Further details on the Proposed Two-Call Rights Issue are set out below in the ensuing sections of this announcement.

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1 DUFU TECHNOLOGY CORP. BERHAD ( DUFU OR COMPANY ) PROPOSED RENOUNCEABLE TWO-CALL RIGHTS ISSUE OF UP TO 60,000,000 NEW ORDINARY SHARES OF RM0.50 EACH IN DUFU ( RIGHTS SHARES ) ON THE BASIS OF ONE (1) RIGHTS SHARE FOR EVERY TWO (2) EXISTING ORDINARY SHARES OF RM0.50 EACH HELD IN DUFU ( DUFU SHARES OR SHARES ) ON AN ENTITLEMENT DATE TO BE DETERMINED LATER ( PROPOSED TWO-CALL RIGHTS ISSUE ) 1. INTRODUCTION On behalf of the Board of Directors of Dufu ( Board ), Bank Islam Malaysia Berhad ( Bank Islam ) is pleased to announce that the Company is proposing to undertake a renounceable two-call rights issue of up to 60,000,000 Rights, on the basis of one (1) Rights Share for every two (2) existing held on an entitlement date to be determined later ( Entitlement Date ), at an indicative issue price of RM0.50 per Rights Share payable in two (2) calls, of which the first call of RM0.20 per Rights Share will be payable in cash on application and the second call of RM0.30 per Rights Share will be capitalised from the Company s retained earnings upon allotment. Further details on the Proposed Two-Call Rights Issue are set out below in the ensuing sections of this announcement. 2. DETAILS OF THE PROPOSED TWO-CALL RIGHTS ISSUE 2.1 Basis and Quantum The Proposed Two-Call Rights Issue of up to 60,000,000 Rights at an indicative issue price of RM0.50 per Rights Share to be payable in two (2) calls, is to be implemented on a renounceable basis of one (1) Rights Share for every two (2) existing held on the Entitlement Date. The entitled shareholders of Dufu may subscribe for their respective entitlements to the Rights in full or in part. The Rights which are not taken up or validly taken up shall be made available for excess application by the entitled shareholders and/or their renouncee(s). It is the intention of the Board to allocate the excess Rights in a fair and equitable manner on a basis to be determined by the Board and announced later. In determining the shareholders entitlement to the Proposed Two-Call Rights Issue, fractional entitlements, if any, shall be dealt with in such manner as the Board shall in its sole and absolute discretion deem expedient or to be in the best interests of the Company. 1

2 2.2 Cash Call and Capitalisation of Reserves The indicative issue price of RM0.50 per Rights Share will be payable in two (2) calls, comprising the first call of RM0.20 per Rights Share to be payable in cash on application and the second call of RM0.30 per Rights Share to be payable via capitalisation of the Company s retained earnings upon allotment. Therefore, the subscribing shareholders will not have to make any further cash payment after the first call of RM0.20 per Rights Share. Only the subscribing shareholders who have paid for the first call of RM0.20 per Rights Share shall be entitled to the distribution of RM0.30 per Rights Share from the capitalisation of the Company s retained earnings in the form of payment of the second call for the Rights subscribed. Details of the capitalisation for the second call of RM0.30 per Rights Share, based on Dufu s audited consolidated financial statements for the financial year ended 31 December 2012 are set out as follows:- Company Level Retained Earnings (RM 000) Audited as at 31 December ,376 Less: Less: Capitalisation for the second call of RM0.30 per Rights Share under the Proposed Two-Call Rights Issue (based on Maximum Scenario as defined in Section 2.7 below) Estimated expenses for the Proposed Two-Call Rights Issue (18,000) (600) After the Proposed Two-Call Rights Issue 3,776 The Board confirms that based on Dufu s latest audited consolidated financial statements for the FYE 31 December 2012, the retained earnings required for capitalisation of the Proposed Two-Call Rights Issue are adequate and unimpaired by losses on a consolidated basis in accordance with Paragraphs 6.19 and 6.30(1) of the Main Market Listing Requirements ( Listing Requirements ) of Bursa Malaysia Securities Berhad ( Bursa Securities ). 2.3 Shareholders and Directors Undertakings and Minimum Subscription Level The Board has determined to undertake the Proposed Two-Call Rights Issue on a minimum subscription level basis via the issuance of 34,000,032 Rights ( Minimum Subscription Level ). The Minimum Subscription Level was determined by the Board after taking into consideration the minimum level of funds of RM6.8 million that the Company wishes to raise from the Proposed Two-Call Rights Issue which will be channeled towards the proposed utilisation as set out in Section 2.7 of this announcement. To meet the Minimum Subscription Level, the Company has procured irrevocable written undertaking letters from certain shareholders and/or Directors of Dufu, namely Perfect Commerce Sdn Bhd ( PCSB ), Lee, Hui-Ta also known as Li Hui Ta ( LHT ), Hsu, Chin-Shui ( HCS ), Wong Ser Yian ( WSY ), Yong Poh Yow ( YPY ) and Wu, Mao-Yuan ( WMY ) to subscribe in full of their respective entitlements to the Rights as at the Entitlement Date ( Entitlement Undertakings ). 2

3 In addition, LHT, YPY and WMY have also provided irrevocable written undertakings to make excess application and subscribe for up to 1,298,600 Rights, 2,800,200 Rights and 1,500,000 Rights respectively, in the event of under-subscription of Rights by the entitled shareholders and/or their renouncee(s) ( Additional Undertakings ). Khoo Lay Tatt ( KLT ), the Senior Independent Non-Executive Director of Dufu, has also provided his irrevocable written undertaking to subscribe for 5,000,000 Rights not subscribed under the excess application by the entitled shareholders and/or their renouncee(s), or such lesser amount to the extent permissible or available to be allocated to KLT depending on the availability of the Rights after the allocation of such number of the excess Right that may have been applied for by the entitled shareholders and/or their renouncee(s) pursuant to their respective excess applications ( KLT Undertaking ). Pursuant to Paragraph 6.06 of the Listing Requirements, the allotment of Rights to KLT pursuant to KLT Undertaking is deemed as an allotment of shares to Directors which requires approval of the shareholders of the Company in a general meeting to the specific allotment. Hence, the allotment to be made to KLT pursuant to the KLT Undertaking shall require prior approval from the shareholders of Dufu at the forthcoming Extraordinary General Meeting ( EGM ). The details of the Entitlement Undertakings, Additional Undertakings and KLT Undertaking are set out as below:- As at 19 April 2013 Entitlement Undertakings Additional Undertakings /KLT Undertaking Total Rights to be subscribed pursuant to Entitlement Undertakings, Additional Undertakings/ KLT Undertaking Rights Rights Rights (1) Shareholders / Directors PCSB 11,283, ,641,500-5,641, WSY 9,517, ,758,623-4,758, LHT 9,639, ,819,588 1,298,600 6,118, HCS 10,853, ,426,687-5,426, YPY 2,434, ,217,334 2,800,200 4,017, WMY 3,075, ,537,500 1,500,000 3,037, KLT ,000,000 5,000, Total 46,802, ,401,232 10,598,800 34,000, Note:- (1) Percentage calculated based on 60,000,000 Rights available for subscription under the Proposed Two-Call Rights Issue. 3

4 As the Proposed Two-Call Rights Issue is structured on a Minimum Subscription Level basis, Dufu will not procure any underwriting arrangements. PCSB, LHT, HCS, WSY, YPY and WMY have also provided their respective confirmations that they have sufficient financial resources to take up the Rights pursuant to the Entitlement Undertakings and Additional Undertakings (where applicable). Bank Islam has verified that PCSB, LHT, HCS, WSY, YPY and WMY have sufficient financial resources to subscribe for the Rights pursuant to the Entitlement Undertakings and Additional Undertakings (where applicable). In addition, KLT has also provided his confirmation that he has sufficient financial resources to take up the Rights pursuant to the KLT Undertaking. Bank Islam has verified that KLT has sufficient financial resources to subscribe for the Rights pursuant to the KLT Undertaking. 2.4 Basis of Pricing The final issue price for the Rights, the first call price and the second call price will be determined and announced by the Board at a price-fixing date after obtaining approval from shareholders of Dufu for the Proposed Two-Call Rights Issue but before the Entitlement Date. The final issue price of the Rights shall take into consideration the theoretical ex-rights price ( TERP ) based on the five (5)-day volume-weighted average market price ( VWAP ) of the existing Dufu prior to the price-fixing date to be determined by the Board. The final issue price for the Rights shall in no event be lower than the par value of Dufu of RM0.50 each, after taking into consideration, inter-alia, the adequacy of retained earnings for capitalisation, the funding requirement of the Group and the then prevailing market conditions and market price of Dufu. For illustrative purposes, based on the indicative issue price of RM0.50 per Rights Share, the TERP is approximately RM based on the five (5)-day VWAP up to and including 19 April As such, the first call of RM0.20 for each Rights Share represents a discount of approximately to the TERP of RM Ranking of the Rights The Rights will, upon allotment and issue, rank pari passu, in all respects with the existing Dufu except that they shall not be entitled to any dividends, rights, allotments and/or other distributions, the entitlement date of which is prior to the allotment date of the Rights. 2.6 Listing and Quotation An application will be made to Bursa Securities for the listing of and quotation for the Rights on Bursa Securities. 4

5 2.7 Proposed Utilisation of Proceeds Based on the first call of RM0.20 per Rights Share, the Proposed Two-Call Rights Issue is expected to raise total gross proceeds of up to RM12.0 million. The proposed utilisation of the gross proceeds to be raised from the Proposed Two-Call Rights Issue is set out below:- Description of utilisation of proceeds Note (1) Minimum Scenario (RM 000) (2) Maximum Scenario (RM 000) Estimated timeframe for utilisation from the date of the listing of the Rights Investment in new machinery (a) 3,000 3,000 Within 24 months Working capital (b) 3,200 8,400 Within 24 months Estimated expenses for the Proposed Two-Call Rights Issue (c) Within 6 months Gross proceeds to be raised 6,800 12,000 Notes:- (1) Assume that the Proposed Two-Call Rights Issue will be implemented based on the Minimum Subscription Level. (2) Assume all the entitled shareholders of Dufu subscribe for their respective entitlements in full under the Proposed Two-Call Rights Issue. (a) (b) The procurement of four (4) to six (6) units of precision computer numerical control ( CNC ) machines, of which three (3) to five (5) units are for the manufacturing of medical devices components and one (1) unit is for the manufacturing of control and sensor components. Funding of the Group s day-to-day operations for the non-hard disk drive components products, which include, but not limited to the following:- (i) (ii) Procurement of high-value raw materials, such as titanium and stainless steel for the manufacturing of medical devices components, and stainless steels and aluminium for the manufacturing of control and sensor components which required upfront and bulk purchase; and Labour cost and factory overhead. The exact amount required may vary depending on the changes in business dynamics. At present, the Board has not determined the exact breakdown of the proceeds in respect of the aforesaid working capital requirements. (c) The estimated expenses include professional fees and fees payable to the authorities, printing cost of circular and abridged prospectus, advertising and miscellaneous expenses are estimated at RM600,000. Any variation in the actual proceeds raised from the Proposed Two-Call Rights Issue will be adjusted to or from the amount allocated for working capital. Any shortfall or excess in the funds allocated for the estimated expenses will be funded from or used for the working capital of the Dufu Group. 5

6 3. RATIONALE FOR THE PROPOSED TWO-CALL RIGHTS ISSUE The Proposed Two-Call Rights Issue will enable the Company to raise funds for the following:- (i) (ii) To grow its non-hard disk drive components products which include the purchase of machinery for the manufacturing of medical devices components and control and sensor components; and To provide additional working capital for the Group s non-hard disk drive components products as mentioned in Section 2.7 above. This is expected to improve liquidity of the Group and increase the revenue contribution from the non-hard disk drive components products. The Board is of the opinion that raising funds by way of the Proposed Two-Call Rights Issue is most suitable for the following reasons:- (i) (ii) (iii) It will allow the Company to raise the requisite equity capital for the Group without having to incur interest expense or service principal repayment as compared to bank borrowings. This would allow the Group to preserve cash flow for reinvestment and/or operational purpose; It will provide an opportunity for the existing shareholders to further participate in the equity of the Company without diluting the existing shareholders percentage shareholdings, assuming all the entitled shareholders fully subscribe for their respective entitlements to the Rights and ultimately, participate in the prospect and future growth of the Group; and It will ensure the Proposed Two-Call Rights Issue can be implemented with an attractive pricing to shareholders and after taking into consideration the following:- (a) (b) Share price of the Company has been trading below its par value of RM0.50 since August 2010; and The requirement to issue shares at not less than its par value. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 6

7 4. FINANCIAL EFFECTS OF THE PROPOSED TWO-CALL RIGHTS ISSUE The financial effects of the Proposed Two-Call Rights Issue are set out hereunder for illustrative purposes only based on the following scenarios and assuming the indicative issue price of RM0.50 per Rights Share, of which first call price of RM0.20 per Rights Share and second call of RM0.30 per Rights Share:- Minimum Scenario Assume the Proposed Two-Call Rights Issue will be implemented based on the Minimum Subscription Level after taking into consideration the minimum level of funds of RM6.8 million that the Company wishes to raise from the Proposed Two-Call Rights Issue. Maximum Scenario Assume all the entitled shareholders of Dufu subscribe for their respective entitlements of the 60,000,000 Rights Share in full to raise a maximum of RM12.0 million under the Proposed Two-Call Rights Issue. 4.1 Issued and Paid-Up Share Capital The effects of the Proposed Two-Call Rights Issue on the issued and paid-up share capital of Dufu are as follows:- <----Minimum Scenario----> <----Maximum Scenario---> Issued and paid-up share capital as at 19 April 2013 To be issued pursuant to the Proposed Two- Call Rights Issue Upon completion of Proposed Two-Call Rights Issue RM RM 120,000,000 60,000, ,000,000 60,000,000 34,000,032 17,000,016 60,000,000 30,000, ,000,032 77,000, ,000,000 90,000,000 [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 7

8 4.2 Substantial Shareholders Shareholdings The pro-forma effects of the Proposed Two-Call Rights Issue on the shareholdings of the substantial shareholders of Dufu as at 19 April 2013 are set out as follows:- Minimum Scenario: Assuming only the shareholders and/or Directors of Dufu that have given irrevocable written undertakings subscribe for the Rights pursuant to their respective Entitlement Undertakings, Additional Undertakings and KLT Undertaking under the Proposed Two-Call Rights Issue as set out in Section 2.3 of this announcement. Existing as at 19 April 2013 After Proposed Two-Call Rights Issue < Direct > < Indirect > < Direct > < Indirect > PCSB 11,283, ,924, WSY 9,517, ,275, LHT 9,639, ,283,000^ ,757, ,924,500^ HCS 10,853, ,280, Lee, Wen-Jung ,283,000^ Lee, Su Hui-Fen ,283,000^ ,924,500^ ,924,500^ Note:- ^ Indirect Interest by virtue of his/her substantial interest in PCSB. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 8

9 4.2 Substantial Shareholders Shareholdings (Cont d) Maximum Scenario: Assuming all the entitled shareholders of Dufu subscribe for their respective entitlements under the Proposed Two-Call Rights Issue. Existing as at 19 April 2013 After Proposed Two-Call Rights Issue < Direct > < Indirect > < Direct > < Indirect > PCSB 11,283, ,924, WSY 9,517, ,275, LHT 9,639, ,283,000^ ,458, ,924,500^ HCS 10,853, ,280, Lee, Wen-Jung ,283,000^ Lee, Su Hui-Fen ,283,000^ ,924,500^ ,924,500^ Note:- ^ Indirect Interest by virtue of his/her substantial interest in PCSB. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 9

10 4.3 Net Assets ( NA ) and Gearing Based on the audited consolidated statements of financial position of Dufu as at 31 December 2012, the proforma effects of the Proposed Two-Call Rights Issue on the consolidated NA and gearing of the Dufu Group are as follows:- Audited As at 31 December 2012 After Proposed Two-Call Rights Issue Minimum Scenario Maximum Scenario RM 000 RM 000 RM 000 Share capital 60,000 77,000 90,000 Retained earnings 49,182 38,382^ 30,582^ Other reserves (25,712) (25,712) (25,712) Shareholders funds/na 83,470 89,670 94,870 NA per share (RM) Borrowings 57,883 57,883 57,883 Gearing (times) Note: ^ After netting off estimated expenses of RM600,000 and capitalisation of retained earnings of approximately RM10.2 million and RM18.0 million under the Minimum and Maximum Scenario respectively for the Proposed Two-Call Rights Issue. 4.4 Earnings Based on the assumption that the Proposed Two-Call Rights Issue is expected to be completed by the third quarter of year 2013, the Proposed Two-Call Rights Issue is not expected to have any material effect on the earnings of the Dufu Group for the financial year ending 31 December Nevertheless, the consolidated earnings per share ( EPS ) of Dufu for the financial year ending 31 December 2013 is expected to be diluted as a result of the immediate increase in the number of Dufu in issue after the Proposed Two-Call Rights Issue. [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 10

11 Over time, the Proposed Two-Call Rights Issue is expected to contribute positively to the future earnings of the Dufu Group arising from the proposed utilisation of the proceeds as disclosed in Section 2.7 above. As and when the returns from the utilisation of proceeds materialise, shareholders through Dufu are envisaged to enjoy increased earnings. Ultimately, any potential EPS growth of the Dufu Group in the future will depend on the returns from the intended utilisation of the proceeds from the Proposed Two-Call Rights Issue. 4.5 Convertible Securities As at the date of this announcement, Dufu does not have any convertible securities. 5. APPROVALS REQUIRED The Proposed Two-Call Rights Issue is conditional upon approvals being obtained from the following:- (i) (ii) (iii) Bursa Securities, for the listing of and quotation for the Rights on Bursa Securities; Shareholders of the Company at an EGM to be convened for the Proposed Two-Call Rights Issue; and Any other relevant authority or party, if required. 6. DIRECTORS AND/OR MAJOR SHAREHOLDERS INTERESTS In view that the allotment of the Rights to KLT pursuant to the KLT Undertaking is deemed as an allotment of shares to Directors which requires approval of the shareholders of the Company in a general meeting to the specific allotment pursuant to Paragraph 6.06 of the Listing Requirements, KLT is deemed interested in respect of the KLT Undertaking under the Proposed Two-Call Rights Issue. Accordingly, KLT has abstained from expressing an opinion and making any recommendation on the Board s deliberations and further abstained from voting on the resolution pertaining to the proposed allotment by the Company to KLT for up to 5,000,000 Rights in the event of under-subscription of the Proposed Two-Call Rights Issue ( Proposed Allotment ). KLT will also abstain from voting in respect of his direct and/or indirect shareholdings, if any, in the Company on the resolution pertaining to the Proposed Allotment at the forthcoming EGM. 11

12 In addition, KLT has undertaken that he will ensure that person connected with him shall abstain from voting in respect of their direct and/or indirect shareholdings in the Company, if any on the resolution pertaining to the Proposed Allotment at the forthcoming EGM. Save as disclosed above, none of the Directors and/or major shareholders of Dufu and persons connected to them have any interest, either direct and/or indirect, in the Proposed Two-Call Rights Issue, save for their respective entitlements and their rights to subscribe for excess Rights under the Proposed Two-Call Rights Issue, if any, for which all shareholders of Dufu are entitled to. 7. DIRECTORS STATEMENT The Board with the exception of KLT for the Proposed Allotment, having considered all aspects of the Proposed Two-Call Rights Issue (including but not limited to the rationale and financial effects), is of the opinion that the Proposed Two-Call Rights Issue is in the best interest of the Company. 8. ADVISER Bank Islam has been appointed as the Principal Adviser to the Company for the Proposed Two-Call Rights Issue. 9. SUBMISSION TO THE RELEVANT AUTHORITIES The Company intends to submit the application to the relevant authorities within one (1) month from the date of this announcement. 10. ESTIMATED TIME FRAME FOR THE COMPLETION OF THE PROPOSED TWO-CALL RIGHTS ISSUE Barring any unforeseen circumstances, the Proposed Two-Call Rights Issue is expected to be completed by the third (3 rd ) quarter of this year. This announcement is dated 22 April