Hong Leong Industries Berhad ("HLI" or "the Company") writes to inform that the Company is proposing to undertake an internal rationalisation exercise involving its Yamaha motorcycles operations in Malaysia which entails the following steps:-

(i) Hong Leong Yamaha Motor Sdn Bhd ("HLYM"), a 69.41% subsidiary of HLI, will acquire HLI's entire 49% equity interest in HL Yamaha Motor Research Centre Sdn Bhd ("HLYMRC"), comprising 588,000 ordinary shares of RM1.00 each, for a cash consideration of RM588,000 ("Proposed Acquisition of HLYMRC"); and

(ii) HLYM will acquire Hong Leong Yamaha Distributors Sdn Bhd ("HLYD")'s business of distributing and selling the "Yamaha" brand of motorcycles and related activities together with certain assets and liabilities in connection with the said business ("HLYD Business") for a cash consideration to be based on the value of the net assets of the HLYD Business as at 31 December 2004, or such other date as may be mutually agreed upon between the parties ("Effective Date") ("Proposed Acquisition of HLYD Business"). HLYD is a 74% subsidiary of HLI.

(The Proposed Acquisition of HLYMRC and Proposed Acquisition of HLYD Business are collectively referred as "Proposed Acquisitions")

HLI's joint-venture partner, Yamaha Motor Co., Ltd ("Yamaha Japan"), holds the remaining equity interests of 51%, 30.59% and 26% in HLYMRC, HLYM and HLYD respectively.

2.1 HLI

HLI was incorporated in Malaysia on 5 May 1964 and is currently listed on the Main Board of Bursa Malaysia Securities Berhad. It has an authorised share capital of RM300,000,000 comprising 600,000,000 ordinary shares of RM0.50 each. The present issued and paid-up share capital is RM112,660,708 comprising 225,321,416 ordinary shares of RM0.50 each. The adjusted issued and paid-up capital taking into account treasury shares held is RM108,988,708 comprising 217,977,416 ordinary shares of RM0.50 each.

HLI is principally an investment holding company. The activities of HLI's subsidiaries include manufacturing, testing and sale of integrated circuits, semiconductor devices, electronic components and leadframes, manufacture, assembly and distribution of motorcycles, electric scooters and related parts and products, manufacture and sale of ceramic tiles, manufacture and sale of polypropylene and polyethylene products, duplex board boxes and flexible packaging products.

2.2 HLYMRC

HLYMRC was incorporated on 25 July 1992 under the Companies Act, 1965. The authorised share capital of HLYMRC is RM5,000,000 divided into 5,000,000 ordinary shares of RM1.00 each, of which 1,200,000 ordinary shares of RM1.00 each have been issued and fully paid-up.

HLYMRC is involved in the provision of research and development services.

HLYM was incorporated on 23 April 1979 under the Companies Act, 1965. The authorised share capital of HLYM is RM40,000,000 divided into 40,000,000 ordinary shares of RM1.00 each, of which 25,000,000 ordinary shares of RM1.00 each have been issued and fully paid-up.

HLYM is involved in the manufacturing of motorcycles and other components, assembly of motorcycles and investment holding.

HLYD was incorporated on 3 May 1979 under the Companies Act, 1965. The authorised share capital of HLYD is RM20,000,000 divided into 20,000,000 ordinary shares of RM1.00 each, of which 14,000,000 ordinary shares of RM1.00 each have been issued and fully paid-up.

HLYD is involved in the distribution of motorcycles and spare parts.

HLYM proposed to acquire HLI's entire 49% equity interest in HLYMRC, comprising 588,000 ordinary shares of RM1.00 each, for a cash consideration of RM588,000. The purchase consideration for the Proposed Acquisition of HLYMRC was based on the par value of RM1.00 each of HLYMRC's paid-up share capital.

The audited net tangible assets ("NTA") and net profit attributable to HLYMRC based on the audited financial statements for the year ended 30 June 2003 are RM785,000 and RM74,000 respectively.

The original cost of investment by HLI in its 588,000 shares in HLYMRC was RM588,000 made during the period between 27 February 1995 and 30 March 1998.

The purchase consideration of RM588,000 will be financed by HLYM from its internally generated funds and will be paid in full to HLI on the completion date of the Proposed Acquisition of HLYMRC (i.e. within 8 days from the date of execution of the Sale and Purchase Agreement or such other date as may be mutually agreed upon between the parties).

There is no liability to be assumed by HLYM arising from the Proposed Acquisition of HLYMRC.

HLYM proposed to acquire HLYD's business of distributing and selling the "Yamaha" brand of motorcycles and related activities together with certain assets and liabilities in connection with the said business from HLYD for a cash consideration to be based on the value of the net assets of the HLYD Business as at the Effective Date.

The unaudited net assets value/book value of the HLYD Business as at 30 June 2004 is RM10.8 million.

The relevant agreements for the Proposed Acquisitions will be executed after approvals of the shareholders of HLI have been obtained at the forthcoming EGM. Based on the draft agreements agreed between the parties, the salient terms of the relevant agreements would include the following:-

4.1 Proposed Acquisition of HLYMRC

The HLYMRC shares will be disposed of free from any and all encumbrances whatsoever and with all rights and benefits attaching thereto.

4.2 Proposed Acquisition of HLYD Business

HLYM shall acquire the assets of HLYD free from all pledges, charges, assignments, liens, mortgages, deposit or any other security interests of any kind, caveat, prohibitory order, pre-emption rights, options and any other encumbrances or third party rights or claims of any kind.

The Proposed Acquisitions form an integral part of an internal rationalisation exercise to streamline the Yamaha motorcycles operations in Malaysia under HLYM. The internal rationalisation exercise will maximise the use of resources and enhance operational efficiency.

The Proposed Acquisitions will not have any effect on the share capital and major shareholders' shareholdings of HLI as the considerations are wholly in cash.

6.2 Earnings and net tangible assets

The Proposed Acquisitions are not expected to have any material effect on the earnings per share and NTA of the HLI Group for the financial year ending 30 June 2005. However, the Proposed Acquisitions are expected to contribute positively to the future earnings of the HLI Group.