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· PROPOSED BONUS ISSUE OF UP TO 27,830,000 NEW ORDINARY SHARES OF RM1.00 EACH IN KNM (BONUS SHARES), TO BE CREDITED AS FULLY PAID-UP ON THE BASIS OF ONE (1) BONUS SHARE FOR EVERY TWO (2) EXISTING KNM SHARES HELD ON AN ENTITLEMENT DATE TO BE DETERMINED AND ANNOUNCED LATER (PROPOSED BONUS ISSUE);

· PROPOSED SHARE SPLIT OF EVERY ONE (1) EXISTING KNM SHARE INTO TWO (2) NEW ORDINARY SHARES OF RM0.50 EACH (SUBDIVIDED KNM SHARES) HELD ON AN ENTITLEMENT DATE TO BE DETERMINED AND ANNOUNCED LATER (PROPOSED SHARE SPLIT);

· PROPOSED EMPLOYEES SHARE OPTION SCHEME FOR ELIGIBLE EMPLOYEES AND DIRECTORS OF KNM AND ITS SUBSIDIARIES (KNM GROUP) (PROPOSED ESOS); AND

· PROPOSED INCREASE IN THE AUTHORISED SHARE CAPITAL OF KNM FROM RM50,000,000 COMPRISING 50,000,000 KNM SHARES TO RM200,000,000 COMPRISING 400,000,000 SUBDIVIDED KNM SHARES (PROPOSED CAPITAL INCREASE)

(COLLECTIVELY REFERRED TO AS THE PROPOSALS)


1. INTRODUCTION

On behalf of the Board of Directors of KNM (Board), Commerce International Merchant Bankers Berhad (CIMB) is pleased to announce that the Company proposes to implement the Proposals.

2.1 Proposed Placement
The Proposed Placement involves the issuance of up to 5,060,000 Placement Shares, which represents a total of up to 10% of the issued and paid-up share capital of KNM at an issue price of RM3.50 each. The Proposed Placement may be implemented via more than one (1) tranche. The Placement Shares shall be placed out to placees in accordance with the Policies and Guidelines on the Issue/Offer of Securities issued by the Securities Commission (SC).

The Company has determined and fixed the issue price of the Placement Shares to be at RM3.50 per share, which represents a discount of 12.5% to the five (5)-day weighted average market price (WAP) of KNM Shares, up to and including 20 February 2004 of RM4.00 each. Based on the above, the Proposed Placement will raise gross proceeds of up to RM17,710,000.

The proceeds to be raised from the Proposed Placement is proposed to be utilised to finance the working capital requirements of the KNM Group as well as to pay expenses relating to the Proposals.

The maximum number of 5,060,000 Placement Shares above have been determined based on the issued and paid-up share capital of KNM as at 13 February 2004 of RM44,000,000 comprising 44,000,000 KNM Shares and assuming the Proposed Bonus Issue and the Proposed Share Split have not been exercised but the options available to be granted under the Proposed ESOS (ESOS Options) are fully exercised prior to the Proposed Placement, which results in the issuance of 6,600,000 new KNM Shares.

Based on the existing issued and paid-up share capital of KNM as at 13 February 2004 of RM44,000,000 comprising 44,000,000 KNM Shares, the Proposed Placement will involve the issuance of a maximum of 4,400,000 Placement Shares that will raise gross proceeds of RM15,400,000.

The above has not taken into account the adjustments to the number of Placement Shares to be issued in the event the Proposed Placement or any part thereof is implemented after the implementation of the Proposed Bonus Issue and the Proposed Share Split. In such circumstances, the total number of Placement Shares as well as the issue price of the Placement Shares made hereafter will be adjusted for the effects of the Proposed Bonus Issue and Proposed Share Split. The adjustments shall be made such that the size of the Proposed Placement remains up to 10% of the issued and paid-up share capital of KNM and the gross proceeds to be raised remain unchanged, subject to effects of rounding.

For illustrative purposes, in the event that the entire Proposed Placement is implemented after the entitlement date(s) of the Proposed Bonus Issue and Proposed Share Split, the maximum number of Placement Shares as well as the issue price of the Placement Shares will be adjusted from 5,060,000 Placement Shares to 15,180,000 Placement Shares (with a par value of RM0.50 each) and RM3.50 each to RM1.17 each, respectively.

The Placement Shares shall, upon allotment and issue, rank pari passu with the existing KNM Shares, save and except that they shall not be entitled to any dividends, rights, allotments and/or other distributions, unless the allotment of the Placement Shares were made on or prior to the entitlement date of such dividends, rights, allotments and/or other distributions. Subject to the above, the Placement Shares shall be entitled to participate in the Proposed Bonus Issue and Proposed Share Split.

2.2 Proposed Bonus Issue
The Proposed Bonus Issue involves the issuance of up to 27,830,000 Bonus Shares, on the basis of one (1) new Bonus Share for every two (2) existing KNM Shares held by shareholders whose names appear in the Record of Depositors of the Company at the close of business, on a date to be determined and announced later. The Proposed Bonus Issue will be implemented via the capitalisation of the share premium and retained profits of KNM, which amounts to a total of up to RM27,830,000.

The maximum number of 27,830,000 Bonus Shares to be issued has been determined on the assumption that the Proposed Bonus Issue has been implemented after the full implementation of the Proposed Placement and the full exercise of the ESOS Options, but prior to the Proposed Share Split.

As KNM was only listed and quoted on the MSEB on 11 August 2003, as at the date of this announcement it has not prepared any audited consolidated accounts. However, based on the proforma consolidated balance sheet as at 31 December 2002, as extracted from its initial public offering prospectus dated 27 June 2003, KNM has a share premium balance of RM9,751,000 and the KNM Group has retained profits available for distribution by KNM of RM16,706,000. In this regard, KNM will have share premium and retained profits totalling RM26,457,000 to be capitalised for the implementation of the Proposed Bonus Issue.

Although the total balance of the share premium and retained profits of RM26,457,000 above are not sufficient to cover the maximum amount of the capitalisation required of RM27,830,000, the total share premium arising from the issuance of the Placement Shares, estimated to be up to a maximum of RM12,650,000, will be sufficient to be capitalised to cover the shortfall.

Notwithstanding the above, in the event the Proposed Bonus Issue is implemented prior to the implementation of the Proposed Placement, the balance of the share premium and retained profits of RM26,457,000 above will be sufficient to be capitalised to cover the amount required to be capitalised for the Proposed Bonus Issue of between RM22,000,000 and RM25,300,000.

The amount of RM22,000,000 has been determined on the assumption that the Proposed Bonus Issue will be issued based on the issued and paid-up share capital of KNM as at 13 February 2004 of RM44,000,000 comprising 44,000,000 KNM Shares, which results in the issuance of 22,000,000 Bonus Shares. The amount of RM25,300,000 has been determined on the assumption that the ESOS Options are fully exercised prior to the implementation of the Proposed Bonus Issue, which results in the issuance of 25,300,000 Bonus Shares. The above assumes the Proposed Placement has not been implemented.

In the event the Proposed Bonus Issue is implemented after the full implementation of the Proposed Placement and Proposed Share Split and the full exercise of the ESOS Options, a total of 55,660,000 Bonus Shares (with a par value of RM0.50 each) will be issued, and this will require the capitalisation of RM27,830,000 from the share premium and retained profits of KNM. As explained above, there will be sufficient share premium and retained profits balances to be capitalised for this purpose.

As at 31 December 2003, KNM has unaudited share premium balance of RM9,388,000 and the KNM Group has unaudited retained profits of RM25,206,000.

The Company will secure a confirmation from its external auditors or reporting accountants to confirm that it has the available share premium and retained profits reserves to be capitalised for the Proposed Bonus Issue.

The Bonus Shares shall, upon allotment and issue, rank pari passu with the existing KNM Shares save and except that they shall not be entitled to any dividends, rights, allotments and/or other distributions, unless the allotment of the Bonus Shares were made on or prior to the entitlement date of such dividends, rights, allotments and/or other distributions. Subject to the above, the Bonus Shares may be entitled to participate in the Proposed Share Split.

2.3 Proposed Share Split

The Proposed Share Split involves the subdivision of one (1) existing KNM Share into two (2) Subdivided KNM Shares.

For illustrative purposes, assuming the Proposed Share Split is implemented based on the issued and paid-up share capital of KNM as at 13 February 2004 of RM44,000,000 comprising 44,000,000 KNM Shares, the issued and paid-up share capital of KNM will become RM44,000,000 comprising 88,000,000 Subdivided KNM Shares.

On the other hand, if the Proposed Share Split is implemented after the full implementation of the Proposed Placement and Proposed Bonus Issue and the full exercise of the ESOS Options, the enlarged issued and paid-up share capital of KNM of RM83,490,000 comprising 83,490,000 KNM Shares will become RM83,490,000 comprising 166,980,000 Subdivided KNM Shares.

The Subdivided KNM Shares shall, upon allotment and issue, rank pari passu with the existing KNM Shares save and except that they shall not be entitled to any dividends, rights, allotments and/or other distributions, unless the allotment of the Subdivided KNM Shares were made on or prior to the entitlement date of such dividends, rights, allotments and/or other distributions. Subject to the above, the Subdivided KNM Shares may be entitled to participate in the Proposed Bonus Issue.

2.4 Proposed ESOS

The Company proposes to implement an ESOS for eligible employees of the KNM Group. The participation in the Proposed ESOS shall be restricted to Directors and employees of the KNM Group (Eligible Employees).

The Proposed ESOS will be in effect for a period of five (5) years, with an option to extend the scheme for a further period of up to five (5) years at the discretion of the Company. The maximum number of new KNM Shares to be issued under the Proposed ESOS will not exceed 15% of the issued and paid-up share capital of KNM at any one time or at any percentage in accordance with any guidelines, rules and regulations of the relevant authorities governing the Proposed ESOS during the duration of the Proposed ESOS.

For illustrative purposes, assuming the Proposed ESOS is implemented based on the issued and paid-up share capital of KNM as at 13 February 2004 of RM44,000,000 comprising 44,000,000 KNM Shares, the Proposed ESOS will involve the issuance of a maximum of 6,600,000 new KNM Shares upon the full exercise of the ESOS Options that are available to be granted.

On the other hand, if the Proposed ESOS is implemented after the full implementation of the Proposed Placement, Proposed Bonus Issue and Proposed Share Split, the Proposed ESOS will involve the issuance of a maximum of 21,780,000 new Subdivided KNM Shares upon the full exercise of the ESOS Options that are available to be granted.

The aggregate allocation to Directors and senior management will be limited to 50% of the total number of shares to be issued under the Proposed ESOS and the allocation to a Director or employee who, either singly or collectively through persons connected with the Director or employee, holds 20% or more of the issued and paid-up share capital of KNM, will be limited to 10% of the total number of shares available to be issued under the Proposed ESOS.

The subscription price at which an Eligible Employee is entitled to subscribe for the new KNM Shares under the Proposed ESOS shall be the five (5)-day WAP of KNM Shares immediately preceding the offer date, provided that:

(a) a discount, if any, of not more than 10% from the five (5)-day WAP of KNM Shares immediately preceding the date the option is offered (or such other pricing mechanism as may be permitted by the MSEB or any other relevant regulatory authorities from time to time) is allowed; and

(b) the price so determined shall not be less than the par value of the shares in KNM at anytime,

or at a subscription price in accordance with any guidelines, rules and regulations of the relevant authorities governing the Proposed ESOS at the time of the offer.

The shares to be issued pursuant to the exercise of the ESOS Options shall, upon allotment and issue, rank pari passu with the existing KNM Shares save and except that they shall not be entitled to any dividends, rights, allotments and/or other distributions, unless the allotment of the said shares were made on or prior to the entitlement date of such dividends, rights, allotments and/or other distributions.

2.5 Proposed Capital Increase

In conjunction with the Proposed Placement, Proposed Bonus Issue, Proposed Share Split and Proposed ESOS, and subject to the foregoing paragraphs, the Company proposes to increase its existing authorised share capital from RM50,000,000 comprising 50,000,000 KNM Shares to RM200,000,000 comprising 400,000,000 Subdivided KNM Shares.

Notwithstanding the above, in the event the Proposed Share Split is not implemented for whatever reasons, the Proposed Capital Increase will be revised to increase the authorised share capital of KNM from RM50,000,000 comprising 50,000,000 KNM Shares to RM200,000,000 comprising 200,000,000 KNM Shares.

The Memorandum and Articles of Association of KNM will be duly amended to reflect the increase in the authorised share capital and, where applicable, the subdivision of every one (1) existing KNM Share into two (2) new Subdivided KNM Shares.

3.1 Proposed Placement

The Proposed Placement will enable the KNM Group to raise funds for the working capital requirements of the KNM Group. The proceeds to be raised from the Proposed Placement are also proposed to be utilised to defray expenses to be incurred in relation to the Proposals.

3.2 Proposed Bonus Issue and the Proposed Share Split

The Proposed Bonus Issue will increase the issued and paid-up share capital of the Company to a level which would be more reflective of the existing operations and assets employed by the KNM Group. The Proposed Bonus Issue and the Proposed Share Split will also make the shares more affordable which is expected to increase the liquidity of the shares on the Malaysia Securities Exchange Berhad (MSEB). Further, the Proposed Bonus Issue and the Proposed Share Split will enable the existing shareholders of KNM to have a larger number of shares in KNM while maintaining their equity interest.

3.3 Proposed ESOS

The purpose of the Proposed ESOS is to enable eligible employees of the KNM Group to participate in the future growth of the KNM Group, thereby motivating them towards better performance, greater dedication and loyalty. The Proposed ESOS is also intended to reward and to retain employees whose services are vital to the operations and continued growth of the KNM Group while attracting prospective employees to fill key positions within the KNM Group as and when necessary.

3.4 Proposed Capital Increase

The Proposed Capital Increase will enable the Company to accommodate the increase in the issued and paid-up share capital of the Company pursuant to the Proposed Placement, Proposed Bonus Issue, Proposed Share Split and Proposed ESOS, as well as future increases in the share capital of KNM.

4.1 Issued and Paid-up Share Capital

The proforma effects of the Proposals on the issued and paid-up share capital of KNM are shown in Table 1.

The Proposed Capital Increase will not have any effect on the issued and paid-up share capital of KNM.

4.2 Net Tangible Assets (NTA) and NTA Per Share

The proforma effects of the Proposals on the NTA and NTA per share of the KNM Group are shown in Table 2.

The Proposed Capital Increase will not have any effect on the NTA and NTA per share of the KNM Group.

4.3 Earnings and Earnings Per Share (EPS)

The Proposed Placement is not expected to materially contribute to the earnings of the KNM Group for the financial year ending 31 December 2004. However, it is expected to contribute positively to the future earnings of the KNM Group via interest savings from the portion of the borrowings which otherwise would have been required to finance the working capital requirements of the KNM Group.

The Proposed Bonus Issue and Proposed Share Split are not expected to have any effect on the earnings of the KNM Group for the financial year ending 31 December 2004 or the future financial years, except that the EPS will be correspondingly reduced as a result of the increase in the number of shares in issue.
The Proposed ESOS is not expected to have any material effect on the earnings of the KNM Group for the financial year ending 31 December 2004. However, the future effects will largely depend on the timing of the exercise of the ESOS Options, the number of new shares issued and the manner in which the proceeds arising thereto are utilised.

The Proposed Capital Increase will not have any effect on the earnings of the KNM Group.

4.4 Substantial Shareholders Shareholdings

The proforma effects of the Proposed Placement, Proposed Bonus Issue and Proposed Share Split on the shareholdings of the substantial shareholders in KNM are shown in Table 3.
The proforma effects of the Proposed ESOS on the shareholdings of the substantial shareholders of KNM are not available at this stage as the ESOS entitlements to the substantial shareholders who are also the Directors of KNM, have not been determined yet. The Proposed Capital Increase will also not have any effect on the shareholdings of the substantial shareholders in KNM.

4.5 Dividends

The Board has not deliberated nor decided on the declaration and payment of future dividends of KNM for the financial year ending 31 December 2004. Nevertheless, the actual dividends to be declared and paid will depend on, amongst others, the future performance, cashflow position and the funding requirements of the KNM Group.

The Proposals are subject to approvals being obtained from the following:

(i) The SC for the Proposed Placement and Proposed Share Split;

(ii) The SC (on behalf of the Foreign Investment Committee) for the Proposed Placement, where applicable;


(iii) The Ministry of International Trade and Industry for the Proposed Placement, where applicable;

(iv) The MSEB for the following:

(a) the Proposed Share Split, Proposed Bonus Issue and Proposed ESOS; and

(b) the listing of and quotation for the Subdivided KNM Shares arising from the Proposed Share Split and the new shares in KNM to be issued pursuant to the Proposed Placement, Proposed Bonus Issue and upon the exercise of the ESOS Options to be granted under the Proposed ESOS on the Second Board of MSEB;

(v) The shareholders of KNM for the Proposed Share Split, Proposed Bonus Issue, Proposed ESOS, Section 132D of the Companies Act, 1965 for the Proposed Placement, and the Proposed Capital Increase at a general meeting to be convened at a later date; and

(vi) Any other authorities and/or parties, where applicable.

The Proposed Placement, Proposed Bonus Issue, Proposed Share Split and Proposed ESOS are not conditional on one another. The Proposed Bonus Issue, Proposed Share Split and Proposed ESOS are conditional upon the Proposed Capital Increase. The Proposed Capital Increase is not conditional upon the other proposals hereunder.

Barring any unforeseen circumstances and to the extent possible, the Company intends to implement the Proposed Placement first. In addition, the Company intends to implement the Proposed Bonus Issue and Proposed Share Split simultaneously. Notwithstanding the above, the Proposed Placement may be implemented in more than one (1) tranche and may only be completed after the full implementation of the other proposals hereunder.

Save as disclosed below, none of the Directors and/or substantial shareholders of KNM and persons connected to them have any interests, direct or indirect, in the Proposals other than that derived as shareholders of KNM.

All the Directors of KNM, are entitled to participate in the Proposed ESOS and are therefore deemed interested in the Proposed ESOS. Accordingly, the Directors of KNM have declared their interests with respect to the Proposed ESOS and have deliberated and resolved to present the Proposed ESOS to the relevant authorities and shareholders of the Company, at a general meeting to be convened, for their consideration and approval. Notwithstanding the above, the Directors have abstained and will continue to abstain from deliberating and voting at all Board meetings in relation to their respective entitlements under the Proposed ESOS.
The Directors will also abstain from voting in respect of their direct and indirect interest in KNM, if any, pertaining to resolutions on the Proposed ESOS as well as their respective entitlements under the Proposed ESOS at the forthcoming general meeting to be convened. They will also ensure that persons connected to them, if any, will abstain from voting on the relevant resolutions to be tabled at the forthcoming general meeting.

The Board, after careful deliberation, is of the opinion that the Proposals are in the best interest of the Company.

Applications to the SC and MSEB for the Proposals are expected to be made within three (3) months from the date of this announcement save for the application to the MSEB for the Proposed Share Split which is expected to be made within one (1) month from the date of this announcement.

CIMB has been appointed as the adviser to the Company for the Proposals.

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