EXECUTION OF SHARE SALE AND PURCHASE AGREEMENT AND SHAREHOLDERS AGREEMENT IN ESCROW BY CSC STEEL HOLDINGS BERHAD ( CHB ) IN RESPECT OF PURCHASE OF 8,000,000 ORDINARY SHARES OF RM1.00 EACH REPRESENTING 20% OF THE ISSUED AND PAID-UP SHARE CAPITAL OF TATT GIAP STEEL CENTRE SDN. BHD. FROM TATT GIAP GROUP BERHAD ( PURCHASE ) 1. INTRODUCTION The Board of Directors wishes to announce that CHB, together with CSGT International Corporation ( CIC ) and Hanwa Co. Ltd. ( Hanwa ) (collectively the Purchasers ), has on 9 November 2012 entered into a Share Sale and Purchase Agreement ( SSPA ) with TattGiap Group Berhad ( TGGB ) for the purchase of 49% equity stake representing 19,600,000 ordinary shares of RM1.00 each in TattGiap Steel Centre SdnBhd ( TGSC ) ( TGSC Shares ) as tabulated below:- Purchasers No. of TGSC Shares Acquired % Purchase Price (RM) CHB 8,000,000 20 8,176,800 CIC 5,600,000 14 5,723,760 Hanwa 6,000,000 15 6,132,600 19,600,000 49 20,033,160 The Purchasers and TGGB have also on even date executed a Shareholders Agreement ( SA )to formalise their relationship, inter se, as shareholders and investors in TGSC and to regulate the conduct and management of the business and affairs of TGSC. Upon completion of the SSPA, the shareholding structure of TGSB will be as follows:- Purchasers No. of shares acquired % CHB 8,000,000 20 CIC 5,600,000 14 Hanwa 6,000,000 15 TGGB 20,400,000 51 40,000,000 100 2. PURCHASE CONSIDERATION The consideration for the Purchase of 8,000,000 TGSC Shares by CHB amounting to RM8,176,800 will be satisfied entirely in cash, which is fully fundedthrough internally generated funds of CHB. The aforesaid purchase price was arrived at based on TGSC s net assets per share of RM1.0221as per TGSC s unaudited accounts for the 7-months financial period ended 31 July 2012. 3. DETAILS OF PURCHASE 3.1 INFORMATION ON PARTIES INVOLVED 3.1.1 Information on TGSC TGSC (Company No. 310962-X) is a private limited company incorporated in Malaysia on 9 August 1994 under the name TattGiap Metal Service Sdn. Bhd. It assumed its present name on 20 August 1997. TGSC has its registered office at No. 45 Jalan Perak, 10150 Penang and its place of business at Plot 33 Bukit Minyak Industrial Park, 14000 Bukit Mertajam, Penang.
- 2 - TGSC is presently a wholly-owned subsidiary of TGGB and has at the date of the SSPA, an authorised share capital of RM50,000,000 divided into 50,000,000 ordinary shares of RM1.00 each of which 40,000,000 ordinary shares of RM1.00 each have been issued and are fully paid-up. The nature of business of TGSC is manufacturing and trading of stainless steel and other ferrous and non-ferrous metal products. TGSC is a long term key customer of the CHB Group. The net profit after tax and net assets of TGSC amounted to RM10.6 million and RM38.7 million respectively, based on TGSC s unaudited results for the 9-months financial period ended 30 September 2012. 3.1.2 Information on CIC CIC is a company incorporated in Samoa on 7 August 2007 and having its registered office at Portcullis TrustNet Chambers, P.O. Box 1225, Apia, SAMOA and its place of business at No. 31-F, No. 8, Ming-Chuan 2nd Road, Kaohsiung 806, Taiwan. China Steel Global Trading Corporation owns the entire 100% equity interest in CIC representing 20,740,000 ordinary shares. The ultimate holding company of CIC is China Steel Corporation. The principal activity of CIC is investment holding. 3.1.3 Information on Hanwa Hanwa is a company incorporated in Japan on 1 April 1947 and having its registered office at No. 3-9, Fushimimachi 4-chome, Chuo-ku, Osaka 541-8585, Japan and its place of business at 6-18-2 Ginza, Chuo-ku, Tokyo 104-8429 Japan. 3.1.4 Information on TGGB TGGB (Company No. 732294-W) is a public listed company incorporated in Malaysia in June 1978 and is listed on the Main Market of Bursa Malaysia Securities Berhadsince 22 July 2010. Its registered office is at Suite 2-1, 2 nd Floor Menara Penang Garden, 42-A Jalan Sultan Ahmad Shah, Georgetown, Pulau Pinang and its principal place of business is at No. 1617 Lorong Perusahaan Maju 6, Prai Industrial Estate IV, 13600 Prai, Penang. TGGB is the registered and beneficial owner of the entire 40,000,000 issued and paid-up ordinary shares of TGSC as at the date of the SSPA. TGGB is principally involved in investment holding activities. 3.2 LIABILITIES TO BE ASSUMED There is no liability, including contingent liability, to be assumed by CHB arising from the Purchase However, proportionate guarantee may be required for banking facilities by TGSC obtained after the completion date.
- 3-4. SALIENT FEATURES OF THE SSPA AND SA 4.1. SALIENT TERMS OF THE SSPA A summary of the salient terms of the SSPA, inter alia, is as follows:- The Purchasers shall, upon the execution of the SSPA pay the 10% Deposit amounting to RM2,033,016 to TGGB and pay the balance Purchase Price of RM18,029,844 upon the fulfilment and compliance of the Conditions Precedent as set out in the SSPA. (a) The Sale Shares to be purchased are free from all encumbrances and with all rights attached thereto (including, without limitation, all dividends and distributions paid or declared thereon) as from the date of the agreement. (b) TGGB shall sell the number of Sale Shares and each of the Purchasers shall, in reliance upon the warranties, representations, undertakings, agreements and indemnities made and given by TGGB, purchase the Sale Shares free from the Encumbrances but with all rights attaching thereto from the Completion Date and upon the terms and subject to the conditions hereinafter contained. Completion Date means the date falling Three (3) Business Days (or such longer time as the Seller and Purchasers may agree in writing) after the Unconditional Date (or, if that day is not a Business Day, on the next Business Day). For the purpose of SSPA, the term Unconditional Date shall mean the date when the Purchasers confirm in writing to the Seller that the last of the Conditions Precedent has been accepted as fulfilled to the satisfaction of the Purchasers (or waived by them where applicable). (c) TGGB and the Purchasers will enter into a Shareholders Agreement to regulate their relationship as shareholders in TGSC and the conduct of business and affairs of TGSC. (d) The SSPA is conditional upon the following being satisfied or fulfilled ( Conditions Precedent ) before 31 December 2012 or such longer period if mutually extended by TGGB and the Purchasers by notice in writing ( Cut-Off Date ). (i) (ii) (iii) (iv) the due registration at the appropriate land registering authorities of the title to the Bukit Minyak Property in favour of TGSC as registered and beneficial owner; the due registration at the appropriate land registering authorities of the title to the Kuala Kangsar Property in favour of TGSC as registered and beneficial owner free from all encumbrances and liabilities; the due registration at the appropriate land registering authorities of the title to the Prai Property in favour of TGGB as registered and beneficial owner; the due release and discharge of TGSC from its obligations under the Corporate Guarantees;
- 4 - (v) written confirmation from TGSC s auditors Messrs KPMG ( TGSC s Auditors ) addressed to TGSC that: 1. the declaration of RM70,000,000.00 cash dividend; and 2. the issue of 30,000,000 Bonus Shares of RM1.00 each credited as fully paid by TGSC on 30-7-2012 were made after TGSC s Auditors had satisfied themselves that the declaration of the said dividend and the issuance of the said Bonus Shares were in compliance with the Articles of Association of the Company as well as the Companies Act, 1965. (vi) written consents from TGSC s financiers below named (if required) to the purchase of the Sale Shares by the Purchasers, to the appointment of directors nominated by the Purchasers, the amendment of the Memorandum & Articles pursuant to this provisions of the SSPA and to the declaration of RM70,000,000.00 as dividend and the issue of 30,000,000 bonus shares credited as fully paid: 1. Alliance Bank Malaysia Berhad; 2. AmBank (M) Berhad; 3. Bank Islam Malaysia Berhad; 4. United Overseas Bank (M) Bhd.; 5. Hong Leong Bank Berhad; 6. CIMB Bank Berhad; and 7. Malayan Banking Berhad ( MBB ). (vii) (viii) (ix) (x) (xi) (xii) written confirmation from MBB that the Term Loan has been settled and the existing specific debenture has been discharge; the passing at an extraordinary general meeting of TGGB of a resolution to approve the transactions contemplated under the SSPA in accordance with the terms of the SSPA; the Ministry of International Trade and Industry and the Malaysian Industrial Development Authority having been notified of the transactions contemplated under the SSPA; the Purchasers being satisfied that there is no material adverse change in the business, financial or trading position, or assets, liabilities or profitability or prospects of TGSC, or any event reasonably likely to result in such a material adverse change; satisfactory completion of due diligence review by the Purchasers; the Warranties remaining true and not misleading. (f) If any of the documents required to be delivered by TGGB and/or TGSC, as the case may be, to the Purchasers on Completion is not delivered for any reason or if in any other respect the foregoing provisions of Clause 5 in the SSPA are not fully complied with by any party, the party not in default shall be entitled (in addition to and without prejudice to all other rights or remedies available to it including the right to claim damages): (i) (ii) to elect to terminate this SSPA; or to effect Completion so far as practicable having regard to the defaults which have occurred; or
- 5 - (iii) to fix a new date for Completion (not being more than twenty eight (28) days after the Completion Date) in which case the foregoing provisions of Clause 5 of the SSPA shall apply to Completion as so deferred; Provided that the party not in default has given notice to the party in default in writing and the party in default has not remedied the default within fourteen (14) days from the date on which the party in default receives such notice. (g) In the event any Purchaser fails to complete the SSPA when obliged to do so ( the Defaulting Purchaser ) and TGGB is willing and demonstrates its ability to complete its ability to complete the SSPA and has not failed to comply with or has not breached any of the terms of the SSPA, the Defaulting Purchaser s portion of the Deposit paid shall be forfeited by TGGB as agreed liquidated and ascertained damages and compensation for breach of the SSPA, and thereafter but subject to sub-clause 5E (ii) of the SSPA, the SSPA shall be terminated as between TGGB and the Defaulting Purchaser and be of no further effect and consequently TGGB and the Defaulting Purchaser shall have no claims against the other. For the avoidance of doubt and without prejudice to the generality of any other provision herein contained, the Purchasers are severally and not jointly liable in respect of their obligations. (h) Where not all Purchasers are in default, the non-defaulting Purchaser/s may elect to: (i) complete the purchase of its/their portion of the Sale Shares in accordance with the terms of the SSPA; (ii) take over the acquisition of the Defaulting Purchaser s portion of the Sale Shares. In such event, the Defaulting Purchaser shall following such take over cease to be a Party to the SSPA and the Shareholders Agreement, and the non-defaulting Purchaser taking over the acquisition of the Defaulting Purchaser s Sale Shares shall assume all the rights and obligations of the Defaulting Purchaser herein and in the Shareholders Agreement (other than the forfeiture of the Deposit by the Seller as agreed liquidated damages by the Defaulting Purchaser; (iii) treat the SSPA as terminated without any penalty. In the event TGGB fails to complete the SSPA when obliged to do so, and the Purchasers are willing and demonstrate their ability to complete the SSPA and have not failed to comply with or has not breached any of the terms of the SSPA, TGGB shall refund the Deposit to the Purchasers and in addition thereto to pay to each of the Purchasers a sum equivalent to ten per centum (10%) of the proportionate Purchase Price otherwise payable by each Purchaser to TGGB as agreed liquidated and ascertained damages and compensation for breach of the SSPA, and thereafter the SSPA shall be terminated and be of no further effect and consequently the Parties shall have no claims against the other. 4.2. SALIENT TERMS OF THE SA The salient terms of the Shareholders Agreement include among others the following:
- 6 - (i) Objective The Shareholders Agreement is entered by the shareholders of the Company to formalise their relationship, inter se, as shareholders and investors in the Company and to regulate the conduct and management of the business and affairs of the Company. (ii) Equity Structure Subject to the successful completion of the SSPA, the legal shareholding structure of the Company will be in the following proportion:- Name No. of shares % shareholding CHB 8,000,000 20 CIC 5,600,000 14 Hanwa 6,000,000 15 TGGB 20,400,000 51 40,000,000 100 (iii) Composition of the Board Unless otherwise unanimously agreed upon by the Shareholders in writing, the Board shall consist of not more than seven (7) Directors of whom four (4) shall be appointed by TGGB and one (1) each shall be appointed by CIC, CHB and Hanwa respectively. (iv) Quorum of Board Meetings The quorum at a meeting of the Directors necessary for the transaction of any business of the Company shall be four (4) Directors or their alternates, comprising at least two (2) Directors from amongst CIC Director, CHB Director, and Hanwa Director present at the commencement of the meeting. (v) Amendment to the Memorandum & Articles The Shareholders shall immediately after the signing of the Shareholders Agreement cause the Company to convene an Extraordinary General Meeting of the Company to approve by Special Resolution the amendment of the Company s Memorandum & Articles to reflect the terms of the Shareholders Agreement. (vi) Finance of the Company If the Board of Director determines that the Company requires additional banking facilities ( the Banking Facility ), the Company shall arrange the Banking Facility with a bank which it considers suitable on the best terms reasonably available in the open market. Unless prohibited by applicable law, the Shareholders shall guarantee the Banking Facility in proportion to their respective shareholding.
- 7 - Where any Shareholder ( Guarantor Shareholder ) provides guarantee cover for a Shareholder ( Non-Guarantor Shareholder ) who is prohibited by law from giving such proportionate guarantee, the Non-Guarantor Shareholder shall pay to the Guarantor Shareholder a guarantee fee of 1.20% per annum of the Non- Guarantor Shareholder s proportionate Banking Facility amount which is guaranteed by the Guarantor Shareholder. The guarantee fee shall cease to be payable upon the cessation of the Banking Facility or the cessation of the guarantee so provided by the Guarantor Shareholder. (vii) Default (1) On the occurrence of an Event of Default as listed in Clause 10 of the Shareholders Agreement by a Shareholder ( the Defaulting Shareholder ), the Non-Defaulting Shareholders shall serve a Default Notice against the Defaulting Shareholder specifying the Event of Default and requiring its remedy within thirty (30) days of the issuance of the Default Notice, failing which, the Non-Defaulting Shareholders shall on expiry of the period specified in the Default Notice call for a determination of the Fair Value Price per Share in accordance with the provisions of Clause 6.2(B) of the Shareholders Agreement and thereafter the following shall ensue; (A) If TGGB is the Defaulting Shareholder:- within thirty (30) days of the determination of the Fair Value Price per Share, the Non-Defaulting Shareholders shall have the right (but not the obligation) to require the TGGB to buy all (but not some only) of the Non-Defaulting Shareholders Shares at the Fair Value Price to be paid by TGGB within thirty (30) days of the Non-Defaulting Shareholders exercise of their right to sell hereunder, failing which the Non-Defaulting Shareholders shall be entitled (but are not obliged) to require TGGB to sel its Shares at [the Fair Value Price] [the Fair Value Price less a discount of 10%]. In the event two or more Non-Defaulting Shareholders elect to purchase TGGB s, such Non-Defaulting Shareholders shall purchase the same in proportion to their respective shareholdings amongst themselves, unless otherwise agreed between them. (B) If CIC, CHB and or Hanwa is the Defaulting Shareholder:- TGGB and/or the Non-Defaulting Shareholders (including any of CIC, CHB or Hanwa) shall be entitled (but not obliged) to require the Defaulting Shareholder to sell the Defaulting Shareholder s Shares at the Fair Value Price per Share. In the event two or more Non- Defaulting Shareholders elect to purchase the Defaulting Shareholder s Shares, such Non-Defaulting Shareholders shall purchase the same in proportion to their respective shareholdings amongst themselves, unless otherwise agreed between them. (2) The Price for the Shares shall be paid within thirty (30) days after the Non- Defaulting Shareholder s election pursuant to item (1)(A) or item (1)(B) above.
- 8 - (viii) Put Option (1) TGGB grants to each of CIC, CHB and Hanwa the right to require TGGB to purchase all (and not part only) their shares in the Company (the Put Option Shares ) at the Fair Value Price determined in accordance with Clause 6.2(B) of the Shareholders Agreement (the Put Option ) the Put Option shall be capable of being exercised independently and at different times or at the same time CIC, CHB and Hanwa shall respectively deem fit and at any time upon the occurrence of any of the following events: (i) If there is a Change in Control in TGGB whereby a 3rd Party which (i) together with its related corporations holds or controls more than fifty percent (50%) of the issued share capital or voting securities of TGGB or (ii), together with its related corporation, controls the composition of the board of directors of TGGB; (ii) the Company s accumulated losses or deficit exceeds 75% of the paid-up capital of the Company within 5 years from the date of the Shareholders Agreement. (2) The Put Option maybe exercised by CIC, CHB and Hanwa, by serving notice in writing to TGGB of the exercise of the Put Option. Upon the service of notice, TGGB shall purchase from CIC, CHB and Hanwa, as the case may be, the Put Option Shares, free from any encumbrances and at the Fair Value Price and the completion for the purchase of the Put Option Shares shall be within thirty (30) days of the exercise of the Put Option or the determination of the Fair Value Price whichever is earlier. 5. RATIONALE The Purchase is in line with the CHB Group s strategy to have strategic partnership with its downstream customers of which TGSC is one of them. 6. FINANCIAL EFFECTS OF THE PURCHASE The Purchase is not expected to have a material impact on earnings in the 2012, gearing and net assets of the CHB Group. The Purchase however is expected to contribute positively to the earnings of CHB Group in future financial years. 7. HIGHEST PERCENTAGE RATIO APPLICABLE TO THE PURCHASE The highest percentage ratio applicable to the Purchase pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Securities Malaysia Berhad is 1.06%. 8. ESTIMATED TIME FRAME FOR COMPLETION Barring unforeseen circumstances, the Purchase is expected to be completed by first quarter 2013.
- 9-9. PROSPECTS & RISK FACTORS The risk factors associated with Purchase are as follows:- (i). Completion Risk The completion of the proposed Purchase is conditional upon all the conditions precedent being fulfilled and or waived, as the case may be, as stated in the SSPA. There is no assurance that the proposed Purchase can be completed within the timeframe set out in the SSPA but CHB will take all reasonable steps to ensure satisfaction and/or waiver, as the case may be, of any conditions precedents to ensure completion of the SSPA. (ii). Business Risk The proposed Purchase is not expected to have material impact on the business risks of CHB. Business risks includes, but not limited to, changes in general economic conditions, government legislations and changes in business conditions such as increase in operational costs, labour supply and fluctuations in steel prices. CHB will take effective measures such as prudent and efficient operational and financial management and procedures to mitigate these risks. 10. APPROVALS REQUIRED The Purchase is not subject to the approval of the shareholders of CHB nor is any other regulatory approval needed. 11. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS 11.1 Interested Major Shareholder Save for China Steel Asia Pacific Holdings Pte. Ltd.( CSAP ), whose ultimate holding company, China Steel Corporation ( CSC ), is also acquiring 5,600,000 TGSC Shares representing 14%equity interest in TGSC through CIC, none of the other major shareholders of CHB and/or persons connected with them, has any interest, direct or indirect, in the Purchase. 11.2 Interested Directors Save for Mr. Chen, High-Pinn, Mr. Liu, Jih-Gang and Mr. Nee, Lung-Yuan, who are representatives of CSAP on the Board of CHB, none of the other directors of CHB and/or persons connected to them, has any interest, direct or indirect, in the Purchase. 12. TOTAL AMOUNT TRANSACTED WITH SAME RELATED PARTY Save for the recurrent related party transactions as disclosed in CHB s circular to shareholders dated 30 May 2012, there is no other transaction involving the interest of CSAP being entered into by CHB in the preceding twelve (12) months.
- 10-13. STATEMENT BY THE AUDIT COMMITTEE Having considered the rationale and all other aspects of the Purchase, the Audit Committee of the CHB is of the view that the Purchase is fair, reasonable and on normal commercial terms, and is in the best interest of CHB and not detrimental to the interest of the minority shareholders. 14. STATEMENT BY THE BOARD OF DIRECTORS The Board of Directors of CHB, save for Mr. Chen, High-Pinn, Mr. Liu, Jih-Gang and Mr. Nee, Lung-Yuan,who are interested in the Purchase, is of the opinion that the Purchase is in the best interests of the CHB Group. 15. DOCUMENTS AVAILABLE FOR INSPECTION A copy of the SSPAand SA will be available for inspection at the registered office of CHB at 49-B,Jalan Melaka Raya 8, Taman Melaka Raya, 75000 Melaka during normal office hours (Mondays to Friday, 9.00 a.m. to 5.00 p.m.) during weekdays for a period of three (3) months from the date of this announcement except on weekends and on public holidays. This amended announcement is made on 19 November 2012.