On behalf of the Board of Directors of Ge-Shen ( Board ), M&A Securities Sdn Bhd ( M&A Securities ) wishes to announce the following:

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1 GE-SHEN CORPORATION BERHAD ( GE-SHEN OR THE COMPANY ) PROPOSED ACQUISITION PROPOSED ISSUANCE OF RCPS PROPOSED AMENDMENTS (COLLECTIVELY, THE PROPOSALS ) 1. INTRODUCTION On behalf of the Board of Directors of Ge-Shen ( Board ), M&A Securities Sdn Bhd ( M&A Securities ) wishes to announce the following: the Company had on 5 December 2014 entered into a conditional share sale agreement ( SSA ) with the vendors of Polyplas Sdn Bhd ( Polyplas ), namely Narinder Singh A/L Sudagar Singh and Gurdial Singh A/L Sudagar Singh (collectively, the Vendors ) for the proposed acquisition of 75% equity interest in Polyplas, comprising 1,500,000 ordinary shares of RM1.00 each in Polyplas ( Sale Shares ) for a total cash consideration of RM33,756,253 ( Proposed Acquisition ). Concurrent with the execution of the SSA, the Company had entered into the following agreements: (a) (b) Put/Call Option Agreement with Narinder Singh A/L Sudagar Singh for the option to purchase an additional 500,000 ordinary shares of RM1.00 each in Polyplas ( Polyplas Shares ) by Ge-Shen from Narinder Singh A/L Sudagar Singh at a consideration to be determined based on the terms and conditions of the put/call option agreement; and Shareholders Agreement with Narinder Singh A/L Sudagar Singh to regulate the relationship between the shareholders of Polyplas upon completion of the Proposed Acquisition; (collectively, refer to as the Agreements ) The salient terms of the Agreements are set out in Section of this announcement; (ii) (iii) Proposed issuance of 30,000,000 new redeemable convertible preference shares of RM0.01 each in Ge-Shen ( RCPS ) at an the issue price of RM0.60 per RCPS to third party investors to be identified ( Proposed Issuance of RCPS ) to partly fund the Proposed Acquisition; and Proposed amendments to the Articles of Association of the Company to facilitate the implementation of the Proposed Issuance of RCPS ( Proposed Amendments ). (collectively, refer to as the Proposals ) 1

2 2. THE PROPOSALS 2.1 Proposed Acquisition Details of the Proposed Acquisition Pursuant to the SSA, Ge-Shen shall acquire 75% equity interest in Polyplas from the Vendors comprising 1,500,000 Sale Shares for a total cash consideration of RM33,756,253 ( Purchase Consideration ) in the following manner: Vendors Existing no. of Sale Shares held No. of Sale Shares to be acquired Purchase Consideration (RM) Narinder Singh A/L Sudagar Singh Gurdial Singh A/L Sudagar Singh 1,750,000 1,250,000 28,130, , ,000 5,626, Total 2,000,000 1,500,000 33,756, The Sale Shares shall be purchased by Polyplas free from all claims, charges, liens, encumbrances and equities whatsoever, together with all rights attached thereto, and all dividends, rights and distributions, declared paid or made in respect thereof. Upon completion of the Proposed Acquisition, Polyplas will be a 75% owned subsidiary of Ge- Shen. The salient terms of the SSA are set out in Section of this announcement. Pursuant to the Put/Call Option Agreement, Ge-Shen may purchase the remaining 500,000 Polyplas Shares, representing 25% equity interest in Polyplas from Narinder Singh A/L Sudagar Singh within three (3) months after the expiry of 12 months from the completion of the Proposed Acquisition at a purchase consideration to be determined based on the formula set out in Section 2.1.7(ii) below. Upon completion of the Proposed Acquisition and should Ge-Shen purchases the remaining 25% equity interest in Polyplas under the Put/Call Option Agreement, Ge-Shen s total equity interest in Polyplas shall be 100%. Ge-Shen has also entered into the Shareholders Agreement with Narinder Singh A/L Sudagar Singh to regulate the relationship between the shareholders of Polyplas upon completion of the Proposed Acquisition. Details of the Shareholders Agreement are set out in Section 2.1.7(iii) below Details of Polyplas Polyplas is a private limited company incorporated in Malaysia under the Companies Act, 1965 on 27 July Its principal address is No. 2056, Mukim 14, Lorong IKS Bukit Minyak 5, Taman IKS Bukit Minyak, 14100, Bukit Mertajam, S.P.T, Pulau Pinang, Malaysia. The authorised share capital of Polyplas is RM5,000,000 comprising 5,000,000 ordinary shares of RM1.00 each ( Polyplas Shares ), of which 2,000,000 ordinary shares of RM1.00 each have been issued and fully paid-up. 2

3 The directors and shareholders of Polyplas and their respective shareholdings in Polyplas are set out below: Directors/ Shareholders of Polyplas No. of Polyplas Shares Equity Interest (%) Narinder Singh A/L Sudagar Singh 1,750, Gurdial Singh A/L Sudagar Singh 250, Total 2,000, The principal activity of Polyplas is moulding/manufacture of plastic parts and its manufacturing capabilities ranges from tooling and product design to assembly of plastic parts. The moulding/manufacturing capabilities of Polyplas include the following: Injection moulding, In-mould Decoration and In-mould Forming Polyplas owns various models of moulding machines with manufacturing capabilities to produce conventional plastic parts as well as precision and thin wall plastic parts. (ii) Assembly Polyplas provides assembly services to its customers whereby it works together with the customers product design and process teams and develop assembly line concepts used to manufacture the customers end product. (iii) Secondary Processes Polyplas provides a full range of secondary processes services to its customers which include water base paint spray, metal printing, polyurethane spray, hot stamping, spray painting and computer numerical control (CNC) cutting services. Its products are sold to customers who ranges from various sectors and industries including audio visual, medical, automotive, data storage, telecommunication, computer peripherals and consumer electronics. Polyplas has the manufacturing capabilities to produce conventional plastic parts as well as precision and thin wall plastic parts. Polyplas manufacturing facility is located in the Bukit Mertajam, Pulau Pinang. As at the date of this announcement, save as disclosed below, Polyplas has no other subsidiaries or associated companies: Name of subsidiary Date/Country of Incorporation Equity interest held (%) Issued and paid-up share capital (RM) Principal Activities Polyplas Medical Sdn Bhd 15 April 1995/ Malaysia ,000 Dormant 3

4 2.1.3 Historical financial information of the Polyplas The historical financial information of the Polyplas based on its audited consolidated financial statements for the financial years ended ( FYE ) 31 October 2011 to 2013 and unaudited consolidated financial statements for FYE 31 October 2014 are set out below: < FYE 31 October > 2011 (Audited) 2012 (Audited) 2013 (Audited) 2014 (unaudited) (RM 000) (RM 000) (RM 000) (RM 000) Revenue 37,530 34,045 31,748 43,956 Profit before taxation ( PBT ) 2,603 2,649 4,414 10,170 Taxation (260) (189) (303) (2,342) Profit after taxation ( PAT ) Shareholders funds/net assets ( NA ) 2,343 2,460 4,111 7,828 10,250 14,568 14,679 15,824 Borrowings 3,115 2,721 2,137 5,363 Gearing (times) Commentary: FYE 31 October 2011 (audited) During FYE 31 October 2011, the company registered revenue of RM37.53 million. PAT registered during the year was RM2.34 million, which represented a PAT margin of 6.24%. Taxation during the year amounts to RM0.26 million with an effective tax rate of approximately 10%. FYE 31 October 2012 (audited) In FYE 31 October 2012, the company s revenue was RM34.05 million. Although revenue registered during the year had decreased from RM37.53 million to RM34.05 million, the company has also improved its production efficiencies and customer mix to which had improved its PAT margins. Its PAT had improved from RM2.34 million to RM2.47 million and its PAT margin improved to 7.25%. This was mainly due to the lower taxation resulting from the utilisation of export tax allowances which was unutilised from previous years. The effective tax rate for the financial year is approximately 7%. FYE 31 October 2013 (audited) In FYE 31 October 2013, revenue had further decreased to RM31.75 million resulting from the decline in sales from several customers of Polyplas. 4

5 Notwithstanding the drop in revenue, PAT improved from RM2.46 million to RM4.11 million in FYE 31 October 2013 due to improved production efficiencies which resulted in a higher gross profit margin as well as a higher PAT margin of 12.95%. Taxation during the year remained low at RM0.3 million due to the utilisation of export tax allowances. The effective tax rate for the financial year remained at approximately 7%. FYE 31 October 2014 (unaudited) In FYE 31 October 2014, revenue improved substantially to RM43.96 million, contributed from the increased sales from the data storage, audio, industrial, communications and medical products which has contributed 76% of total sales. In line with the improvement in revenue, PAT improved from RM4.11 million to RM7.83 million, which is contributed by further improvement in production efficiencies as well as due to a higher production volume which resulted in the company achieving greater economies of scale. PAT margin during the year improved from 12.95% to 17.81%. For FYE 31 October 2014, the taxation amounted to RM2.34 million, representing an effective tax rate of 23%. The higher tax paid during the year was due to the depletion of unutilised export tax allowance Basis and justification of the Purchase Consideration The Purchase Consideration was agreed upon between Ge-Shen and the Vendors on a willing buyer-willing seller basis. The Board is of the opinion that the Purchase Consideration is fair after taking into consideration the following: (ii) (iii) (iv) (v) (vi) (vii) the unaudited NA of Polyplas as at 31 October 2014 of RM15.82 million, which represents an effective price-to-book multiple of 2.85 times; the audited NA of Polyplas as at 31 October 2013 of RM14.64 million, which represents an effective price-to-book multiple of 3.07 times; the unaudited PAT of Polyplas as at 31 October 2014 of RM7.83 million, which represents an effective price-to-earnings multiple of 5.75 times; the audited PAT of Polyplas as at 31 October 2013 of RM4.11 million, which represents an effective price-to-earnings multiple of times; the historical performance and operating history of Polyplas; the future synergistic benefits of the Proposed Acquisition to the manufacturing capabilities of the Ge-Shen and its subsidiary companies ( Ge-Shen Group ); and the opinion from SQM, the Expert Valuer engaged by the Board to provide an opinion on the fairness and reasonableness of the Purchase Consideration. SQM had vide its letter dated 5 December 2014 ( Valuation Letter ), stated that the Purchase Consideration is fair and reasonable. 5

6 2.1.5 Source of funding The Purchase Consideration shall be funded via the following: Details RM (a) Proceeds from the issuance of the RCPS 18,000,000 (b) Internal funds 15,756,253 Total 33,756, Liabilities to be assumed and estimated financial commitments pursuant to the Proposed Acquisition Ge-Shen will not assume any additional liabilities (including contingent liabilities and guarantees (if any)) under the Proposed Acquisition. The existing liabilities of the Polyplas Group will be settled in the normal course of business. There are no additional financial commitments required from Ge-Shen in respect of the Proposed Acquisition Salient Terms of the Agreements The salient terms of the Agreements are as follows: SSA Narinder Singh A/L Sudagar Singh ( NSSS ) and Gurdial Singh A/L Sudagar Singh (collectively Vendors ) intend to dispose and the Ge-Shen ( Purchaser ) intends to acquire the 1,500,000 Sale Shares free from all claims, charges, liens, encumbrances and equities whatsoever together with all rights attached thereto subject to the terms and conditions set out in the SSA. Purchase Consideration: The Purchase Consideration was arrived at on a willing seller willing buyer basis. Conditions Precedent: the SSA shall be conditional upon the following being obtained, procured and/or fulfilled within the conditional period by the Purchaser and/or the Vendor: (a) (b) (c) (d) (e) the clearance by Bursa Securities of the circular to the shareholders to be issued by the Purchaser for the acquisition of the Sale Shares; the approval of the shareholders of the Purchaser at a general meeting for the acquisition of the Sale Shares; the approval of the shareholders of the Purchaser at a general meeting for the issuance of RCPS and the consequential amendments to the Purchaser s memorandum and articles of association; the approval of Bank Negara Malaysia in relation to the issuance of the RCPS; the execution by the Purchaser and NSSS of a shareholders agreement to regulate their rights and obligations in the Polyplas after the completion date, 6

7 the call and put option between NSSS and the Purchaser for the sale and purchase of the remaining shares held by NSSS in Polyplas and the management services agreement between NSSS and Polyplas in relation to NSSS being employed as the Managing Director of Polyplas from the completion date; (f) (g) the approval of Malaysian Industrial Development Authority (MIDA) on the sales of Sale Shares by the Vendors; and such other waivers, consents or approvals as may be required (or deemed necessary by the Parties hereto from any third party or governmental, regulatory body or competent authority having jurisdiction over any part of the transactions contemplated under the SSA to the effect that if such waivers, consents, approvals are not obtained, the sale and purchase of the Sale Shares herein will be rendered null and void by law. Conditions for Completion: If: (a) (b) (c) (d) (e) (f) (g) no event of default has occurred or would occur as a result of the completion of the SSA; the Conditions Precedent under the SSA have been procured, obtained, fulfilled and/or waived; there has been no material adverse change in the financial condition or operation of Polyplas since the date of the SSA; each of the representations and warranties hereof remains accurate at the completion date as if given on that date by reference to the facts and circumstances then existing; the Vendors have not breached any undertakings, representations, warranties and covenants under the SSA; no Governmental entity shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, injunction or other order, whether temporary, preliminary or permanent, which is in effect and which has or would have the effect of making the transactions contemplated by the SSA illegal or restraining or prohibiting consummation of such transactions; and subject to the provisions of the SSA, the parties shall, on the completion date, complete the sale of the Sale Shares under the SSA. Termination Event: On the occurrence of any of the following defaulting events stated hereunder and provided that the event of default occurs before the completion date, the other non-defaulting party may (but is not obliged to) give notice in writing to the defaulting Party which in this context shall mean the Purchaser or the Vendors, and shall include Polyplas conduct as listed below. (a) (b) Breach: breach of any material or fundamental terms or conditions of the SSA or a failure to perform or observe any material or fundamental undertaking, obligation or agreement expressed or implied in the SSA including the breach of any material warranties; or Receiver: a receiver, receiver and manager, trustee or similar official is appointed over any of the assets or undertaking of the defaulting party; or 7

8 (c) Arrangements: save and except as stated in the SSA pursuant to the acquisition and disposal of the Sale Shares, the defaulting party enters into or resolves to enter into any arrangement, composition or compromise with, or assignment for the benefit of, the defaulting party s creditors or any class of them; or (d) (e) (f) (g) (h) Winding-Up: an application, petition or order is made for the winding-up or dissolution of the defaulting Party, or a resolution is passed or any steps taken to pass a resolution for the winding-up or dissolution of the defaulting party, otherwise than for the purpose of an amalgamation or reconstruction which has prior written consent of the non-defaulting party; or Cessation of Business: the defaulting party ceases or threatens to cease carrying on a substantial portion of the defaulting party s business other than in compliance with the defaulting party s obligations under the SSA; or Events of Default: the defaulting party commits any act or omits to do an act which results in the breach or non-fulfillment of any term or condition of any banking, finance or credit facility which has the effect of causing the events specified in sub-clauses (b), (c), (d) and (e) to occur; or Misrepresentation: any representation, warranty or statement which is made (or acknowledged to have been made) by the Parties in the SSA or which is contained in any certificate, statement, legal opinion, notice, replies made in the course of the due diligence review or information furnished in the due diligence review or provided under or in connection herewith or therewith proves to be incorrect in any material respect; or Nationalisation: any agency of any state seizes, compulsorily acquires, expropriates or nationalises all or a material part of the assets or shares of the defaulting party; or Government Action: any governmental authority or any person or entity acting or purporting to act under any governmental authority shall have taken any action in order to condemn, seize, appropriate or assume custody or control of the defaulting party; or all or any substantial part of the assets of the defaulting party or to curtail the defaulting party s authority in the overall conduct of the defaulting party s business or operations. Termination: If the defaulting party fails to remedy the relevant default or breach within the said fourteen (14) business days or such extended period as may be allowed by the non-defaulting party after being given notice by the non-defaulting party, to rectify such breach, the non-defaulting party may elect to terminate the SSA and claim damages or pursue its action. In the event of termination due to the default or breach of the Purchaser, or upon the Purchaser s failure to satisfy the relevant conditions precedent, the Vendors shall have the option of giving the Purchaser a notice of termination and forfeiting the deposit absolutely as agreed liquidated damages and not by way of penalty and shall thereupon refund to the Purchaser all other sum or sums paid by the Purchaser, if any, towards the Purchase Consideration free of interest. In the event of termination due to the default or breach of the Vendors, or upon the Vendors failure to satisfy the relevant conditions precedent, the Purchasers shall have the option of giving the Vendors a notice of termination, and the Vendors shall within fourteen (14) business days from the date of receipt of the notice of 8

9 termination from the Purchaser refund to the Purchaser the deposit and all other monies paid by the Purchaser towards the Purchase Consideration, if any, free of interest, together with a further sum equivalent to the Deposit only as agreed liquidated damages and not by way of penalty and thereafter the SSA shall come to an end and become null and void and be of no further effect and neither party shall have any claim whatsoever against the other under or in respect of the SSA (save for the return of any documents belonging to the Vendors). (ii) Put/Call Option Agreement Narinder Singh A/L Sudagar Singh ( Grantor ) has agreed to grant to the Company ( Option Holder ) the right to require the Grantor to sell the the remaining 500,000 Polyplas Shares ( Option Shares ) to the Option Holder ( Call Option ) at the Option Price (as set out below), in accordance with the terms and subject to the conditions set out in the Put/Call Option Agreement, in consideration of the Option Holder agreeing to grant to the Grantor the right to require the Option Holder to purchase the Option Shares from the Grantor ( Put Option ), in accordance with the terms and subject to the conditions set out in the Put/Call Option Agreement. Option Price: the option price shall be determined based on the following formula: (a) (b) Audited PAT of Polyplas for the FYE 31 October 2014 ( PAT 14 ) x 5.75 x option shares percentage; or Latest audited PAT (hereinafter defined) x 5.75 x option shares percentage, whichever the higher, provided that the PAT shall always be on a maintainable basis and it is recognized in accordance to acceptable accounting standards in Malaysia, whereby all positive (or negative) variances arising from one-off gains or nonrecurring gains shall be deducted and provisions made or adjusted accordingly in the calculation of PAT. Latest PAT means the audited PAT of the Company reflected in the latest audited accounts of the Company then available. Option Period: This Call Option shall only be exercised during the (3) months commencing after the expiry of twelve (12) months from the completion date (as defined in the SSA) whichever is the earlier; and if not exercised, may be renewed by the parties mutually in writing on an annual basis. Exercise of Option: The Call Option or Put Option is to be exercised by the Grantor and the Option Holder each respectively for the purchase by the Option Holder of all the Option Shares from the Grantor at the Option Price. Option to be Exercised in Whole or Parts: The Call Option or the Put Option shall be exercised in whole on the entire Option Shares, or, subject to mutual consent of the Parties, be exercised in parts (i.e. in a staggered manner or in tranches). Termination: The Call Option or Put Option granted herein shall terminate automatically upon the expiry of its option period or sooner determination of the Put/Call Option Agreement in accordance with the terms and conditions hereunder. Undertaking not to Dispose Option Shares: The Grantor further agree, covenant and undertake that he shall not prior to the completion (as defined in the SSA) of the SSA, commencement of the Option Period and/or during the Option Period, dispose the Option Shares to any other person save and except in accordance with any mutual written agreement between the parties. 9

10 (iii) Shareholders Agreement Conditions Precedent: The rights and obligations of the shareholders set out in the Shareholders Agreement are subject to and conditional upon the completion of the SSA. Termination if Conditions Precedent not fulfilled: In the event that the SSA is not completed and is terminated for any reason whatsoever in accordance with its terms, the Shareholders Agreement shall automatically terminate and all the provisions of the Shareholders Agreement shall cease to have any further force or effect without prejudice to any accrued rights or obligations of any party under the Shareholders Agreement. Shareholding Proportions: Unless otherwise agreed by the Shareholders the respective shareholdings of the Shareholders shall be as follows: - Shareholders Percentage of ordinary shares in the Company Narinder Singh A/L Sudagar Singh ( Party A ) 25% Ge-Shen ( Party B ) 75% Managing Director: Simultaneous with the completion of the SSA, Party A shall enter into a Management Services Agreement with the Company and be appointed as the managing director of the Company subject to the terms and conditions therein and shall be responsible for the day to day management of the Company and will be entitled to exercise such powers as the Board of Directors of Polyplas may from time to time delegate to him. Number of Directors: At all times while the Shareholders Agreement remains in force, the shareholders shall procure that at any one time, unless otherwise expressly agreed by the shareholders, the number of Directors shall not be more than five (5) in number, where Party A shall (for as long as he remains a Shareholder of the Company) be entitled to one (1) representative only and Party B shall (for as long as it remains a Shareholder of 75% or above in nominal value of the issued and paid up ordinary share capital of the Company for the time being ) be entitled to appoint up to four (4) representatives to the Board of Directors of Polyplas and that each of the Shareholders will be entitled to appoint and remove Directors. Restriction on Transfers of Shares: (a) (b) No shareholder may during the term of the Shareholders Agreement sell, transfer, assign, charge, mortgage, encumber, grant options over or otherwise dispose of or encumber any of their Shares, except in compliance with the provisions of the Shareholders Agreement, save and except for such dealings strictly in accordance with the call and put option granted under the Put/Call Option Agreement which, notwithstanding anything to the contrary herein contained, shall not be subject to any restrictions in the Shareholders Agreement or the memorandum and articles of association of the Company; Save for transfers to related company permitted pursuant to the Put/Call Option Agreement, if at any time any shareholder wishes to sell, transfer or otherwise dispose of any of their shares they may only do so in accordance with the provisions contained in the Shareholders Agreement; 10

11 (c) Notwithstanding any other provision of the Shareholders Agreement, no shares may in any way be sold, transferred or disposed of unless:- (ii) (iii) the transferee executes an agreement with the shareholders (other than the transferor) in such form and substance as the shareholders (other than the transferor) may reasonably require and by which the transferee undertakes to be bound by all the provisions of the Shareholders Agreement, as if it were a party to the Shareholders Agreement; if the transfer is proposed to be made to a third party purchaser, the transferor gives prior notice in writing of the identity of such third party purchaser to the company and the other Shareholder(s). If the named transferee is a competitor of the company, the transfer shall not be effected without the unanimous consent in writing of all the shareholders. for the purposes of enabling the company to ascertain if the proposed purchaser or transferee is a competitor, the transferor shall forward to the company, such information relating to the proposed transferee as the company may reasonably require; and the prior approvals of the relevant authorities are obtained, where required by law or practice. Right of First Refusal: Notwithstanding anything to the contrary stated, none of the shareholders shall sell, transfer or otherwise part with the legal or beneficial ownership of any shares in the Company without first making an offer in writing to sell the same to the other Shareholder(s) ( offeree shareholder(s) ), provided however that such restriction/ requirement does not apply to the sale and transfer of shares under the Put/Call Option Agreement. Termination by Mutual Consent: (a) (b) The shareholders may at any time mutually agree to terminate the Shareholders Agreement as of a date certain to be established by the shareholders and the shareholders will agree upon a course of action to implement any arrangements that they may agree upon within three (3) months from the date of such termination; If the shareholders shall fail to agree upon a course of action after the termination of this agreement, the shareholders will procure that the company be voluntarily liquidated and the costs thereof borne by the company, with the net proceeds of the liquidation (if any), after distribution to preference shareholders (if any) (including the payment of all dividends accrued and where redeemable, the redemption of the preference shares), distributed between the shareholders in accordance with their respective shareholding proportions at the time of such voluntary liquidation, subject to any competing claims arising in law. Termination Arising from Sale of Shares: If any shareholder shall sell or transfer all its shares to another shareholder or to a third party, the Shareholders Agreement will terminate only as to that shareholder upon the completion of the sale or transfer of all its shares to the other Shareholder or to the relevant third party and shall apply to any new shareholder. Termination Arising from Default: In the event that a shareholder ( Defaulting Shareholder ): 11

12 (a) (b) (c) (d) commits any material breach of any of its obligations under the Shareholders Agreement and fails to take appropriate steps to remedy such breach (if capable of remedy) within fourteen (14) days after being given notice so to do by the other Shareholder; or assigns, transfers or disposes of its shares in the company in violation of the terms and conditions of the Shareholders Agreement; or goes into liquidation, whether compulsory or voluntary (except for the purposes of a bona fide reconstruction or amalgamation with the consent of the other shareholder, such consent not to be unreasonably withheld) or becomes a bankrupt; or fails to pay its debts as they fall due or enters into any composition or arrangement with its creditors or makes a general assignment for the benefit of its creditors. then any other shareholder (other than the Defaulting Shareholder) will be entitled (but not after sixty (60) days of the event in question first coming to the attention of the shareholder entitled to give the notice) to give a notice ( Default Notice ) to the Defaulting Shareholder. Dividend Policy: The dividends to be declared by Polyplas to be paid to the shareholders shall not exceed thirty per centum (30%) of its audited profit after tax for each financial year provided always there is sufficient cash for the capital expenditure and working capital requirement of the Company and the dividends declaration shall be in compliance with the Act and Main Market Listing Requirements by Bursa Securities. 2.2 Proposed Issuance of RCPS In order to partly fund the Purchase Consideration, Ge-Shen intends to raise fresh capital by undertaking the Proposed Issuance of RCPS. The Proposed Issuance of RCPS involves Ge- Shen issuing 30,000,000 new RCPS at the issue price of RM0.60 per RCPS to third party investors to be identified ( RCPS Subscribers ). The Proposed Issuance of RCPS will not require any prospectus to be issued as the issuance of RCPS falls under the relevant categories prescribed under Schedule 7 of the Capital Markets and Services Act 2007 which includes inter-alia, the issuance where the purchase consideration is not less than RM250,000 and the issuance is made to high net worth individual whose personal net worth exceed RM3,000,000 or corporations with NA exceeding RM10,000,000. Indicative terms of the RCPS are as follows: Issuer Type of Securities Issue price Issue Size Total value Transferability : Ge-Shen : Redeemable convertible preference share : RM0.60 per RCPS : 30,000,000 RCPS : RM18,000,000 : Transferable at the option of the holders 12

13 Dividend Rate : The holders of the RCPS shall be entitled to dividend at the rate of five and half percent (5.5%) per annum. Dividends on the RCPS shall be cumulative (whether or not declared by the Company). Dividends are the paid semi-annually on/or before 30 June and 31 December. The Company shall not repurchase or issue any ordinary shares (or other classes of shares) or pay any dividends on the ordinary shares while the dividends on the RCPS are in arrears. Ranking of RCPS Voting Rights : RCPS shall rank in priority with all dividends payable by the Issuer. In the event of liquidation, dissolution or winding up, the RCPS shall rank in priority to any other unsecured securities or shares of the Issuer. : The RCPS do not carry the right to vote at any general meeting of the ordinary shareholders, save and except in the following events:- (ii) (iii) (iv) (v) (vi) when the dividend or part of the dividend on the RCPS is in arrears for more than six (6) months; on a proposal to reduce the Company s share capital; on a proposal for the disposal of the Company s assets or property, business and undertaking; on a proposal that affects rights attached to the RCPS; on a proposal to wind up the Company; and during the winding up of the Company. Upon occurrence the above events, the RCPS holders shall be entitled to vote at any class meeting of the holders of the RCPS in relation to any proposal by the Issuer to vary or abrogate the rights of the RCPS as stated in the Articles of Association. Every holder of the RCPS who is present in person at such class meeting will have one vote on a show of hands and on a poll; and every holder of RCPS who is present in person or by proxy will have one vote for every RCPS of which he is the holder. Conversion Rights Conversion Period Ranking of new shares : Each RCPS shall be entitled to be converted into one (1) ordinary share of RM0.50 each in Ge-Shen ( Ge-Shen Share ). : Convertible at the option of the RCPS holder at any time from the date of issuance, up to and including one (1) month prior to the date occurring on the 5th anniversary of the date of issuance of the RCPS; or automatically converted into ordinary shares on the date occurring on the 5th anniversary of the date of issuance of the RCPS. : The new shares to be issued pursuant to the conversion of the RCPS shall, upon allotment and issue, rank pari passu in all respects with the then existing shares of the Issuer, save and except with the then existing shares of the Issuer, save and except that they will not be entitled to any dividends or distribution made prior to the conversion date of the RCPS. 13

14 Rights to Participate in any Distribution and/or Offers of Further Securities by Ge-Shen Redeemability : The holders of the RCPS shall not have any right to participate in any distribution and/or offers of further securities by Ge-Shen unless otherwise resolved by ordinary shareholders of Ge-Shen at a general meeting. : Redeemable by notice in writing at any time at the option of the Issuer from and including the third (3rd) anniversary of the date of issuance of the RCPS. The Issuer shall give not less than thirty (30) days notice to the RCPS holders prior to the redemption date. Redemption (in whole or by part), shall be in cash at a redemption price calculated as follows:- (ii) the dividends declared up to the redemption date less any dividends paid; and after payment of any dividend payable (as described above), and prior and in preference to any payment or distribution (or any settling apart of any payment and distribution) of any available fund and assets on any Issuer or junior securities, an amount per share equal to the Issue Price for each RCPS. Redemption Price Board Representation Rights of Holders on Liquidation of Ge- Shen Governing Law Form and Denomination Listing Status : Equivalent to the Issue Price plus accrued dividends. : The Subscriber shall be entitled to elect up to two (2) representative(s) to the Board of Directors of the Issuer. : The right on a winding-up or return of capital shall rank prior to the holders of any other shares then in issue in the capital. : The laws of Malaysia. : The RCPS will be constituted in the Memorandum and Articles of Association of Ge-Shen and issued in registered form and in multiples of RM0.60 each. : The RCPS will not be listed on any stock exchange An application shall be made to Bursa Malaysia Securities Berhad for the listing of and quotation for the new Ge-Shen Shares to be issued arising from the conversion of the RCPS on the Main Market of Bursa Securities. The proceeds raised from the Proposed Issuance of RCPS shall be utilised to partly fund the Purchase Consideration. 14

15 2.2.1 Basis of determining the issue price of the RCPS The issue price of RM0.60 for each RCPS was arrived at after taking into consideration the following: (ii) the par value of Ge-Shen Shares of RM0.50 each; and the historical market price of Ge-Shen Shares as follows: Historical market price (RM) Premium to the issue price of the RCPS (RM) Premium to the issue price of the RCPS (%) 5 days volume weighted average market price ( VWAMP ) up to 4 December days VWAMP up to 4 December months VWAMP up to 4 December Based on the above, the issue price of the RCPS represents premium between 4.0% to 12.0% to the historical market price of Ge-Shen Shares. After considering the above, the Board is of the view that the issue price of the RCPS is fair and reasonable and does not prejudice the interests of existing shareholders of Ge-Shen. 2.3 Proposed Amendments The Proposed Amendments entails the amendment to relevant clauses of the Memorandum and/or Articles of Association of Ge-Shen to facilitate the implementation of the Proposed Issuance of RCPS. 3. RATIONALE 3.1 Proposed Acquisition The Proposed Acquisition will enable Ge-Shen to further expand its plastic moulding operations and to be able to diversify its customer base to include the customers of Polyplas. In addition, Ge-Shen s manufacturing facilities is currently located in Johor and Vietnam and for the past years, it has catered mostly to customers located in that area. As Polyplas is based in Penang, most of its customers are multinational corporations (MNCs) involved in the production of electrical products. As such, this represents Ge-Shen s efforts to geographically expand its operations as well. 3.2 Proposed Issuance of RCPS The Proposed Issuance of RCPS will enable the Company to raise additional funds to complete the Proposed Acquisition. 15

16 The Board is of the opinion that the Proposed Issuance of RCPS represents the most effective means of fund raising without incurring high interest costs and restrictive terms as compared to bank borrowings. 3.3 Proposed Amendments The Proposed Amendments is to facilitate the implementation of the Proposed Issuance of RCPS. 4. RISK FACTORS 4.1 Business risk Similar to the Ge-Shen Group, Polyplas is exposed to risks relating to the plastic moulding/manufacturing industry. However, given the prospects/outlook of the plastic moulding/manufacturing industry as set out in Section 5.2 below and the diversification of customer base as well as geographical base, the Board is of the opinion that this risk is manageable. Notwithstanding the aforesaid, there is no assurance that any change to the above factors will not have a material adverse effect on the enlarged Ge-Shen Group s business and financial conditions. 4.2 Transaction risk The Proposed Acquisition is subject to the risk of non-completion of the SSA. The completion of the Proposed Acquisition is conditional upon the conditions precedent in the SSA. There can be no assurance that the Proposed Acquisition will not be exposed to risks such as the inability to obtain the approvals from the relevant parties and/or inability to comply with the conditions imposed by the relevant authorities, if any. However, Ge-Shen will take and continue to take all reasonable steps to ensure satisfaction and/or waiver, as the case maybe, to ensure completion of the Proposed Acquisition. 4.3 Other risks As Polyplas is operating within the manufacturing industry, it is exposed to the following business risks: (ii) Dependency on experienced management and key personnel; and Risk inherent in the plastic moulding/manufacturing including the possible high competition due to rapid technological changes. The Board notes that Polyplas and its personnel have successfully maintained a reputable track record in servicing MNCs in the electrical products industry for more than 25 years. As such, the Board is confident that the abovementioned risks are minimal. In addition, upon completion of the Proposed Acquisition, Ge-Shen plans to introduce the necessary internal precautionary measures to mitigate/limit these risks. Ge-Shen is confident that it is able to withstand such risks and is able to limit any potential consequential losses. Nevertheless, there is no assurance that such measures will be sufficient. 16

17 5. OUTLOOK AND PROSPECTS 5.1 Economic Overview The global economy continued to expand at a moderate pace in the third quarter of 2014, with uneven growth performances across economies. While the United States economy continued to show broader signs of improvements, growth in the Euro area remained subdued amid persistent structural constraints and weakening sentiments. In Asia, economic activity continued to expand, although growth was more moderate in several economies. The United States economy continued to expand, although at a more moderate pace, in the third quarter (2.3%; 2Q 2014: 2.6%), supported by both private consumption and investment activity. Recovery in the Euro area was subdued in the third quarter. While overall demand conditions were supported by more accommodative monetary conditions, growth remained weak amid high unemployment, low capacity utilisation and ongoing balance sheet adjustments by both the private and public sectors. In Asia, economic activity continued to expand, albeit at a more moderate pace in several economies. Among the major Asian economies, in the People s Republic of China ( PR China ), the economy grew by 7.3% (2Q 2014: 7.5%), driven mainly by growth in the tertiary industry (which includes, among others, hotel and catering, wholesale and retail trade, and financial intermediation) and the secondary industry (industry and construction). In Japan, economic activity improved, although the strength of growth remained weak following larger-than-expected impact from the consumption tax increase in April. Private consumption was underpinned by higher retail sales amid better employment conditions. Investment was supported by improving business sentiments. Growth in Indonesia moderated to 5.0% (2Q 2014: 5.1%), on account of lower exports and investment. In Korea, economic activity grew at a slower pace (3.2%; 2Q 2014: 3.5%) due mainly to weaker net exports. In Singapore, growth was sustained at 2.4% (2Q 2014: 2.4%), supported by the manufacturing and services sectors. In Chinese Taipei, the economy grew at a slightly faster pace (3.8%; 2Q 2014: 3.7%), underpinned by an improvement in domestic demand. The Malaysian economy registered a growth of 5.6% in the third quarter of 2014 (2Q 2014: 6.5%), supported by private sector demand and continued positive growth in net exports of goods and services. The Malaysian economy is expected to remain on a steady growth path. Although exports will benefit from the recovery in the advanced economies and from regional demand, the trend is likely to moderate reflecting both the high base effect from 2013 and lower commodity prices. While private consumption may moderate, investment activity will be supported by continued flow of ongoing and new projects by the private and public sectors. Going forward, global growth is expected to remain moderate. Growth in the advanced economies is expected to remain uneven. In Asia, growth will be underpinned by continued expansion in domestic demand and exports. (Source: Independent Market Research Report titled Plastic Injection Moulding Industry in Malaysia and Electrical and Electronic Industry in Malaysia, Smith Zander International Sdn Bhd ( IMR Report )) 5.2 Outlook on the Malaysia Plastic Moulding/Manufacturing Industry The plastics industry in Malaysia is a dynamic and growing segment of the nation s manufacturing sector. Malaysia s plastic industry has developed into a sector that is highly diversified and capable of producing a wide array of products including automotive components, electrical and electronic ( E&E ) components and parts, components for telecommunications, construction materials, household goods, acrylic sheets, bags, bathroom accessories, battery casings, bottles, containers, toys and packaging materials. The 17

18 development of Malaysia s downstream plastics processing activities is largely attributed to the existence of a mature petrochemicals sector in the country that provides a steady supply of materials for the plastics industry with established resin production facilities. The plastics industry in Malaysia is strongly driven by the E&E, automotive and packaging materials industries. The manufacture of plastics in primary forms in Malaysia increased from RM13.1 million in 2010 to RM14.8 million in 2013 at a compound annual growth rate ( CAGR ) of 4.3%, while the manufacture of plastics in non-primary forms increased from RM604.5 million to RM888.9 million over the same period at a CAGR of 13.7%. Malaysia exports its plastic products to various countries, including the European Union, China, Hong Kong, Singapore, Japan and Thailand. A significant portion of these exports are plastics in non-primary form, namely plastics packaging, E&E components and parts, automotive components, consumer products and industrial products. Nevertheless, Malaysia also exports plastics in primary forms such as polyethylene ( PE ), polyvinyl chloride ( PVC ) or polyethylene terephthalate ( PET ), which are used to produce packaging materials, films and sheets, and wires and cables. Total plastics exports, comprising exports of plastics in primary and non-primary forms, grew at a CAGR of 2.4% between 2010 and 2013 as Malaysia s export income increased from RM14.1 billion to RM15.1 billion. During this period, exports of plastics in non-primary forms increased at a CAGR of 4.9% while exports of plastics in primary forms increased at a CAGR of 1.4%. The prospects for the plastics industry in Malaysia are bright as plastics are expected to be a material of choice for consumer and industrial applications. Smith Zander International Sdn Bhd anticipates that demand for plastics will continue to be driven by increased external demand for E&E components, parts and products as well as packaging materials, and domestic demand for automotive components and parts on the back of greater consumer spending due to stronger purchasing power. (Source: IMR Report, Smith Zander International Sdn Bhd) 5.3 Prospects of Polyplas The future prospects of Polyplas is expected to be positive based on the following factors: Operating history and customer base Polyplas has been in operations since 1988 and todate, it has mainly multinational companies (MNCs) as its customers from various sectors and industries including audio visual, medical, automotive, data storage, telecommunication, computer peripherals and consumer electronics. The customer base of Polyplas has been stable for the past years and is expected to remain so for future years. (ii) Financial position For the past three (3) financial years, the revenue of Polyplas has improved from RM34.05 million in 2012 to RM43.96 million in 2014 and its PAT has increased from RM2.47 million in 2012 to RM7.83 million in In addition, the borrowings of Polyplas has remained low with a gearing position of 0.34 times as at 31 October

19 Based on the historical growth and low gearing position of Polyplas, it is expected to continue to be profitable while retaining its low gearing position. (iii) Industry prospects Total plastics exports, comprising exports of plastics in primary and non-primary forms, grew at a CAGR of 2.4% between 2010 and 2013 as Malaysia s export income increased from RM14.1 billion to RM15.1 billion. Smith Zander International Sdn Bhd, the Independent Market Researcher appointed by the Board anticipates that demand for plastics will continue to be driven by increased external demand for E&E components, parts and products as well as packaging materials, and domestic demand for automotive components and parts on the back of greater consumer spending due to stronger purchasing power. As such, based on the above positive outlook of the plastic moulding/manufacturing industry, the Board is of the opinion that the revenue and profitability of Polyplas is expected to further improve. 6. FINANCIAL EFFECTS OF THE PROPOSALS 6.1 Share Capital The effects of the Proposed Issuance of RCPS on the issued and paid-up share capital of Ge- Shen are shown below: No. of Ge-Shen Shares Share capital (RM) As at the date of this announcement 80,000,000 40,000,000 To be issued pursuant to the conversion of RCPS 30,000,000 15,000,000 Total issued and paid-up share capital 110,000,000 55,000,000 As at the date of this announcement, 3,092,000 Ge-Shen Shares are held as treasury shares. The Proposed Acquisition and Proposed Amendments will not have any effect on the issued and paid-up share capital of Ge-Shen. 6.2 Substantial Shareholders Shareholdings The effects of the Proposed Issuance of RCPS on the shareholdings of the substantial shareholders of Ge-Shen are shown below: (I) (II) As at the date of this announcement After (I) and the Proposed Issuance of RCPS Direct Indirect Direct Indirect No. of Shares % No. of Shares % No. of Shares % No. of Shares % Ge-Shen Resources Sdn Bhd Netyan Group Corporation 37,328, ,328, ,504, ,504,

20 Wong Yee Keh - - * 37,328, * 37,328, Han Hun Kwong 264, * 37,328, , * 37,328, Teo Chin Swee 1,270, * 37,328, ,270, * 37,328, Siow Wong Siow 7,091, ,091, Kwang Hwa RCPS subscribers (collective) ,000, Note: The above percentage shareholdings is computed based on the total issued and paid-up capital of the Company after deducting 3,092,000 treasury shares retained by the Company. * Deemed interest by virtue of their interests in Ge-Shen Resources Sdn Bhd pursuant to Section 6A of the Companies Act, The Proposed Acquisition and Proposed Amendments will not have any effect on the shareholdings of the substantial shareholders of Ge-Shen. 6.3 Net Assets ( NA ) and Gearing Based on the audited consolidated financial statements of Ge-Shen as at 31 December 2013, the proforma effects of the Proposed Acquisition and Proposed Issuance of RCPS on the consolidated NA and gearing of Ge-Shen are shown below: (I) (II) (III) (IV) (V) After the After (II) After (III) After (IV) and the exercise of Proposed and the and the the Put/Call Audited as at 31 December Issuance of Proposed conversion Option 2013 RCPS Acquisition of RCPS Agreement # RM 000 RM 000 RM 000 RM 000 RM 000 Share capital 40,000 40,000 40,000 55,000 55,000 Treasury shares (1,843) (1,843) (1,843) (1,843) (1,843) RCPS reserve - 1,230 1,230 (389) (389) Share premium 5,593 5,363 5,363 8,363 8,363 Foreign translation reserve Accumulated losses (492) (492) (842) * (453) (8,033) 43,563 44,563 44,213 60,983 53,403 Non-controlling ,742 3, interest Shareholders equity/na 43,635 44,635 47,955 64,725 53,475 No. of shares ( 000) 80,000 80,000 80, , ,000 NA per share (RM) Borrowings 10,032 10,032 14,440 14,440 25,690 Gearing (times) Notes: 20