LNG RESOURCES BERHAD ( LNGRES OR COMPANY ) PROPOSED ESTABLISHMENT OF AN EMPLOYEES SHARE OPTION SCHEME OF UP TO 30% OF THE ISSUED AND PAID-UP SHARE CAPITAL (EXCLUDING TREASURY SHARES) OF LNGRES 1. INTRODUCTION On behalf of the Board of Directors of LNGRES ( Board ), Affin Hwang Investment Bank Berhad ( Affin Hwang IB ) wishes to announce that the Company proposes to establish an employees share option scheme ( ESOS ) of up to 30% of the issued and paid-up share capital (excluding treasury shares) of the Company at any point in time over the duration of the scheme for eligible directors and employees of LNGRES and its subsidiary companies (excluding subsidiaries which are dormant) ( LNGRES Group ) ( Proposed ESOS ). Further details of the Proposed ESOS are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED ESOS The Proposed ESOS will involve the granting of ESOS options to the eligible employees, executive directors and non-executive directors ( Directors ) of the LNGRES Group, who meet the criteria of eligibility for participation in the Proposed ESOS ( Eligible Persons ) to subscribe for new ordinary shares of RM0.10 each in LNGRES ( LNGRES Shares or Shares ) ( ESOS Scheme or Scheme ) pursuant to the Proposed ESOS ( ESOS Options ) in accordance with the by-laws governing the Proposed ESOS ( By-Laws ). The Proposed ESOS will be administered by a share scheme committee ( ESOS Committee ), the members of which shall be duly appointed and authorised by the Board. 2.1 Salient terms of the By-Laws The salient terms and conditions of the Proposed ESOS that will be governed by the By-Laws include, inter-alia, the following: 2.1.1 Maximum number of new LNGRES Shares available under the Proposed ESOS The maximum number of new LNGRES Shares which may be issued and allotted pursuant to the exercise of the ESOS Options shall not in aggregate exceed 30% of the issued and paid-up share capital (excluding treasury shares) of the Company at any point of time over the duration of the Scheme. 2.1.2 Basis of allotment and maximum allowable allotment Subject to the By-Laws, the number of ESOS Options to be allocated to an Eligible Person at any time in each offer made pursuant to the Scheme ( Offer ) shall be at the sole and absolute discretion of the ESOS Committee after taking into consideration, inter-alia, the Eligible Person s designation, length of service, work performance and/or such other factors as the ESOS Committee may in its absolute discretion deem fit, and subject to the following conditions: the total number of LNGRES Shares made available under the Scheme shall not exceed the amount stated in Section 2.1.1 above; 1
(ii) (iii) (iv) not more than 10% (or such other percentage as may be permitted by Bursa Malaysia Securities Berhad ( Bursa Securities ) or any other relevant authorities from time to time) of the total LNGRES Shares made available under the Scheme shall be allocated to any Eligible Person who, either singly or collectively through persons connected with said Eligible Person (as defined in the ACE Market Listing Requirements of Bursa Securities ( ACE LR )), holds 20% (or such other percentage as may be permitted by Bursa Securities or any other relevant authorities from time to time) or more of the issued and paid-up share capital (excluding treasury shares) of the Company; not more than 60% of the total number of LNGRES Shares to be issued under the Scheme would be allocated, in aggregate, to the Directors and senior management of the LNGRES Group who are Eligible Persons (where senior management shall be subject to a criteria determined at the discretion of the ESOS Committee from time to time); and the Directors and senior management of the LNGRES Group shall not participate in the deliberation or discussion of their respective allocations, provided always that it is in accordance with any prevailing guidelines issued by Bursa Securities, the ACE LR or any other relevant authorities as amended from time to time. The ESOS Committee shall be entitled to determine the maximum number of ESOS Options that can be offered to an Eligible Person under the Scheme in the manner provided in the By-Laws in relation to each class or grade of employees and Directors under the Scheme from time to time, and the decision of the ESOS Committee shall be final and binding. The ESOS Committee has the sole and absolute discretion to determine whether to stagger the allocation of ESOS Options available over the duration of the Scheme and whether there is any vesting period and whether to impose any vesting conditions for the ESOS Options granted under the Scheme. In the event that any Eligible Person is a member of the ESOS Committee, such Eligible Person shall not participate in the deliberation or discussion of their own allocation of the ESOS Options. 2.1.3 Eligibility Subject to the discretion of the ESOS Committee, only Eligible Persons who fulfil the following conditions shall be eligible to participate in the Scheme: in respect of an employee (namely a natural person who is employed by and on the payroll of any company in LNGRES Group), the employee must fulfil the following criteria as at the date on which an Offer is made by the ESOS Committee to an Eligible Person in the manner provided in the By-Laws ( Date of Offer ): (a) (b) is at least 18 years of age and is not an undischarged bankrupt nor subject to any bankruptcy proceedings; is a full time employee; and 2
(c) fulfils any other criteria and/or falls within such category as may be determined by the ESOS Committee from time to time, (ii) in respect of a Director, the Director must fulfil the following criteria as at the Date of Offer:- (a) (b) (c) is at least 18 years of age and is not an undischarged bankrupt nor subject to any bankruptcy proceedings; has been appointed as a Director of the Company or any company in LNGRES Group for such period as may be determined by the ESOS Committee prior to and up to the Date of Offer; and fulfils any other criteria and/or falls within such category as may be determined by the ESOS Committee from time to time. Notwithstanding the above, the ESOS Committee may, in its absolute discretion, waive any of the conditions of eligibility as set out above. The eligibility and number of ESOS Options to be offered to an Eligible Person under the Scheme shall be at the sole and absolute discretion of the ESOS Committee and the decision of the ESOS Committee shall be final and binding. Subject to this Section 2.1.3, there are no performance targets to be achieved by the Eligible Person who has accepted the Offer in accordance with the By-Laws ( Grantee ) before the ESOS Options can be exercised and the new LNGRES Shares arising from the Scheme can be vested. 2.1.4 Duration The Proposed ESOS, when implemented, shall be in force for a period of 5 years from the effective date of implementation of the Proposed ESOS. The Company may, if the Board deems fit and upon the recommendation of the ESOS Committee, extend the Scheme for a period(s) of up to a maximum of 5 years in aggregate for the extension period, commencing from the day after the date of expiration of the original 5 years period ( Date of Expiry ). Such extended Scheme shall be implemented in accordance with the terms of the By-Laws, save for any amendment and/or change to the relevant statutes and/or regulations then in force. Unless otherwise required by the relevant authorities, no further approvals shall be required for the extension of the Scheme provided that the Company shall serve appropriate notices on each Grantee and/or make any necessary announcements to any parties and/or Bursa Securities (if required) within 30 days prior to the Date of Expiry. 2.1.5 Option Price Subject to any adjustments made under the By-Laws and pursuant to the ACE LR, the exercise price of the ESOS Options ( Option Price ) shall be the higher of: (ii) a price to be determined by the Board upon recommendation of the ESOS Committee based on weighted average market price of LNGRES Shares for the 5 market days immediately preceding the Date of Offer with a discount of not more than 10% or such other percentage of discount as may be permitted by Bursa Securities or any other relevant authorities from time to time over the duration of the Scheme; and the par value of the LNGRES Shares. 3
2.1.6 Ranking of the ESOS Options and new shares arising from the exercise of the ESOS Options The Grantees will not be entitled to any voting right or participation in any form of distribution and/or offer of further securities in LNGRES until and unless such Grantees exercise their ESOS Options into new LNGRES Shares. The new LNGRES Shares arising from the exercise of the ESOS Options will, upon allotment and issuance, rank pari passu in all respects with the then existing LNGRES Shares, save and except that the new LNGRES Shares will not be entitled to any dividends, rights, allotments and/or other form of distribution which may be declared, made or paid to shareholders, the entitlement date of which precedes the date of allotment and issuance of such new LNGRES Shares. The new LNGRES Shares will be subject to the provisions of the Articles of Association of LNGRES relating to transfer, transmission and otherwise of LNGRES Shares. 2.1.7 Acceptance An Offer shall be accepted by an Eligible Person within the offer period by written notice to the Company accompanied by a payment to the Company of a nominal non-refundable consideration of RM1.00 only for the acceptance of the ESOS Options. If an Offer is not accepted in the manner aforesaid within the offer period or in the event of death or cessation of employment of the Eligible Person, the Offer shall automatically lapse upon the expiry of the offer period and be null and void and be of no further force and effect. The ESOS Options comprised in such Offer may, at the discretion of the ESOS Committee, be re-offered to other Eligible Persons. The Company shall within 30 days of the acceptance of the Offer by the Eligible Person, issue an option certificate to the Eligible Person in such form as may be determined by the ESOS Committee. 2.1.8 Retention Period The ESOS Committee shall be entitled to prescribe or impose, in relation to any Offer, any condition relating to any retention period or restriction on transfer as it sees fit. Notwithstanding, a Grantee who is a non-executive Director shall not sell, transfer or assign any new LNGRES Shares obtained through the exercise of ESOS Options offered to him under the Scheme within 1 year from the Date of Offer. 2.1.9 Alteration of share capital Subject to the By-Laws, in the event of any alteration in the capital structure of the Company during the option period (namely a period of 30 days from the Date of Offer or such longer period as may be determined by the ESOS Committee on a case-by-case basis at its sole and absolute discretion) whether by way of a rights issue, bonus issue or other capitalisation issue, consolidation or subdivision of LNGRES Shares or a reduction of capital or otherwise howsoever, the Company shall cause such adjustment to be made to: (ii) the Option Price; the number of ESOS Options granted to each Grantee (excluding the ESOS Options already exercised); and/or 4
(iii) the number of LNGRES Shares and/or Option Price comprised in the Offer which is open for acceptance during the offer period (if such Offer is subsequently accepted in accordance with the terms and conditions of the Offer and the By-Laws), for purposes of ensuring that the capital outlay to be incurred by a Grantee in subscribing for the same proportion of the issued capital of the Company as that to which such Grantee was entitled prior to the event giving rise to such adjustment (not taking into account the ESOS Options already exercised) shall remain unaffected. Any adjustments (other than an adjustment pursuant to a bonus issue) must be confirmed in writing by the external auditors or the principal adviser of the Company. 2.1.10 Listing of and quotation for the new LNGRES Shares An application will be made for the listing of and quotation for the new LNGRES Shares to be issued arising from the exercise of the ESOS Options on the ACE Market of Bursa Securities. 2.2 Utilisation of proceeds The proceeds arising from the exercise of the ESOS Options will depend on, amongst others, the number of ESOS Options granted and exercised at the relevant point in time as well as the Option Price. As such, the actual amount of proceeds arising from the exercise of the ESOS Options could not be determined at this juncture. The Company intends to utilise the proceeds from the exercise of the ESOS Options for working capital requirements of the LNGRES Group, as and when received by the Company. The proceeds would be used to fund LNGRES Group s day-to-day operations to support existing business operations which shall include, but not limited to, the payment of trade and other payables, employee costs, marketing and administrative expenses. The breakdown of proceeds to be utilised for each component of working capital has not been determined at this juncture. The Company expects to utilise the proceeds for said working capital requirements within a period of 12 months, as and when the proceeds are received throughout the duration of the Proposed ESOS. Pending the utilisation of proceeds by the Company, the proceeds would be placed in deposits with financial institutions or short-term money market instruments as the Board may deem fit. [The rest of this page is intentionally left blank] 5
3. RATIONALE FOR THE PROPOSED ESOS The objectives of the Proposed ESOS are to:- (ii) (iii) (iv) (v) motivate and encourage the employees of the LNGRES Group by rewarding them for their contribution and achieving a greater level of commitment and dedication, resulting in enhanced productivity; reward and retain the Eligible Persons whose services are vital to the businesses, continued growth and future expansion of the LNGRES Group; reward the Eligible Persons by allowing them to participate in the Company's profitability and eventually realise capital gains arising from any appreciation in the value of the LNGRES Shares; establish a more competitive remuneration package to attract more skilled and experienced individuals to join the LNGRES Group and contribute to its continued growth and profitability; and create a greater sense of ownership and belonging among the Eligible Persons upon exercising of their ESOS Options as they will be able to participate directly in the future growth of the LNGRES Group. The Proposed ESOS is extended to the non-executive Directors of the Company so as to: (a) (b) (c) (d) reward the non-executive Directors for their contributions in the governance and operational performance of the LNGRES Group; promote active participation in the development, evaluation and implementation of the Company s strategic initiatives; incentivise the non-executive Directors to continue providing strategic insight and direction to the LNGRES Group; and motivate the non-executive Directors to pursue the long term growth and success of the Company. The non-executive Directors come from different professions and backgrounds and bring to the LNGRES Group a wealth of experience in corporate governance and business management. Even though the non-executive Directors are not involved in the day-to-day running of the Company, they are often consulted on various matters in relation to the business of the Company. The extension of the Proposed ESOS to the non-executive Directors is therefore in recognition of their services and contributions to the growth and development of the Company. The grant of ESOS Options to the non-executive Directors will allow the Company to attract and retain experienced and qualified persons from different professional backgrounds to join the Company as non-executive Directors and to motivate the existing non-executive Directors to take extra efforts in promoting the interests of the Company. The selection of non-executive Directors to participate in the Proposed ESOS and the number of ESOS Options to be offered (in accordance with the By-Laws) will be made by the ESOS Committee, in consultation with the Board, taking into consideration the nature and extent of their input, assistance and expertise rendered to the Board and the impact thereof on the growth, success and development of the Company and the LNGRES Group, as well as their involvement and commitment to the Board. The ESOS Committee may, where it considers relevant, take into account other factors such as the economic conditions and the Company s financial performance. 6
4. EFFECTS OF THE PROPOSED ESOS 4.1 Issued and paid-up share capital The Proposed ESOS is not expected to have an immediate effect on the existing issued and paid-up share capital of the Company. However, the issued and paid-up share capital of the Company will increase progressively depending on the number of ESOS Options exercised and the new LNGRES Shares to be issued pursuant thereto. For illustrative purposes, the effects of the Proposed ESOS on the issued and paidup share capital of LNGRES as at 15 December 2015, being the latest practicable date for this announcement ( LPD ), assuming that the maximum number of ESOS Options amounting to 30% of the issued and paid-up share capital of the Company are fully granted and vested, are as follows: Existing issued and paid-up share capital as at LPD To be issued assuming full exercise of the ESOS Options No. of LNGRES Shares RM 241,994,985 (1) 24,199,498.50 72,598,495 7,259,849.50 Enlarged issued and paid-up share capital 314,593,480 31,459,348.00 Note: (1) There are no treasury shares held by the Company as at the LPD. The actual number of new LNGRES Shares to be issued pursuant to the Proposed ESOS will depend on the issued and paid-up share capital of the Company (less treasury shares) over the duration of the Scheme. 4.2 Net asset ( NA ) per Share and gearing The Proposed ESOS is not expected to have an immediate effect on the NA per Share and gearing of the LNGRES Group until such time when the ESOS Options granted pursuant to the Proposed ESOS are exercised. Any potential effect on the consolidated NA per Share and gearing of the LNGRES Group will depend on the number of ESOS Options granted and exercised as well as the Option Price. The effect on the LNGRES Group s NA per Share and gearing would depend on the number of ESOS Options granted and the fair value of the ESOS Options after taking into account, inter-alia, the Option Price, which will only be determined at the point of the Offer. Whilst the granting of the ESOS Options under the Proposed ESOS is expected to result in an expense to the income statements of the LNGRES Group pursuant to the Financial Reporting Standard 2 on Share-Based Payment as issued by the Malaysian Accounting Standards Board ( MFRS 2 ), the recognition of such expense would not have any material impact on the NA per Share of the LNGRES Group as the corresponding amount will be classified as an equity reserve which forms part of the shareholders equity. 7
4.3 Earnings and earnings per share ( EPS ) The Proposed ESOS is not expected to have any material effect on the consolidated earnings and EPS of the LNGRES Group for the financial year ending 31 December 2016. Any potential effect on the consolidated earnings and EPS of the LNGRES Group in the future would depend on the number of ESOS Options granted and exercised at the relevant point in time, the Option Price payable upon the exercise of the ESOS Options as well as the impact of MFRS 2. Under MFRS 2, the expense arising from the issuance of the ESOS Options is measured by the fair value of the ESOS Options, which is expected to be vested at each date of Offer and will be recognised in the income statement over the vesting period of the ESOS Options. Hence, the quantum of such impact on the earnings of the LNGRES Group could not be determined at this juncture. Nevertheless, the Company has taken note of the potential impact of MFRS 2 on the LNGRES Group s future earnings and shall take into consideration such impact on the allocation and granting of ESOS Options to the Eligible Persons. 4.4 Substantial shareholders shareholding The Proposed ESOS is not expected to have any immediate effect on the substantial shareholders shareholdings of the Company until and unless new LNGRES Shares are issued pursuant to the exercise of the ESOS Options under the Proposed ESOS. Any potential effect on the substantial shareholders shareholdings will depend on the number of new LNGRES Shares to be issued pursuant to the exercise of the ESOS Options granted at the relevant point of time. 4.5 Convertible securities As at the LPD, the Company does not have any convertible securities in issue. 5. APPROVALS REQUIRED The Proposed ESOS is subject to and conditional upon approvals being obtained from the following: (ii) Bursa Securities, for the listing of and quotation for the new LNGRES Shares to be issued pursuant to the exercise of the ESOS Options to be granted under the Proposed ESOS on the ACE Market of Bursa Securities; and the shareholders of the Company, at an Extraordinary General Meeting ( EGM ) to be convened. The Proposed ESOS is not conditional upon any other corporate exercises to be undertaken by the Company, if any. 8
6. INTERESTS OF DIRECTORS, SUBSTANTIAL SHAREHOLDERS AND/OR PERSONS CONNECTED TO THEM As at the LPD, the direct and/or indirect shareholdings of the directors, substantial shareholders and/or persons connected to them are as follows: Direct No. of LNGRES Shares % Indirect No. of LNGRES Shares % Directors YBhg Dato (Dr) Pahamin Ab Rajab 12,000,000 4.96 - - Yong Chan Cheah 12,924,979 5.34 45,600,000 (1) 18.84 Yong Swee Chuan 12,924,978 5.34 45,600,000 (1) 18.84 Low Hee Chung - - - - Lee Huei 352,600 0.15 - - Gor Siew Yeng - - - - Substantial shareholders Indowang Sdn Bhd 45,600,000 18.84 - - Musharaka Tech Venture Sdn Bhd 25,323,956 10.46 - - Yong Chan Cheah 12,924,979 5.34 45,600,000 (1) 18.84 Yong Swee Chuan 12,924,978 5.34 45,600,000 (1) 18.84 Tan Ching Ling 12,313,000 5.09 - - Note: (1) Deemed interest by virtue of their direct shareholdings in Indowang Sdn Bhd pursuant to Section 6A of the Companies Act, 1965. All of the Directors of the Company (collectively referred to as the Interested Directors ) are deemed interested in the Proposed ESOS by virtue of their eligibility for the ESOS Options in their capacity as directors of the Company in respect of their specific allocation as well as specific allocations to persons connected to them, if any. Accordingly, the Interested Directors have abstained and will continue to abstain from all deliberations and voting in respect of any specific allocation of ESOS Options to themselves respectively as well as the specific allocations to any persons connected to them at the relevant Board meetings of the Company. In addition, the Interested Directors will continue to abstain from voting in respect of their direct and/or indirect shareholdings in the Company on the resolutions pertaining to any of their respective specific allocations of ESOS Options as well as the specific allocations to any persons connected to them under the Proposed ESOS at the EGM to be convened. Further, the Interested Directors have also undertaken that they shall ensure that persons connected to them will abstain from voting in respect of their direct and/or indirect shareholdings in the Company on the resolutions pertaining to any specific allocations of ESOS Options to themselves respectively as well as the specific allocations to any persons connected to them under the Proposed ESOS at the EGM to be convened. 9
Yong Chan Cheah ( YCC ) and Yong Swee Chuan ( YSC ), substantial shareholders of the Company who are also Eligible Persons and Interested Directors, are entitled to participate in the Proposed ESOS. As at the LPD, YCC and YSC have approximately 18.84% indirect equity interest in the Company respectively by virtue of their substantial shareholdings in Indowang Sdn Bhd ( Indowang ), a substantial shareholder of the Company. Accordingly, YCC, YSC and Indowang will abstain from voting in respect of their direct and/or indirect shareholdings (as the case may be) in the Company, on the resolutions pertaining to any specific allocations of ESOS Options to YCC and YSC as well as the specific allocations to any persons connected to YCC and YSC under the Proposed ESOS at the EGM to be convened. Save as disclosed above, none of the directors, substantial shareholders of the Company and/or persons connected to them have any interest, direct or indirect, in the Proposed ESOS. 7. DIRECTORS STATEMENT The Board, having considered all aspects of the Proposed ESOS (including but not limited to the rationale and the effects of the Proposed ESOS), is of the opinion that the Proposed ESOS is in the best interest of the LNGRES Group. However, in view that the individual members of the Board are deemed interested in the Proposed ESOS to the extent of their respective allocations, if any, as well as allocations to persons connected to them, if any, under the Proposed ESOS, they have abstained and will continue to abstain from expressing an opinion and making any recommendation on the resolutions to be tabled at the forthcoming EGM of the Company on their respective allocations, if any, as well as allocations to persons connected to them, if any, under the Proposed ESOS. 8. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances and subject to all relevant approvals being obtained, the Proposed ESOS is expected to be implemented by the second quarter of 2016. 9. APPLICATION TO THE RELEVANT AUTHORITIES Barring any unforeseen circumstances, the application to the relevant authorities in relation to the Proposed ESOS is expected to be made within a period of 1 month from the date of this announcement. 10. ADVISER Affin Hwang IB has been appointed by the Company to act as the Principal Adviser for the Proposed ESOS. This announcement is dated 8 January 2016. 10