(COLLECTIVELY REFERRED TO AS THE PROPOSALS ) 1. INTRODUCTION

Transcription

1 SANICHI TECHNOLOGY BERHAD ( OR THE COMPANY ) (I) PROPOSED SHARE PREMIUM REDUCTION; (II) PROPOSED PAR VALUE REDUCTION AND CONSOLIDATION; (III) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; (IV) PROPOSED M&A AMENDMENTS; (V) PROPOSED RESTRICTED ISSUE WITH WARRANTS; (VI) PROPOSED DEBT RESTRUCTURING; (VII) PROPOSED RIGHTS ISSUE WITH WARRANTS; AND (VIII) PROPOSED EXEMPTION (COLLECTIVELY REFERRED TO AS THE PROPOSALS ) 1. INTRODUCTION On behalf of the Board of Directors of ( Board ), Public Investment Bank Berhad ( PIVB ) is pleased to announce that the Company is proposing to undertake the following: (i) (ii) (iii) (iv) (v) (vi) proposed reduction of up to RM10,586,318 from the share premium account of pursuant to Section 60(2) and 64(1) of the Companies Act, 1965 ( Act ) based on the audited financial statements as at 30 June 2011 to set off the accumulated losses of ( Proposed Share Premium Reduction ); proposed reduction of the issued and paid-up share capital of the Company pursuant to Section 64(1) of the Act, involving the cancellation of RM0.08 of the par value of each ordinary share of RM0.10 each in ( Share(s) ) and thereafter the consolidation of five (5) ordinary shares of RM0.02 each into one (1) new Share of RM0.10 each on an entitlement date to be determined and announced later ( Proposed Par Value Reduction and Consolidation ); proposed increase in authorised share capital of from RM25,000,000 comprising 250,000,000 ordinary shares of RM0.10 each to RM100,000,000 comprising 1,000,000,000 ordinary shares of RM0.10 each ( Proposed Increase in Authorised Share Capital ); proposed amendments to the Memorandum and Articles of Association ( M&A ) of to facilitate the increase in the authorised share capital of pursuant to the Proposed Increase in Authorised Share Capital ( Proposed M&A Amendments ); proposed restricted issue of 85,000,000 new Shares of RM0.10 each ( Restricted Issue Shares ) together with 42,500,000 free Warrants ( Warrant(s) A ) to Protev Asia Limited ( Protev Asia ) at an issue price of RM0.10 per Restricted Issue Share on the basis of one (1) free Warrant A for every two (2) Restricted Issue Shares subscribed by Protev Asia ( Proposed Restricted Issue with Warrants ); proposed restructuring of debts owing to certain financial institutions and trade creditors of and its subsidiaries ( Group or the Group ) pursuant to Section 176 of the Act ( Proposed Debt Restructuring ); - 1 -

2 (vii) (viii) proposed renounceable rights issue of up to 120,970,000 new Shares of RM0.10 each ( Rights Shares ) together with up to 60,485,000 free Warrants ( Warrant(s) B ) at an issue price of RM0.10 per Rights Share on the basis of two (2) Rights Shares together with one (1) free Warrant B for every two (2) new Shares held after the Proposed Share Premium Reduction, the Proposed Par Value Reduction and Consolidation and the Proposed Restricted Issue with Warrants on an entitlement date to be determined and announced later based on a minimum subscription level of 65,000,000 Rights Shares together with 32,500,000 free Warrants B ( Proposed Rights Issue with Warrants ); and proposed exemption to Protev Asia, Herbert Tucakovic and other person(s) acting in concert ( PACs ) under Practice Note 9, Paragraph 16.1 of the Malaysian Code on Take-Overs and Mergers 2010 ( Code ) from the obligation to undertake a mandatory take-over offer to acquire all the remaining Shares and convertible securities not already held by Protev Asia and its PACs upon completion of the Proposed Restricted Issue with Warrants as prescribed under Part III of the Code ( Proposed Exemption ). Collectively the Proposed Share Premium Reduction, the Proposed Par Value Reduction and Consolidation, the Proposed Increase in Authorised Share Capital, the Proposed M&A Amendments, the Proposed Restricted Issue with Warrants, the Proposed Debt Restructuring, the Proposed Rights Issue with Warrants and the Proposed Exemption shall hereinafter referred to as the Proposals. For the purpose of this announcement, Share(s) or Share(s) shall refer to the ordinary shares of RM0.10 each in before the Proposed Par Value Reduction and Consolidation or where the context requires, the ordinary shares of RM0.10 each in after the Proposed Par Value Reduction and Consolidation. 2. DETAILS OF THE PROPOSALS The details of the Proposals are set out in the ensuing sections of this announcement. 2.1 Proposed Share Premium Reduction The share premium account of stood at RM10,586,318 based on the audited financial statements of for the financial year ended ( FYE ) 30 June Pursuant to Section 60(2) of the Act for the purpose of share capital reduction, the share premium account shall be treated as paid-up share capital of the company. Accordingly, the company may, pursuant to Section 64(1)(b) of the Act, reduce its share premium account. The Board proposes that the share premium account of the Company be reduced by up to RM10,586,318 and that the credit of up to RM10,586,318 arising therefrom shall be utilised towards setting-off against the accumulated losses of the Company/Group. The final amount of the share premium to be reduced would be finalised by the Board at a later date. The Proposed Share Premium Reduction will result in the reduction of the accumulated losses of the Company and the Group as illustrated in Table 2 in Section 2.2 of this announcement

3 2.2 Proposed Par Value Reduction and Consolidation The Proposed Par Value Reduction and Consolidation shall involve the following: (i) (ii) the reduction of the existing issued and paid-up share capital of comprising 179,850,000 ordinary shares of RM0.10 each via the cancellation of RM0.08 from the par value of each of the existing ordinary share of RM0.10 each pursuant to Section 64(1) of the Act; and subsequent to the par value reduction as set out in Section 2.2(i) above, the consolidation of five (5) ordinary shares of RM0.02 each into one (1) new Share upon which the sum of RM0.10 shall be credited as having been fully paid-up. Based on the above, the Proposed Par Value Reduction and Consolidation will give rise to a credit amount of RM14,388,000, a portion of which will be utilised to set-off the accumulated losses of and the Group. Any remaining credit after the set-off of the accumulated losses will be credited to the distributable reserves account of the Company. The proforma effects of the Proposed Par Value Reduction and Consolidation on the issued and paid-up share capital of the Company is illustrated in Table 1 below. Table 1: Proforma effects of the Proposed Par Value Reduction and Consolidation Par value RM Shares 000 RM 000 Existing issued and paid-up share capital ,850 17,985 Issued and paid-up share capital after the proposed par value reduction Issued and paid-up share capital after the proposed consolidation ,850 3, ,970 3,597 For illustrative purposes, the Proposed Share Premium Reduction and the Proposed Par Value Reduction and Consolidation will result in the elimination of the accumulated losses of the Company and the Group as illustrated in Table 2 below. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK - 3 -

4 Table 2: Proforma effects of the Proposed Share Premium Reduction and the Proposed Par Value Reduction and Consolidation on the reserves of the Company and the Group Audited 30 June 2011 RM 000 Group level Unaudited 31 December 2011 RM 000 Company level Audited 30 June 2011 RM 000 Unaudited 31 December 2011 RM 000 Accumulated losses (16,879) (20,779) (246) (219) Add: Credit arising from the Proposed Share Premium Reduction* 10,586 10,586 10,586 10,586 Add: Credit arising from the Proposed Par Value Reduction and Consolidation 14,388 14,388 14,388 14,388 Retained earnings and/or reserves after the Proposed Share Premium Reduction and the Proposed Par Value Reduction and Consolidation 8,095 4,195 24,728 24,755 Note: * For illustrative purposes, the share premium is assumed to be reduced to the maximum allowable. For illustrative purposes, the proforma effects of the adjustments made to the unaudited accumulated losses of the Company as at 31 December 2011 are as follows: Company level Unaudited 31 December 2011 RM Accumulated losses (219,224) Waiver of inter-company debts (1) (16,381,471) Impairment to the cost of investment in the (10,800,000) subsidiaries Adjusted balance (2) (27,400,695) Credit arising from the Proposed Share Premium 10,586,318 Reduction Credit arising from the Proposed Par Value 14,388,000 Reduction and Consolidation Distributable reserve (2,426,377) Notes: (1) The debts were advances made to the Company s subsidiaries and are no longer recoverable as the subsidiaries incurred losses. (2) The adjusted balance is provisional and is subject to finalisation with the external auditors of the Company

5 As at 31 December 2011, the unaudited accumulated losses of the Group stood at RM20,779,000. The Group has been incurring losses from the FYE 2009 to the FYE 2011 (except for the FYE 2010) and for the six (6) months financial period ended ( FPE ) 31 December The revenue, profit after taxation ( PAT ) and loss after taxation ( LAT ) of the Group are as detailed below: FYE/FPE Revenue RM 000 PAT/(LAT) RM 000 Commentary Six (6) months FPE 31 December ,588 (3,900) Decrease in revenue was mainly due to: (i) decline in sales for automotive products in both local and foreign markets. LAT was mainly due to: (i) lower demand from both local and export markets, partly due to the flood in the Company s factory located in Thailand. FYE ,469 (14,566) Decrease in revenue was mainly due to: (i) decrease in sales for both local and export markets as the automotive industry is experiencing a slowdown in demand. LAT was mainly due to: (i) impairment on trade receivables amounting to approximately RM6.50 million; and (ii) impairment on inventory amounting to approximately RM2.40 million. FYE , Increase in revenue was mainly due to: (i) increase in sales for automotive products especially in the Asia Pacific region. PAT was mainly due to: (i) bad debt recovery of approximately RM1.21 million; and (ii) lower allowance for doubtful debts

6 FYE/FPE Revenue RM 000 PAT/(LAT) RM 000 Commentary FYE ,627 (10,836) Decrease in revenue was mainly due to: (i) decrease in domestic sales for lowpriced conventional precision injection moulds; (ii) slowdown in export sales especially in the Asia Pacific region; and (iii) decline in local sales to the automotive and electronic industries. LAT was mainly due to: (i) adverse impact of the global economic crisis on the automotive and consumer electronic industries especially in the second (2 nd ) half of year 2008 which resulted in slower off-take of the Group s products; (ii) provision of allowance for doubtful debts amounting to approximately RM3.69 million; and (iii) higher production related overhead and fixed costs with decrease in revenue. To improve the financial performance of the Group, on 6 June 2011, the Company entered into a Memorandum of Understanding with Projektarbelt Technische Beratung Venretung International ( PROTEV ) with the intention to form an alliance with PROTEV to be a one-stop plastic injection mould fabrication solution centre. Briefly, PROTEV is a company domiciled in Germany with offices located in Germany, Texas, USA and Singapore. The company is principally involved in, amongst others, provision of technical consultation, project management such as support services for tools, plastic moulds and assembly mainly for the automotive industry. Protev Asia is affiliated to PROTEV via a common shareholder and director. The Board looks forward to this collaboration and is of the view that upon Protev Asia becoming a shareholder of, potential synergies can be tapped, amongst others, in the areas of technical and design support and penetration to new customers besides the funds to be raised from Protev Asia via the Proposed Restricted Issue with Warrants and the Proposed Rights Issue with Warrants. 2.3 Proposed Increase in Authorised Share Capital As at the date of this announcement, the authorised share capital of the Company is RM25,000,000 comprising 250,000,000 ordinary shares of RM0.10 each, of which RM17,985,000 comprising 179,850,000 ordinary shares of RM0.10 each have been issued and fully paid-up

7 proposes to increase its authorised share capital from RM25,000,000 comprising 250,000,000 ordinary shares of RM0.10 each to RM100,000,000 comprising 1,000,000,000 ordinary shares of RM0.10 each in order to accommodate: (i) (ii) the issuance of the Restricted Issue Shares and the Rights Shares pursuant to the Proposed Restricted Issue with Warrants and the Proposed Rights Issue with Warrants respectively; and for any future increase in the share capital of the Company arising from the full conversion of the RM4,599,365 nominal value of four per cent (4%), five (5)-year irredeemable convertible unsecured loan stocks ( ICULS ) at 100% of its nominal value of RM0.10 each to be issued pursuant to the Proposed Debt Restructuring and/or the full exercise of the Warrants A and Warrants B to be issued pursuant to the Proposed Restricted Issue with Warrants and the Proposed Rights Issue with Warrants respectively. 2.4 Proposed M&A Amendments The Proposed M&A Amendments are necessary to facilitate the increase in the authorised share capital of the Company from RM25,000,000 comprising 250,000,000 ordinary shares of RM0.10 each to RM100,000,000 comprising 1,000,000,000 ordinary shares of RM0.10 each to accommodate the Proposed Increase in Authorised Share Capital. The details of the Proposed M&A Amendments are as follows: Clause Existing Provision Revised Provision Clause 6 of the The capital of the The capital of the Memorandum of Company is Company is Association RM25,000,000/- RM100,000,000/- Malaysian Currency Malaysian Currency divided into 250,000,000 divided into shares of RM0.10 each. 1,000,000,000 shares of The shares in the original RM0.10 each. The or any increased capital shares in the original or may be divided into any increased capital several classes and there may be divided into may be attached thereto several classes and there respectively any preferential, deferred or other special rights, privileges, conditions or restrictions as to dividends, capital, voting or otherwise. 2.5 Proposed Restricted Issue with Warrants Details of the Proposed Restricted Issue with Warrants may be attached thereto respectively any preferential, deferred or other special rights, privileges, conditions or restrictions as to dividends, capital, voting or otherwise. proposes to implement a restricted issue of 85,000,000 Restricted Issue Shares together with 42,500,000 free Warrants A to Protev Asia at an issue price of RM0.10 per Restricted Issue Share on the basis of one (1) free Warrant A for every two (2) Restricted Issue Shares subscribed by Protev Asia

8 The indicative principal terms of the Warrants A to be issued pursuant to the Proposed Restricted Issue with Warrants are set out in Appendix I of this announcement. Details of the implication of the Code, which may arise as a result of the subscription of the Restricted Issue Shares by Protev Asia, are set out in Section 2.8 of this announcement Basis of arriving at the issue price of the Restricted Issue Shares and the exercise price of the Warrants A The Board has fixed the issue price of the Restricted Issue Shares at RM0.10 per Restricted Issue Share and the exercise price of RM0.10 per Warrant A for one (1) new Share after taking into consideration the following: (i) (ii) (iii) the five (5)-day volume weighted average market price ( VWAMP ) of the Shares of RM0.116 up to and including 14 May 2012 (being the last trading day prior to the announcement of the Proposals); the minimum issue price allowable under the Act which is not less than the par value of the ordinary shares, being RM0.10 each of the Shares after the Proposed Par Value Reduction and Consolidation; and the issue price of RM0.10 per Rights Share and the exercise price of the Warrants B of RM0.10 for one (1) new Share. The Proposed Restricted Issue with Warrants is an integral part of the Proposals and has the same structure to the Proposed Rights Issue with Warrants of attaching one (1) free Warrant for every two (2) Restricted Issue Shares /Rights Shares subscribed. Therefore, the same issue price has been arrived at to maintain parity for all these new securities to be issued. However, the issue price of RM0.10 per Restricted Issue Share represents a discount of approximately 13.79% to the five (5)-day VWAMP of the Shares as set out above. The Board would seek the approval of shareholders for the issue price of RM0.10 per Restricted Issue Share and the exercise price of RM0.10 per Warrant A for one (1) new Share pursuant to the Proposed Restricted Issue with Warrants at a general meeting to be convened later. For avoidance of doubt, the Warrants A will be issued at no cost to Protev Asia upon its subscription for the Restricted Issue Shares on the basis of one (1) free Warrant A for every two (2) Restricted Issue Shares subscribed. Upon issuance, the Warrants A would be detached from the Restricted Issue Shares immediately

9 2.5.3 Ranking of the Restricted Issue Shares and the new Shares to be issued arising from the full exercise of the Warrants A The Restricted Issue Shares and the new Shares to be issued arising from the full exercise of the Warrants A shall, upon issuance and allotment, rank pari passu in all respects with the existing Shares except that they will not be entitled to any dividends, rights, allotments and/or distributions, that may be declared, made or paid prior to the date of allotment of the Restricted Issue Shares or the new Shares to be issued arising from the full exercise of the Warrants A Utilisation of proceeds from the Proposed Restricted Issue with Warrants For illustrative purposes, based on the issue of 85,000,000 Restricted Issue Shares together with 42,500,000 free Warrants A at an issue price of RM0.10 per Restricted Issue Share, the Proposed Restricted Issue with Warrants is expected to raise gross proceeds of RM8,500,000 (excluding proceeds from any exercise of the Warrants A in the future). The proceeds are expected to be utilised by the Group in the following manner: Details of utilisation Proceeds RM Timeframe for utilisation Purchase of new 2,500,000 Within twelve (12) months machinery (1) Working capital (2) Estimated expenses for the Proposals (3) Notes: 5,000,000 1,000,000 8,500,000 Within twelve (12) months Within six (6) months (1) The proceeds of RM2.5 million will be used to purchase new machinery to enhance the production level of the Group. Details of the new machineries to be purchased are as follows: Estimated amount Type of machineries RM Computerised Numerical Control ( CNC ) 1,500,000 Machine Electrical Discharge Machining ( EDM ) 500,000 Machine Wire-cut Machine 500,000 Total 2,500,

10 (2) The proceeds of up to RM5.0 million will be utilised for the Group s working capital requirements, including operational expenses. The table below shows the breakdown of the estimated working capital to be incurred: Estimated amount Utilisation of proceeds RM Purchase of raw materials 2,000,000 Factory overheads 2,000,000 Administration expenses 1,000,000 Total 5,000,000 (3) The estimated expenses of approximately RM1.0 million consist of estimated professional fees and fees payable to the relevant authorities. Any surplus or shortfall of funds for the payment of expenses for the Proposals will be adjusted accordingly from or to the working capital, as the case may be. The proceeds from the Proposed Restricted Issue with Warrants (excluding proceeds from any exercise of the Warrants A in the future) are expected to be utilised within twelve (12) months from the completion of the Proposed Restricted Issue with Warrants. The quantum of proceeds to be received by the Company pursuant to the exercise of the Warrants A would depend upon the actual number exercised during the exercise period of the Warrants A. Such proceeds, if any, will be used for working capital requirements of the Group Listing of and quotation for the Restricted Issue Shares and the new Shares from the full exercise of the Warrants A An application will be made to Bursa Malaysia Securities Berhad ( Bursa Securities ) for the: (i) (ii) listing of and quotation for the Restricted Issue Shares; and listing of and quotation for the new Shares to be issued arising from the full exercise of the Warrants A. The Warrants A to be issued pursuant to the Proposed Restricted Issue with Warrants will not be listed on any stock exchange. 2.6 Proposed Debt Restructuring The Company proposes to undertake the Proposed Debt Restructuring under a Scheme of Arrangement pursuant to Section 176 of the Act. had on 11 August 2011 announced that its subsidiaries, namely Sanichi Precision Mould Sdn Bhd ( SPM ) and Asia Pinnacle Sdn Bhd ( AP ) had been granted a Stay Order from all proceedings against the Group pursuant to Section 176 of the Act. The Stay Order commenced on 26 July 2011 for a period of six (6) months. Subsequently, the Kuala Lumpur High Court had on 19 January 2012 granted a further extension of the Stay Order for a further period of six (6) months to 25 July The companies within the Group that will form part of the Scheme of Arrangement are SPM, AP and and collectively these companies shall hereinafter be referred to as the Scheme Companies

11 2.6.1 Scheme amounts The Proposed Debt Restructuring will involve the settlement of indebtedness and debts owing to certain financial institutions and trade creditors of the Scheme Companies ( Scheme Creditors ). Based on the cut-off date of 31 December 2011 ( Cut-off Date ), the debts owing to the Scheme Creditors are summarised in the table below: SCHEME A SCHEME B SCHEME C Hire Secured Unsecured Purchase Creditors Creditors Creditors RM 000 RM 000 RM 000 Total RM 000 Financial Institutions - SPM - AP 8,513 4,213 6,069 2,246 3,328-17,910 6,459 Sub-total 12,726 8,315 3,328 24,369 Trade Creditors - SPM - AP - - 2,036 1, ,036 1,147 Sub-total - 3,183-3,183 Total 12,726 11,498 3,328 27, Categorisation of the Scheme Creditors The Scheme Creditors shall be categorised as follows: (a) Scheme A : Secured Creditors The Secured Creditors (excluding upliftment of fixed deposit for the sum of RM500,000 pledged as security for the secured debts) comprised of debts owing to financial institutions which are fully secured by the assets of the Group or by guarantee. (b) Scheme B : Unsecured Creditors The Unsecured Creditors comprised of debts owing to financial institutions and trade creditors which are not secured by any assets of the Group. (c) Scheme C : Hire Purchase Creditors The Hire Purchase Creditors comprised of debts of RM200,000 and above owing to financial institutions which are secured by machinery and motor vehicle purchased by the Group and financed by these creditors

12 2.6.3 Mode of settlement The Company proposes that the debts owing to the Scheme Creditors be restructured and settled in the following manner: (a) Scheme A : Secured Creditors The amounts owing to the Secured Creditors are proposed to be settled as follows: (i) (ii) (iii) (iv) (v) (vi) approximately RM2.02 million to be settled by cash to the Secured Creditors with on-going legal cases as at the Cut-off Date via the disposal of property(ies) under an asset disposal programme ( Asset Disposal Programme ); surplus arising from the Asset Disposal Programme shall be settled by cash to Scheme Creditors of SPM who had granted waiver of debts; proceeds in excess of the contemplated amount of RM6.50 million under the minimum scenario of the Proposed Rights Issue with Warrants; approximately RM10.70 million of the Secured Creditors not included in (i) above to be termed out and repayable over sixty (60) equal monthly instalments bearing the existing rates of interest charged or interest rate of eight per cent (8%) per annum whichever is lower; the remaining balance of the Secured Creditors not included in (i) and (ii) above and are not supported by the estimated realisable value of the assets charged as collaterals will be further categorised and settled under Scheme B; and all corporate guarantees granted in favour of the Secured Creditors granted by, if any, shall be discharged. The Asset Disposal Programme will entail the disposal of the following asset which is charged to the Secured Creditors but not critical to the continued operations of the Group moving forward: Description of asset At valuation RM Net carrying amount as at 31 December 2011 RM Mukim of Senai-Kulai PLO 136, Kawasan Perindustrian Fasa 3, Senai Johor 3,468,528 3,461,

13 (b) Scheme B : Unsecured Creditors The amounts owing to the Unsecured Creditors will be settled as follows: (i) (ii) (iii) (iv) partially settled using the surplus cash proceeds (after settlement to the Secured Creditors), if any, to be realised from the Asset Disposal Programme; approximately RM11.50 million to be settled by the issuance of the RM4,599,365 nominal value of ICULS at 100% of its nominal value of RM0.10 each by ; waiver of debts incurred after the Cut-off Date by the Unsecured Creditors after (i) and (ii) above; and all corporate guarantees granted in favour of the Unsecured Creditors granted by, if any, shall be discharged. The ICULS will not be listed on Bursa Securities and the other indicative principal terms of the ICULS are set out in Appendix II of this announcement. The issue price of RM0.10 per ICULS and the conversion price of RM0.10 for one (1) new Share were arrived at after taking into consideration of the par value of the new Shares of RM0.10 each. Each registered holder of the ICULS shall enter into a put and call option agreement to dispose their ICULS to Dato Dr. Pang Chow Huat ( Dato Dr. Pang ), the Managing Director of the Group, or to party(ies) to be nominated by him on the terms and conditions to be mutually agreed between both the parties. (c) Scheme C : Hire Purchase Creditors The amounts owing to the Hire Purchase Creditors will be settled as follows: (i) (ii) (iii) approximately RM3.33 million to be termed out and repayable over sixty (60) equal monthly instalments bearing the existing rates of interest charged or interest rate of eight per cent (8%) per annum whichever is lower; proceeds in excess of the contemplated amount of RM6.50 million under the minimum scenario of the Proposed Rights Issue with Warrants; and all corporate guarantees granted in favour of the Hire Purchase Creditors granted by, if any, shall be discharged

14 The Proposed Debt Restructuring contemplated by will be subject to further amendments/modifications as the approval of all the Scheme Creditors has not been obtained as at the date of this announcement. Nevertheless, the Proposed Debt Restructuring in the above form and structure will be tabled for the consideration and approval of the Scheme Creditors via court convened meeting(s) of the Scheme Creditors pursuant to the provisions of Section 176 of the Act. The Company would make an immediate announcement when the court convened meeting(s) of the Scheme Creditors is scheduled and upon the outcome of the meeting(s). 2.7 Proposed Rights Issue with Warrants Details of the Proposed Rights Issue with Warrants proposes to implement a renounceable rights issue of up to 120,970,000 Rights Shares together with up to 60,485,000 free Warrants B at an issue price of RM0.10 per Rights Share on the basis of two (2) Rights Shares together with one (1) free Warrant B for every two (2) new Shares held after the Proposed Share Premium Reduction, the Proposed Par Value Reduction and Consolidation and the Proposed Restricted Issue with Warrants on an entitlement date to be determined and announced later. The Proposed Rights Issue with Warrants will be undertaken on the Minimum Subscription Level (as defined in Section of this announcement). The actual number of the Rights Shares and free Warrants B to be issued would depend on the issued and paid-up share capital of the Company on the entitlement date, subsequent to the completion of the Proposed Par Value Reduction and Consolidation, the Proposed Restricted Issue with Warrants and the exercise of the Warrants A, if any. To facilitate the implementation of the Proposed Rights Issue with Warrants, the Company would procure an undertaking from Protev Asia not to exercise the Warrants A on or before the entitlement date for the Proposed Rights Issue with Warrants. The entitled shareholders can fully or partially subscribe and/or renounce their entitlements for the Rights Shares with Warrants B. However, the Rights Shares and the free Warrants B cannot be renounced separately. Any unsubscribed Rights Shares shall be offered to the other entitled shareholders and/or renouncee(s)/transferee(s) under the excess Rights Shares with Warrants B application. The Rights Shares with Warrants B will be provisionally allotted to the entitled shareholders. Fractional entitlements under the Proposed Rights Issue with Warrants, if any, will be dealt with in such manner as the Board in its absolute discretion deems fit and expedient in the best interest of the Company. The indicative principal terms of the Warrants B to be issued pursuant to the Proposed Rights Issue with Warrants are set out in Appendix III of this announcement

15 2.7.2 Basis of arriving at the issue price of the Rights Shares and the exercise price of the Warrants B The Board has fixed the issue price of the Rights Shares at RM0.10 per Rights Share and the exercise price of RM0.10 per Warrant B for one (1) new Share. In arriving at the issue price of the Rights Shares and the exercise price of the Warrants B, the Board has taken into consideration the following: (i) (ii) the five (5)-day VWAMP of the Shares of RM0.116 up to and including 14 May 2012 (being the last trading day prior to the announcement of the Proposals); and the minimum issue price allowable under the Act which is not less than the par value of the ordinary shares, being RM0.10 each of the Shares after the Proposed Par Value Reduction and Consolidation. For illustrative purposes, the theoretical ex-rights price as at 14 May 2012 (being the last trading day prior to the announcement of the Proposals) is RM0.179, calculated based on the five (5)-day VWAMP of the Shares up to and including 14 May 2012 of RM Based on the above, the issue price of the Rights Shares and the exercise price of the Warrants B of RM0.10 represents a discount of approximately RM0.079 or 44.13% over the theoretical ex-rights price of RM0.179 per Share. For avoidance of doubt, the Warrants B will be issued at no cost to each entitled shareholder of based on their entitlements to the Proposed Rights Issue with Warrants and on the subscription of his/her rights entitlements. Should an entitled shareholder renounce all or any part of his/her entitlement to the Rights Shares, he/she will not be entitled to such free Warrants B which are attached to the Rights Shares so renounced Ranking of the Rights Shares and the new Shares to be issued arising from the full exercise of the Warrants B The Rights Shares and the new Shares to be issued arising from the full exercise of the Warrants B shall, upon issuance and allotment, rank pari passu in all respects with the existing Shares except that they will not be entitled to any dividends, rights, allotments and/or distributions, that may be declared, made or paid prior to the date of allotment of the Rights Shares or the new Shares to be issued arising from the full exercise of the Warrants B Minimum Subscription Level The Proposed Rights Issue with Warrants will be implemented on a minimum subscription level basis. In determining the minimum amount to be raised from the Proposed Rights Issue with Warrants, the Board has taken into consideration factors which include, amongst others, the funding requirements of the Group and the ability of to raise financing, given the past adverse financial performance of the Group

16 Premised on the foregoing, the Board intends to raise minimum proceeds of RM6,500,000 as the minimum subscription level for the Proposed Rights Issue with Warrants to meet the working capital requirements of the Group ( Minimum Subscription Level ) Irrevocable undertaking The Board will procure written irrevocable undertaking from Protev Asia to subscribe for 65,000,000 Rights Shares together with 32,500,000 free Warrants B to achieve the Minimum Subscription Level ( Undertaking ). Protev Asia will subscribe and/or procure subscriber(s) to subscribe for the aforesaid Rights Shares with Warrants B pursuant to the Proposed Rights Issue with Warrants. In view of the Undertaking to be procured from Protev Asia and that the Proposed Rights Issue with Warrants will be undertaken on the Minimum Subscription Level, underwriting arrangement is not required for the Proposed Rights Issue with Warrants Utilisation of proceeds from the Proposed Rights Issue with Warrants For illustrative purposes, based on a renounceable rights issue of up to 120,970,000 Rights Shares together with up to 60,485,000 free Warrants B at an issue price of RM0.10 per Rights Share, the Proposed Rights Issue with Warrants is expected to raise gross proceeds of up to RM12,097,000 (excluding proceeds from any exercise of the Warrants B in the future). The proceeds are expected to be utilised by the Group in the following manner: Details of utilisation Minimum Scenario RM Maximum Scenario RM Timeframe for utilisation Repayment to the Secured Creditors and/or Hire Purchase Creditors (1) - 5,597,000 Within three (3) months Working capital (2) 6,500,000 6,500,000 Within eighteen (18) months Notes: 6,500,000 12,097,000 (1) As part of the Proposed Debt Restructuring, the amount of approximately RM5.60 million will be used to accelerate the repayment to the Secured Creditors under Scheme A and Hire Purchase Creditors under Scheme C on a proportionate basis based on the outstanding liabilities owing to them. The estimated annual interest savings arising from the repayment made to the Secured Creditors and/or Hire Purchase Creditors pursuant to the Proposed Debt Restructuring based on the average interest rate of 8.54% per annum, are approximately RM0.48 million per annum

17 (2) The proceeds of RM6.50 million will be utilised for the Group s working capital requirements, including operational expenses. The table below shows the breakdown of the estimated working capital to be incurred: Estimated amount Utilisation of proceeds RM Purchase of raw materials 4,000,000 Factory overheads 1,500,000 Administration expenses 1,000,000 Total 6,500,000 The proceeds from the Proposed Rights Issue with Warrants for working capital requirements are expected to be utilised within eighteen (18) months from the completion of the Proposed Rights Issue with Warrants. The quantum of proceeds to be received by the Company pursuant to the exercise of the Warrants B would depend upon the actual number exercised during the exercise period of the Warrants B. Such proceeds, if any, will be used for working capital requirements of the Group Listing of and quotation for the Rights Shares, the Warrants B and the new Shares from the full exercise of the Warrants B An application will be made to Bursa Securities for the: (i) (ii) (iii) listing of and quotation for the Rights Shares; admission of the Warrants B to the Official List of Bursa Securities; and listing of and quotation for the Warrants B and the new Shares to be issued arising from the full exercise of the Warrants B. 2.8 Proposed Exemption Upon issuance, the Warrants B will be detached from the Rights Shares immediately and traded separately on Bursa Securities. Upon completion of the Proposed Restricted Issue with Warrants, the shareholding of Protev Asia in would increase from nil and to exceed 33% of the issued and paid-up share capital of then. Hence, the Proposed Restricted Issue with Warrants will give rise to an obligation by Protev Asia and its PACs to undertake a mandatory take-over offer to acquire all the remaining Shares and convertible securities not already held by them pursuant to Part III of the Code. As it is not the intention of Protev Asia and its PACs to undertake a mandatory takeover offer for the remaining Shares and convertible securities not already held by them as a result of the Proposed Restricted Issue with Warrants, an application for exemption from the obligation by them to undertake a mandatory take-over offer pursuant to Practice Note 9, Paragraph 16.1 of the Code will be sought from the Securities Commission Malaysia ( SC ) only after the prior approval (in a poll) of the non-interested shareholders for the Proposed Exemption has been obtained in a general meeting

18 Should the Proposed Exemption not be approved by the non-interested shareholders and/or by the SC, amongst others, the Proposed Restricted Issue with Warrants and the Proposed Rights Issue with Warrants would not be implemented due to: (i) (ii) the conditionality of the Proposals as detailed in Section 6 of this announcement; and The Undertaking would not be fulfilled as Protev Asia is the intended subscriber to the 65,000,000 Rights Shares together with 32,500,000 Warrants B to achieve the Minimum Subscription Level. 3. RATIONALE AND JUSTIFICATION FOR THE PROPOSALS 3.1 Proposed Share Premium Reduction and the Proposed Par Value Reduction and Consolidation The rationale and justification for the Proposed Share Premium Reduction and the Proposed Par Value Reduction and Consolidation are as follows: (i) (ii) to allow the Company/Group to eliminate its accumulated losses and put the Group on a better financial footing, which would then facilitate a fund raising exercise to be undertaken by the Company; and the elimination of the accumulated losses from s statement of financial position at Company/Group level would not only enhance its credibility with the bankers, suppliers, investors and other stakeholders, it would revitalise and provide the financial platform for the Group s future growth and facilitate the declaration of dividends. 3.2 Proposed Increase in Authorised Share Capital The Proposed Increase in Authorised Share Capital is to accommodate the increase in the issued and paid-up share capital of the Company pursuant to the issuance of new Shares arising from the Proposed Restricted Issue with Warrants and the Proposed Rights Issue with Warrants, and the full conversion of the ICULS arising from the Proposed Debt Restructuring and/or the full exercise of the Warrants A and Warrants B arising from the Proposed Restricted Issue with Warrants and the Proposed Rights Issue with Warrants respectively. It is also to facilitate any increase in the issued and paid-up share capital of the Company in the future. 3.3 Proposed M&A Amendments The Proposed M&A Amendments are to facilitate the Proposed Increase in Authorised Share Capital

19 3.4 Proposed Restricted Issue with Warrants The Proposed Restricted Issue with Warrants will raise proceeds of RM8.50 million (on an interim basis pending the completion of the Proposed Rights Issue with Warrants) which will be used for the purchase of new machinery, meet the immediate working capital requirements of the Group and to defray expenses for the Proposals. More importantly, Protev Asia, the strategic investor, is expected to add value to the Group based on its technical competency and relationship with the motor vehicles manufacturers originating from Germany. In addition, it will enable Protev Asia as a major shareholder then to provide the Undertaking to enable the Company to raise at least RM6.50 million from the Proposed Rights Issue with Warrants besides providing an additional comfort to the Scheme Creditors when considering their voting option in the court convened meeting(s) of the Scheme of Arrangement. 3.5 Proposed Debt Restructuring On 26 October 2010, the Group had made the necessary announcement under Guidance Note 5 of the ACE Market Listing Requirements of Bursa Securities ( ACE Market Listing Requirements ) as a result of default in the payment of principal and interest due on its outstanding credit facilities provided by a financial institution. Subsequently, the Group had made several announcements under Guidance Note 5 due to its default in the payment of principal and interest provided by other financial institutions. The default in the payment of principal and interest on credit facilities was attributable to losses incurred which adversely affected the cash flows of the Group to meet its debt servicing obligations. Other rationale and justification for the Proposed Debt Restructuring are as follows: (i) (ii) (iii) to substantially reduce the borrowings of the Group and the consequential debt and interest servicing burden, specifically the Group s liability arising from the outstanding banking facilities accommodated by the Scheme Creditors of approximately RM25.10 million as at 31 December 2011; to enable the Group to settle the indebtedness to the trade creditors comprising part of the Scheme Creditors; and the issuance of the ICULS would reduce the amount of cash proceeds to be utilised for the repayment to the Unsecured Creditors and the put and call option agreements to be entered by Dato Dr. Pang provide an identified takeout source of the ICULS from the ICULS holders, adding more comfort to the respective Scheme Creditors to vote in favour of the Scheme of Arrangement at the court convened meeting(s). 3.6 Proposed Rights Issue with Warrants The rationale and justification for the Proposed Rights Issue with Warrants are as follows: (i) (ii) to allow the Company to be recapitalised after the Proposed Share Premium Reduction and the Proposed Par Value Reduction and Consolidation; to raise funds for the Group s working capital requirements without incurring interest cost as compared to other means of financing, such as bank borrowings and strengthen its eventual capital base;

20 (iii) (iv) (v) (vi) to enable the Group to raise fund primarily as part settlement of the debts owing to the Secured Creditors thereby averting the threats of legal action and preserving the going concern of the Group; to provide an opportunity for the existing shareholders to further participate in the equity of the Company as its prospects and future growth would be enhanced by the equity participation of Protev Asia in the Company; the issuance of the free Warrants B provides incentives to the entitled shareholders to subscribe for their entitlements of the Rights Shares with Warrants B. Hence, providing them with potential capital appreciation arising from the exercise of the Warrants B in the future and the opportunity to increase their equity participation in the Company at a predetermined exercise price over the tenure of the Warrants B, depending on, amongst others, the future performance of the Group and the new Shares; and the Company can raise additional funds for working capital purposes when the Warrants B are exercised in the future. 3.7 Proposed Exemption It is not the intention of Protev Asia and its PACs to undertake a mandatory take-over offer for all the remaining Shares and convertible securities not already held by them pursuant to Part III of the Code. The Proposed Exemption, when approved by the non-interested shareholders and subsequently by the SC, would relieve Protev Asia and its PACs of additional financial resources to undertake the mandatory takeover offer but instead enable them to inject at least RM6.50 million to the Company via the Proposed Rights Issue with Warrants. Therefore, the Proposed Exemption which is allowable under the provisions of the Code would provide an avenue for Protev Asia and its PACs, to be exempted from undertaking the mandatory take-over obligation. 4. EFFECTS OF THE PROPOSALS The Proposed Increase in Authorised Share Capital, the Proposed M&A Amendments and the Proposed Exemption will not have any effect on the issued and paid-up share capital, net assets ( NA ), gearing, earnings per share ( EPS ), convertible securities and shareholdings of the substantial shareholders in the Company/Group. The proforma effects of the other components of the Proposals are set out in the ensuing sections of this announcement

21 4.1 Share capital The Proposed Share Premium Reduction will not have any effect on the issued and paid-up share capital of the Company. The proforma effects of the Proposed Par Value Reduction and Consolidation, the Proposed Restricted Issue with Warrants, the Proposed Debt Restructuring and the Proposed Rights Issue with Warrants on the authorised and issued and paid-up share capital of the Company are as follows: Minimum Scenario Maximum Scenario Par value RM Shares Share capital RM Shares Share capital RM Authorised share capital Before the Proposed M&A Amendments ,000,000 25,000, ,000,000 25,000,000 After the Proposed M&A Amendments ,000,000, ,000,000 1,000,000, ,000,000 Issued and paid-up share capital As at 14 May ,850,000 17,985, ,850,000 17,985,000 After the Proposed Par Value Reduction and Consolidation - (143,880,000) (14,388,000) (143,880,000) (14,388,000) ,970,000 3,597,000 35,970,000 3,597,000 To be issued pursuant to the Proposed Restricted Issue with Warrants ,000,000 8,500,000 85,000,000 8,500, ,970,000 12,097, ,970,000 12,097,000 To be issued pursuant to the Proposed Rights Issue with Warrants ,000,000 (1) 6,500,000 (1) 120,970,000 (2) 12,097,000 (2) To be issued pursuant to the full conversion of the ICULS (3) ,970,000 45,993,652 18,597,000 4,599, ,940,000 45,993,652 24,194,000 4,599, ,963,652 23,196, ,933,652 28,793,365 To be issued pursuant to the full exercise of the Warrants A and Warrants B (4) - (4) 102,985,000 (5) 10,298,500 (5) Enlarged issued and paid-up share capital ,963,652 23,196, ,918,652 39,091,865 Notes: (1) It is assumed that all the entitled shareholders of do not subscribe to their respective entitlements for the Rights Shares with Warrants B under the Proposed Rights Issue with Warrants except by Protev Asia who has provided the Undertaking to subscribe for 65,000,000 Rights Shares together with 32,500,000 Warrants B to achieve the Minimum Subscription Level. (2) It is assumed that all the entitled shareholders of fully subscribe to their respective entitlements for the Rights Shares with Warrants B under the Proposed Rights Issue with Warrants

22 (3) It is assumed that all registered holders of the ICULS have exercised their rights to require Dato Dr. Pang to purchase all the ICULS held by the registered holders of the ICULS and the ICULS are fully converted for new Shares by Dato Dr. Pang. (4) It is assumed that none of the Warrants A and Warrants B to be issued pursuant to the Proposed Restricted Issue with Warrants and the Proposed Rights Issue with Warrants respectively is exercised. (5) It is assumed that all the Warrants A and Warrants B to be issued pursuant to the Proposed Restricted Issue with Warrants and the Proposed Rights Issue with Warrants respectively are fully exercised. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK

23 4.2 NA and gearing The proforma effects of the Proposed Share Premium Reduction, the Proposed Par Value Reduction and Consolidation, the Proposed Restricted Issue with Warrants, the Proposed Debt Restructuring and the Proposed Rights Issue with Warrants on the NA and gearing of the Group based on the audited consolidated financial statements of as at 30 June 2011 are as follows: Minimum Scenario Audited as at 30 June 2011 Adjusted for subsequent events (I) (II) (III) (IV) (V) (VI) After (V) After (II) After (IV) and After the After (I) and and the After (III) and the assuming Proposed the Proposed Proposed and the Proposed full Share Par Value Restricted Proposed Rights Issue conversion Premium Reduction and Issue with Debt with of the Reduction Consolidation Warrants Restructuring Warrants ICULS RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Share capital 16,350 17,985 (1) 17,985 3,597 12,097 12,097 18,597 19,756 Share premium 10,586 10, Revaluation reserve - 1,380 (2) 1,380 1,380 1,380 1,038 (5) 1,038 1,038 ICULS ,440 (6) 3,440 - Exchange reserve (102) (102) (102) (102) (102) (102) (102) (102) Warrants reserve ,125 (4) 2,125 3,750 (10) - (11) Retained earnings/(accumulated losses) (16,879) (16,949) (1) (7,363) (3) 7,025 4,900 10,817 (7) (8) 9,192 12,942 Equity attributable to shareholders of the Company 9,955 12,900 11,900 11,900 20,400 29,415 35,915 33,634 Par value per Share (RM) Shares in issue ( 000) 163, , ,850 35, , , , ,964 NA per Share (RM) Borrowings (RM 000) 24,936 24,936 24,936 24,936 24,936 15,576 (9) 15,576 15,576 Gearing (times) Notes: (1) The private placement of 16,350,000 Shares issued at RM0.10 per Share was completed on 5 December 2011 with an expense of RM70,000. (2) Leasehold lands and building of the Group have been revalued on 4 November 2011 by an independent valuer. (3) After deducting the estimated expenses amounting to RM1 million in relation to the Proposals

24 (4) After issuance of 42,500,000 free Warrants A based on the fair value of RM0.05 per Warrant. (5) In accordance to the Asset Disposal Scheme, the leasehold land and building are disposed, hence the revaluation reserve related to the said land and building is reversed to accumulated losses. (6) The fair value of the ICULS equity component, excluding the liability component and including the deferred tax asset arising on the liability component. (7) After the reversal of deferred tax liability of RM113,000 which arose in relation to the revaluation reserve. (8) After the loss on disposal of the leasehold lands and buildings amounting to RM1,437,000. (9) Inclusive of Scheme Creditors and liability component of ICULS, net of the nominal value of ICULS issued of RM4,599,000, the proceeds from the disposal of leasehold land and building of RM2,024,000, uplift of pledged fixed deposit of RM500,000 and the waiver of debts of RM6,899,000.. (10) After issuance of 32,500,000 free Warrants B based on the fair value of RM0.05 per Warrant. (11) Assuming no warrants are being exercised, the warrants reserve is reversed to retained earnings. Maximum Scenario Audited as at 30 June 2011 Adjusted for the subsequent events (I) (II) (III) (IV) (V) (VI) (VII) After (VI) and assuming After (V) full After (II) After (IV) and exercise of After the After (I) and and the After (III) and the assuming the Proposed the Proposed Proposed and the Proposed full Warrants Share Par Value Restricted Proposed Rights Issue conversion A and Premium Reduction and Issue with Debt with of the Warrants Reduction Consolidation Warrants Restructuring Warrants ICULS B RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Share capital 16,350 17,985 (1) 17,985 3,597 12,097 12,097 24,194 28,793 39,092 Share premium 10,586 10, ,149 (11) Revaluation reserve - 1,380 (2) 1,380 1,380 1,380 1,038 1,038 1,038 1,038 ICULS ,440 3, Exchange reserve (102) (102) (102) (102) (102) (102) (102) (102) (102) Warrants reserve ,125 (4) 2,125 5,149 (10) 5,149 - Retained earnings/(accumulated losses) (16,879) (16,949) (1) (7,363) (3) 7,025 4,900 10,817 (7) (8) 7,793 7,793 7,793 Equity attributable to shareholders of the Company 9,955 12,900 11,900 11,900 20,400 29,415 41,512 42,671 52,970 Par value per Share (RM) Shares in issue ( 000) 163, , ,850 35, , , , , ,924 NA per Share (RM) Borrowings (RM 000) 24,396 24,396 24,396 24,396 24,396 9,979 (9) 9,979 9,979 9,979 Gearing (times)