1. BACKGROUND INFORMATION ON ISSUER (a) Name Kia Lim Berhad ( Kia Lim or the Company ). (b) Registered Address Suite 6.1A, Level 6 Menara Pelangi Jalan Kuning Taman Pelangi 80400 Johor Bahru Johor (c) Head / Management Office Address Wisma Ng Hoo Tee 79, Jalan Muar 83500 Parit Sulong Batu Pahat Johor (d) Business Registration Number 342868-P (e) Date/Place of Incorporation Kia Lim was incorporated in Malaysia under the Companies Act, 1965 ( Act ) on 8 May 1995 as a public limited company. (f) Date of Listing 29 May 1996, Main Board of Bursa Malaysia Securities Berhad (g) Status Kia Lim is a resident non-bumiputera-controlled company. (h) Principal Activities The Company is an investment holding company. The Kia Lim Group of companies is principally involved in the manufacturing of bricks and roofing tiles. Page 1
(i) Board of Directors The directors of Kia Lim as at 28 November 2005 are as follows:- Name Datuk Ng Eng Sos @ Bah Chik YB Datuk Ariss Bin Samsudin Ng Yeng Keng @ Ng Ka Hiat Tan See Chip Ng Chin Kang Dr Ng Yam Puan @ Ng Ah Bah Mohd Salleh Bin Jantan Loh Chee Kan Tan Seng Kee Chua Syer Cin Designation Chairman/ Managing Director Vice Chairman/ Executive Director Executive Director Executive Director Executive Director Non-Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Page 2
(j) Substantial Shareholders The substantial shareholders of the Company according to its Register of Members as at 28 November 2005 are as follows:- Shareholder No. of Shares Direct % Indirect % E.S. Ng Holdings Sdn Bhd - - Kia Lim Realty Sdn Bhd 7,459,853 16.73 Kia Lim Timber Trading Sdn Bhd 8,854,720 19.86 A 8,143,853 18.27 B 54,000 0.12 C 684,000 1.53 Ng Hoo Tee Holdings Sdn Bhd 3,183,420 7.14 D 1,007,000 2.26 Datuk Ng Eng Sos @ Bah Chik 528,590 1.19 E 21,188,993 47.53 Ng Yeng Keng @ Ng Ka Hiat 570,055 1.28 Ng Chin Lan 10,000 0.02 Ng Chin Kang - - E 21,188,993 47.53 A 8,143,853 18.27 F 10,545,720 23.66 Permodalan Nasional Berhad 4,124,895 9.25 - - Yayasan Pelaburan Bumiputra - - G 4,124,895 9.25 Ng Yeng Keng Holdings Sdn Bhd - - A 8,143,853 18.27 Kour Siok Leen 401,054 0.90 A 8,143,853 18.27 Notes: A B C D E F G Deemed interest through his or its shareholdings in Kia Lim Realty Sdn Bhd, Sersen Tiles Sdn Bhd and Syarikat Jaya Diri Kemajuan Sdn Bhd by virtue of Section 6A of the Companies Act, 1965. Deemed interest through its shareholdings in Sersen Tiles Sdn Bhd by virtue of Section 6A of the Companies Act, 1965. Deemed interest through its shareholdings in Sersen Tiles Sdn Bhd and Syarikat Jaya Diri Kemajuan Sdn Bhd by virtue of Section 6A of the Companies Act, 1965. Deemed interest through its shareholdings in Ban Dung Palm Oil Industries Sdn Bhd by virtue of Section 6A of the Companies Act, 1965. Deemed interest through his shareholdings in Kia Lim Realty Sdn Bhd, Kia Lim Timber Trading Sdn Bhd, Sersen Tiles Sdn Bhd, Ban Dung Palm Oil Industries Sdn Bhd, Ng Hoo Tee Holdings Sdn Bhd and Syarikat Jaya Diri Kemajuan Sdn Bhd by virtue of Section 6A of the Companies Act, 1965. Deemed to have indirect interest through his shareholding in Kia Lim Timber Trading Sdn Bhd, Ban Dung Palm Oil Industries Sdn Bhd, Sersen Tiles Sdn Bhd and Syarikat Jaya Diri Kemajuan Sdn Bhd by virtue of Section 6A of the Companies Act, 1965. Deemed to have indirect interest through its shareholding of 100% less 1 share in Permodalan Nasional Berhad by virtue of Section 6A of the Companies Act, 1965. Page 3
(k) Authorised and Paid-Up Share Capital The authorised and issued and paid-up share capital of Kia Lim as at 28 November 2005 is as follows:- No. of Shares Par Value (RM) Amount (RM) Authorised Ordinary Shares 100,000,000 1 100,000,000 Issued and paid-up Ordinary Shares 44,579,000 1 44,579,000 Page 4
2. PRINCIPAL AND CONDITIONS OF THE PROPOSED ISSUANCE OF THE RCSLS-A DEFINITIONS Cut-Off Date 31 December 2002 DRS / Restructuring Scheme Debt Restructuring Scheme involving settlement of outstanding principal as at Cut-Off Date amounting to RM39,290,000 and outstanding interest as at Cut-Off Date up to 31 December 2003 amounting to RM5,377,924 owing by the subsidiaries of Kia Lim to the PBs by way of : settlement of 40% of outstanding principal as at Cut-Off Date by the issuance of RM15,716,000 nominal value of 4%, 10-year RCSLS of RM1.00 each comprising RCSLS-A, RCSLS-B and RCSLS-C, to be issued at 100% of its nominal value to the PBs; the restructuring of 40% of the outstanding principal as at Cut-Off Date; and the settlement of 20% of outstanding principal as at Cut-Off Date and outstanding interest as at Cut-Off Date up to 31 December 2003, by the issuance and allotment of 13,235,924 new Shares at a proposed issue price of RM1.00 per Share to the PBs. MIDF PBs RHB RCSLS RCSLS-A Malaysian Industrial Development Finance Berhad Participating Bankers, namely RHB and MIDF RHB Bank Berhad Redeemable Convertible Secured Loan Stocks consisting of RCSLS-A, RCSLS-B and RCSLS-C collectively RM8,800,000 nominal value of 4%, 10-year RCSLS of RM1.00 each to be issued at 100% of its nominal value to be issued to RHB pursuant to the DRS Page 5
DEFINITIONS (cont d) RCSLS-B RCSLS-C Share(s) Subsidiary or Subsidiaries Kia Lim KLBB KRBB KL Timber KLBB-RHB TL KRBB-MIDF TL KRBB-RHB TL RM5,560,000 nominal value of 4%, 10-year RCSLS of RM1.00 each to be issued at 100% of its nominal value to be issued to MIDF pursuant to the DRS RM1,356,000 nominal value of 4%, 10-year RCSLS of RM1.00 each to be issued at 100% of its nominal value to be issued to RHB pursuant to the DRS Ordinary share(s) of RM1.00 each in Kia Lim KLBB or KRBB or collectively, KLBB and KRBB Kia Lim Berhad Syarikat Kia Lim Kilang Batu Bata Sdn Bhd, a subsidiary of Kia Lim Kangkar Raya Batu Bata Sdn Bhd, a subsidiary of Kia Lim Kia Lim Timber Trading Sdn Bhd The outstanding term loan principal and interest owing by KLBB to RHB, formalised under the DRS The outstanding term loan principal and interest owing by KRBB to MIDF, formalised under the DRS The outstanding term loan principal and interest owing by KRBB to RHB, formalised under the DRS Page 6
Parties involved in the Proposed Issuance of the RCSLS Series A Principal Adviser / Lead Arranger Arranger(s) Valuers Solicitors Financial Adviser Technical Adviser Guarantor Trustee Facility Agent Primary Subscriber and Amount Subscribed Underwriter(s) and amount underwritten Syariah Adviser (where applicable) Central Depository Paying Agent Reporting Accountant : AmMerchant Bank Berhad ( AmMerchant Bank ). : No other Arrangers appointed : Not applicable. : Lee Hishammuddin Allen & Gledhill : Not Applicable. : Not applicable. : Not applicable. : Not applicable. Please refer to Trust Deed for further information. : AmMerchant Bank. : RHB Bank Berhad RM8,800,000 : Not applicable. : Not applicable. : Bank Negara Malaysia ( BNM ). : BNM. : Ernst & Young. Page 7
Principle (conventional/ Islamic) Facility description Issue size (RM) Issue price (RM) Tenor of the facility/ issue Interest/ coupon (%) Interest/ coupon payment frequency & basis Interest on late payments Interest on RCSLS not redeemed on Maturity Date Yield to maturity : Conventional. : 10-year 4% Redeemable Convertible Secured Loan Stocks ( RCSLS-A ). : 8,800,000 nominal amount of RM1.00 each. : At 100% of its nominal value of RM1.00 each. : Ten (10) years from the date of issue. : Fixed rate of four per centum (4%) per annum. : Coupon due shall be payable on the last day of every six (6) month period (subject to adjustment for non-business days) commencing on and calculated from the date of issue of the RCSLS-A. Interest/coupon will be calculated on the basis of a year of 365 days for the actual number of days elapsed and will be rounded upward to the nearest Sen. : In the event that the Issuer fails to pay the Coupon on the due date, interest shall be payable at the rate of one percent (1%) per annum over the amount defaulted until the date of actual payment. Interest shall be compounded and cumulative. : The balance of the RCSLS-A which are neither converted into new ordinary shares of Kia Lim nor redeemed by the Maturity Date shall without prejudice to the holder s other rights and remedies in respect of the Issuer s failure to redeem the RCSLS-A on the Maturity Date, attract an interest of one point five percent (1.5%) per annum above the respective PB s Cost of Funds or Base Lending Rate, whichever is applicable, until the date of actual payment. : Simple interest rate of 4.0% per annum. Page 8
Security / collateral (if any) : The RCSLS-A will be secured by a further debenture and by a further legal charge in favour of RHB over the same assets and properties belonging to KLBB, which ranks pari passu to the assets and properties under with the Existing KLBB Debenture 1, Existing KLBB Fixed Charge 2 and Existing KLBB NLC Charge 3 respectively. 1 Existing KLBB Debenture - a debenture (fixed and floating) over all the assets of KLBB but excluding hire-purchase and leased assets (refer Annexure A) 2 Existing KLBB Fixed Charge - a fixed charge debenture over the fixed assets but excluding hire-purchase and leased assets located at KLBB s factory on GM247, Lot 25 and GM248, Lot 26 both of Mukim Sri Medan, Batu Pahat 3 Existing KLBB NLC Charge - Legal charges under the NLC over eleven (11) immovable properties comprising land located in Batu Pahat belonging to KLBB (refer to Annexure B) Details on utilisation of proceeds Sinking fund (if any) Rating Form and Denomination Mode of issue Selling Restrictions : There are no proceeds to be raised via the issue of the RCSLS-A as it is issued pursuant to the DRS, as part of a debt conversion. : Not applicable. : Rating is not required as the RCSLS-A are nontransferable, non-tradeable and the investor, i.e. RHB, does not require a rating. : In registered form and multiple of RM1.00. : Upon receipt of all necessary approvals from the relevant authorities, AmMerchant Bank will report the issuance of the RCSLS-A on the Fully Automated System for Tendering ( FAST ) and on the Real Time Electronic Transfer of Funds and Securities ( RENTAS ) system. The issuance of the RCSLS-A is a non-tender basis and will be directly issued to RHB pursuant to the DRS. : RCSLS-A shall be issued to and held by RHB only for the purpose of the restructuring of the KLBB-RHB TL. Page 9
Listing status Minimum level of subscription Other regulatory approvals required in relation to the issue/ offer or invitation and whether or not obtained (please specify) : The RCSLS-A will not be listed on Bursa Malaysia Securities Berhad. : Not applicable. The RCSLS-A is fully subscribed by RHB and is issued pursuant to the DRS. : Besides the SC, the issue of RCSLS-A is subject to the approvals of the following:- Foreign Investment Committee, via the SC (approval letter obtained on 16 November 2005); Bursa Malaysia Securities Berhad for the listing and quotation of the new shares arising from the conversion of the RCSLS-A (approval-in-principle obtained on 25 November 2005); and The shareholders of Kia Lim at an Extraordinary General Meeting ( EGM ) (Shareholders approval was obtained during at the EGM which was convened on 25 October 2005). Conditions Precedent : The following is extracted from the Debt Restructuring Agreement dated 3 October 2005 ( DRA ) 3.1 Conditions precedent The Lenders' (RHB and MIDF) obligation to permit the Restructuring Scheme to be carried out in accordance with the terms and conditions of this agreement are conditional upon the fulfilment of the following conditions precedent to the satisfaction of the Lenders: (a) This agreement has been duly executed and stamped and an original copy of this agreement has been delivered to each Lender. (b) The RCSLS Transaction Documents (except the depository and paying agency agreement) have been duly executed and stamped (or endorsed as exempted from stamp duty, if applicable), lodged with the relevant authorities and presented for registration, where relevant, and an original copy of the same has been delivered to the Lead Arranger and each Lender who is a party to such agreements. Page 10
(c) The relevant KRBB Additional Security Documents and the KLBB New RHB Guarantee have been duly executed and stamped (or endorsed as exempted from stamp duty, if applicable), lodged with the relevant authorities and presented for registration, where relevant, and an original copy of the same has been delivered to the relevant Lender or Lenders (as the case may be). (d) The following approvals having been obtained, are in full force and effect (and the certified true copies of the same have been deposited with the Lenders) and, if issued subject to conditions, such conditions are acceptable to the Lenders, unless otherwise agreed by the Lenders, have been fulfilled in full (1) The approval of the Securities Commission for the Group Restructuring Scheme, including the Restructuring Scheme. (2) The approval of the Foreign Investment Committee of the Prime Minister's Department for the Group Restructuring Scheme, including the Restructuring Scheme. (3) The approval of the affected relevant financial institutions for the security sharing arrangement as contemplated in this agreement and the KRBB New Security Sharing Agreement. (4) The approval-in-principle of Bursa Malaysia ( Bursa Malaysia Securities Berhad ) for the listing and quotation of the New RCSLS Shares and the New Restructuring Shares; (5) The approval-in-principle of Bursa Malaysia for the listing and quotation of: (A) the new Shares to be issued pursuant to the Proposed Rights Issue with Warrants; and (B) the new Shares to be issued pursuant to the conversion of the warrants issued pursuant to the Proposed Rights Issue with Warrants. Page 11
(6) The shareholders' approval of Kia Lim in a meeting of the shareholders of Kia Lim of the Group Restructuring Scheme, including the Restructuring Scheme as well as the transactions contemplated under this agreement, including without limitation to the following: (A) The issue of the RCSLS-A, the RCSLS-B and the RCSLS-C upon the terms and conditions as set out in Schedules 4, 5 and 6 respectively. (B) The issue and allotment of the New Restructuring Shares and the New RCSLS Shares. (C) The execution by Kia Lim of the relevant Restructuring Documents and all other relevant agreements and the due performance by Kia Lim of its obligations therein contained in such documents. (7) The shareholders' approval of each of the Subsidiaries of the Restructuring Scheme as well as the transactions contemplated under this agreement, including without limitation to the following: (A) The restructuring of the relevant Term Loans upon the terms and conditions as set out in this agreement. (B) The execution by such Subsidiary of the relevant Restructuring Documents and all other relevant agreements and the due performance by such Subsidiary of its obligations therein contained in such documents. (8) All such other approvals, consents, authorisation, permits or waiver of any other relevant governmental or regulatory body and any other third parties necessary or appropriate to carry out the Group Restructuring Scheme, including the Restructuring Scheme and the issue of the RCSLS-A, the RCSLS-B and the RCSLS-C. Page 12
(e) No change of law or other government or regulatory requirements has occurred which makes it impossible (1) for Kia Lim to issue the RCSLS-A, the RCSLS-B and the RCSLS-C or any of them upon the terms of the relevant RCSLS Transaction Documents; and/or (2) for Kia Lim, KLBB, KRBB or any other Security Party (as the case may be) to perform any of the covenants and obligations on its part to be performed under the relevant RCSLS Transaction Documents, the relevant Security Documents; (f) each of the Lenders has received, in form and substance satisfactory to it (1) copies (in as many numbers as may be requested by it) of the following documents, certified as true by a director or the secretary of Kia Lim - (A) the resolution of the Board of Directors of Kia Lim, authorising - (i) the Group Restructuring Scheme; (ii) the issue of the RCSLS-A, the RCSLS-B and the RCSLS-C upon the terms and conditions as set out in Schedules 4, 5 and 6 respectively; (iii) the issue and allotment of the New Restructuring Shares and the New RCSLS Shares; and (iv) the execution by Kia Lim of the relevant Restructuring Documents and all other relevant agreements by affixing its common seal thereto in accordance with the Articles of Association of the Borrower, and the due performance by Kia Lim of its obligations therein contained in such documents, (B) the certificate of incorporation, the certificate(s) of change of name and/or Page 13
change of status of company (if applicable) and Memorandum and Articles of Association of Kia Lim; (C) the latest Forms 24, 44 and 49 of Kia Lim; and (D) specimen signatures, full names and national identity card numbers of the person(s) authorised to sign and deliver all letters, documents and communications and otherwise to act on Kia Lim's behalf in respect of the Restructuring Scheme; (2) copies (in as many numbers as may be requested by it) of the following documents, certified as true by a director or the secretary of each Subsidiary - (A) the resolution of the Board of Directors of such Subsidiary, authorising - (i) the Restructuring Scheme relating to such Subsidiary; (ii) the execution by such Subsidiary of the relevant Restructuring Documents and all other relevant agreements by affixing its common seal thereto in accordance with the Articles of Association of the Borrower, and the due performance by such Subsidiary of its obligations therein contained in such documents, (B) the certificate of incorporation, the certificate(s) of change of name and/or change of status of company (if applicable) and Memorandum and Articles of Association of such Subsidiary; (C) the latest Forms 24, 44 and 49 of such Subsidiary; and (D) specimen signatures, full names and national identity card numbers of the person(s) authorised to sign and deliver all letters, documents and communications and Page 14
otherwise to act on such Subsidiary's behalf in respect of the Restructuring Scheme relating to such Subsidiary; (3) a certificate of confirmation from Kia Lim in the form as set out in Schedule 11 - (A) certifying that there has been no material adverse change or development, on or before the Restructuring Date, in the financial condition or otherwise of Kia Lim and the relevant Subsidiary or Subsidiaries since the date of this agreement nor the occurrence of any event nor the discovery of any fact, on or before the Restructuring Date, rendering inaccurate, untrue or incorrect any of the representations, warranties or undertakings of Kia Lim or any of the Subsidiaries contained herein and/or any other relevant Restructuring Documents as though they had been made or given on the date of the certificate; (B) certifying that the shareholders' approval and the directors' resolutions and certification referred to in clauses 3.1(d)(6), 3.1(f)(1)(A) and 3.1(f)(1)(D) respectively have been duly passed and are in full force and effect and have not been revoked; (C) certifying that Kia Lim and the relevant Subsidiaries have complied with all their respective obligations under or pursuant to this agreement and the other relevant Restructuring Documents, and that to the best of its knowledge, there does not exist and had not existed, as at such date, any Event of Default; and (D) certifying that Kia Lim and the relevant Subsidiaries have complied with all the conditions imposed in any of the approvals referred to in clause 3.1(d) to be observed by them or, where such conditions cannot be complied by the Restructuring Date, undertaking to comply with such conditions Page 15
and/or cause such conditions to be complied with at the appropriate time(s) by the appropriate party or parties, as the case may be; (4) a certificate of confirmation from each of the Subsidiary in the form as set out in Schedule 12 (A) certifying that there has been no material adverse change or development, on or before the Restructuring Date, in the financial condition or otherwise of such Subsidiary since the date of this agreement nor the occurrence of any event nor the discovery of any fact, on or before the Restructuring Date, rendering inaccurate, untrue or incorrect any of the representations, warranties or undertakings of such Subsidiary contained herein and/or any other relevant Restructuring Documents as though they had been made or given on the date of the certificate; (B) certifying that the shareholders' approval and the directors' resolutions and certifications referred to in clauses 3.1(d)(7), 3.1(f)(2)(A) and 3.1(f)(2)(D) respectively have been duly passed and are in full force and effect and have not been revoked; (C) certifying that such Subsidiary has complied with all its obligations under or pursuant to this agreement and the other relevant Restructuring Documents, and that to the best of its knowledge, there does not exist and had not existed, as at such date, any Event of Default; and (D) certifying that such Subsidiary has complied with all the conditions imposed in any of the approvals referred to in clause 3.1(d) to be observed by it or, where such conditions cannot be complied by the Restructuring Date, undertaking to comply with such conditions at the appropriate time(s), as the case may be; Page 16
(g) Searches have been conducted at the Companies Commission of Malaysia on Kia Lim and the Subsidiaries respectively and the Lenders are satisfied with the results of such searches; (h) Searches have been conducted at the Official Receiver s office on Kia Lim and the Subsidiaries respectively, and the Lenders have received confirmation from the Official Receiver s office that no winding up order has been made against any of them, or the Lenders have received a statutory declaration by a director of the each of Kia Lim and the Subsidiaries in form and substance acceptable to the Lenders, declaring, inter alia, that Kia Lim or the relevant Subsidiary (as the case may be) has not been wound up and no winding up proceedings have been made or instituted against it. (i) The Lenders have received such documents and evidence as they may require that all the conditions in this clause 3.1 have been satisfied. (j) The Lenders are satisfied that Kia Lim and the Subsidiaries have settled in full all administrative and legal fees and charges payable or agreed to be payable by them under this agreement of the Restructuring Documents, including without limitation to all fees to the Lead Arranger, the Paying Agent and the central depository payable or agreed to be paid by Kia Lim in relation to or in connection with the Group Restructuring Scheme. (k) The Subsidiaries or Kia Lim (as the case may be) have fully paid in cash to the Lenders all outstanding interest (including default interest, where applicable) payable on the Principal Indebtedness pursuant to clause 5. (l) The Lenders are satisfied that no event has occurred so as to render the Secured Amounts, or any part thereof, to become immediately payable and no Event Of Default under any agreement or arrangement referred to in this agreement has occurred or is threatened, or will occur as a result of the implementation of the Group Restructuring Scheme or any portion(s) thereof. Page 17
(m) The Lenders are satisfied that internally generated funds is available to meet Kia Lim's obligations under this clause 7.1 and that the Proposed Rights Issue with Warrants have been carried out and a sufficient amount of the proceeds from the Proposed Rights Issue with Warrants has been earmarked for payment of interest from the Second Cut-Off Date until completion of the Restructuring Scheme. (n) RHB shall have obtained the approval of BNM for RHB to agree to the terms of the Restructuring Scheme. (o) The Lenders are satisfied that no extraordinary circumstances, governmental action or other material adverse change or event has occurred which in the opinion of the Lenders are satisfied prejudices the ability of Kia Lim and/or any of the Subsidiaries to observe and perform their respective covenants and obligations under the relevant Restructuring Documents. Representations and warranties : The following is extracted from the DRA:- 13.1 Representations and warranties Each of Kia Lim and the Subsidiaries represents and warrants to and for each of the Lenders separately, on a continuing basis for as long as this agreement or any of its obligations under this agreement shall subsist and/or any of the Secured Amounts remains payable, as follows: (a) Recitals The recitals to this agreement are true and correct. (b) Status Each of Kia Lim, the Subsidiaries and any other company in the Kia Lim Group is validly incorporated under the Act with limited liability and is validly existing under the laws of Malaysia with separate legal entity and has full powers to own assets and carry on their existing business. (c) Powers (1) Kia Lim has full legal right, authority and power - Page 18
(A) to issue the RCSLS; (B) to issue and allot the New Restructuring Shares and the New RCSLS Shares; (C) to enter into this agreement and the relevant Restructuring Documents; and (D) to exercise its rights and perform its obligations under this agreement and the relevant Restructuring Documents, and that all appropriate and necessary action has been taken to authorise the execution and delivery of this agreement and the relevant Restructuring Documents, and the exercise by Kia Lim of its rights and the performance by Kia Lim of its obligations under this agreement and the relevant Restructuring Documents and the execution and delivery of the same do not exceed the power and authority of the officers executing the same. (2) Each of the Security Parties has full legal right, authority and power (A) to enter into the relevant Security Documents; and (B) to exercise its rights and perform its obligations under the relevant Security Documents, and that all appropriate and necessary action has been taken to authorise the execution and delivery of the relevant Security Documents, and the exercise by such Subsidiary of its rights and the performance by such Subsidiary of its obligations under the relevant Security Documents and the execution and delivery of the same do not exceed the power and authority of the officers executing the same. (d) Enforceability of documents The Restructuring Documents constitute the legal, valid and binding obligation of the relevant Security Page 19
Parties that are to parties to such documents and enforceable in accordance with their respective terms, and the obligations of such Security Parties under such documents in respect of the payment of any moneys contemplated under such Restructuring Documents do not contravene and exchange control or other legislation or regulation binding on such Security Parties. (e) Execution of documents The execution of the relevant Restructuring Documents by the relevant Security Parties and the delivery of documents and performance thereof by such Security Parties (including the issuance of the RCSLS and the issuance and allotment of the New Restructuring Shares and the New RCSLS Shares by Kia Lim) do not and will not (1) exceed any power granted to such Security Parties by, or violate the provisions of, any law or regulation or any order or decree of any governmental authority, agency or court to which such Security Parties are subject; (2) result in any actual or potential default under any existing mortgage, debenture, contract or agreement binding on such Security Parties to which they are subject; (3) contravene and of the provisions of the respective Memorandum and Articles of Association of such Security Parties; or (4) result in or exceed any limitation upon such Security Parties' powers to borrow or create any imposition of or oblige any of them to create any Encumbrance over any of their undertaking or any of its assets, rights or revenues other than pursuant to the provisions of such documents. (f) Litigation etc No judgement, lawsuit, arbitration, prosecution or administrative proceedings, or investigation by any government agency or other regulatory authority has been obtained or is current, pending or to be instituted or threatened against any Security Party or any Page 20
corporation within the Kia Lim Group or involves any Security Party any corporation within the Kia Lim Group that is likely to (1) have a material adverse effect on the business condition (financial or otherwise) or operating results of such Security Party or corporation within the Kia Lim Group; or (2) impair the ability of such Security Party to perform its obligations under the relevant Restructuring Documents to which the such Security Party is a party, and after due and careful enquiries, there are no circumstances known to any of Kia Lim or the Subsidiaries that is likely to give rise to such judgement, lawsuit, arbitration, prosecution, administrative proceedings or investigation. (g) No violation of legislation No violation of any provisions of legislation, court orders, judgement and others has been committed by any Security Party or any corporation within the Kia Lim Group and each Security Party and corporation within the Kia Lim Group is conducting its business and operations in compliance with all applicable laws and regulations and all directives of governmental authorities having the force of law. (h) No winding up No step has been taken by any Security Party or any corporation within the Kia Lim Group or its shareholders, and no legal proceedings have been started or threatened, for the dissolution or winding up of such Security Party or corporation within the Kia Lim Group or for the appointment of a receiver, trustee or similar officer of such Security Party or corporation and/or its assets, and no demand under section 218 of the Act nor any inquiry under section 308(1) of the Act has been received by any Security Party or any corporation within the Kia Lim Group. (i) Consents, licences and approvals Any consent license approval or authorisation of any governmental authority in Malaysia which is required Page 21
in connection with the execution, performance, validity, enforceability of this agreement and the Restructuring Documents have or, in the case of the conditions precedent contemplated under clause 3, will be applied for forthwith on execution of this agreement. (j) Default on agreements Neither Kia Lim nor any corporation within the Kia Lim Group nor any other Security Party has defaulted on any loan agreement, security document, or any other agreement binding on them or to which they are a party. (k) Authorisation and admissibility Other than the presentation of the Restructuring Documents (if necessary) for registration with the relevant authorities, all acts, conditions, things, approval, consents, authorisations and licences required by law or by any directive of any applicable authority to be done, fulfilled, performed or obtained by Kia Lim and/or the Subsidiaries in order (1) to enable them to lawfully enter into, exercise their rights and perform the obligations assumed by them under the relevant Restructuring Documents; (2) to ensure that the obligations expressed to be assumed by them in each relevant Restructuring Document are legal, valid and binding and enforceable; and (3) to render each Restructuring Document admissible in evidence in Malaysia, have been done, fulfilled, performed or obtained and are in full force and effect. (l) Encumbrances The assets, revenue, properties and rights of Kia Lim and the Subsidiaries are not affected by any Encumbrance (other than the Permitted Encumbrances) and neither Kia Lim nor any of the Subsidiaries is a party to, and none of their assets bound by, any order, agreement or instrument under Page 22
which they are, or in certain events may be, required to create, assume or permit to arise any Encumbrance except the Permitted Encumbrances. (m) Event of default No Event of Default has occurred or is continuing. (n) No immunity Kia Lim, the Subsidiaries and the Security Parties are all subject to civil and commercial law with regard to their obligations under the relevant Restructuring Documents and the execution, delivery and performance of the relevant Restructuring Documents constitute private and commercial acts rather than governmental or public acts and neither Kia Lim, the Subsidiaries nor the Security Parties, nor any of their assets or properties, enjoy any immunity on the ground of sovereignty or otherwise in respect of their respective obligations under the relevant Restructuring Documents. (o) Obligations in respect of taxation All necessary returns have been delivered by or on behalf of Kia Lim, the Subsidiaries, the Security Parties and all other corporations within the Kia Lim Group to the relevant taxation authorities and Kia Lim, the Subsidiaries, the Security Parties are all not in default of the payment of any taxes, levies, duties, charges and fees, and no claim has been asserted with respect to taxes, levies, duties, charges and fees, except where such payment or claim is being contested in good faith. (p) Financial statements The annual accounts of Kia Lim, the Subsidiaries and the Security Parties as delivered to each of the Lenders - (1) were prepared in accordance with accounting principles and practices generally accepted in Malaysia and consistently applied and have been prepared, examined, reported on and approved in accordance with all procedures required by law and the respective Memorandum and Articles of Association of the relevant corporations; Page 23
(2) together with the notes thereto, give a true and fair view of the financial condition and operations of the relevant corporations as at the date of such accounts and for the period then ended; and (3) together with the notes thereto, disclose or reserve against the respective liabilities (contingent or otherwise) of the relevant corporations as at the date of its said accounts and all material unrealised or anticipated losses from any commitment entered into by it and which existed on such date; (q) Information and disclosure (1) The information furnished by Kia Lim, the Subsidiaries and the Security Parties in connection with the Restructuring Scheme or any matters covered thereunder does not contain any untrue statement or omit to state any fact the omission of which would make any statement made therein in the light of the circumstances under which they are made, misleading, and all expressions of expectation, intention, belief and opinion and all projections contained therein were honestly made on reasonable grounds after due and careful inquiry by the relevant corporation furnishing such information. (2) Kia Lim, the Subsidiaries and the Security Parties have disclosed to the Lenders all facts and information that they know or would know after making reasonable enquiries and which are material for disclosure to the Lenders in the context of the Group Restructuring Scheme and any matters covered thereunder. (r) Material adverse change There has been no material adverse change in the financial condition or operations of Kia Lim, the Subsidiaries, the Kia Lim Group and the Security Parties since the date of the last set of the accounts of such parties were given to the relevant Lender(s). (s) Section 62 of the Banking and Financial Institutions Act, 1989 There is no contravention of Section 62 of the Page 24
Banking and Financial Institutions Act, 1989, and will be no contravention of this section as a result of the implementation of the Restructuring Scheme. 13.2 Representations and warranties repeated Kia Lim and each Subsidiary is deemed to have repeated the representations and warranties referred to in clause 13.1 as true and correct in all respects on the date of this agreement and for as long as this agreement or any of their respective obligations under this agreement shall subsist and/or any of the Secured Amounts remains payable by reference to the facts and circumstances then existing. Events of Default : Any of the following events will constitute an RCSLS-A Event of Default: (a) Non-payment Kia Lim defaults in the payment of interest on an Interest Payment Date in respect of any RCSLS A or in the payment of any other moneys to be paid under this agreement after the same has become due by Kia Lim whether formally demanded or not. (b) Restructuring Portion Event of Default A Restructuring Portion Event of Default shall have occurred. There shall be an Restructuring Portion Event of Default if (a) Kia Lim and/or the Subsidiaries default in the payment to the Lenders of any amount due under the Term Loan Restructuring Portions or any part thereof or interest or any other moneys to be paid under this agreement and/or the relevant Restructuring Documents after the same have become due by Kia Lim and/or the Subsidiaries to the Lenders whether formally demanded or not; (b) Kia Lim and/or the Subsidiaries commits or threatens to commit a breach of any term, stipulation, covenant or undertaking contained in this agreement or the relevant Restructuring Documents which either Page 25
(1) is incapable of remedy; or (2) if capable of remedy, is not remedied within 14 days of Kia Lim and/or the Subsidiaries (as the case may be) being given notice so to do; (c) any of the representations and warranties is untrue, inaccurate or misleading or becomes untrue, inaccurate or misleading by reference to the facts and circumstances then existing; (d) Kia Lim and/or the Subsidiaries cease to carry on its business save for the purposes of a bona fide reconstruction or amalgamation which would affect its ability to duly perform or fulfil any obligations under this agreement or the relevant Restructuring Documents; (e) a petition is presented or a meeting is convened for the purpose of considering a resolution) or other steps are taken for making an administrative order against, or for the winding up of Kia Lim and/or any of the Subsidiaries or Security Parties (other than for the purpose of a reconstruction, amalgamation or reorganisation on terms approved by the Lenders, unless during or following such reconstruction Kia Lim, such Subsidiary or Security Party becomes or is declared to be insolvent), which is not withdrawn within 14 days of the presentation of such petition or commencement of such meeting or other steps (as the case may be); (f) one or more judgments or decrees is entered against Kia Lim, any of the Subsidiaries or Security Parties and all such judgments or decrees are not vacated, discharged or stayed within 30 days from the entry thereof; (g) a distress, warrant of attachment, execution or any form of execution is levied, enforced upon or sued out against any portion of the chattels or properties of either Kia Lim, any of the Subsidiaries and/or Security Party and is not withdrawn or discharged within 7 days thereof; (h) any licence, authorisation or approval is revoked, withheld or modified and such revocation, withholding Page 26
or modification impairs and prejudices the ability of (1) Kia Lim or any of the Subsidiaries to comply with the provisions of any relevant Restructuring Document; or (2) any other Security Party to comply with the provisions of any relevant Security Document; (i) any proceedings in respect of a scheme of arrangement under section 176 of the Act is instituted or commenced in respect of Kia Lim or any of the Subsidiaries or Security Parties, or Kia Lim, any of the Subsidiaries or the Security Parties convenes a meeting of its creditors or proposes or makes any arrangement or composition with its creditors; (j) any lawsuit, arbitration or administrative proceedings, or investigation by any government agency or other regulatory authority is instituted or threatened against, or otherwise involves Kia Lim or any of the Subsidiaries or Security Parties, and it is likely to (1) have a material adverse effect on the business (financially or otherwise) or operating results of Kia Lim or such Subsidiary or Security Party; or (2) impair the ability of Kia Lim or such Subsidiary or Security Party to perform its obligations under the relevant Restructuring Documents to which it is a party; (k) an encumbrancer takes possession of, or a trustee or administrator or receiver or receiver and manager or other similar officer is appointed over the business, properties, assets or undertakings of Kia Lim, the Subsidiaries and/or any of the Security Parties or any security interest that may for the time being affect any of such party s properties, assets or undertakings becomes enforceable; (l) Kia Lim or any of the Subsidiaries or Security Parties defaults under any provision of its Memorandum and Articles of Association which default in the opinion of the Lenders is not capable of remedy or which, in the opinion of the Lenders being capable of remedy, is not remedied to the satisfaction of the Lenders within 30 days after Kia Lim or such Subsidiary or Security Party becomes aware of its default, or if any provision Page 27
of the Memorandum and Articles of Association of Kia Lim or any of the Subsidiaries or Security Parties ceases or is bona fide claimed by Kia Lim or such Subsidiary or Security Party or any of its shareholders not to be the legal and valid or binding in accordance with their respective terms for any reason whatsoever; (m) any event or events occur or a situation exists which could or might, in the opinion of the Lenders materially and adversely prejudice the ability of Kia Lim and/or the Subsidiaries to perform its obligations under this agreement or the relevant Restructuring Documents; (n) any indebtedness of Kia Lim, the Subsidiaries and/or the Security Parties becomes capable, in accordance with the relevant terms thereof, of being declared due prematurely by reason of a default by Kia Lim, the Subsidiaries and/or the Security Parties in its/their obligations in respect of the same, or Kia Lim or any of the Subsidiaries or Security Parties defaults in the performance of any term applicable to such indebtedness or the security for such indebtedness becomes enforceable; (o) by or under the authority of any government or any other person, the whole or any of the assets of Kia Lim or any of the Subsidiaries or Security Parties, or any part thereof is seized, nationalised, expropriated or compulsorily acquired without adequate compensation having been paid therefor; (p) it is or will become unlawful by the laws of Malaysia or by the laws of any applicable jurisdiction for Kia Lim or any of the Subsidiaries or Security Parties to perform or comply with any one or more of its obligations under the relevant Restructuring Documents; (q) any agreement or instrument to which Kia Lim or any of the Subsidiaries or Security Parties is a party or pursuant to which Kia Lim or such Subsidiary or Security Party derives any rights or benefits is terminated, revoked, suspended or becomes invalid or unenforceable for any reason whatsoever, or any party thereto defaults under such agreement or instrument, or any event occurs which gives rise to a right to any party thereto to terminate or revoke such Page 28
agreement or instrument, and the same would materially and adversely affect the ability of Kia Lim or such Subsidiary or Security Party to perform or comply with any one or more of its obligations under the relevant Restructuring Documents; (r) any provision of this agreement or any other Restructuring Document ceases to remain or is bona fide claimed by any party thereto not to be legal, valid, binding, or in full force and effect for any reason whatsoever; (s) if by reason of any change after the date of this agreement in applicable law, regulation or regulatory requirement or in the interpretation or application thereof by any governmental or other authority charged with the administration thereof, the Lenders are of the opinion that Kia Lim or any of the Subsidiaries or Security Parties may not (or may be unable to) duly and punctually perform or comply with any one or more of its obligations under the relevant Restructuring Documents; (t) a RCSLS A Event of Default or a RCSLS B Event of Default or a RCSLS C Event of Default shall have occurred; or (u) an event of default (howsoever defined) under any of the KLBB Existing Security Documents or the KRBB Existing Security Documents shall have occurred. Final Redemption Early Redemption : Unless previously redeemed or purchased or converted and cancelled, the RCSLS-A will be redeemed at 100% of the Nominal Value of the RCSLS-A, at maturity. : Redemption of the RCSLS prior to the Maturity Date is allowed at the option of Kia Lim, in whole or in part, at any time commencing from and including the date of issue of the RCSLS subject to 14 days notice given. Kia Lim undertakes to redeem the RCSLS if the cash flows of the Kia Lim Group allows for it. This is determined by the debt service ratio of 1.5 times computed as follows:- The free cash flows after operating, financing and investing activities before RCSLS redemption divided by the RCSLS subject to redemption, should exceed 1.5 times. Page 29
Year RCSLS Redemption RM 000 RM 000 1 15,716-2 15,716-3 15,716-4 14,716 1,000 5 13,216 1,500 6 11,216 2,000 7 9,216 2,000 8 6,716 2,500 9 4,216 2,500 10-4,216 Total 15,716 Redemption of RCSLS will be proportionate to the then outstanding RCSLS held by the PBs. Basis of allotment Maturity Date Conversion rights Conversion period : Allotment of RM1.00 RCSLS-A at 100% of its nominal value for the subscription by the primary subscriber for every RM1.00 debt owed by the Kia Lim Group converted into RCSLS A. : The date occurring on the tenth anniversary of the Issue Date, and where such date falls on a date that is not a Market Day (a day on which the Bursa Malaysia is open for trading), then it shall be deemed to fall on the Market Day immediately after such date. : The registered holders of the RCSLS-A will have the right to convert such nominal value of RCSLS-A at the Conversion Price, into new ordinary shares in Kia Lim during the Conversion Period. : The RCSLS-A may be converted, based on the maximum amount as stated below, by the RCSLS-A holders into new ordinary shares in Kia Lim at the Conversion Price, two (2) years after the date of issue of the RCSLS-A up to the Maturity Date or the date of declaration of an Event of Default, whichever is earlier. The maximum amount of RCSLS-A convertible during the conversion period shall be as follows:- Page 30
(1) the RCSLS-A holders shall only be entitled to convert in each of the first 4 years of the conversion period:- (a) up to one-quarter (¼) of the total amount of the RCSLS-A issued to RHB; and (b) the aggregate of the RCSLS-A that the RCSLS-A holders had become entitled to convert in the preceding of the conversion period which have not been actually converted by the RCSLS-A holders; and (2) there are no restriction on the rights of the RCSLS-A holders to convert any amount of the RCSLS-A upon the expiry of 4 years into the conversion period. RHB may dispose of the new Shares arising from the conversion of the RCSLS-A at any time in accordance with the provisions of the Agreement in respect of shares of Kia Lim Berhad entered into between KL Timber and the PBs on 3 October 2005. Conversion price Transfer Status of Shares Upon Conversion of RCSLS-A Listing of Shares Upon Conversion of RCSLS-A : The conversion price is set at the par value of Kia Lim s shares of RM1.00 each on the basis of one (1) Share for every RM1.00 nominal value of the RCSLS-A : Not transferable. : The new Shares in Kia Lim of 8,800,000 to be issued on conversion of the RCSLS-A shall rank pari passu in all respects with the then existing Shares in issue of Kia Lim except that they shall not be entitled to any rights, dividends, allotment and/or other distributions, the entitlement date for which, is on or before the date of issue of the new Shares arising from the conversion of the RCSLS-A. : Listing will be sought for the new Shares issued upon the conversion of the RCSLS-A to shares based on the terms as stated above under Status of Shares Upon Conversion of RCSLS-A. Page 31
Rights of the RCSLS-A Holders in the Event of Default : Upon the occurrence of any of the Events of Default, whether or not such event is continuing, the RCSLS-A holders may:- (i) by notice in writing to Kia Lim, require the transfer of all sums held by Kia Lim and require Kia Lim to make all subsequent payments in respect of the RCSLS-A to the order of the RCSLS-A holders; (ii) declare by giving notice thereof to Kia Lim that:- (a) an RCSLS-A Event of Default has occurred; and (b) the RCSLS-A are immediately due and repayable, whereupon notwithstanding the stated maturity of the RCSLS-A, the RCSLS-A will become due and repayable at their respective nominal value together with interest accrued up to the date of repayment; and (iii) without further notice to Kia Lim, institute such proceedings and take such steps it may think fit, including without limitation to institute such proceedings as the RCSLS-A holder thinks fit against Kia Lim to enforce payment of the RCSLS-A secured amounts as well as enforcing all or any of the remedies available to the RCSLS-A holder. Amount to be paid on liquidation and certain circumstances: - Notwithstanding any other provisions contained in the debt restructuring agreement, in the event of the RCSLS-A becoming immediately due and repayable as stated above under Rights of the RCSLS-A Holders in the Event of Default (ii) or in the event of a winding up of Kia Lim whether voluntary or by order of court, then the amount which is immediately due and payable by Kia Lim to the RCSLS-A holder or the amount which the RCSLS-A holder may prove for in the liquidation, is the nominal value of all the outstanding RCSLS-A, together with all interest accruing thereon and remaining outstanding. Trust deed : No trust deed has been entered into. This is in accordance with the Securities Commission Act 1993, Section 66 subsection 1 of subdivision 1 of Division 4 of Part IV, where the provisions of subdivision 1 of Division 4 of Part IV Page 32