Details of Announcement

Contents :

(I) PROPOSED RENOUNCEABLE TWO-CALL RIGHTS ISSUE WITH WARRANTS OF UP TO 16,948,750 NEW ORDINARY SHARES OF RM1.00 EACH IN THE COMPANY (“RIGHTS SHARES”) TOGETHER WITH UP TO 16,948,750 NEW FREE DETACHABLE WARRANTS (“WARRANTS”) AT A PROPOSED ISSUE PRICE OF RM1.00 FOR ONE (1) RIGHTS SHARE TOGETHER WITH ONE (1) WARRANT ON THE BASIS OF SEVEN (7) RIGHTS SHARES TOGETHER WITH SEVEN (7) WARRANTS FOR EVERY TWENTY (20) EXISTING ORDINARY SHARES HELD ON AN ENTITLEMENT DATE TO BE DETERMINED (“PROPOSED TWO-CALL RIGHTS ISSUE WITH WARRANTS”);

(II) PROPOSED DEBT RESTRUCTURING SCHEME (“PROPOSED DRS”) INVOLVING THE SETTLEMENT OF OUTSTANDING PRINCIPAL AND INTEREST AMOUNTING TO RM44,667,924 OWING BY THE SUBSIDIARIES OF KIA LIM TO THE PARTICIPATING BANKERS (“DEFINED HEREIN”) BY WAY OF:
(a) SETTLEMENT OF 40% OF OUTSTANDING PRINCIPAL BY THE ISSUANCE OF RM15,716,000 NOMINAL VALUE OF 4%, 10-YEAR REDEEMABLE CONVERTIBLE SECURED LOAN STOCKS (“RCSLS”) OF RM1.00 EACH TO BE ISSUED AT 100% OF ITS NOMINAL VALUE TO THE PARTICIPATING BANKERS;
(b) THE RESTRUCTURING OF 40% OF THE OUTSTANDING PRINCIPAL; AND
(c) THE SETTLEMENT OF 20% OF OUTSTANDING PRINCIPAL AND OUTSTANDING INTEREST BY THE ISSUANCE AND ALLOTMENT OF 13,235,924 NEW ORDINARY SHARES OF RM1.00 EACH (“SHARES”) TO THE PARTICIPATING BANKERS;
AND

(III) PROPOSED INCREASE IN THE AUTHORISED SHARE CAPITAL OF KIA LIM FROM RM100,000,000 TO RM200,000,000 BY THE CREATION OF AN ADDITIONAL 100,000,000 NEW SHARES (“PROPOSED IASC”).

(COLLECTIVELY REFERRED TO AS "PROPOSALS")

1. INTRODUCTION

On 29 November 2002, AmMerchant Bank Berhad (“AmMerchant Bank”) had, on behalf of the Board, announced the Proposed Two-Call Rights Issue of up to 24,215,500 new Shares in the Company at an indicative issue price of RM1.00 per new Share (of which the first call of RM0.50 is payable in cash on application and the second call of RM0.50 is payable out of the Company’s share premium account and asset revaluation reserves upon acceptance) on the basis of one (1) new Shares for every two (2) existing Shares held (“Initial Proposal”).

Further to the above announcement, AmMerchant Bank, on behalf of Kia Lim, wishes to announce the following:

(i) the Proposed Two-Call Rights Issue has been revised to up to 16,948,750 new Shares in the Company together with up to 16,948,750 Warrants at an proposed issue price of RM1.00 for one (1) Rights Share together with one (1) Warrant (of which the first call of RM0.58 is payable in cash on application and the second call of RM0.42 is payable out of the Company’s share premium account upon acceptance) on the basis of seven (7) Rights Shares together with seven (7) Warrants for every twenty (20) existing Shares held to supersede the Initial Proposal;

(ii) the Proposed DRS involving the settlement of all outstanding principal and interest amounting to RM44,667,924 owing by the subsidiaries of Kia Lim to the Participating Bankers (“PBs”), namely RHB Bank Berhad (“RHB”) and Malaysian Industrial Development Finance Berhad (“MIDF”) by way of:
(a) The settlement of 40% of outstanding principal by the issuance of RM15,716,000 nominal value of 4%, 10-year RCSLS of RM1.00 each to be issued at 100% of its nominal value to the PBs;
(b) the restructuring of the 40% of the outstanding principal amounting to RM15,716,000;
(c) the settlement of 20% of outstanding principal and all outstanding interest by the issuance and allotment of 13,235,924 new Shares to the PBs;
and
(iii) the Proposed Increase in the Authorised Share Capital of Kia Lim from RM100,000,000 to RM200,000,000 by the creation of an additional 100,000,000 Shares

2. DETAILS OF THE PROPOSED RIGHTS ISSUE WITH WARRANTS

2.1 Introduction

The Proposed Two-Call Rights Issue with Warrants of up to 16,948,750 Rights Shares together with up to 16,948,750 Warrants at a proposed issue price of RM1.00 for one (1) Rights Share together with one (1) Warrant is to be implemented on a renounceable basis of seven (7) Rights Shares together with seven (7) Warrants for every twenty (20) existing Shares held (prior to the Proposed DRS) at an Entitlement Date to be determined later by the Board of Directors of Kia Lim.


The proposed issue price of RM1.00 will be payable in two (2) calls i.e. the first call of RM0.58 per Rights Share payable in cash on application and the second call of RM0.42 per Rights Share or up to RM7,118,475 shall be capitalised from the share premium account of Kia Lim as shown below.

	Company Level
	RM
Audited Share Premium as at 31 December 2002	7,283,230
Less: Capitalisation for the Proposed Two-Call Rights Issue with Warrants	(7,118,475)
Excess after capitalisation	164,755

The second call of RM0.42 per Rights Share will be capitalised immediately after the issue of the Rights Shares and therefore, subscribing shareholders will not have to bear any further cash payment after the first call. Accordingly, shareholders need only pay RM0.58 in cash upon subscribing for every one (1) Rights Share with one (1) Warrant attached.

The Proposed Two-Call Rights Issue with Warrants of up to 16,948,750 Rights Shares together with 16,948,750 Warrants was determined on the assumption that all the Employee Share Option Scheme (“ESOS”) Options granted as at the date hereof pursuant to the ESOS have been exercised, resulting in the issue and allotment of 3,846,000 new Shares prior to the Proposed Two-Call Rights Issue with Warrants, i.e. Maximum Scenario. However, based on the existing issued and paid-up share capital of Kia Lim as at 8 September 2003 of 44,579,000 Shares, the Proposed Two-Call Rights Issue with Warrants will involve an issue of up to 15,602,650 Rights Share together with 15,602,650 Warrants in the Company. As the Proposed Two-Call Rights Issue with Warrants will be done on a minimum subscription basis, as mentioned in Section 2.7 below, the Minimum Scenario will be that reflecting a minimum issue of 15,421,000 Rights Shares together with 15,421,000 Warrants.
The Rights Shares will be offered to the shareholders of Kia Lim (except to those shares issued pursuant to the Proposed DRS) as per the Record of Depositors and/or the Register of Members on the Entitlement Date to be announced in due course after obtaining the approvals from all the relevant authorities.

2.2 Basis of Determining the Pricing of the Rights Shares With Warrants
The final issue price of the Rights Shares and the exercise price of the Warrants will be determined at a later date based on market-based principles and at a level which is in the best interest of the Company.

For illustration purposes, based on an indicative issue price of RM1.00 per Rights Share, the first call, i.e. the cash portion of RM0.58 per Rights Share, represents a discount of approximately 17.1% to the theoretical ex-rights price of Kia Lim Share of RM0.70 based on the 5-day weighted average market price for the five (5) market days up to 28 October 2003 of RM0.7471 whilst the indicative exercise price of the Warrant of RM1.00 per Shares represents a premium of approximately 42.9% to the theoretical ex-rights price of Kia Lim Shares of RM0.70 based on the aforementioned 5-day weighted average market price.
2.3 Ranking of the Rights Shares
The Rights Shares shall upon allotment and issue, rank pari passu in all respects with the existing Shares of the Company except that they shall not be entitled to any dividends, rights, allotments and/or any distributions, the entitlement date of which is prior to the date of allotment of the Rights Shares.

2.4 Warrants
The Warrants shall only be issued to shareholders of Kia Lim who subscribe for the Proposed Two-Call Rights Issue with Warrants. Should the shareholders renounce the Rights Shares, they will not be entitled to the Warrants.

The Warrants shall be listed on the Official List of the KLSE. The principal terms of the Warrants are set out in Table A.


2.5. Utilisation of Proceeds from the Proposed Two-Call Rights Issue with Warrants
Based on the amount of RM0.58 per Rights Share payable on application, the gross proceeds from the Proposed Two-Call Rights Issue with Warrants will be utilised in the manner set out in Table B.
The Company expects to fully utilise the proceeds from the Proposed Two-Call Rights Issue with Warrants within one (1) year after receipt of the proceeds.

Barring any unforeseen circumstances, the proceeds to be raised from the exercise of the Warrants will be utilised to finance future capital expenditure and/or future general working capital requirements of the Kia Lim Group.
2.6 Shareholders’ Undertaking
2.6.1 Major Shareholders’ Undertaking

Certain substantial shareholders have given their irrevocable written undertakings to the Company to subscribe in full for their respective entitlements amounting to 6,730,917 Rights Shares representing 43.13% of the Rights Shares pursuant to the Proposed Two-Call Rights Issue with Warrants. These are depicted in Table C.

2.6.2 Identified Shareholders’ Undertaking
As at 8 September 2003, the amount owing by Kia Lim to the Identified Shareholders of Kia Lim depicted in Table D who are also trade creditors of the Group amounted to RM5.185 million.
In view of the amount owing by Kia Lim to the Identified Shareholders as well as to meet the minimum subscription level of 15,421,000 Rights Shares set out under Section 2.7, the Identified Shareholders have given their unconditional irrevocable undertakings to subscribe for up to 8,696,560 Rights Shares which are not taken up by the entitled shareholders (“Excess Shares”). The consideration to be paid by the Identified Shareholders pursuant to the subscription of Excess Shares will be set-off against the amount of RM5.044 million owing by Kia Lim to the Identified Shareholders. The Company is entitled at its discretion to require all or any of the Identified Shareholders to subscribe for the Excess Shares pursuant to their undertaking the number of shares to be taken up by each Identified Shareholders.
2.7 Minimum Subscription Basis
The Proposed Two-Call Rights Issue with Warrants will be done on a minimum subscription level basis. The minimum level will be that representing: -
i) the three substantial shareholders’, namely KL Realty Sdn Bhd (“KL Realty”), KL Timber Trading Sdn Bhd (“KL Timber”) and Ng Hoo Tee Holdings Sdn Bhd (“NHTH”), entitlement to the Proposed Two-Call Rights Issue with Warrants; and
ii) the Identified Shareholders’ undertaking to subscribe for Excess Shares as set out in Section 2.6.2 above.
The aggregate of (i) and (ii) should not be less than 15,421,000 Rights Shares.

2.8 Underwriting

In view of the shareholders’ undertakings as mentioned in Section 2.7 above, and that the Proposed Two-Call Rights Issue with Warrants will be undertaken on a minimum subscription basis, no underwriting will be required.


3. DETAILS OF THE PROPOSED DRS
The Proposed DRS involves the outstanding principal and interest owing to the PBs. The following sets out the details to the Proposed DRS.

3.1 Existing Outstanding Principal as at 31 December 2002 (“Cut Off-Date”)
The outstanding principal for bank lenders of Kia Lim and its subsidiaries, namely Kangkar Raya Batu Bata Sdn Bhd (“KRBB”) and Syarikat Kia Lim Kilang Batu Bata Sdn Bhd (“KLBB”), as at the Cut-Off Date are set in Table E.


3.2 The Proposed DRS
3.2.1 Conversion of the outstanding principal

The Proposed DRS broadly involves the conversion of the outstanding principal as at the Cut-Off Date due to the PBs in the manner set out below: -
(i) settlement of 40% of outstanding principal by the issuance of RM15,716,000 nominal value of 4%, 10-year RCSLS of RM1.00 each to be issued at 100% of its nominal value to the PBs;
(ii) the restructuring of 40% of the outstanding principal; and
(iii) the settlement of 20% of outstanding principal by the issuance and allotment of 7,858,000 new Shares to the PBs.
3.2.2 Conversion of all outstanding interest

The Proposed DRS also involves the conversion of all outstanding interest owing to the PBs (arising from KLBB-RHB Term Loan (“KLBB-RHB TL”), KRBB-MIDF Term Loan (“KRBB-MIDF TL”) and KRBB-RHB Term Loan ("KRBB-RHB TL”) as at Cut-Off Date and up to 31 December 2003 by the issuance and allotment of 5,377,924 new Shares to the PBs.

3.3 Effects of the Proposed DRS on the Existing Outstanding Principal

A summary of the effects of the conversion of the existing outstanding principal detailed in Section 3.2.1 above is as detailed in Table F.
3.4 Conversion of the Outstanding Principal into RCSLS

Under the Proposed DRS, 40% of the outstanding principal owed by the Kia Lim Group to the PBs as at Cut-Off Date will be converted into RCSLS. Separate series of RCSLS will be created and subscribed and held by the PBs as follows: -

Separate subscription agreements will be drawn up in respect of RCSLS-A, RCSLS-B and RCSLS-C.
The principal terms of the RM15,716,000 RCSLS to be issued by Kia Lim under the Proposed DRS to the PBs are set out in Table G.

3.5 Restructuring of 40% of the Outstanding Principal

Under the Proposed DRS, 40% of the principal term loan owed by the Kia Lim Group to the PBs as at Cut-Off Date will be rescheduled and restructured. Salient features of the restructuring are set out in Table H.
3.6 Conversion into New Shares
Pursuant to the Proposed DRS, the following will be converted into new Shares: -

(i) 20% of term loan outstanding as at the Cut-Off Date; and
(ii) all outstanding interest owing to the PBs as at the Cut-Off Date and from 1 January 2003 up to 31 December 2003;

The relevant portion of the outstanding principal owing to the PBs and all interest due and remaining outstanding as at the Cut-Off Date and up to 31 December 2003 is proposed to be converted into new Shares at RM1.00 each on the basis of one (1) new ordinary share of RM1.00 each for every RM1.00 interest owing to the PBs.

The new Shares to be issued shall rank pari passu in all respects with the existing ordinary shares of Kia Lim except that they will not rank for any dividends or other distributions to be declared in respect of the financial period prior to the financial period in which the shares are issued or any interim dividends or other distributions, the declaration date of which is on or before the date of issue and allotment of the new Shares. The new Shares will also not be entitled to participate in the Proposed Two-Call Rights Issue with Warrants.

The total number of new Shares to be allotted to the respective PBs pursuant to the Proposed DRS are detailed in Table I.
The PBs may dispose of the new Shares (‘Disposal Shares”) arising from the conversion of outstanding principal and interest into new Shares based on the terms set out below: -

(i) The PBs are allowed to start disposing the new Shares on the market after 60 days (see terms (ii) to (iii)) from the listing date of the new Shares.

(ii) Prior to any proposed disposal on the market, the PBs must make an offer to KL Timber and/or parties procured by KL Timber to purchase the Shares that the PBs wish to dispose of. This will be by way of serving an Offer Notice to KL Timber and/or parties procured by KL Timber, of the PB’s intention within the first 7 days of each month.

(iii) The Offer Notice must state the number of the Disposal Shares that the PBs intend to sell and the disposal price, which shall be determined as per Table J.

The PBs have the right to carry forward any previously undisposed new shares and aggregate such undisposed shares to any subsequent month’s allotment until they are fully disposed of.
(iv) If KL Timber and/or parties procured by KL Timber, fail to accept the offer within 3 market days from the date of the Offer Notice, the PBs may dispose of the given Disposal Shares at any time at the prevailing market price or any price as determined by the PBs.

(v) If KL Timber and/or parties procured by KL Timber, accept the offer within 3 market days of its receipt of the Offer Notice, the full proceed is to be paid as per KLSE’s T+3 days settlement.
If KL Timber and/or parties procured by KL Timber fails to honour the payment in clause (v) above, the PBs may dispose the given Disposal Shares at any time at the prevailing market price or any price as determined by the PBs and the PBs shall no longer be subjected to clause (ii) above.
3.7 Security
3.7.1 Security for the Restructure KLBB-RHB TL and RCSLS-A

The KLBB-RHB TL is presently secured by:

a) a debenture (fixed and floating) over all the assets of KLBB but excluding hire-purchase and leased assets (“Existing KLBB Debenture”);
b) a fixed charge debenture over the fixed assets but excluding hire-purchase and leased assets located at one of KLBB’s factories in Batu Pahat (“Existing KLBB Fixed Charge”);

c) by a legal charge under the National Land Code (“NLC”) over eleven (11) immovable properties belonging to KLBB (“Existing KLBB NLC Charge”); and

d) a corporate guarantee by Kia Lim.
Under the terms of the Proposed DRS:
a) the remaining 40% of the KLBB-RHB TL will continue to be secured by the Existing KLBB Debenture, the Existing KLBB Fixed Charge, the Existing KLBB NLC Charge and the existing or new Kia Lim corporate guarantee created in favour of RHB; and
b) the RCSLS-A will be secured by a further debenture (fixed and floating charges), by a further fixed charge debenture and by a further legal charge under the NLC over the same assets and properties as aforesaid,
such further debenture and charges ranking pari passu with the Existing KLBB Debenture, Existing KLBB Fixed Charge and Existing KLBB NLC Charge respectively.
3.7.2 Security for the Restructured KRBB-MIDF TL, RCSLS-B, KRBB-RHB TL and RCSLS-C

The KRBB-MIDF TL, KRBB-RHB TL and the EON Facility are respectively secured by:
a) debentures (fixed and floating charges) (all ranking pari passu) over plant and machinery belonging to KRBB (“Existing KRBB Debentures”);
b) legal charges under the NLC over two (2) immovable properties belonging to KRBB (“Existing KRBB NLC Charges”) (all ranking pari passu); and
c) corporate guarantees by Kia Lim.
Under the terms of the Proposed DRS: -
a) In respect of the KRBB-MIDF TL

i) the remaining 40% of the KRBB-MIDF TL will continue to be secured by the Existing KRBB Debenture, the Existing KRBB NLC Charge and the existing or new Kia Lim corporate guarantees created in favour of MIDF; and

ii) the RCSLS-B will be secured by a further debenture (fixed and floating charges) and by a further charge under the NLC over the same assets and properties as aforesaid.
b) In respect of the KRBB-RHB TL

i) the remaining 40% of the KRBB-RHB TL will continue to be secured by the Existing KRBB Debenture, the Existing KRBB NLC Charge and the existing or new Kia Lim corporate guarantees created in favour of RHB; and
ii) the RCSLS-C will be secured by a further debenture (fixed and floating charges) and by a further charge under the NLC over the same assets and properties as aforesaid.
The further debentures and charges under the NLC to be created in favour of MIDF and RHB to secure the RCSLS-B and RCSLS-C will rank pari passu with the Existing KRBB Debentures and the Existing KRBB NLC Charges. In addition, MIDF, RHB and EON Bank will enter into a security sharing agreement to address and confirm inter alia:
b ii a) the ranking of securities; and
b ii b) the respective rights and obligations amongst them in respect of the enforcement and realisation of their securities and the application and distribution of proceeds.

4. DETAILS OF THE PROPOSED IASC

The present authorised share capital of the Company is RM100,000,000 comprising 100,000,000 Shares, of which 44,579,000 Shares have been issued and fully paid-up as at 31 December 2002.

In order to accommodate the issuance of new Shares arising from the Proposed DRS, the Board proposes to increase the Company’s authorised share capital to RM200,000,000 divided into 200,000,000 Shares by the creation of 100,000,000 new Shares.

Accordingly, relevant clauses of the Company’s Memorandum and Articles of Association will be amended pursuant to the Proposed Increase in the Authorised Share Capital of the Company.


5. RATIONALE FOR THE PROPOSALS
5.1 Proposed Rights Issue with Warrants
After due consideration of various methods of fund-raising, the Board of Directors of Kia Lim is of the opinion that raising funds by way of a rights issue of Shares is in the longer term interest of the Company due to the following reasons: -
a) The Proposed Two-Call Rights Issue with Warrants will enable the Company's capital to reflect the extent of its activities and to fund the additional working capital required for the anticipated increase in the turnover of the Kia Lim Group;
b) The Proposed Two-Call Rights Issue with Warrants will enable the Company to raise the funds required at an attractive and substantially lower cost as compared to bank financing. The Proposed Two-Call Rights Issue with Warrants will help Kia Lim to reduce its gearing as well as its interest costs. With the lower gearing position and enlarged capital base, the Group will be in a better position to capitalise on viable business opportunities;
c) The Proposed Two-Call Rights Issue with Warrants will involve the issuance of new Shares without diluting existing shareholders' equity interest assuming the shareholders subscribe for their respective entitlements; and

d) The Proposed Two-Call Rights Issue with Warrants will provide an opportunity for existing shareholders to further participate in the equity of the Company.
The issuance of the Warrants is aimed to enhance the attractiveness of the Proposed Two-Call Rights Issue with Warrants.
5.2 Proposed DRS

For the past four (4) financial years ended 31 December 2002, the Group has been sustaining losses and has accumulated losses of RM28.6 million as at 31 December 2002. The Group has funded their expansion plans in the acquisition of machinery in the late 1995 and early 1996 through the drawdown of term loans extended to them. Due to the economic downturn in 1997 in Malaysia and other parts of Asia, the Group was badly hit in terms of their sales volume and sales price, more so in view of the lacklustre performance in the construction sector. The interest charges has substantially eroded the profits of the Group and the Group is presently facing difficulty in servicing and paying these borrowings.

The Board of Directors are of the opinion that the best means to put the Group on a firmer financial footing is via the Proposed DRS coupled with the Proposed Two-Call Rights Issue with Warrants so that the existing debt and interest obligations of the Group could be restructured to ease the burden on the Group’s debt and interest servicing obligation to the PBs. As at 31 December 2002, the Group’s gearing ratio stood at 2.51 and the total borrowing amounted to RM58.4 million of which RM42.7 million of borrowings (including outstanding interests) will be restructured pursuant to the Proposed DRS. The Proposed DRS would also alleviate its liquidity constraints and allow the Group to concentrate on its operation and turn the business around.

6. FINANCIAL EFFECTS OF THE PROPOSALS
6.1 Share Capital

The effects of the Proposals on the issued and paid-up share capital of the Company are detailed in Table K.
6.2 Substantial Shareholders
The effects of the Proposals on the shareholdings of the substantial shareholders (holding 5% or more) of the Company are detailed in Table L.

6.3 Earnings

Barring any unforeseen circumstances, the Kia Lim Group targets to complete the Proposed Two-Call Rights Issue with Warrants and the Proposed DRS by first quarter of 2004. On completion of the Proposed Two-Call Rights Issue with Warrants and the Proposed DRS, the Directors of Kia Lim believes that the Group should have sufficient funds to meet its working capital requirements for the anticipated increase in the turnover as well as to ease the burden on the Group’s existing debt and interest obligations, thus alleviating its liquidity constraints. The Proposals are expected to contribute positively to the earnings of Kia Lim from 2005 onwards.
6.4 Net Tangible Assets ("NTA") and Gearing

Based on the last audited results of Kia Lim for the financial year ended 31 December 2002, the effects of the Proposals on the consolidated NTA per Share, assuming that the Proposals had been effected on that date, are tabulated in Table M.
6.5 Dividend

No dividend is expected to be paid for the financial year ending 31 December 2003. The future dividend policy of Kia Lim will depend on the financial position of the Group at the relevant time, taking into account, amongst others, cash availability, debt servicing commitments, availability of tax credits and future funding requirements.
7. APPROVALS REQUIRED

7.1 Conditions to the Proposed Two-Call Rights Issue with Warrants
The Proposed Two-Call Rights Issue with Warrants is subject to the approval of the following: -
(i) the Securities Commission (“SC”);
(ii) the shareholders of Kia Lim at the Extraordinary General Meeting (“EGM”) to be convened;
(iii) the Kuala Lumpur Stock Exchange (“KLSE”) for the listing of and quotation for the new Shares to be issued pursuant to the Proposed Two-Call Rights Issue with Warrants and conversion of the Warrants; and
(iv) any other relevant authorities.
7.2 Conditions to the Proposed DRS

The Proposed DRS is subject to the approvals of the following:-
(i) the PBs involved in the Proposed DRS and the consent of affected financial institutions for securities sharing arrangements;
(ii) the SC;
(iii) the Foreign Investment Committee;
(iv) The shareholders of Kia Lim at the EGM to be convened;
(v) The KLSE for the listing of and quotation for the new Share to be issued pursuant to the Proposed DRS; and
(vi) Any other relevant authorities.
7.3 Conditions to the Proposed IASC
The Proposed IASC is subject to the approvals of the shareholders of the Company at the forthcoming EGM.

Pursuant to the Proposals, KL Timber and/or parties procured by KL Timber may be required to acquire shares from the PBs pursuant to the Proposed DRS. In such an instance, KL Timber and the parties acting in concert with it may incur an obligation under the Malaysian Code on Take-overs and Mergers 1998 to extend a general offer to the remaining shareholders of Kia Lim. A waiver will be sought from this requirement from the SC.

The Proposed Two-Call Rights Issue with Warrants is not conditional upon the Proposed DRS. However, the Proposed DRS is conditional upon the Proposed Two-Call Rights Issue with Warrants. As set out in Section 2.7 above, the Proposed Two-Call Rights Issue with Warrants would be done on a minimum subscription basis.
The Proposed DRS is conditional upon the Proposed IASC. The Proposed Two-Call Rights Issue with Warrants and Proposed IASC are not inter-conditional.


8. DIRECTORS' AND SUBSTANTIAL SHAREHOLDERS' INTEREST

None of the Directors and substantial shareholders of Kia Lim or any persons connected to the Directors and Substantial Shareholders of Kia Lim have any interest, direct or indirect, in the Proposals save for their entitlements under the Proposed Two-Call Rights Issue with Warrants.

9. DEPARTURE FROM SC GUIDELINES

To the best of its knowledge, the Board is not aware of any departure from the SC's Guidelines in relation to the Proposals.

10. DIRECTORS' STATEMENT
After taking into consideration the rationale for the Proposals, the Board is of the opinion that the Proposals are in the best interest of the Group.
11. ADVISER

AmMerchant Bank has been appointed as the Adviser for the Proposals.

This announcement is dated 29 October 2003.