kulim (malaysia) berhad (“kulim” or the...

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KULIM (MALAYSIA) BERHAD (“KULIM” OR THE “COMPANY”) PROPOSED ESTABLISHMENT OF AN EMPLOYEES’ SHARE OPTION SCHEME (“ESOS”) (“PROPOSED ESOS”)

1. INTRODUCTION

On behalf of the Board of Directors of Kulim (“Board”), RHB Investment Bank Berhad (“RHB Investment Bank”) wishes to announce that the Company proposes to establish an ESOS of up to five percent (5%) of the issued and paid-up share capital of the Company (excluding treasury shares) at any point in time for the eligible employees and Directors of Kulim and its subsidiaries (excluding subsidiaries which are dormant) (“Kulim Group” or “Group”). 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 options to the eligible employees and Directors of the Kulim Group who meet the criteria of eligibility for participation in the Proposed ESOS (“Eligible Person(s)”) to subscribe for new ordinary shares of RM0.25 each in Kulim (“Kulim Share(s)” or “Share(s)”) pursuant to the Proposed ESOS (“ESOS Option(s)” or “Option(s)”) in accordance with the by-laws of the Proposed ESOS (“By-Laws”). The Proposed ESOS will be administered by an options committee which has been appointed by the Board (“ESOS Committee”) and the ESOS Committee members shall ensure that they do not participate in the deliberation or discussion of their own allocation. The salient terms and conditions of the Proposed ESOS, which are governed by the By-Laws are as follows:-

2.1 Maximum number of new Kulim Shares available under the Proposed ESOS

The maximum number of new Kulim Shares to be allotted and issued pursuant to the Proposed ESOS shall not exceed five percent (5%) of the issued and paid-up share capital of the Company (excluding treasury shares) at any point in time or any limit prescribed by any guidelines, rules and regulations of the relevant authorities throughout the duration of the Proposed ESOS as provided in the By-Laws.

2.2 Eligibility Only employees, executive Directors and non-executive Directors of Kulim and its subsidiaries, which are not dormant, who meet the criteria of eligibility for participation in the Proposed ESOS as set out in the By-Laws are eligible to participate.

2.3 Maximum allowable allotment and basis of allocation The maximum number of new Kulim Shares that may be offered to an Eligible Person shall be determined at the discretion of the ESOS Committee after taking into consideration, amongst others and where relevant, the performance, contribution, employment grade, seniority and length of service of the Eligible Persons, subject to the following:- (a) the directors and senior management of Kulim must not participate in the

deliberation or discussion of their own allocation; and

KULIM (MALAYSIA) BERHAD PROPOSED ESOS

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(b) the allocation to any Eligible Person, who either singly or collectively, through persons connected to the Eligible Person, holds twenty percent (20%) or more of the issued and paid-up share capital of Kulim (excluding treasury shares), must not exceed ten percent (10%) of the new Kulim Shares available under the Proposed ESOS. In the case of Directors, their specific entitlements/allotments under the Proposed ESOS shall be approved by the shareholders of Kulim in a general meeting.

2.4 Duration of the Proposed ESOS The effective date for the implementation of the Proposed ESOS shall be the date of full compliance with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) (“Listing Requirements”) in relation to the Proposed ESOS (“Effective Date”) which includes the following:- (a) submission of the By-Laws to Bursa Securities pursuant to the Listing

Requirements; (b) receipt of approval or approval-in-principle, as the case may be, for the listing

of the Shares to be issued under the Proposed ESOS; (c) the approval of shareholders’ of Kulim for the Proposed ESOS; (d) receipt of the approval of any other relevant authorities, where applicable;

and (e) fulfilment of all conditions attached to the above approval, if any; and, when implemented, shall be in force for a period of five (5) years from the Effective Date of implementation of the Proposed ESOS. The Proposed ESOS may be extended for a further period of up to five (5) years at the discretion of the Board upon recommendation of the ESOS Committee, subject always that the duration or tenure of the Proposed ESOS shall be not more than ten (10) years from the Effective Date.

2.5 Subscription price Subject to any adjustments made under the By-Laws and pursuant to the Listing Requirements, the subscription price shall be the higher of:- (a) the five (5)-day volume weighted average market price (“VWAP”) of Kulim

Shares immediately preceding the date on which an offer is made by the ESOS Committee in writing (“Date of Offer”), with a discount of not more than ten percent (10%) at the ESOS Committee's discretion; or

(b) the par value of Kulim Shares. 2.6 Ranking of the ESOS Options and new Kulim Shares arising from the exercise

of the ESOS Options The Eligible Persons who have accepted the offer (“Grantee(s)”) will not be entitled to any voting right or participation in any form of distribution and/or offer of further securities in Kulim until and unless such Grantees exercise their ESOS Options into new Kulim Shares.


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The new Kulim Shares arising from the exercise of the ESOS Options shall, upon allotment and issuance, rank pari passu in all respects with the then existing issued and paid-up Kulim Shares, except that the new Kulim Shares will not be entitled to any dividends, rights, allotments and/or other distributions declared, made or paid to shareholders, for which the entitlement date is prior to the date of allotment and issuance of such new Kulim Shares. The new Kulim Shares will be subject to all provisions of the Memorandum and Articles of Association of Kulim and such amendments thereafter, if any.

2.7 Retention period

Pursuant to Paragraph 8.20 of the Listing Requirements, an eligible Director who is a non-executive Director of Kulim Group shall not sell, transfer or assign the Kulim Shares obtained through the exercise of the ESOS Options offered to him/her within one (1) year from the Date of Offer. Save for the non-executive Directors, the new Kulim Shares allotted and issued to the Grantees pursuant to the exercise of the ESOS Options will not be subject to any holding period or restriction on transfer, disposal and/or assignment.

2.8 Listing of and quotation for the new Kulim Shares An application will be made for the listing of and quotation for the new Kulim Shares to be issued arising from the exercise of the ESOS Options on the Main Market of Bursa Securities.

3. RATIONALE AND JUSTIFICATION FOR THE PROPOSED ESOS

The Proposed ESOS is intended to:- (a) Recognise the contribution of the Eligible Persons whose services are valued and

considered vital to the operations and continued growth of Kulim Group. In addition, the Eligible Persons upon exercising his/her ESOS Options will be able to participate directly in the future growth of Kulim Group;

(b) Motivate the Eligible Persons towards improved performance through greater

productivity and loyalty; (c) Retain the Eligible Persons, hence ensuring that the loss of key personnel is kept to a

minimum level; and (d) Reward the Eligible Persons by allowing them to participate in the Group's profitability

and eventually realise any capital gains arising from any appreciation in the value of the Company's Shares.

The Proposed ESOS is also extended to the non-executive Directors of the Group as they provide valuable experience and opinion to the Board, whilst at the same time carry out the important function of monitoring the performance of the management.

4. UTILISATION OF PROCEEDS The actual proceeds to be received by the Company, pursuant to the exercise of the ESOS Options under the Proposed ESOS will depend on, amongst others, the number of ESOS Options granted and exercised at the relevant point of time and the subscription price.


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As such, the amount of proceeds to be received from the exercise of ESOS Options is not determinable at this juncture. However, the Company intends to utilise the proceeds from the exercise of the ESOS Options for the working capital requirements of Kulim Group, as and when received.

5. FINANCIAL EFFECTS OF THE PROPOSED ESOS The proforma effects of the Proposed ESOS are set out below, assuming the following scenarios:- Minimum Scenario : Assuming none of the 124,179,835 outstanding warrants as at 14 October

2013, being the latest practicable date prior to this announcement (“LPD”)

(“Outstanding Warrant(s)”) are exercised and that all the existing 15,322,000 treasury shares purchased by the Company are retained within the Company prior to the implementation of the Proposed ESOS

Maximum Scenario : Assuming all the Outstanding Warrants as at the LPD are exercised and

all the existing 15,322,000 treasury shares have been resold on the open market prior to the implementation of the Proposed ESOS

5.1 Issued and paid-up share capital

The Proposed ESOS will not 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 Kulim Shares to be issued pursuant thereto. For illustrative purposes, the proforma effects of the Proposed ESOS on the issued and paid-up share capital of the Company are as follows:-

Minimum Scenario Maximum Scenario

No. of Shares RM No. of Shares RM

Issued and paid-up share capital as at the LPD

1,294,031,236 323,507,809 1,294,031,236 323,507,809

Less: Treasury shares (15,322,000) (3,830,500) - -

1,278,709,236 319,677,309 1,294,031,236 323,507,809 Shares to be issued assuming full exercise of the Outstanding Warrants

- - 124,179,835 31,044,959

1,278,709,236 319,677,309 1,418,211,071 354,552,768 Shares to be issued assuming full exercise of the ESOS Options granted

(1)

63,935,461 15,983,865 70,910,553 17,727,638

Enlarged issued and paid-up share capital

1,342,644,697 335,661,174 1,489,121,624 372,280,406

Note:-

(1) Assuming the maximum grant and full exercise of the ESOS Options of up to five percent (5%) of

the enlarged issued and paid-up share capital of the Company as at the LPD pursuant to the Proposed ESOS.


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5.2 Net assets (“NA”) and gearing The Proposed ESOS will not have an immediate effect on the NA, NA per Share and gearing ratio of Kulim Group until such time when the ESOS Options granted pursuant to the Proposed ESOS are exercised. The effect on the Group’s NA would depend on the number of ESOS Options granted and the fair value of the ESOS Options after taking into account, inter-alia, the subscription price. Whilst the granting of the ESOS Options under the Proposed ESOS is expected to result in a charge to the income statements of the Group pursuant to the Financial Reporting Standard 2 on Share-Based Payment as issued by the Malaysian Accounting Standard Board (“FRS 2”), the recognition of such FRS 2 charge would not have any material impact on the NA of the Group as the corresponding amount will be classified as an equity reserve which forms part of the shareholders’ equity. In the event that none of the ESOS Options are exercised within the duration of the Proposed ESOS, the amount outstanding in the said equity reserve would be transferred into the Company’s retained earnings. On the other hand, if the ESOS Options are exercised, the amount outstanding in the said equity reserve would be transferred into the Company’s share capital and/or share premium account.

5.3 Earnings and earnings per Share (“EPS”) The Proposed ESOS is not expected to have any material effect on the consolidated earnings and EPS of Kulim Group for the financial year ending 31 December 2013 save for the possible impact of the FRS 2. However, any potential effect on the consolidated earnings and EPS of the Group in the future would depend on the number of ESOS Options granted and exercised at the relevant point in time, and the subscription price payable upon the exercise of the ESOS Options as well as the impact of FRS 2. Under FRS 2, the cost arising from the issuance of the ESOS Options is measured by the fair value of the ESOS Options, which is expected to vest at each Date of Offer and is recognised in the income statement over the vesting period of the ESOS Options, thereby reducing the earnings of Kulim Group. The fair value of the ESOS Options is determined after taking into consideration, amongst others, the historical volatility of Kulim Shares, the subscription price of the ESOS Options and time to maturity of the ESOS Options from the vesting date of the ESOS Options. Hence, the potential effect on the EPS of Kulim Group, as a consequence of the recognition of the said cost, cannot be determined at this juncture. Nevertheless, the Company has taken note of the potential impact of the FRS 2 on Kulim Group's future earnings and shall take into consideration such impact on the allocation and granting of ESOS Options to the Eligible Persons.

5.4 Convertible securities As at the LPD, the convertible securities of the Company comprise the Outstanding Warrants. The Proposed ESOS will not result in any adjustment to the number and exercise price of the Outstanding Warrants.


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5.5 Substantial shareholders’ shareholdings The Proposed ESOS will not have any immediate effect on the shareholdings of the substantial shareholders of Kulim. Any potential effect on the shareholdings of the substantial shareholders would depend on the number of new Kulim Shares to be issued pursuant to the exercise of the ESOS Options granted at the relevant point of time. For illustrative purposes, assuming the full exercise of the ESOS Options available under the Proposed ESOS, the proforma effects of the Proposed ESOS on the substantial shareholders’ shareholdings in the Company as at the LPD are set out below:-

Minimum Scenario

Substantial shareholders

Proforma I

Shareholdings as at the LPD Assuming full exercise of the ESOS Options

granted

Direct Indirect Direct Indirect

No. of Shares (1)

% No. of Shares (1)

% No. of Shares (1)

% No. of Shares (1)

%

Johor Corporation (“JCorp”) 700,921,260 54.81 (2)

69,713,194 5.45 700,921,260 52.20 (2)

69,713,194 5.19

Kumpulan Wang Persaraan 92,078,200 7.20 3,906,200 0.31 92,078,200 6.86 3,906,200 0.29

Employees Provident Fund Board 66,098,500 5.17 - - 66,098,500 4.92 - -

Notes:-

(1) Excluding 15,322,000 treasury shares held by the Company as at the LPD. (2) Deemed interest through its interests in Jedcon Engineering Survey Sdn Bhd, Johor Venture Sdn Bhd (vide Johor Capital Holdings Sdn Bhd), Intrapreneur

Development Sdn Bhd, Tenaga Utama (J) Berhad and Waqaf An-Nur Corporation Berhad pursuant to Section 6A of the Companies Act, 1965 (the “Act”).


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Maximum Scenario


Proforma I

Shareholdings as at the LPD

Assuming full exercise of the Outstanding Warrants and all treasury shares are resold back

to the market

Direct Indirect Direct Indirect

No. of Shares (1)

% No. of Shares (1)

% No. of Shares (1)

% No. of Shares (1)

%

JCorp 700,921,260 54.81 (2)

69,713,194 5.45 737,920,060 52.03 (2)

86,403,832 6.09

Kumpulan Wang Persaraan 92,078,200 7.20 3,906,200 0.31 92,078,200 6.49 3,906,200 0.28

Employees Provident Fund Board 66,098,500 5.17 - - 66,098,500 4.66 - -


Proforma II

After I and assuming full exercise of the ESOS Options granted

Direct Indirect

No. of Shares (1)

% No. of Shares (1)

%

JCorp 737,920,060 49.55 (2)

86,403,832 5.80

Kumpulan Wang Persaraan 92,078,200 6.18 3,906,200 0.26

Employees Provident Fund Board 66,098,500 4.44 - -

Notes:-

(1) Excluding 15,322,000 treasury shares held by the Company as at the LPD. (2) Deemed interest through its interests in Jedcon Engineering Survey Sdn Bhd, Johor Venture Sdn Bhd (vide Johor Capital Holdings Sdn Bhd), Intrapreneur

Development Sdn Bhd, Tenaga Utama (J) Berhad and Waqaf An-Nur Corporation Berhad pursuant to Section 6A of the Act.


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6. APPROVALS REQUIRED The Proposed ESOS is subject to the following approvals being obtained:- (a) the shareholders of Kulim at an extraordinary general meeting (“EGM”) to be

convened;

(b) Bursa Securities for the listing of and quotation for the new Kulim Shares to be issued pursuant to the exercise of the ESOS Options; and

(c) Any other relevant authorities, if required.

7. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED TO THEM All the Directors of Kulim are eligible to participate in the Proposed ESOS and are therefore deemed interested in the Proposed ESOS to the extent of their respective allocations under the Proposed ESOS. Notwithstanding this, the Directors have deliberated on the Proposed ESOS, and have agreed to present the Proposed ESOS to the shareholders of the Company for their consideration and approval. In respect of any specific allocation of ESOS Options to the Directors under the Proposed ESOS, the respective Directors shall accordingly abstain from all board deliberation and voting. In addition, the respective Directors shall also abstain from voting in respect of their direct and/or indirect shareholdings, if any, at the EGM to be convened in respect of the resolutions to be tabled for their respective proposed allocation, if any. JCorp is a major shareholder and the holding corporation of Kulim, who is deemed a person connected to the Directors of Kulim, namely Dato’ Kamaruzzaman Abu Kassim, Ahamad Mohamad, Datin Paduka Siti Sa’diah Sheikh Bakir, Zulkifli Ibrahim, Rozan Mohd Sa’at, Abdul Rahman Sulaiman and Jamaludin Md Ali (“Interested Parties”). As such, JCorp is deemed to be interested in the proposed allocation to the respective Interested Parties under the Proposed ESOS. Accordingly, JCorp will abstain from voting, in respect of its direct and/or indirect shareholdings in Kulim on the resolutions pertaining to the proposed allocations to the Interested Parties, as well as the proposed allocations to the persons connected to it, if any, to be tabled at an EGM to be convened. All the Directors and JCorp have undertaken that they will ensure that all persons connected to them will abstain from voting in respect of their direct and/or indirect shareholdings in Kulim, if any, on the relevant resolutions pertaining to the entitlements of the respective Directors and the entitlements of the persons connected to them under the Proposed ESOS to be tabled at an EGM to be convened. Save as disclosed above, none of the Directors and major shareholders of Kulim and/or persons connected to them have any interest, direct and indirect, in the Proposed ESOS.

8. DIRECTORS' STATEMENT The Board, having considered all aspects including the rationale and effects of the Proposed ESOS, is of the opinion that the Proposed ESOS is in the best interest of the Company. However, in view that individual members of the Board are deemed interested in the Proposed ESOS to the extent of their respective allocations (if any) under the Proposed ESOS, they have abstained from expressing an opinion and making any recommendation on their respective allocations (if any) under the Proposed ESOS.


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9. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed ESOS is expected to be implemented by the first quarter of 2014.

10. APPLICATION TO THE AUTHORITIES The application to the relevant authorities for the Proposed ESOS shall be made within one (1) month from the date of this announcement.

11. ADVISER RHB Investment Bank has been appointed as the Adviser for the Proposed ESOS.

This announcement is dated 18 October 2013.

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