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1. INTRODUCTION

On behalf of the Board of Directors of ES Ceramics (Board), K & N Kenanga Bhd (Kenanga) is pleased to announce that the Company proposes to make amendments to certain provisions of the existing Bye-Laws governing the Companys existing Employees Share Options Scheme ("Bye-Laws").

2. DETAILS OF THE PROPOSED BYE-LAWS AMENDMENTS

The Companys Employees Share Options Scheme (ESOS) is effective on 5 September 2005 and pursuant to Clause 19.1 of the Bye-Laws, it shall be in force for a period of five (5) years from that date.

The main amendments to be made to the Bye-Laws are to increase the maximum number of ordinary shares of RM0.10 each in ES Ceramics ("ES Ceramics Shares") that may be issued under the ESOS from 3.82% to 15% of the issued and paid-up share capital of ES Ceramics at any one time.

Other amendments pursuant to the Proposed Bye-Laws Amendments are in respect of eligibility, maximum entitlement and basis of allotment and other amendments in relation to the administration of the ESOS.

The proceeds to be raised from the additional ESOS options to be exercised pursuant to the Proposed Bye-Laws Amendments are subject to the subscription price of the respective ESOS options to be granted as governed by the Bye-Laws. The proceeds arising from the exercise of the ESOS options will be utilised for working capital purposes.

3. RATIONALE FOR THE PROPOSED BYE-LAWS AMENDMENTS

The Proposed Bye-Laws Amendments principally allow ES Ceramics to grant further ESOS options after taking into consideration the existing increased size of the employees and to cater for the expected future increase in the number of ES Ceramics employees, including increases resulting from the completion of the proposed acquisitions of GTR Ceramics Sdn Bhd and GTR Ceramics Co., Ltd by ES Ceramics as announced on 20 July 2006.

Ultimately, the Proposed Bye-Laws Amendments will assist the Company to reward the employees for their contributions, which is in line with the primary objective of the ESOS.

4. FINANCIAL EFFECTS OF THE PROPOSED BYE-LAWS AMENDMENTS

4.1 Share capital

The Proposed Bye-Laws Amendments will not have any immediate effect on the issued and paid-up share capital of ES Ceramics.

However, the effects of assuming the full exercise of the existing remaining unexercised ESOS options granted as at 13 September 2006, those ESOS options available to be granted under the existing ESOS and the additional ESOS options to be granted pursuant to the Proposed Bye-Laws Amendments on the issued and paid-up share capital of ES Ceramics are set out in Table 1.

4.2 Net assets / net assets per share

The Proposed Bye-Laws Amendments will not have an immediate effect on the consolidated net assets / net assets per share of ES Ceramics.

However, the potential effects of the exercise of the additional ESOS options to be granted pursuant to the Proposed Bye-Laws Amendments on the consolidated net assets / net assets per share of ES Ceramics, however, is dependent on factors such as the number of ESOS options granted and/or exercised at a particular point in time and the subscription price of the ESOS options.

4.3 Earnings

The Proposed Bye-Laws Amendments will not have any immediate effect on the consolidated earnings of ES Ceramics.

However, the earnings of ES Ceramics for the financial year ending 31 May 2007 and beyond may be impacted by the additional ESOS options to be granted pursuant to the Proposed Bye-Laws Amendments as a result of the adoption of the new Financial Reporting Standard No.2 on Share-Based Payment (FRS 2). Pursuant to FRS 2, the Company, shall, at each grant of any remaining ESOS options, recognise the fair value of the remaining ESOS options which are granted as an expense in the income statement of the Company.

The potential effects on the earnings and earnings per share of the Company at each grant of the ESOS options will depend on various factors affecting the fair value of the remaining options granted, which include, without limitation to, the market price(s) and volatility of market price(s) of ES Ceramics Shares prevailing at time of each grant, the exercise price(s) payable upon the exercise of the ESOS options granted and their vesting period(s) (if any).

4.4 Dividends

The Company did not declare any dividend for the financial year ended 31 May 2006. Any declaration of future dividends will be dependent upon the retained profits, cashflow position and the funding requirements of the Company.

4.5 Substantial shareholders shareholdings

The Proposed Bye-Laws Amendments will not have any immediate effect on the shareholdings of the substantial shareholders of ES Ceramics.

However, the potential effects of the exercise of the existing remaining unexercised ESOS options granted as at 13 September 2006, those ESOS options available to be granted under the existing ESOS and the additional ESOS options to be granted pursuant to the Proposed Bye-Laws Amendments on the substantial shareholders shareholdings will depend on the number of ESOS options granted and/or exercised at a particular point in time.

5. APPROVALS REQUIRED

The Proposed Bye-Laws Amendments are subject to the following approvals:-

(i) Approval from Bursa Malaysia Securities Berhad for the Proposed Bye-Laws Amendments and the listing of and quotation for the new ES Ceramics Shares that may be issued and allotted pursuant to the Proposed Bye-Laws Amendments;

(ii) Approval of the shareholders of ES Ceramics at an extraordinary general meeting (EGM) to be convened for the following:-

(a) Proposed Bye-Laws Amendments; and

(b) the allotment and issue of new ES Ceramics Shares arising from the exercise of ESOS options of up to 15% of the total issued and paid-up share capital at any point in time during the duration of the ESOS pursuant to the Proposed Bye-Laws Amendments; and

(iii) any other relevant authorities (if required).


6. DIRECTORS AND SUBSTANTIAL SHAREHOLDERS INTERESTS

Save for the independent directors, namely, Dato Yeong Kok Hee and Khoo Siang Hsi @ Khoo Chen Nan (Independent Directors), all the other Directors of ES Ceramics who are also the substantial shareholders of the Company (Directors and Substantial Shareholders) are entitled to participate in the ESOS. Accordingly, save for the Independent Directors, the Directors and Substantial Shareholders are deemed interested in the Proposed Bye-Laws Amendments.

The interested Directors have abstained and will continue to abstain from all deliberations and voting in respect of their respective entitlements under the Proposed Bye-Laws Amendments at the Board meeting of ES Ceramics.

The interested Directors and Substantial Shareholders will also abstain and will continue to abstain from all deliberations and voting on the relevant resolutions pertaining to the Proposed Bye-Laws Amendments at the EGM to be convened for the Proposed Bye-Laws Amendments. In addition, they will undertake to ensure that persons connected to them, if any, will abstain from voting on the relevant resolutions pertaining to the Proposed Bye-Laws Amendments at the EGM to be convened for the Proposed Bye-Laws Amendments.

Save as disclosed above, the Board is not aware of any other Directors or Substantial Shareholders and/or persons connected to the Directors and/or Substantial Shareholders of ES Ceramics who has any interest, directly or indirectly, in the Proposed Bye-Laws Amendments.

7. DIRECTORS RECOMMENDATION

The Board, save for the Independent Directors, is deemed interested in the Proposed Bye-Laws Amendments and therefore has abstained from expressing an opinion and making any recommendation to the shareholders on this matter.

The Independent Directors are of the opinion that the Proposed Bye-Laws Amendments are in the best interest of the Company.

8. ADVISER

Kenanga has been appointed as the Adviser for the Proposed Bye-Laws Amendments.

9. SPONSOR

AmMerchant Bank Berhad is currently the sponsor of the Company.


10. ESTIMATED TIME FRAME FOR SUBMISSION AND COMPLETION

An application to the relevant authorities is expected to be submitted within two (2) months from the date of this announcement. Barring any unforeseen circumstances, the Proposed Bye-Laws Amendments are expected to be completed within three (3) months from the date of this announcement.

11. DEPARTURE FROM SECURITIES COMMISSION GUIDELINES

The Proposed Bye-Laws Amendments do not fall under the purview of the Securities Commission's Policies and Guidelines on Issue/Offer of Securities.

This announcement is dated 15 September 2006.

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