DENKO INDUSTRIAL CORPORATION BERHAD ( DENKO OR THE COMPANY )

DENKO INDUSTRIAL CORPORATION BERHAD ( DENKO OR THE COMPANY ) (I) (II) HEADS OF AGREEMENT IN RELATION TO THE PROPOSED ACQUISITION OF THE ENTIRE EQUITY INTEREST IN INTEGRATED MANUFACTURING SOLUTIONS SDN BHD PROPOSED PRIVATE PLACEMENT OF UP TO 10,446,885 NEW ORDINARY SHARES OF DENKO REPRESENTING UP TO 10% OF THE EXISTING TOTAL NUMBER OF ISSUED SHARES OF DENKO TO THIRD PARTY INVESTORS ( PROPOSED PRIVATE PLACEMENT ) 1. INTRODUCTION On behalf of the Board of Directors of Denko ( Board ), AmInvestment Bank Berhad ( AmInvestment Bank ) wishes to announce that the Company has on 23 October 2017, entered into a heads of agreement with Dato Sri Foo Chee Juan and Dato Fong Chiu Wan (collectively the Vendors ) for the proposed acquisition of 6,200,000 ordinary shares in Integrated Manufacturing Solutions Sdn Bhd ( IMS ) ( Sale Shares ), representing the entire equity interest in IMS, for an indicative purchase consideration of RM1,186,920,000 ( Indicative Purchase Consideration ) to be satisfied via allotment and issuance of 1,032,104,348 new ordinary shares in Denko ( Denko Shares ) at an issue price fixed at RM1.15 per Denko Share ( Consideration Shares ) ( Proposed Acquisition ) ( HOA ). The salient terms of the HOA are set out in Section 2.2 of this announcement. Additionally, on behalf of the Board, AmInvestment Bank wishes to announce that the Company proposes to undertake the Proposed Private Placement. The Proposed Acquisition and the Proposed Private Placement are not conditional upon each other nor upon any other proposals undertaken or to be undertaken by the Company. Further details of the Proposed Acquisition and the Proposed Private Placement are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED ACQUISITION 2.1 Background information on IMS As at 20 October 2017, being the latest practicable date prior to this announcement ( LPD ), the issued share capital of IMS is RM6,200,000 comprising 6,200,000 ordinary shares. IMS and its subsidiaries (collectively referred to as IMS Group ) are principally involved in the manufacturing and sales of precision plastic injection moulded parts, air filters and sterilisers, assembly of electrical and electronic components and products, as well as design and fabrication of tools and moulds, serving the electrical and electronic industry. The latest audited consolidated net assets ( NA ) and consolidated profit after tax ( PAT ) of the IMS Group for the financial year ended ( FYE ) 31 March 2017 is approximately RM208.379 million and approximately RM79.128 million respectively. 2.2 Salient terms of the HOA 2.2.1 Agreement for sale and purchase of Sale Shares The Vendors shall sell/dispose of and Denko shall purchase/acquire the Sale Shares free from all claims, liens, charges and encumbrances and with full legal and beneficial title and all rights attaching thereto (including all dividends and distributions, whether declared or undeclared, in respect thereof) with effect from the completion date of the sale and purchase of the Sale Shares. 1

2.2.2 Indicative Purchase Consideration The Indicative Purchase Consideration has been arrived at based on a 15.0 times multiple on the audited consolidated PAT of RM79.128 million of the IMS Group for the FYE 31 March 2017. (c) (d) The Indicative Purchase Consideration shall be satisfied by Denko in such manner to be stipulated in the share sale agreement and such other agreement(s) (if any) mutually agreed upon by the Vendors and Denko to be entered into in connection with the Proposed Acquisition ( Definitive Agreement ) via the allotment and issuance of the Consideration Shares at an issue price of RM1.15 per Consideration Share, which has been arrived at based on the five (5)-day volume weighted average market price ( VWAP ) of Denko Shares up to 20 October 2017, being the last trading day immediately preceding the date of the HOA, with a discount of 9.50%. The Consideration Shares shall, upon allotment and issue, rank pari passu in all respects with each other and with the then existing Denko Shares, save and except that the holders of the Consideration Shares shall not be entitled to any dividends, rights, allotments and/or any other distributions which may be declared, made or paid to shareholders of Denko, the entitlement date of which is prior to the date of allotment of the Consideration Shares. The Definitive Agreement shall provide for such terms and conditions as may be deemed fit or necessary to ensure Denko s ongoing compliance following the allotment and issuance of the Consideration Shares with the public shareholding spread requirement of Bursa Malaysia Securities Berhad ( Bursa Securities ) prescribed under Paragraph 8.02(1) of the Main Market Listing Requirements of Bursa Securities, which stipulates that a listed issuer must ensure that at least 25% of its total listed shares (excluding treasury shares) are in the hands of public shareholders. 2.2.3 Conditions precedent The obligations of the parties that are set out in the HOA in respect of the Proposed Acquisition are conditional upon the parties entering into the Definitive Agreement and the following conditions precedent being obtained/fulfilled by the day falling six (6) months from the date of the Definitive Agreement, or such other later date as the parties may mutually agree upon:- (c) (d) (e) Denko completing the process of examination and verification of the financial, legal and other affairs of the IMS Group by accountants and solicitors, or such other professionals appointed by Denko for the purposes of the HOA and Definitive Agreement ( Due Diligence ) and being satisfied with the results of the Due Diligence; Denko having obtained the approval of its shareholders in an extraordinary general meeting ( EGM ) for the acquisition of the Sale Shares and the issuance of the Consideration Shares in accordance with the terms and conditions of the Definitive Agreement; Denko having obtained the approval of Bursa Securities for the listing of and quotation for the Consideration Shares on the Main Market of Bursa Securities; any other approvals, waivers or consents of any authorities or parties as may be required by law or regulation or deemed necessary by the parties; and such other conditions precedent as may be mutually agreed by the Vendors and Denko and stipulated in the Definitive Agreement. 2

2.2.4 Due Diligence Denko shall within a period of 45 days following the execution of the Definitive Agreement ( Due Diligence Period ), embark on and complete the Due Diligence at its own cost and expense and the Vendors shall:- extend all reasonable assistance to cooperate with and assist Denko in carrying out the Due Diligence; and procure that Denko and its duly authorised representatives and advisers are given all such reasonable information regarding the business, assets, liabilities, licences, documents of title and other evidence of ownership of assets, contracts and affairs of the IMS Group as may be required for the purposes of the Due Diligence, failing which, if there is any delay on the part of the Vendors or which is attributable to the Vendors, the Due Diligence Period will be extended accordingly by a period equivalent to the aggregate number of days in delay on the part of the Vendors. 2.2.5 Right to terminate If at any time prior to the expiry of a period of seven (7) business days after the last day of the Due Diligence Period, Denko has notified the Vendors in writing that it is not satisfied in respect of any part of the results of the Due Diligence, then either party shall be entitled to terminate the HOA by giving a notice of termination to that effect to the Vendors, whereupon the parties shall not have any further rights under the HOA except in respect of:- any obligations under the HOA which are expressed to apply after the termination of the HOA; and any rights and obligations which have accrued in respect of any breach of any of the provisions of the HOA to either party prior to such termination. 2.2.6 Restriction on distribution The Vendors covenant that they will ensure that IMS shall not declare, make or pay any dividends or any form of distributions from the date of the HOA up to completion of the Proposed Acquisition, save and except for the payment of dividends already declared prior to the date of the HOA. 2.2.7 Best endeavours to negotiate and execute Definitive Agreement The parties shall use their best endeavours and efforts to negotiate in good faith and execute the Definitive Agreement, within 45 days following the date of the HOA, or such further extended date as the parties may mutually agree upon ( Expiry Date ). If the Definitive Agreement is not executed by the Expiry Date, the HOA shall terminate. Upon termination of the HOA, no party shall have any continuing obligation as provided in the HOA to the other save for any antecedent breaches or outstanding obligations as provided in the HOA. 3

2.2.8 Exclusivity period The Vendors and Denko agree, covenant and undertake that they will not, and will ensure that their related corporations will not, directly or indirectly (whether jointly or in conjunction with another party), initiate, solicit or entertain any discussion, negotiation, agreement or arrangement or otherwise deal in any way with any other person other than the other party in connection with:- the Proposed Acquisition; or the terms and conditions of any agreement governing the subject matter of the HOA, including without limitation, the Definitive Agreement, at any time prior to the Expiry Date. 2.3 Rationale for the Proposed Acquisition IMS and Denko are both in the plastic injection moulding business serving the same category of customers in the electrical and electronic industry. The Proposed Acquisition is undertaken by Denko as part of its plastic injection moulding business expansion strategy to grow its revenue and customer base, and to expand its production capacity, which in turn will improve its financial performance. During the FYE 31 March 2017, the IMS Group recorded revenue of approximately RM1,814.769 million and PAT of approximately RM79.128 million. The IMS Group has been in operations for more than 20 years and has formed relationships with its customer base of several multinational companies. The Proposed Acquisition enables Denko and its subsidiaries (collectively referred to as Denko Group ) to consolidate the financial results of the IMS Group and to gain access to the customers of the IMS Group. The Proposed Acquisition will allow the Company to realise the following benefits:- (i) (ii) (iii) As both the Denko Group and the IMS Group are involved in the similar business of plastic injection moulding, the Proposed Acquisition will create enhanced scale and synergies for the enlarged Denko Group through the increased production capacity from the IMS Group to expand its plastic injection moulding business via streamlined procurement from suppliers to negotiate for bulk discount and operational efficiencies, resulting from economies of scale and integration. The enlarged Denko Group is able to increase the range of value-added services for its existing and future customers with better customisation of its plastic moulds to meet the requirements of the electrical and electronic industry. The aforesaid business strategies will in turn contribute positively to the enlarged Denko Group s future financial performance. With the larger combined asset base of the enlarged Denko Group, the Denko Group will gain better access to both debt and equity capital markets to fund its current and future business activities and expansion. The issuance of Consideration Shares to satisfy the Indicative Purchase Consideration for the Proposed Acquisition will strengthen the Denko Group s financial condition as it will have a larger share capital base to commensurate with the Denko Group s enlarged plastic injection moulding business activities and at the same time, create substantial headroom for the Denko Group to incur borrowings to fund its current and future business activities. Furthermore, the settlement of the Indicative Purchase Consideration via issuance of the Consideration Shares enables Denko to conserve cash and save on interest payment obligations as opposed to being settled via cash and bank borrowings. 4

2.4 Interests of Directors, major shareholders and/or persons connected with them Save as disclosed below, none of the Directors, major shareholders of the Company and/or persons connected with them have any interest, direct or indirect, in the Proposed Acquisition:- (i) (ii) (iii) Dato Sri Foo Chee Juan, who is a major shareholder and director of Denko, is one of the Vendors; Oregon Technology Sdn Bhd ( OTSB ), which is a major shareholder of Denko, is a person connected with Dato Sri Foo Chee Juan by virtue of its shares being 99.9%- owned by Dato Sri Foo Chee Juan; and Dato Fong Chiu Wan, who is a person connected with Dato Sri Foo Chee Juan by virtue of their joint venture partnership in the IMS Group, is one of the Vendors; (collectively referred to as the Interested Parties ). The shareholdings of the Interested Parties in Denko as at the LPD are set out below:- Name Direct No. of Denko Shares ( 000) % Indirect No. of Denko Shares ( 000) % OTSB 54,561 52.23 - - Dato Sri Foo Chee Juan - - (1) 54,561 52.23 Dato Fong Chiu Wan - - - - Note:- (1) Deemed interest by virtue of his shareholding in OTSB pursuant to Section 8 of the Companies Act, 2016 ( Act ). Dato Sri Foo Chee Juan has abstained and will continue to abstain from all deliberations and voting at the relevant board meetings of Denko in respect of the Proposed Acquisition. The Interested Parties will also abstain from voting in respect of their direct and/or indirect shareholdings, if any, on the resolution pertaining to the Proposed Acquisition to be tabled at an EGM to be convened by the Company. The Interested Parties will also undertake to ensure that persons connected with them (if any) will abstain from voting on the resolution pertaining to the Proposed Acquisition to be tabled at the EGM. 2.5 Advisers AmInvestment Bank has been appointed as the Principal Adviser to the Company for the Proposed Acquisition. In view that the Proposed Acquisition is a related party transaction, an Independent Adviser will be appointed by the Company for the Proposed Acquisition prior to the execution of the Definitive Agreement to advise the non-interested shareholders and Directors of Denko on the fairness and reasonableness of the Proposed Acquisition. 2.6 Document available for inspection The HOA will be available for inspection at the registered office of Denko at Suite 1301, 13 th Floor, City Plaza, Jalan Tebrau, 80300 Johor Bahru during normal business hours from Mondays to Fridays (except public holidays) for a period of 3 months from the date of this announcement. 5

2.7 Further details of the Proposed Acquisition A detailed announcement on the Proposed Acquisition will be made upon finalisation of the terms and conditions of the Proposed Acquisition and execution of the Definitive Agreement. 3. DETAILS OF THE PROPOSED PRIVATE PLACEMENT As at the LPD, the total number of issued shares in Denko is 104,468,851 Denko Shares. Accordingly, the Proposed Private Placement involves the issuance of up to 10,446,885 new Denko Shares ( Placement Shares ), representing up to 10% of the existing total number of issued shares of the Company, at an issue price to be determined and announced later. The Company intends to undertake the Proposed Private Placement under the existing shareholders mandate obtained at the last annual general meeting ( AGM ) held on 23 August 2017, under Sections 75 and 76 of the Act ( General Mandate ) to issue Denko Shares of up to 10% of the existing total number of issued shares of the Company. The current General Mandate which is valid until the next AGM authorises the Board to allot and issue Denko Shares at any time upon such terms and conditions and for such purposes as the Board may, in its absolute discretion, deem fit provided that the aggregate number of Denko Shares to be issued pursuant to the General Mandate does not exceed 10% of the total number of issued shares of the Company. 3.1 Basis and justification of arriving at the issue price of the Placement Shares The issue price of the Placement Shares will be determined and fixed by the Board at a later date. The Placement Shares will be issued at a price of not more than 10% discount to the five (5)- day VWAP of Denko Shares immediately preceding the price-fixing date. 3.2 Ranking of the Placement Shares The Placement Shares will, upon allotment and issuance, rank pari passu in all respects with the existing Denko Shares, save and except that the Placement Shares will not be entitled to any dividends, rights, allotments and/or other forms of distribution that may be declared, made or paid for which the entitlement date precedes the date of allotment and issuance of the Placement Shares. 3.3 Listing of the Placement Shares An application will be made to Bursa Securities for the listing of and quotation for the Placement Shares on the Main Market of Bursa Securities. 3.4 Allocation to placees The Placement Shares will be placed to independent third party investor(s) to be identified at a later stage, where such investor(s) shall be person(s) who/which qualify under Schedule 6 and/or 7 of the Capital Markets and Services Act, 2007. In accordance with Paragraph 6.04(c) of the Main Market Listing Requirements, the Placement Shares will not be placed to the following parties:- (i) (ii) a director, major shareholder, chief executive of the Company or its holding company or a person connected with a director, major shareholder or chief executive; and nominee corporations, unless the names of the ultimate beneficiaries are disclosed. 6

The Proposed Private Placement shall be implemented in tranches within a period of six (6) months from the date of approval from Bursa Securities for the listing of and quotation for the Placement Shares on the Main Market of Bursa Securities. 3.5 Use of proceeds The actual proceeds to be raised from the Proposed Private Placement is dependent on the issue price and actual number of Placement Shares to be issued. For illustrative purposes, the Company is expected to raise gross proceeds of up to approximately RM12,013,918 from the Proposed Private Placement assuming that 10,446,885 Placement Shares are placed out at an issue price of RM1.15 per Placement Share, representing a discount of approximately 9.5% to the five (5)-day VWAP of Denko Shares up to the LPD of RM1.2707 per Denko Share. The proceeds to be raised from the Proposed Private Placement are expected to be used by the Denko Group in the following manner:- Details of utilisation Gross proceeds (RM 000) % Estimated timeframe of utilisation after completion Working capital (1) 6,874 57.2 Within twelve (12) months Capital expenditure (2) 5,000 41.6 Within twelve (12) months Estimated expenses relating to the Proposed Private Placement (3) 140 1.2 Within six (6) months Total 12,014 100.0 Notes:- (1) The proceeds for general working capital will be used to finance the day-to-day operations of the Denko Group and are estimated to be used in the following manner:- Description RM 000 Purchase of raw materials and components 3,000 Trade payable to supplier 2,774 (c) Payment of staff overheads 1,100 Total 6,874 A total of RM3.0 million is allocated to finance the Denko Group s purchases of raw materials and components for the plastic parts and toolings. As at 30 June 2017, the Denko Group has trade and other payables of approximately RM31.3 million. The Company plans to utilise up to approximately RM2.8 million for the payment of the outstanding trade payables, which include subsequent trade payables up to the completion date of the Proposed Private Placement. A total of RM1.1 million is allocated to payment of staff overheads comprising labour costs, staff salaries and benefits for the Denko Group. 7

(2) The details of the proposed utilisation on capital expenditure are as follows:- Detail Purchase of 36 units of new injection moulding machines (including robot arms, overcrane, cooling tower, machine wiring, air compressor, mold temperature controller and renovation) Estimated Cost (RM 000) 5,000 The cost of purchase of the new machinery is approximately RM17.4 million. A total proceeds of RM5.0 million raised from the Proposed Private Placement will be utilised to part finance the purchase of the new machinery. The remaining cost of the new machinery of approximately RM12.4 million will be financed via internally generated funds and bank borrowings. (3) The estimated expenses consist of professional fees (i.e. adviser and placement agent), regulatory fees and other incidental expenses in relation to the Proposed Private Placement. Any variation in the actual amount of the expenses will be adjusted in the portion of the proceeds to be used for the Denko Group s working capital. The actual proceeds to be raised from the Proposed Private Placement is dependent on the issue price of the Placement Shares and actual number of Placement Shares issued. Any variation of the actual proceeds raised will be adjusted against the utilisation for the working capital of the Denko Group. Pending use of proceeds from the Proposed Private Placement for the above purposes, the proceeds will be placed in deposits with financial institutions or short-term money market instruments. 3.6 Rationale for the Proposed Private Placement The Proposed Private Placement is expected to provide additional working capital and funds for capital expenditure to the Denko Group for its business operations and at the same time increase the flexibility of the Denko Group s cash flow management. The Board is of the view that the Proposed Private Placement is the most appropriate avenue of fund raising as the Proposed Private Placement:- (i) (ii) (iii) enables the Company to raise funds without incurring additional interest expense, thereby minimising any potential cash outflows in respect of interest servicing; increases the size and strength of the Company s shareholders funds and potentially improves the liquidity and marketability of the Denko Shares; and is the most expeditious way and cost effective manner of raising funds from the capital market as compared to other forms of equity fund raising, such as a rights issue. [ The rest of this page is intentionally left blank ] 8

3.7 Financial effects of the Proposed Private Placement Based on the assumption that the number of Placement Shares to be issued amounts to up to 10% of the issued share capital of Denko and the issue price of RM1.15, the effects of the Proposed Private Placement are set out below:- 3.7.1 Issued share capital The pro forma effects of the Proposed Private Placement on the issued share capital of Denko as at the LPD are as follows:- No. of Shares ( 000) RM 000 Issued share capital as at the LPD 104,469 43,354 To be issued pursuant to the Proposed Private Placement 10,447 12,014 Enlarged issued share capital 114,916 55,368 3.7.2 NA and gearing Based on the latest audited consolidated financial statement of Denko for the FYE 31 March 2017, the pro forma effects of the Proposed Private Placement on the consolidated NA and gearing of Denko are as follows:- Audited as at 31 March 2017 (RM 000) After the Proposed Private Placement (RM 000) Share capital 43,354 (1) 55,368 Reserves 2,143 (2) 2,003 Shareholders Equity 45,497 57,371 No. of Shares ( 000) 104,469 114,916 NA per Share (RM) 0.44 0.50 Borrowings ( 000) 24,419 24,419 Gearing (times) 0.54 0.43 Notes:- (1) Assuming 10,446,885 Placement Shares are issued at an issue price of RM1.15 per Placement Share and the amount is fully credited to the share capital account in accordance with the Act. (2) After deducting estimated expenses of approximately RM140,000 incurred in relation to the Proposed Private Placement. 3.7.3 Earnings/loss per Share ( EPS / LPS ) The proceeds from the Proposed Private Placement is expected to finance the working capital requirements and part finance the purchase of new machinery of the Denko Group. The LPS will be proportionately diluted as a result of the increase in the number of shares after the Proposed Private Placement. For illustrative purposes, based on the latest audited consolidated LPS of Denko of 10.81 sen for the FYE 31 March 2017, the audited consolidated LPS of Denko is expected to be diluted to 9.82 sen as a result of an increase in the number of Denko Shares in issue arising from the issuance of the Placement Shares. 9

However, the utilisation of proceeds for working capital and purchase of new machinery are expected to contribute positively to the future earnings of the Denko Group. 3.7.4 Substantial shareholders shareholdings The effects of the Proposed Private Placement assuming up to 10% of the existing total number of issued shares of Denko are placed out on the shareholdings of substantial shareholders of Denko are set out in the table below:- After the Proposed Private As at the LPD Placement Direct Indirect Direct Indirect No. of No. of Shares Shares No. of Shares ( 000) % ( 000) % ( 000) % No. of Shares ( 000) % OTSB 54,561 52.23 - - 54,561 47.48 - - - - (1) 54,561 52.23 - - (1) 54,561 47.48 Dato Sri Foo Chee Juan Note:- (1) Deemed interested by virtue of his shareholding in OTSB pursuant to Section 8 of the Act. 3.7.5 Convertible securities 3.8 Approvals required As at the date of this announcement, the Company does not have any existing convertible securities. The Proposed Private Placement is subject to the following approvals being obtained:- (i) (ii) Bursa Securities for the listing of and quotation for the Placement Shares on the Main Market of Bursa Securities; and any other relevant authority, if required. The Board intends to allot and issue the Placement Shares under the General Mandate. As the Placement Shares will be issued under the General Mandate, the Proposed Private Placement does not require the approval of the shareholders of the Company. However, if the Placement Shares are not offered to investors before the expiry of the General Mandate, the offering of such Placement Shares will be conditional upon the General Mandate being renewed at the next AGM of the Company. The Proposed Private Placement is not conditional upon any other proposal undertaken or to be undertaken by the Company. 3.9 Interests of Directors, major shareholders and/or persons connected with them None of the Directors, major shareholders of Denko and/or persons connected with them have any interest, whether direct or indirect, in the Proposed Private Placement. 3.10 Directors statement The Board, after having considered all aspects of the Proposed Private Placement (including, but not limited to the rationale as set out in Section 3.6 of this announcement and the effects as set out in Section 3.7 of this announcement), is of the opinion that the Proposed Private Placement is in the best interest of the Company. 10

3.11 Adviser and placement agent AmInvestment Bank has been appointed as the Adviser and Placement Agent to the Company for the Proposed Private Placement. 3.12 Application to the relevant authorities Barring any unforeseen circumstances, the application to Bursa Securities in relation to the listing of and quotation for the Placement Shares is expected to be submitted within one (1) month from the date of this announcement. 3.13 Estimated time frame for completion Barring any unforeseen circumstances and subject to all relevant approvals being obtained from the relevant authorities and/or parties, the Proposed Private Placement is expected to be completed in the first (1 st ) quarter of the calendar year 2018. This announcement is dated 23 October 2017. 11