Details of the Proposed Disposal are set out in the ensuing sections.

Transcription

1 KOMARKCORP BERHAD ("KOMARK" OR THE "COMPANY") PROPOSED DISPOSAL BY KOMARK OF TWO (2) ORDINARY SHARES OF UNITED STATES DOLLAR ("USD") 1.00 EACH IN KOMARK INVESTMENT HOLDINGS LIMITED ("KOMARK BVI"), A WHOLLY-OWNED SUBSIDIARY COMPANY OF KOMARK, INCLUDING ITS WHOLLY-OWNED SUBSIDIARY COMPANIES, NAMELY SHANGHAI KOMARK LABELS & LABELLING CO., LTD. ("SHANGHAI KOMARK") AND GUANGZHOU KOMARK LABELS & LABELLING CO., LTD. ("GUANGZHOU KOMARK"), TO LAGORA HK LIMITED FOR AN INDICATIVE DISPOSAL CONSIDERATION OF RM48,000,000 TO BE SATISFIED ENTIRELY VIA CASH ("PROPOSED DISPOSAL") 1. INTRODUCTION Reference is made to the announcements of the Company dated 13 October 2015, 16 October 2015, 30 November 2015, 15 January 2016, 21 January 2016, 29 February 2016 and 3 March On behalf of the Board of Directors of Komark ("Board"), RHB Investment Bank Berhad ("RHBIB") is pleased to announce that Komark had, on 28 April 2016 entered into a conditional share purchase agreement with Lagora HK Limited ("Lagora HK" or "Purchaser") for the proposed disposal by Komark of two (2) ordinary shares of USD1.00 each in Komark BVI ("Komark BVI Share(s)") ("Komark BVI Sale Share(s)"), a wholly-owned subsidiary company of Komark, including its wholly-owned subsidiary companies, namely Shanghai Komark and Guangzhou Komark (collectively referred to as the "Komark BVI Group"), to the Purchaser for an indicative disposal consideration of RM48,000,000 ("Disposal Consideration") to be satisfied entirely via cash ("SPA"). Details of the Proposed Disposal are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED DISPOSAL On 28 April 2016, Komark had entered into a conditional share purchase agreement with the Purchaser for the proposed disposal by Komark of two (2) Komark BVI Shares, representing 100% equity interest in Komark BVI Group, to the Purchaser for an indicative Disposal Consideration of RM48,000,000 to be satisfied entirely via cash. Komark BVI Group is a wholly-owned subsidiary company of Komark. Upon completion of the Proposed Disposal, Komark BVI Group will cease to be a subsidiary company of Komark. 2.1 Information on Komark BVI Komark BVI was incorporated in British Virgin Islands on 10 April 2001 under the International Business Companies Act, Cap. 291 as an international business company. The principal activity of Komark BVI is investment holding while the principal activities of its subsidiary companies are manufacturing and selling of selfadhesive labels. As at 22 April 2016, being the latest practicable date prior to the date of this announcement ("LPD"), Komark BVI has two (2) wholly-owned subsidiary companies, namely Shanghai Komark and Guangzhou Komark. The authorised share capital of Komark BVI is USD50,000 comprising 50,000 Komark BVI Shares, of which USD2.00 comprising two (2) Komark BVI Shares have been issued and fully paid-up. Komark BVI is a wholly-owned subsidiary company of Komark while Shanghai Komark and Guangzhou Komark are wholly-owned subsidiary copmanies of Komark BVI. Upon completion of the Proposed Disposal, Komark BVI Group will cease to be a subsidiary company of Komark. 1

2 The directors of Komark BVI as at the LPD are set out below:- Directors Nationality < Direct >< Indirect > No. of Komark BVI Shares % No. of Komark BVI Shares % Koh Hong Koh Gak Siong Malaysian Koh Chie Jooi Malaysian A summary of the consolidated financial information of Komark BVI Group for the past three (3) financial years up to the financial year ended ("FYE") 30 April 2015 and the nine (9)-month financial period ended ("FPE") 31 January 2016 is set out below:- Nine (9)- month FPE < FYE 30 April > 31 January RM RM RM RM Revenue 67,654,478 80,885,485 82,943,307 78,394,406 Profit before tax/ (Loss before tax) ("PBT/ (LBT)") 431,315 2,107,839 (8,576,252) 3,766,126 Profit after tax/ (Loss after tax) ("PAT/ (LAT)") (396,125) 236,502 (9,472,853) 3,546,231 Share capital Shareholders' funds/ Net assets ("NA") 22,950,140 20,386,798 20,314,642 22,376,790 Number of Komark BVI Shares in issue NA per Komark BVI Share 11,475,070 10,193,399 10,157,321 11,188,395 Current ratio (times) Total borrowings 30,185,918 30,748,906 29,426,088 29,404,989 Gearing (times) Further details on Komark BVI Group are set out in Appendix I of this announcement. 2.2 Information on the Purchaser Lagora HK was incorporated in Hong Kong on 20 November 2015 under the Companies Ordinance as a limited company. The principal activities of Lagora HK are investment holding and management. The issued and paid-up share capital of Lagora HK is USD1.00 comprising one (1) share in Lagora HK ("Lagora HK Share"). As at the LPD, Lagora HK is held in trust by Jerôme Beilvert for and on behalf of Lagora Sarl, a company incorporated in Luxembourg which is the holding company of the packaging group, Autajon. Jerôme Beilvert had made an application to transfer the Lagora HK Share to Lagora Sarl. The Lagora HK Share will be registered under Lagora Sarl upon the completion of the said transfer. As at the LPD, the director of Lagora HK is Jerôme Beilvert. 2.3 Basis and justification of arriving at the indicative Disposal Consideration The indicative Disposal Consideration was arrived at on a willing-buyer willing-seller basis, after taking into consideration the following:- i. Price-to-earnings ("PE") ratio For the nine (9)-month FPE 31 January 2016, Komark BVI Group recorded consolidated PAT of RM3,546,231. Based on the annualised consolidated PAT of RM4,728,308, the indicative Disposal Consideration represents a PE ratio of approximately times. 2

3 For the full FYE 30 April 2015, Komark BVI Group recorded LAT and as such, the PE ratio as implied by the indicative Disposal Consideration is not applicable. As such, we have additionally analysed the PE ratio based on the FYE 30 April 2014 whereby Komark BVI Group recorded consolidated PAT of RM236,502 and the PE ratio as implied by the indicative Disposal Consideration is approximately times. ii. Price-to-book ("PB") ratio As at 31 January 2016, the consolidated net assets of Komark BVI Group is RM22,376,790. Based on the aforementioned, the indicative Disposal Consideration represents a PB ratio of approximately 2.15 times. Pursuant to Section (viii) of this announcement, Komark is required to waive and/ or capitalise all advances due and owing by Komark BVI Group to Komark whereby as at 31 January 2016, the total advances due and owing by Komark BVI Group to Komark was RM34,750,654 ("Advances"). Assuming that the Advances has been fully capitalised, the proforma consolidated net assets of Komark BVI Group after the capitalisation of the Advances shall be RM57,127,444. Based on the aforementioned, the indicative Disposal Consideration represents a PB ratio of approximately 0.84 times. iii. Increasing competition in the label printing industry in the People's Republic of China ("PRC") Among the factors which concerns players in the labels printing industry in the PRC is increasing labour cost amid stiff competition which pushes prices lower and reduces profit margin. End users now have higher requirements for label functionality for printing quality and for delivery time while demanding for lower prices. In addition, publishing and commercial printers are now entering the labels market in the PRC, which has further intensified the competition. (Source: Labels & Labeling Yearbook & Directory 2016) iv. Outlook on the label printing industry in the PRC The gross output value of the PRC label industry in 2014 was USD5.2 billion, a 10% increase from Compared with growth rates of 15% several years before, this represents a historical slowdown, but the overall figures still show that between 2009 and 2014 the total volume of label consumption more than doubled. The historical growth rate of the PRC printing industry is as follows:- As indicated in the chart above, it can be seen that the label printing industry in the PRC is currently going through a slowdown in terms of growth from 20% in 2010 to 10% in 2014 as shown above. (Source: Labels & Labeling Yearbook & Directory 2016) 3

4 2.4 Salient terms of the SPA Sale of Komark BVI Sale Shares Upon the terms and conditions of the SPA, on the Completion Date (as defined in Section 2.4.3(i) of this announcement), Komark shall sell, and the Purchaser shall purchase the Komark BVI Sale Shares at the indicative Disposal Consideration of RM48,000,000, free and clear of any encumbrances on the Komark BVI Sale Shares, together with all rights then and thereafter attached thereto on and from 31 December 2015 as indicated in the Reference Accounts #. For the sake of clarity, the distributable profit of Komark BVI accrued between 31 August 2015 until the Completion Date shall be owned by the Purchaser. Note:- # "Reference Accounts" shall mean the consolidated balance sheet, profit and loss statement of Komark BVI Group established on the basis of the financial statements stipulated in the SPA, in accordance with the relevant accounting laws and regulations in the jurisdiction of each of the Komark BVI Group companies, adjusted according to the International Financial Reporting Standards principles, audited and certified by the auditors of Komark BVI Group and confirmed by the auditor of the Purchaser as of 31 December 2015 and accompanied by the reports of Komark BVI's statutory auditors for the fiscal year ended in 31 December Conditions precedent Conditions precedent to be complied with by Komark The SPA is subject to the following conditions being complied by Komark on or before the expiry of four (4) months from the date of the SPA ("Long Stop Date") or the expiry of two (2) months from the Long Stop Date ("Extended Long Stop Date") as the case may be (unless satisfaction of any condition is waived by the Purchaser):- i. Komark receiving a written notice from the Purchaser stipulating that the Purchaser is satisfied with the results of operational, financial, legal, tax, commercial and human resources due diligence investigation; ii. iii. iv. the Proposed Disposal has been duly approved by relevant authorities within the group of Komark and its subsidiary companies ("Komark Group"), including shareholders and board of directors of Komark; the labour contract between Komark BVI or relevant subsidiary company(ies) of Komark BVI, namely Shanghai Komark and Guangzhou Komark, and the key employee, namely Koh Chee Mian as the General Manager of Shanghai Komark and Guangzhou Komark, has been duly signed under a form satisfactory for the Purchaser; the Non-Competition Undertaking (as defined in Section of this announcement) has been duly executed by Komark, Koh Hong Koh Gak Siong, Datuk Tan Kwe Hee, Lim Pei Liam Ahat Kiat, Koh Chee Mian and Koh Chie Jooi, respectively; v. for purpose of the Proposed Disposal, satisfactory approvals and/ or consents have been obtained from relevant regulatory authorities (if relevant); 4

5 vi. vii. viii. ix. for purpose of the Proposed Disposal, satisfactory written approvals and/ or written consents have been obtained from all relevant parties, including but not limited to, banks approval for change of control clause in the bank facilities and/ or bank security agreements, and customers approval in connection with the change of control stipulations set forth in commercial contracts; Komark has provided satisfactory evidence of the payment of all and any taxes related to the Proposed Disposal that may affect Komark BVI, its subsidiary companies or the Purchaser; all the debts owed by Komark BVI and/ or any of its subsidiary companies as of the Completion Date to Komark and/ or its related companies have been waived and/ or capitalised without incurring unexpected tax liabilities to any of Komark BVI Group companies, including without being limited to, any shareholder loan granted by Komark to any of Komark BVI Group companies and relevant evidences have been provided to the satisfaction of the Purchaser; as of the Completion Date, Komark BVI and/ or any of its subsidiary companies does not owe any amount to any member of Komark Group and relevant evidences have been provided to the satisfaction of the Purchaser; x. Komark shall have performed and complied with, in all material respects, all agreements and undertakings required by the SPA to be performed or complied with by Komark prior to or on the Completion Date; xi. xii. xiii. xiv. since 30 April 2015 to the Completion Date, no change, situation, development or other event having, or which could reasonably be expected to have, a material adverse effect, other than as disclosed in the SPA, shall have occurred; the consolidated net asset value of Komark BVI Group, which means the total of the consolidated assets minus the total of the consolidated liabilities of Komark BVI Group, as of the Completion Date shall not be below RM40,000,000. This amount shall be confirmed by audited report of the consolidated financial statements of Komark BVI Group as of one (1) month before the Completion Date; Komark shall provide the evidence of the submission of the application for assessment by the relevant PRC tax authority as to the amount of taxes to be paid in connection with the indirect transfer of the subsidiary companies of Komark BVI contemplated in the SPA; the representations and warranties of Komark contained in the SPA shall be accurate in all material respects as of the date of the SPA and as of the Completion Date, as if such representations and warranties were restated on and as of the Completion Date, except for such inaccuracies or breaches as are specifically waived by the Purchaser; 5

6 xv. xvi. xvii. xviii. xix. xx. Komark has provided satisfactory evidence showing that all the sums awarded by any court, arbitration center, or administrative authority under any legal proceedings as at the date of the SPA, if any has been fully paid and settled by Komark BVI Group; Komark shall enter/ cause the valid copyright owner to enter with Shanghai Komark and Guangzhou Komark into a valid software licence agreement according to which Shanghai Komark and Guangzhou Komark shall be entitled to use the software developed by Komark/ valid copyright owner, necessary for the operation of the business. The software licence shall be granted for free by Komark to Shanghai Komark and Guangzhou Komark for a period of eighteen (18) months after the Completion Date. After the expiry of eighteen (18) months, Shanghai Komark and Guangzhou Komark at their sole option may decide to extend or not the software license. In case Shanghai Komark and Guangzhou Komark decide to extend such software license, Shanghai Komark and Guangzhou Komark shall benefit from such license against the payment of a software licence fee of a gross amount of the PRC Renminbi ("RMB")100,000 in aggregate per annum; Komark has provided satisfactory evidence showing that all the trademarks which are necessary for the operation of the business of Komark BVI Group are duly renewed; Komark shall enter/ cause the valid owner of the trademarks "Komark" n and in the PRC (General Labels & Labelling (M) Sdn. Bhd.) (the "Trademarks") to enter with the Purchaser into a valid trademark license agreement according to which Komark BVI Group and any other affiliates of the Autajon group will be entitled to use for free the Trademarks within the territory of the PRC including Hong Kong, Macau and Taiwan during a period of two and a half (2½) years. After the expiry of two and a half (2½) years, the Purchaser at its sole option may decide to extend or not the exclusive trademark license. In case the Purchaser decides to extend such trademark license, the Purchaser shall benefit from such license against the payment of a trademark licence fee of a gross amount of RMB100,000 per annum; Komark and the Purchaser shall jointly enter into a valid service agreement with Shanghai Komark and Guangzhou Komark to ensure that the Manager of Komark's graphics design department and her team shall continue to provide graphics design services of a similar quality previously provided to Komark BVI Group. The graphics design services shall be provided for free for a period of eighteen (18) months after the Completion Date; and Komark has provided the Reference Accounts and obtained the confirmation of such Reference Accounts by the auditor of the Purchaser. 6

7 Continuing obligations of each party of the SPA ("Party") The respective obligations of each Party to consummate the transactions contemplated by the SPA is subject to the fulfillment, on or prior to the Completion Date, of each of the following conditions (any or all of which may be waived by the relevant Party, in its sole discretion, in whole or in part to the extent permitted by applicable law):- i. there shall not be in effect any law or order by an authority in each of the territories where each of the Komark BVI Group companies is located ("Authority"), of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated in the SPA; ii. no legal proceeding shall have been commenced by or before any Authority against such Party seeking to restrain or materially and adversely alter the transactions contemplated in the SPA which would render it impossible or unlawful to consummate such transactions, provided, however, that the provisions of the SPA as set out in Section of this announcement shall not apply if such Party has directly or indirectly solicited or encouraged any such legal proceeding; iii. all relevant necessary administrative and contractual documentation for the Proposed Disposal have been satisfactorily completed and executed; iv. since 30 April 2015 to the Completion Date, no change of situation, development or other event having, or which could reasonably be expected to have, a material adverse effect, other than as disclosed in the SPA, shall have occurred; and Completion v. the Purchaser shall comply and fulfill all conditions and requirements by the bank for the change in the shareholders of Komark BVI including to provide new security to the banks for replacement of the securities provided by Komark to the bank. i. Subject to the conditions in the SPA, the sale and purchase of the Komark BVI Sale Shares pursuant to the SPA shall take place at such time and place as agreed by and between the Parties, within fourteen (14) days as from the date when all the conditions precedent as set out in Section of this announcement shall have been fulfilled or waived by the appropriate Party (the "Completion Date"). ii. If the Completion Date does not occur before the Long Stop Date or the Extended Long Stop Date (as the case may be) at the latest, except otherwise agreed upon between the Parties, the SPA shall automatically lapse as of this date and the Parties hereby undertake to take all necessary actions to ensure the refund of Deposit of RM1,000,000 (as defined in Section 2.5 of this announcement), withdrawal of any application for approval of any Authority which is required in connection with the transactions contemplated in the SPA, and others. 7

8 iii. iv. Except otherwise agreed upon between the Parties, if the Completion Date does not occur before the Long Stop Date or the Extended Long Stop Date (as the case may be) at the latest because any of the conditions precedent to be complied with by Komark has not been satisfied for any reason, Komark shall pay the Purchaser a liquidated damages amounting to USD1,000,000. On the Completion Date, Komark shall deliver or cause to be delivered, to the Purchaser the transfer documents listed in the SPA in a form that is satisfactory for the Purchaser. v. On the Completion Date, the Purchaser shall pay to Komark an amount corresponding to the Partial Payment on Completion of RM47,000,000 (as defined in Section 2.5 of this announcement) Non-competition undertaking The Parties acknowledge that there is considerable goodwill attached to the business and as such, Komark and its substantial shareholders, namely Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee and Lim Pei Liam Ahat Kiat (collectively referred to as "Komark's Substantial Shareholders"), and Koh Chee Mian and Koh Chie Jooi shall provide a written personal undertaking to the Purchaser upon the signing of the SPA that for a period of three (3) years following the Completion Date ("Non- Compete Period"), neither Komark nor Komark's Substantial Shareholders, Koh Chee Mian, Mr Koh Chie Jooi and any of its shareholders, any of its related companies or any affiliate or person connected with Komark, Komark's Substantial Shareholders, Koh Chee Mian and Koh Chie Jooi shall within the PRC including Hong Kong, Macau and Taiwan (collectively referred to as the "Territory"), directly or indirectly, engage in any business competitive with Komark BVI Group, or directly or indirectly, solicit, induce, or encourage any person employed by Komark BVI Group or the Purchaser to terminate his/ her employment with Komark BVI Group or the Purchaser or enter into a labour contract with any person who has previously terminated a labour contract with Komark BVI Group for a period of time lower than six (6) months ("Non-Competition Undertaking"). In the event Komark, Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee, Lim Pei Liam Ahat Kiat, Koh Chee Mian, Koh Chie Jooi or any of Komark's shareholders, any of Komark's related companies, or any affiliate or person connected with Komark, Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee, Lim Pei Liam Ahat Kiat, Koh Chee Mian and Koh Chie Jooi respectively commit a breach of the limitation in competition set out in the SPA, Komark, Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee, Lim Pei Liam Ahat Kiat, Koh Chee Mian and Koh Chie Jooi shall each be liable at each of their occurrence to pay liquidated damages in the amount of RM10,000,000 to the Purchaser. As at the date of this announcement, Komark, Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee, Lim Pei Liam Ahat Kiat, Koh Chee Mian and Koh Chie Jooi had provided the written Non-Competition Undertaking respectively to the Purchaser upon signing of the SPA. 8

9 2.4.5 Breach/ Termination i. The SPA shall remain in force and effect until the Proposed Disposal have been completed as contemplated under the SPA, except for the warranties and representations and post-completion undertakings made under the SPA by the Parties, which shall survive the Completion Date in accordance with the SPA. ii. iii. iv. The SPA may be terminated at any time prior to the Completion Date by the Purchaser if, between the date of the SPA and the Completion Date, there is a breach of any representation or warranty or failure to perform any covenant or agreement set forth in the SPA on the part of Komark, and such breach or failure to perform would cause any of the conditions set forth in Sections and of this announcement as well as the conditions precedent to be complied with by the Purchaser not to be satisfied on or before the Long Stop Date or the Extended Long Stop Date as the case may be and cannot be cured, or if curable, is not cured within twenty (20) days after written notice of such breach or failure is given to Komark by the Purchaser. The SPA may be terminated at any time prior to the Completion Date by Komark if, between the date of the SPA and the Completion Date, there is a breach of any representation or warranty or failure to perform any covenant or agreement set forth in the SPA on the part of the Purchaser, and such breach or failure to perform would cause any of the conditions set forth in Sections and of this announcement as well as the conditions precedent to be complied with by the Purchaser not to be satisfied on or before the Long Stop Date or the Extended Long Stop Date as the case may be and cannot be cured, or if curable, is not cured within twenty (20) days after written notice of such breach or failure is given to the Purchaser by Komark. The SPA may be terminated at any time prior to the Completion Date if any of the conditions set forth in Sections and of this announcement as well as the conditions precedent to be complied with by the Purchaser are not satisfied on or before the Extended Long Stop Date. v. In addition to the termination of the SPA as provided under any other clauses in the SPA, the SPA shall be terminated upon occurrence of any of the following events (unless otherwise agreed by the Parties):- (a) (b) the Parties unanimously agree to terminate the SPA; and/ or the Parties execute a revised agreement superseding the SPA. 9

10 2.5 Mode of settlement The indicative Disposal Consideration will be satisfied entirely via cash in the manner as set out below:- Payment terms Timing RM % Deposit *1 Paid upon signing of the SPA dated 28 April 2016 to the escrow account *1 1,000, Partial Payment on Completion Payable on the Completion Date 47,000, Total 48,000, Note:- *1 The escrow funds from the Deposit shall be used by the Purchaser to pay any such amount of taxes to be paid in full in connection with the transfer of the Komark BVI Sale Shares and the indirect transfer of the subsidiary companies of Komark BVI contemplated in the SPA. Should the escrow funds be used for the aforementioned purposes, the indicative Disposal Consideration will be reduced accordingly. Any outstanding escrow funds will be released in accordance with the escrow agreement. The Parties had agreed to extend the escrow period up to the completion of the calculation of the applicable taxes in connection with the indirect transfer of the subsidiary companies of Komark BVI. For the avoidance of doubt, there is no fixed time period stipulated in the SPA for the said escrow period. 2.6 Liabilities to be assumed by the Purchaser Save as disclosed below, there are no other liabilities including contingent liabilities and/ or guarantees to be assumed by the Purchaser arising from the Proposed Disposal:- As at 31 January 2016 Corporate guarantees in respect of credit facilities granted to the following:- Shanghai Komark 7,848 Guangzhou Komark 2,842 Total 10, Original cost and date of investment in Komark BVI The original cost of investment of Komark in Komark BVI and the date of such investment is set out below:- Date of investment No. of Komark BVI Shares Cost of investment USD 10 April

11 2.8 Expected loss arising from the Proposed Disposal The Proposed Disposal is expected to result in a proforma loss to Komark, details of which are set out below:- Indicative Disposal Consideration 48,000 Less: Share of net assets as at 31 January 2016 (22,377) Less: Capitalisation of the Advances (34,751) Total proforma loss (9,128) 2.9 Utilisation of proceeds The proceeds arising from the Proposed Disposal shall be utilised in the following manner:- Details of utilisation Timeframe for utilisation Amount of proceeds Full repayment of borrowings *1 Within 12 months from completion 21,438 Working capital *2 Within 12 months from completion 16,062 Purchase of machineries *3 Within 24 months from completion 10,000 Estimated expenses in relation to the Proposed Disposal *4 Within three (3) months from completion 500 Total 48,000 Notes:- *1 *2 *3 As at the LPD, Komark Group's total borrowings amounted to approximately RM million, including the total borrowings of Komark BVI Group of approximately RM million. Postcompletion of the Proposed Disposal, the total borrowings of Komark Group shall be reduced to approximately RM million. For illustrative purpose, the full repayment of borrowings of approximately RM million is expected to result in an interest cost savings of approximately RM1.278 million per annum based on the effective interest rate of 5.96% per annum. Purely for shareholders' information, Komark Group incurred finance costs of approximately RM4.80 million for the FYE 30 April 2015 and approximately RM2.98 million for the nine (9)-month FPE 31 January The gross proceeds arising from the Proposed Disposal earmarked for the working capital of Komark Group, is intended to be utilised for the day-to-day operations of Komark Group such as repayment to trade creditors, staff salary, staff welfare and training expenses, selling and marketing expenses and utilities. The breakdown of the utilisation of proceeds in respect of the aforesaid working capital is not available at this juncture as the actual amount to be utilised by each component of working capital may differ subject to the operating requirements at the time of utilisation. The gross proceeds arising from the Proposed Disposal earmarked for the purchase of machineries is intended to be utilised to purchase three (3) units of additional new machineries for the manufacturing of self-adhesive labels and stickers in Malaysia. Further thereto, Komark intends to relocate two (2) existing machineries from Malaysia, each to be used in Komark Group's operations in Indonesia and the Philippines to enhance its production lines in the said countries. Komark's customer base in Malaysia is more established as compared to Indonesia and the Philippines. Hence, Komark requires new machineries with more advanced technologies and higher production speed and printing capacity to increase its productivity and cater for the increasing printing requirements from its customers in Malaysia. In addition, Komark foresees that the aforementioned relocation of two (2) existing machineries from Malaysia, each to Indonesia and the Philippines are able to meet the immediate requirements of its customers in the said countries. 11

12 *4 The gross proceeds arising from the Proposed Disposal earmarked for the estimated expenses of the Proposed Disposal is intended to be utilised to fund the estimated expenses of the Proposed Disposal, the breakdown of which is set out below:- Professional fees 350 Regulatory fees 25 Other incidental expenses 125 Pending the utilisation of proceeds arising from the Proposed Disposal for the above purposes, the proceeds would be placed in deposits with financial institutions or short-term money market instruments. The interest derived from the deposits with financial institutions or any gains arising from the short-term money market instruments will be used as additional working capital of Komark Group Practice Note 16 and Practice Note 17 ("PN17") of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ("Bursa Securities") ("Listing Requirements") Based on the latest audited consolidated financial statements of Komark Group for the FYE 30 April 2015 and the latest unaudited quarterly results of Komark Group for the nine (9)-month FPE 31 January 2016, the Proposed Disposal is not expected to result in Komark becoming a Cash Company or a PN17 Company RATIONALE AND JUSTIFICATION FOR THE PROPOSED DISPOSAL Komark from time to time reviews the options with regards to the businesses of Komark Group, and where appropriate, implement the necessary changes to the corporate structure of Komark. Over the years, Shanghai Komark and Guangzhou Komark have been facing stiff competition from other players in the labels and labelling industry in the PRC, in particular from large multinational corporations which have long established presence globally. In addition, publishing and commercial printers have also entered the labels market in the PRC, which has further intensified the competition. Amidst the stiff competition which pushes prices lower, players in the labels and labelling industry in Shanghai and Guangzhou are required to comply with the minimum wage requirements in the said provinces which reduces profit margin. Further, the label printing industry in the PRC is currently going through a slowdown in terms of growth. For the past three (3) FYE 30 April 2015, the revenue of Komark BVI Group have been on an increasing trend from RM67.65 million to RM82.94 million. Despite of the increase in revenue of Komark BVI Group, Komark BVI Group recorded a LAT of RM0.40 million for the FYE 30 April 2013, a PAT of RM0.24 million for the FYE 30 April 2014 and a LAT of RM9.47 million for the FYE 30 April Further details of the past performance of Komark BVI Group are set out in Section 6 of Appendix I of this announcement. 12

13 As set out in Section 2.9 of this announcement, the Proposed Disposal will raise proceeds for working capital, purchase of machineries and full repayment of borrowings of Komark Group. The proceeds earmarked for working capital of Komark Group is intended to be utilised for, among others, repayment of trade creditors, staff salaries, selling and marketing expenses while the proceeds earmarked for purchase of machineries is intended to increase the production lines and production capacity of Komark Group. In addition, the full repayment of borrowings will result in zero gearing at the Komark group level and is expected to result in an interest cost savings of approximately RM1.278 million per annum based on the effective interest rate of 5.96% per annum. Purely for shareholders' information, Komark Group incurred finance costs of approximately RM4.80 million for the FYE 30 April 2015 and approximately RM2.98 million for the nine (9)-month FPE 31 January RISK FACTORS The potential risk factors relating to the Proposed Disposal, which may not be exhaustive, are set out below:- i. Non-completion of the Proposed Disposal The completion of the Proposed Disposal is conditional upon all the conditions precedent of the SPA being fulfilled or waived which includes the approval from shareholders of Komark at an extraordinary general meeting ("EGM") of the Company to be convened for the Proposed Disposal. There can be no assurance that the completion date relating to the SPA can be within the timeframe stipulated in the SPA. The SPA may be terminated at any time prior to the Completion Date in the event that all the conditions precedent of the SPA are not fulfilled or waived within the permitted time period, or in the event of any breach of the representations or warranties or failure to perform any covenant or agreement set forth in the SPA on the part of Komark, and such breach or failure to perform would cause any of the conditions precedent set forth in the SPA not to be satisfied within the permitted time period. Any delay or non-completion of the Proposed Disposals will delay and preclude the Company from receiving the proceeds arising from the Proposed Disposal. Unless otherwise agreed upon between Komark and the Purchaser, if the Completion Date does not occur before the Long Stop Date or the Extended Long Stop Date (as the case may be) at the latest due to any of the conditions precedent of the SPA to be complied with by Komark has not been satisfied for any reason, Komark is required to pay the Purchaser a liquidated damages amounting to USD1,000,000. Nevertheless, Komark endeavours to ensure that every effort is made to fulfil all its conditions precedent of the SPA within the timeframe stipulated in the SPA. ii. Contractual risk Komark and the Purchaser acknowledge that there is considerable goodwill attached to the business. As such, Komark and its substantial shareholders, namely Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee and Lim Pei Liam Ahat Kiat, and Koh Chee Mian and Koh Chie Jooi, had provided the written Non-Competition Undertaking respectively to the Purchaser upon signing of the SPA, that for a period of three (3) years following the Completion Date, neither of them, any of Komark's shareholders, any of Komark's related companies nor any affiliate or person connected with Komark, Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee, Lim Pei Liam Ahat Kiat, Koh Chee Mian and Koh Chie Jooi, shall within the Territory, directly or indirectly, engage in any business competition with Komark BVI Group, or directly or indirectly, solicit, induce or encourage any person employed by Komark BVI Group or the Purchaser to terminate his/ her employment with Komark BVI Group or the Purchaser or enter into a labour contract with any person who has previously terminated a labour contract with Komark BVI Group for a period of time lower than six (6) months. 13

14 In the event Komark, Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee, Lim Pei Liam Ahat Kiat, Koh Chee Mian, Koh Chie Jooi or any of Komark's shareholders, any of Komark's related companies, or any affiliate or person connected with Komark, Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee, Lim Pei Liam Ahat Kiat, Koh Chee Mian and Koh Chie Jooi respectively commit a breach of the limitation in competition set out in the SPA within the Non- Compete Period, Komark, Koh Hong Koh Gak Siong, Datuk Tan Kwee Hee, Lim Pei Liam Ahat Kiat, Koh Chee Mian and Koh Chie Jooi shall each be liable at each of their occurrence to pay liquidated damages in the amount of RM10,000,000 to the Purchaser. Nevertheless, all the parties who had provided Non- Competition Undertaking endeavour to ensure full compliance in relation to their Non- Competition Undertaking. 5. EFFECTS OF THE PROPOSED DISPOSAL The effects of the Proposed Disposal are set out below:- 5.1 Issued and paid-up share capital The Proposed Disposal will not have any effect on the issued and paid-up share capital of the Company as the indicative Disposal Consideration will be satisfied entirely via cash. 5.2 NA per share and gearing Based on the latest audited consolidated statements of financial position of Komark Group as at 30 April 2015, the proforma effects of the Proposed Disposal on the NA per ordinary share of RM0.25 each in Komark ("Komark Share(s)") and gearing of Komark Group are set out below:- I II Audited as at 30 April 2015 After adjusted for movements in share capital up to the LPD *1 After I and the Proposed Disposal Share capital 30,653 31,158 *1 31,158 Share premium 17,165 17,266 *1 17,266 General reserve 3,538 3, *2 Translation reserve 5,251 5,251 (2,379) *2 Revaluation reserve 21,385 21,385 11,854 *2 Capital redemption reserve Capital reserve 33,882 33,882 33,882 Warrant reserve 6,337 6,017 *1 6,017 Accumulated loss (9,506) (9,506) (19,134) *3 Shareholders' funds/ NA 108, ,992 79,026 Number of Komark Shares in issue ('000) 122, , ,634 NA per Komark Share (RM) Total borrowings () 54,327 50,843 *4 - *4 Gearing ratio (times) Notes:- *1 After adjusted for the exercise of a total of 2,020,000 Warrants 2015/2020 in Komark at the exercise price of RM0.30 per Warrant 2015/

15 *2 As at 30 April 2015, the following reserves in Komark BVI Group stood at:- General reserve 3,177 Translation reserve 7,630 Revaluation reserve 9,531 Total 20,338 Upon disposal of the Komark BVI Group, the above reserves will be realised. *3 *4 After including the proforma loss of approximately RM9.13 million arising from the Proposed Disposal and deducting estimated expenses of RM500,000 in relation to the Proposed Disposal. As at the LPD, the total borrowings of Komark Group stood at approximately RM50.84 million. Assuming that the proceeds arising from the Proposed Disposal earmarked for full repayment of borrowings of Komark Group has been fully utilised at this juncture, the gearing of Komark Group shall be zero post-completion of the Proposed Disposal. 5.3 Substantial shareholding structure The Proposed Disposal will not have any effect on the substantial shareholders' shareholdings in the Company as the indicative Disposal Consideration will be satisfied entirely via cash. 5.4 Earnings and earnings per share The Proposed Disposal is expected to be completed by the third quarter of Based on the latest audited consolidated statements of financial performance of Komark Group for the FYE 30 April 2015, the proforma effects of the Proposed Disposal on the earnings and earnings/ loss per share of Komark Group upon completion of the Proposed Disposal assuming the Proposed Disposal was effected as at the beginning of FYE 30 April 2015 are set out below:- Audited FYE 30 April 2015 I After the Proposed Disposal Loss after tax and minority interest ("LATMI") (12,781) (10,535) *1 Weighted average number of shares in issue ('000) 101, ,837 Basic loss per share (sen) (12.55) (10.34) Note:- *1 The proforma LATMI of Komark Group after the Proposed Disposal is arrived at after taking into consideration the following:- Audited consolidated LATMI of Komark Group for the FYE 30 April 2015 (12,781) Add: Proforma loss arising from the Proposed Disposal (9,128) Less: Consolidated LAT of Komark BVI Group for the FYE 30 April ,473 Less: Total finance costs incurred by Komark Group (excluding Komark BVI 2,401 Group) for the FYE 30 April 2015 # Less: Estimated expenses in relation to the Proposed Disposal (500) Proforma LATMI of Komark Group after the Proposed Disposal (10,535) Note:- # Assuming that the proceeds arising from the Proposed Disposal earmarked for full repayment of borrowings of Komark Group has been fully utilised at this juncture. 15

16 5.5 Convertible securities The Proposed Disposal will not have any effect on the convertible securities of the Company, namely the Warrants 2015/2020 in Komark, as the indicative Disposal Consideration will be satisfied entirely via cash. 6. APPROVALS REQUIRED The Proposed Disposal is subject to approvals being obtained from the following:- i. Bursa Securities, for the Circular to shareholders of Komark in relation to the Proposed Disposal; and ii. The shareholders of Komark, for the Proposed Disposal at an EGM of the Company to be convened. The Proposed Disposal is not conditional upon any other proposals undertaken or to be undertaken by the Company. 7. HIGHEST PERCENTAGE RATIOS The highest percentage ratio applicable to the Proposed Disposal pursuant to Paragraph 10.02(g) of the Listing Requirements is approximately 53.51% based on the consolidated total assets of Komark BVI Group of approximately RM million as at 30 April 2015 as compared to the audited consolidated total assets of Komark Group as at 30 April 2015 of approximately RM million. 8. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/ OR PERSONS CONNECTED WITH THEM None of the Directors and/ or major shareholders of Komark and/ or persons connected to them have any interests, whether direct or indirect, in the Proposed Disposal. 9. DIRECTORS' STATEMENT The Board, having considered all aspects of the Proposed Disposal, including the rationale and justifications for the Proposed Disposal, the salient terms of the SPA, the basis and justification for arriving at the indicative Disposal Consideration, the utilisation of proceeds arising from the Proposed Disposal and the effects of the Proposed Disposal, is of the opinion that the Proposed Disposal is in the best interest of the Company. 10. APPLICATION TO THE AUTHORITY Barring any unforeseen circumstances, the application to the relevant authority in relation to the Proposed Disposal is expected to be made within a period of two (2) months from the date of this announcement. 11. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances and subject to all relevant approvals being obtained, the Proposed Disposal is expected to be completed by the third quarter of

17 12. ADVISER RHBIB has been appointed by the Company to act as the Adviser for the Proposed Disposal. 13. DOCUMENTS AVAILABLE FOR INSPECTION A copy of the SPA will be made available for inspection at the registered office of Komark at Lot 6.05, Level 6, KPMG Tower, 8 First Avenue, Bandar Utama, Petaling Jaya, Selangor Darul Ehsan, during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 28 April

18 APPENDIX I BACKGROUND INFORMATION ON KOMARK BVI GROUP 1. HISTORY AND BUSINESS Komark BVI was incorporated in British Virgin Islands on 10 April 2001 under the International Business Companies Act, Cap. 291 as an international business company. The principal activity of Komark BVI is investment holding while the principal activities of its subsidiary companies are manufacturing and selling of self-adhesive labels. The principal market for their products is the PRC, including Hong Kong. 2. SHARE CAPITAL As at the LPD, the authorised and issued and paid-up share capital of Komark BVI are set out below:- Par value USD No. of Komark BVI Shares Total USD Authorised share capital ,000 50,000 Issued and paid-up share capital DIRECTORS The directors of Komark BVI as at the LPD are set out below:- Directors Nationality < Direct > < Indirect > No. of Komark BVI Shares % No. of Komark BVI Shares % Koh Hong Koh Gak Siong Malaysian Koh Chie Jooi Malaysian SHAREHOLDER Komark BVI is currently a wholly-owned subsidiary company of Komark. 5. SUBSIDIARY AND ASSOCIATE COMPANIES Save as disclosed below, as at the LPD, Komark BVI does not have any subsidiary companies:- Subsidiary companies Date and place of incorporation Issued and paid-up capital Effective equity interest % Principal activities Shanghai Komark PRC Guangzhou Komark PRC USD7,000, Manufacturing and selling of self-adhesive labels USD2,367, Manufacturing and selling of self-adhesive labels As at the LPD, Komark BVI does not have any associate companies. 18

19 6. SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION A summary of the consolidated financial information of Komark BVI Group for the past three (3) financial years up to the FYE 30 April 2015 and the nine (9)-month FPE 31 January 2016 is set out below:- Nine (9)- month FPE < FYE 30 April > 31 January RM RM RM RM Revenue 67,654,478 80,885,485 82,943,307 78,394,406 PBT/ (LBT) 431,315 2,107,839 (8,576,252) 3,766,126 PAT/ (LAT) (396,125) 236,502 (9,472,853) 3,546,231 Share capital Shareholders' funds/ NA 22,950,140 20,386,798 20,314,642 22,376,790 Number of Komark BVI Shares in issue NA per Komark BVI Share 11,475,070 10,193,399 10,157,321 11,188,395 Current ratio (times) Total borrowings 30,185,918 30,748,906 29,426,088 29,404,989 Gearing (times) Commentary on past performance:- FYE 30 April 2013 For the FYE 30 April 2013, Komark BVI Group recorded revenue of approximately RM67.65 million, which represents an increase of approximately 16.28% as compared to the FYE 30 April 2012 of approximately RM58.18 million. The increase in revenue was mainly attributable to the increase in orders from the following customers:- Customers Amount of increase in revenue derived Multinational manufacturer of health, hygiene and home products 1,889 Multinational manufacturer of medical devices, pharmaceutical and consumer packaged goods Multinational manufacturer of beauty, health, family care and home care products 1,801 1,221 Multinational tyre manufacturer 550 Manufacturer of toiletries products 529 Manufacturer of cooking oils 486 Despite the increase in revenue, Komark BVI Group recorded a PBT of approximately RM0.43 million for the FYE 30 April 2013, which represents a decrease of approximately 62.34% as compared to the FYE 30 April 2012 of approximately RM1.15 million. The decrease in PBT was mainly attributable to the increase in staff costs and employment benefits by approximately RM1.07 million pursuant to the upward adjustment to the minimum wage policy in the PRC from previous year and the increase in finance costs incurred by approximately RM0.68 million. 19

20 FYE 30 April 2014 For the FYE 30 April 2014, Komark BVI Group recorded revenue of approximately RM80.89 million, which represents an increase of approximately 19.56% as compared to the FYE 30 April 2013 of approximately RM67.65 million. The increase in revenue was mainly attributable to the increase in orders from the following customers:- Customers Amount of increase in revenue derived Multinational energy and petrochemical company 8,655 Multinational manufacturer of beauty, health, family care and home care products 2,503 Multinational manufacturer of household cleaning and care supplies 731 Komark BVI Group recorded a PBT of approximately RM2.11 million, which represents an increase of approximately % as compared to the FYE 30 April 2013 of approximately RM0.43 million. The increase in PBT was mainly attributable to the increase in revenue by approximately RM13.24 million. FYE 30 April 2015 For the FYE 30 April 2015, Komark BVI Group recorded revenue of approximately RM82.94 million, which represents an increase of approximately 2.54% as compared to the FYE 30 April 2014 of approximately RM80.89 million. The small increase in revenue was mainly attributable to the increase/ decrease in orders from the following customers:- Customers Amount of increase/ (decrease) in revenue derived Multinational energy and petrochemical company 4,462 Multinational manufacturer of oral and dental care products 2,042 Multinational manufacturer of beauty, health, family care and home care products Multinational manufacturer of medical devices, pharmaceutical and consumer packaged goods 1,012 (4,750) Komark BVI Group recorded a LBT of approximately RM8.58 million, which represents a decrease of approximately % as compared to the FYE 30 April 2014 of approximately RM2.11 million. The LBT was mainly attributable to the writing off of obsolete stocks and writing off of bad debt amounting to approximately RM12.51 million. 20