursa Securities, which, in turn is expected to benefit the shareholders of the Company. In addition, the purchased shares can be held as treasury shares and/or be resold on Bursa Securities with the intention of realising a potential gain without affecting the total issued and paid-up share capital of the Company. Should any treasury shares be distributed as share dividends, this would serve to reward the shareholders of the Company. 2.2 Potential advantages and disadvantages of the Proposed Share Buy-back (i) (ii) allows the Company the flexibility in attaining its desired capital structure; and rewards the shareholders in the event the treasury shares are distributed as share dividends. The potential advantages and disadvantages of the Proposed Share Buy-back to the Company and its shareholders are as follows:- Advantages:- Disadvantages:- (i) the Proposed Share Buy-back will reduce the financial resources of the Group and may result in the Group forgoing better investment opportunities that may emerge in the future; and 16

22 (ii) as the Proposed Share Buy-back can only be made out of retained profits and share premium accounts of the Company, it may result in the reduction of financial resources available for distribution to shareholders in the immediate future. The Board of Directors will be mindful of the Company and its shareholders in undertaking the Proposed Share Buy-back and in the subsequent resale of treasury shares on Bursa Securities, if any. 2.3 The amount of retained profits and share premium The Proposed Share Buy-back shall be made wholly out of the retained profits and/or share premium accounts of the Company. The audited retained profits and share premium accounts of the Company as at 30 June 2006 were RM10,372,199 and RM1,680,086 respectively. The retained profits and share premium accounts of the Company in the management account as at 30 September 2006 were RM11,535,581 and RM1,680,086 respectively. 2.4 Source of funds, repayment capabilities and cash flow impact In order to implement the Proposed Share Buy-back, an appropriate amount of the Group s internally generated funds would need to be allocated by the Company and such allocation (the final quantum of which is to be determined later by the Company s Directors) shall not exceed the aggregate balance standing in the retained profits and/or share premium accounts of the Company. The actual number of shares to be purchased and the timing of such purchase(s) would depend on, inter-alia, market conditions, retained profits and share premium accounts of the Company as well as the availability of financial resources/funds necessary to give effect to such purchase(s). The Company has sufficient funds internally to finance the Proposed Share Buy-back. Depending on the quantum and the purchase price, the Proposed Share Buy-back may reduce the working capital of Kobay. 2.5 Interest of Directors and substantial shareholders Save for the inadvertent increase in the percentage shareholdings and/or voting rights of the shareholdings as a consequence of the Proposed Share Buy-back, none of the Directors and substantial shareholders of Kobay or any other companies which is its subsidiary and/or persons connected with them has any interest, whether direct or indirect, in the Proposed Share Buy-back or resale of treasury shares. 3. FINANCIAL EFFECTS OF THE PROPOSED SHARE BUY-BACK 3.1 Share capital The effects of the Proposed Share Buy-back on the issued and paid-up share capital of Kobay would depend on the timing and the number of shares so purchased, if any. However, for illustration only, the Proposed Share Buy-back would have the following effect on the issued and paid-up share capital of the Company, assuming that a maximum number of 6,808,075 shares or ten per cent (10%) of the Company s issued and paid-up share capital of 68,080,750 shares as at 1 November 2006 are purchased by the Company and thereafter, immediately cancelled:- No. of shares % Issued and paid-up share capital as at 1 November ,080, Maximum number of shares to be purchased under the Proposed Share Buy-back 6,808,075 (10.00) Reduced issued and paid-up share capital 61,272, However, there will be no effect on the issued and paid-up share capital of the Company if the shares so purchased are retained as treasury shares. 17

23 3.2 Earnings The Proposed Share Buy-back is not expected to have any material impact on the earnings of the Group. However, the resultant reduction in the number of Kobay shares in issue would be expected to correspondingly increase the EPS of Kobay, at Company and Group levels, if the shares so purchased are cancelled or retained as treasury shares. 3.3 Dividends 3.4 NA The Proposed Share Buy-back will reduce the amount of distributable reserves of the Company available for payment of dividends if the retained profits have been utilised to facilitate the Proposed Share Buyback. The Board of Directors of Kobay has recommended to declare a first and final tax exempt dividend of 3.5% in respect of financial year ended 30 June 2006, subject to the approval of the shareholders of Kobay at the forthcoming AGM. The Proposed Share Buy-back may increase or decrease the NA of Kobay depending on various factors which include the treatment of the shares purchased, i.e. to cancel or retain as treasury shares, the timing, purchase price and the number of shares so purchased, if any, and the eventual treatment of any treasury shares arising. The Proposed Share Buy-back will reduce the NA per share of Kobay Group when the purchase price exceeds the NA per share of Kobay Group at the relevant point in time. On the contrary, the NA per share of Kobay Group will be increased when the purchase price is less than the NA per share of Kobay Group at the relevant point in time. 3.5 Working capital Although the Proposed Share Buy-back would reduce the working capital of the Group to the extent of the amount of funds utilised for the purchase of the Company s shares, it is not expected to have an adverse material effect on the working capital of the Group. 4. IMPLICATIONS RELATING TO THE CODE The effects of the Proposed Share Buy-back on the shareholdings of the Directors and substantial shareholders of Kobay would depend on the timing and the number of shares so purchased, if any. However, for illustration, the Proposed Share Buy-back would have the following effect on the percentage of the shareholdings of the Directors and substantial shareholders of Kobay, assuming that a maximum number of 6,808,075 shares are purchased from the public shareholders: 18

24 No. of shares held As at After Proposed 1 November Share Buy-back Direct Indirect Direct Indirect Directors Dato Koay Hean Eng 1,654,154 (2.45%) * 17,523,007 (26.02%) 1,654,154 (2.70%) * 17,523,007 (28.60%) Koay Cheng Lye 586,995 (0.87%) * 17,523,007 (26.02%) 586,995 (0.96%) * 17,523,007 (28.60%) Koay Cheng Hock 569,665 (0.85%) * 17,523,007 (26.02%) 569,665 (0.93%) * 17,523,007 (28.60%) Ong Teik Kooi - ** 4,300,000 (6.38%) - ** 4,300,000 (7.02%) Lim Swee Chuan 20,000 (0.03%) Tan Yok Cheng 1,250 # Dato Abdul Rahman Bin Mohammed Hashim 1,250 # - 20,000 (0.03%) - 1,250 # - 1,250 # Dr. Mohamad Zabdi Bin Zamrod Substantial Shareholders 17,523,007 (26.02%) Employees Provident Fund Board 4,625,050 (6.85%) Noorzalila Binti Ismail 4,300,000 (6.38%) - 17,523,007 (28.60%) - 4,625,050 (7.55%) - 4,300,000 (7.02%) Dato Koay Hean Eng 1,654,154 (2.45%) * 17,523,007 (26.02%) 1,654,154 (2.70%) * 17,523,007 (28.60%) Koay Cheng Lye 586,995 (0.87%) * 17,523,007 (26.02%) 586,995 (0.96%) * 17,523,007 (28.60%) Koay Cheng Hock 569,665 (0.85%) * 17,523,007 (26.02%) 569,665 (0.93%) * 17,523,007 (28.60%) Ong Teik Kooi - ** 4,300,000 (6.38%) - ** 4,300,000 (7.02%) * Deemed interest by virtue of their substantial shareholdings in, a substantial shareholder of Kobay ** Deemed interest by virtue of his spouse s substantial shareholding i.e. Noorzalila Binti Ismail in Kobay # Interest is less than The percentage of shareholding is calculated based on the issued and paid-up capital of Kobay of RM68,080,750 comprising 68,080,750 shares and after deduction of 728,200 treasury shares retained by Kobay as at 1 November 2006 The percentage of shareholding is calculated based on the issued and paid-up capital of Kobay of RM68,080,750 comprising 68,080,750 shares and after deduction of the maximum number of 6,808,075 shares purchased from the public shareholders and retained by Kobay as treasury shares pursuant to the Proposed Share Buy-back 19

25 Based on the shareholdings as set out above, should the Company acquire the full amount of shares representing ten per cent (10%) of its issued and paid up capital of RM68,080,750 comprising 68,080,750 shares, the total direct and indirect equity interests of the substantial shareholder, namely, and the Directors, namely Dato Koay Hean Eng, Mr. Koay Cheng Lye and Mr. Koay Cheng Hock (all acting in concert with each other) would increase by approximately 2.99% from 30.20% to 33.19%. In this instance, and the said three Directors would be obliged to undertake a mandatory offer for the remaining shares in the Company not held by them pursuant to the Code. However, an exemption to undertake a mandatory offer may be granted by the SC under Practice Note of the Code, subject to the aforesaid substantial shareholder and Directors obtaining the approval from the independent/minority shareholders of the Company, on a poll, at a meeting of shareholders, to increase their shareholdings in the Company to more than 33%, if the increase in shareholding of the aforesaid substantial shareholder and Directors in the Company is inadvertent and a mandatory offer obligation is triggered as a result of any action outside its direct participation. The aforesaid substantial shareholder and Directors intend to apply for an exemption under Practice Note of the Code if the obligation is expected to be triggered as a result of the Proposed Share Buy-back. 5. PURCHASES MADE IN THE LAST FINANCIAL YEAR During the last financial year ended 30 June 2006, the Company did not purchase any of its own shares. Disclosure has been included in page 24 of the Company s 2006 Annual Report. 6. PUBLIC SHAREHOLDING SPREAD According to the Record of Depositors and the Register of Substantial Shareholders of the Company, the total percentage of the issued and paid-up share capital of Kobay which is held by the public (in accordance with the public shareholding spread requirements of the Bursa Securities and SC) as at 1 November 2006, was 63.31%, representing 42,614,928 shares in Kobay. Pursuant to the Proposed Share Buy-back, the aforesaid public shareholding of Kobay would be reduced to approximately 59.67% or 36, shares in Kobay based on the assumptions that the maximum number of 6,808,075 shares are purchased, and that all the shares so purchased are from the public shareholders of Kobay. 7. DIRECTORS RECOMMENDATION The Board of Directors having considered all aspects of the Proposed Share Buy-back, is of the opinion that the Proposed Share Buy-back is in the best interest of the Company and therefore recommend that you vote in favour of the resolution relating to the renewal of the authority for the Proposed Share Buyback to be tabled at the forthcoming AGM. 20