PROPOSED JOINT VENTURE BETWEEN DRB-HICOM AND ZHEJIANG GEELY HOLDING GROUP CO., LTD., IN RESPECT OF PROTON HOLDINGS BERHAD; AND

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1 DRB-HICOM BERHAD ("DRB-HICOM" OR THE "COMPANY") (I) PROPOSED JOINT VENTURE BETWEEN DRB-HICOM AND ZHEJIANG GEELY HOLDING GROUP CO., LTD., IN RESPECT OF PROTON HOLDINGS BERHAD; AND (II) PROPOSED DIVESTMENT OF 100% EQUITY IN LOTUS ADVANCE TECHNOLOGIES SDN. BHD. BY PROTON HOLDINGS BERHAD TO ZHEJIANG GEELY HOLDING GROUP CO., LTD. AND ETIKA AUTOMOTIVE SDN. BHD. ("ETIKA AUTOMOTIVE"). 1. INTRODUCTION The Board of Directors of the Company ("Board") wishes to announce that the Company had on 24 May 2017 entered into the following heads of agreement with Zhejiang Geely Holding Group Co., Ltd. ("Geely"): a binding heads of agreement ("Proton HOA"), for the proposed joint venture between the Company and Geely in respect of Proton Holdings Berhad ("Proton Holdings") which involves the subscription of new shares in Proton Holdings comprising 49.9% of the enlarged paid-up share capital by Geely ("Proposed Joint Venture"); and a binding heads of agreement ("Lotus HOA"), for the proposed divestment by the Company of 100% of its indirect equity in Lotus Advance Technologies Sdn. Bhd. ("Lotus Advance"), through its subsidiary, Proton Holdings, to Geely and Etika Automotive (collectively referred to as the "Purchasers") ("Proposed Divestment"), (hereinafter, collectively referred to as "Proposals") which are subject to the appointment of an independent adviser by the Company and the recommendation by the Audit Committee of the Company in relation to the Proposals. 2. DETAILS OF THE PROPOSED JOINT VENTURE 2.1. Information on Proton Holdings Proton Holdings was incorporated under the laws of Malaysia on 28 July 2003 as a public limited company. Proton Holdings is principally an investment holding company. As at 1 May 2017, being the latest practicable date prior to the date of this announcement ("LPD"), the total issued and paid up share capital of Proton Holdings is RM1,899,213 comprising 549,213,002 ordinary shares, 1,000,000 redeemable preference shares and 1,250,000,000 redeemable convertible cumulative preference shares ("RCCPS"). As at the LPD, the Company holds 100% of the entire ordinary shares and redeemable preference shares of Proton Holdings. The RCCPS are entirely held by GovCo Holdings Berhad ("GovCo"). Proton Holdings and its subsidiaries (collectively referred to as, the "Proton Group") manufactures, assembles and sells motor vehicles and related products such as accessories, spare parts and other components. Proton Group's business activities span the entire automotive value chain encompassing vehicle engineering, R&D, manufacturing, distribution, sales and after-sales services. 1

2 Subject to the terms and conditions of the definitive agreements to be entered into between the Company, Proton Holdings and Geely in relation to the Proposed Joint Venture ("Proposed JV Agreements"), the Company and Geely will, at the time of completion of the Proposed Joint Venture ("JV Completion"), respectively hold 50.1% and 49.9% of the entire paid-up share capital of Proton Holdings. Based on the audited consolidated financial statements of Proton Holdings for the financial year end ("FYE") 31 March 2016, the net loss and net assets ("NA") attributable to the owner of Proton Holdings were RM1,455.7 million and RM1,026.4 million respectively. Based on the unaudited consolidated financial statements of Proton Holdings for the 12 months for the FYE 31 March 2017, the net loss and NA attributable to the owner of Proton Holdings were RM987.3 million and RM29.5 million respectively Terms of the PROTON-HOA A brief summary of the indicative salient terms of the Proton HOA are set out in the Schedule 1. These terms are subject to the review and comments of an independent adviser to be appointed by the Company and the recommendation by the Audit Committee of the Company which will then be incorporated in definitive agreements to be executed by the parties Basis and justification for arriving at the Subscription Price The Subscription Price (as defined below) for the Proposed Joint Venture was arrived at from the implied equity valuation of Proton Holdings which was derived by deducting net debt from the derived enterprise value ("EV") (using an EV multiplier) on Proton Group s sales for the FYE 31 March The EV multiplier is derived from a range of selected trading peers and a review of similar transactions throughout the region. Subject to the recommendation of the Audit Committee, the Board (except for TMKJ (as defined below) due to his abstention from deliberations and voting at the Board meeting) is of the view that the Subscription Price is reasonable and thus justified, as it represents the best value proposition for Proton Holdings and the Company, obtained after an international bidding process and unbiased evaluation criteria focusing on strategic, operational and cultural fit Mode of satisfaction of the Subscription Price The Subscription Price for the Proposed Joint Venture is to be satisfied in cash, and with the grant of a licence (without the right to sub-licence) to manufacture, sell, market and distribute the Boyue model (NL3) under the "Proton" brand in the right hand drive markets in certain South East Asian countries for the life cycle of the model. The Company is currently in the process of estimating the true value of this in-kind injection of the "Boyue" model Utilisation of the proceeds of the Subscription Price The proceeds of the Subscription Price shall be applied towards capital expenditure and production operations of Proton Holdings in accordance with the Business Plan (as defined below). The Company and Geely shall agree on a 10-year business plan for the Proton Group (which shall include plans relating to the models to be launched, capital expenditure, manufacturing and sales volumes, technology licence and royalties) ("Business Plan") to carry out and implement the aspirations of the Proposed Joint Venture, including: 2

3 (c) being the leading automaker in Malaysia by market share; being at least the third leading automaker in ASEAN by market share; and the Proton Group being in a positive EBITDA position and profitable as soon as practically possible. The Company and Geely intend to utilise part of the Subscription Price (in cash) to defray the estimated expenses in relation to the formation of the Proposed Joint Venture including the costs of Proton Holdings' various advisers, regulatory fees and other related costs incurred by Proton Holdings. The proceeds of the Subscription Price is expected to be utilised within 12 months from the receipt of the said proceeds. 3. DETAILS OF THE PROPOSED DIVESTMENT 3.1. Information on Lotus Advance Lotus Advance was incorporated under the laws of Malaysia on 27 December 2003 as a private limited company. Lotus Advance is a wholly-owned subsidiary of Proton Holdings, and is principally an investment holding company. As at the LPD, the total issued and paid up share capital of Lotus Advance is RM1,960,286,803 comprising 1,560,497,396 ordinary shares and 328,431,130 preference shares. Lotus Advance and its group of companies (collectively referred to as, the "Lotus Group") are principally engaged in the business of automotive design, manufacturing, assembling and distribution under the brand name of "Lotus". Subject to the terms and conditions of the definitive agreements to be entered into between the Company, Geely and Etika Automotive in relation to the Proposed Divestment ("Proposed SPA"), Geely and Etika Automotive will, upon completion of the Proposed Divestment ("SPA Completion"), respectively hold 51% and 49% of the issued and paid-up share capital of Lotus Advance. Based on the audited consolidated financial statements of Lotus Advance for the FYE 31 March 2016, the net loss Lotus Advance and NA of Lotus Advance were RM266.6 million and RM133.7 million respectively. Based on the unaudited consolidated financial statements of Lotus Advance for the 12 months for the FYE 31 March 2017, the net loss of Lotus Advance and NA of Lotus Advance were RM68.0 million and RM82.1 million, respectively Terms of the LOTUS-HOA A brief summary of the indicative salient terms of the Lotus HOA are set out in the Schedule 2. These terms are subject to the review and comments of an independent adviser to be appointed by the Company and the recommendation by the Audit Committee of the Company which will then be incorporated in definitive agreements to be executed by the parties Basis and justification for arriving at the consideration The Sale Price for the Proposed Divestment was arrived at from the implied equity valuation of Lotus Advance which was derived by deducting net debt from the derived EV (using an EV multiplier) on Lotus Group s sales for the FYE 31 March

4 The EV multiplier is derived from a range of selected trading peers and a review of similar transactions throughout the region. Subject to the recommendation of the Audit Committee, the Board (except for TMKJ due to his abstention from deliberations and voting at the Board meeting) is of the view that the Sale Price is reasonable and thus justified, as it represents the best value proposition for Proton Holdings and the Company. The Sale Price represents a strong value for an entity which requires substantial continuing capital expenditure commitments which conversely has yielded continuing losses Mode of satisfaction of the consideration The Sale Price for the Proposed Divestment is to be satisfied in cash, as follows: the Purchasers shall pay 5% of the Sale Price on the execution of the Proposed SPA as a deposit; and the balance of the Sale Price shall be paid by the Purchasers upon SPA Completion. The parties have also agreed that on SPA Completion, 30% of the Sale Price due from the Purchasers will be deposited into an escrow account and released to Proton Holdings subject to satisfaction of certain conditions over a period of up to 12 months after the SPA Completion Original cost of investment in Lotus Advance As at LPD, the original cost of investment in Lotus Advance by Proton Holdings are as follows: No. of shares in Lotus Advance Cost of investment 1,560,497,396 ordinary shares RM1,560,497, ,431,130 preference shares RM399,789,407 Total RM1,960,286, Utilisation of proceeds of the Sale Price The proceeds from the Sale Price will be utilised to repay borrowings, meet working capital requirements and other purposes. The Company intends to also utilise part of the proceeds from the Sale Price to defray the estimated expenses in relation to the Proposed Divestment including the costs of its various advisers, regulatory fees and other related costs. The Sale Price is expected to be utilised within 12 months from receipt of the said proceeds. 4. INFORMATION ON GEELY AND ETIKA AUTOMOTIVE 4.1. Zhejiang Geely Holding Group Co., Ltd. Geely was incorporated under the laws of the People's Republic of China on March 24, 2003 as a private limited company. Geely is principally an investment holding company. As at the LPD, Geely's entire share capital is held by Mr. Li Shufu and his family. 4

5 4.2. Etika Automotive Sdn. Bhd. Etika Automotive was incorporated under the laws of Malaysia on 9 June 2016 as a private limited company. Etika Automotive is principally engaged in the business of manufacturing of bodies (coachwork) for motor vehicles, manufacturing of trailers and semi-trailers, manufacturing of engines and turbines, expect aircraft, vehicle and cycle engines, other business support service activities. As at the LPD, Etika Automotive has a total issued and paid up share capital of RM1,000,000 comprising 1,000,000 shares, and it is wholly-owned by Albukhary Corporation Sdn. Bhd. ("Albukhary Corporation"). Albukhary Corporation was, in turn, incorporated under the laws of Malaysia on 19 March 1984 as a private limited company under the name of Ketapang Equity Corporation Sdn. Bhd.. It adopted its current name on 27 January Albukhary Corporation is principally an investment holding company. As at the LPD, Albukhary Corporation has a total issued and paid up share capital of RM100,000,000 comprising 100,000,000 shares. Tan Sri Syed Mokhtar Shah bin Syed Nor ("TSSM") and his spouse, Puan Sri Sharifah Zarah bte Syed Kechik Al Bukhary, respectively holds 99.9% and 0.01% of the entire issued and paid up share capital of Albukhary Corporation. 5. RATIONALE FOR THE PROPOSALS 5.1. Proposed Joint Venture The requirement for Proton Holdings to seek a foreign strategic partner ("FSP") is stipulated in the agreement entered into by Proton Holdings and GovCo on 6 June 2016 in relation to GovCo s subscription of 1,250,000,000 RCCPS in Proton Holdings. As provided in the agreement, Proton Holdings is to use its best endeavours to seek and identify a strategic and renowned partner who will assist in research and development to enable Proton Holdings to be a competitive player in the automotive industry at an international level. As such, Proton Holdings commenced a structured process to identify and select the FSP in June 2016 which resulted in the selection of Geely as the FSP for Proton Holdings. The Proposed Joint Venture, when implemented, is intended to enable the Proton Group to increase its manufacturing capacity, elevate brand confidence, penetrate global markets especially in South East Asia, and leverage on Geely's advanced technology, extensive business network and global best practices. Armed with the wealth of knowledge and its extensive network of partnership, collaborations and joint ventures in the automotive industry over the years, Geely is in a position to assist the Proton Group in its drive to improve its market position. In particular, the participation of Geely, a fast growing automotive player, as the FSP of Proton Holdings is expected to further strengthen and improve Proton Group's operations in terms of improved manufacturing systems and effective distribution networks, and more importantly, enhance its presence in regional markets. In addition, the Proposed Joint Venture is expected to create business synergies and opportunities for the Company, Geely and the Proton Group. The Company intends to safeguard the recognition of Proton as Malaysia's original national car company while building and enhancing Malaysia's national automotive industry and facilitating the goal of making Malaysia a preferred automotive hub in South East Asia capable of rivalling neighbouring countries in the region. 5

6 5.2. Proposed Divestment In light of its historical losses and future capital needs, the disposal of Lotus allows the Company to relieve itself and Proton Holdings from the burden of incurring losses in the future and enables it to partly recoup its investment in Lotus Advance based on a valuation which is more favourable than generally accepted market valuation norms. 6. INTER CONDITIONALITY The Proposed Joint Venture and Proposed Divestment are inter-conditional upon each other. The Proposals are not conditional upon any other corporate exercise/scheme of the Company. 7. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND PERSONS CONNECTED WITH THEM Save as disclosed below, none of the directors and major shareholders of the Company as well as persons connected with them have any interest, direct or indirect, in the Proposals Tan Sri Syed Mokhtar Shah bin Syed Nor As at the LPD, TSSM holds indirectly 100% equity interest in Etika Automotive via his 99.99% equity shareholdings in Albukhary Corporation and 0.01% in Albukhary Corporation via his spouse Puan Sri Sharifah Zarah bte Syed Kechik Al Bukhary. Albukhary Corporation, in turn, holds 100% equity interest in Etika Automotive. TSSM is also an indirect substantial shareholder of the Company by virtue of his major shareholding of 90% in Etika Strategi Sdn Bhd ("Etika Strategi") which, in turn, holds 55.92% equity interest in the Company. Etika Strategi is deemed interested in the Proposed Divestment by virtue of TSSM s shareholdings in Etika Automotive. Accordingly, TSSM shall procure that Etika Strategi abstains from deliberating and voting on the resolutions pertaining to the Proposals at the extraordinary general meeting of the Company ("EGM"). Etika Strategi will also ensure that persons connected to it abstain from voting on the resolutions pertaining to the Proposals at the EGM Brig. Gen. (K) Tan Sri Dato Sri (Dr) Mohd Khamil Jamil Brig. Gen. (K) Tan Sri Dato Sri (Dr) Mohd Khamil Jamil ("TMKJ") holds 10% equity interest in Etika Strategi and is a person connected to TSSM. TMKJ is also a director on the Board. TMKJ has abstained and will continue to abstain from deliberations and voting at the relevant Board meetings in respect of the Proposals. TMKJ will also ensure that persons connected to him, if any, abstain from voting on the resolutions pertaining to the Proposals at the EGM Azman Hanafi bin Abdullah Azman Hanafi bin Abdullah ("AHA") is a director of Etika Automotive and a person connected to TSSM. AHA will ensure that persons connected to him, if any, abstain from voting on the resolutions pertaining to the Proposals at the EGM. 6

7 8. DIRECTORS' STATEMENTS After having considered all aspects of the Proposals, the Board, (except for TMKJ due to his abstention from deliberations and voting at the Board meeting), is of the opinion that the Proposals, subject to the terms and conditions of the Proposed JV Agreements and Proposed SPA being agreed upon with Geely and Purchasers (respectively), the appointment of the independent adviser of the Company and the recommendation of the Audit Committee of the Company prior to the signing of the Proposed JV Agreements and Proposed SPA, will be in the best interest of the Company. 9. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the Proton HOA and Lotus HOA are available for inspection at the Company's registered office at Level 5, Wisma DRB-HICOM, 2 Jalan Usahawan U1/8, Seksyen U1, Shah Alam, Shah Alam, Selangor, Malaysia during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement. A detailed announcement on the Proposals will be made upon execution of the Proposed JV Agreements and Proposed SPA. This announcement is dated 24 May

8 SCHEDULE 1 SALIENT TERMS OF THE PROPOSED JOINT VENTURE No. Subject Matter Details 1. Scope of the Proposed Joint Venture The scope of the Proposed Joint Venture is set out in Appendix 1A, which excludes non-core automotive business assets. Details of the assets excluded from the Proposed Joint Venture are set out in Appendix 1B. Real estate held by the companies within the Proton Group, other than the land located at Tanjung Malim ("Real Properties") are excluded from the scope of the Proposed Joint Venture provided that such Real Properties presently used by the Proton Group for the manufacturing and assembly activities of present Proton car models ("Existing Automotive Activities") shall be rented or leased back to the Proton Group at nominal consideration for the duration required to continue the Existing Automotive Activities. 2. Consideration, valuation and adjustments Subject to financial and legal due diligence to be completed prior to the execution of the Proposed JV Agreements, Geely shall, on JV Completion, subscribe to shares in Proton Holdings comprising 49.9% of the enlarged paid-up share capital for the aggregate of: (i) RM170.3 million in cash; and (ii) the grant of the Boyue Rights ((i) and (ii) shall constitute the "Subscription Price"). 3. Conditions precedent Implementation of the Proposed Joint Venture shall be conditional on the following: (c) (d) the Proposed JV Agreements being in agreed form; approval from the shareholders of DRB-HICOM for the Proposed Joint Venture being obtained; such other conditions as the parties may reasonably consider necessary, including specific regulatory, third party or lender consents necessary for the implementation of the Proposed Joint Venture being obtained; and the Proposed Divestment becoming unconditional, i.e. (i) the execution of definitive agreements pursuant to the Lotus HOA, and (ii) the fulfilment of its conditions precedent (save for the condition that the implementation of this Proposed Joint Venture becomes unconditional). 4. Completion The Proposed Divestment and the Proposed Joint Venture shall complete simultaneously. 5. South East Asia market distribution and manufacturing prioritisation Licensing rights After JV Completion and for the period of five years from the grant of the licence (without the right to sub-licence) ("Licence Period"), the Proton Group shall be granted the licence to manufacture, sell, market and distribute identified Geely platform vehicles under the Proton brand name 8

9 No. Subject Matter Details in Malaysia, with the intention for expansion of the same activities into other countries within South East Asia. Boyue manufacturing and distribution rights Geely shall grant to the Proton Group a licence (without the right to sublicence) to manufacture, sell, market and distribute (whether by itself or the appointment of a distributor based in that jurisdiction) the current Boyue model (NL-3) under the "Proton" brand for the life cycle of the model within the SEA Right Hand Drive Markets ("Boyue Rights"). 6. Relocation of Shah Alam facilities The manufacturing, engineering, testing related research and development ("R&D") and administrative activities currently based at the Shah Alam manufacturing plant shall be relocated to the Proton Group's manufacturing plant located at Tanjung Malim ("Relocation Exercise"), at the cost of the Proton Group. The cost of rehabilitation of the Shah Alam land shall be borne by DRB-HICOM. 9

10 APPENDIX 1A SCOPE OF PROPOSED JOINT VENTURE 10

11 1. Property development arm namely: APPENDIX 1B NON-CORE AUTOMOTIVE BUSINESS ASSETS (c) Proton Hartanah Sdn. Bhd.; Proton Properties Sdn. Bhd.; and Proton City Development Corporation Sdn. Bhd. 2. EON Properties Sdn. Bhd. 3. Yayasan Proton 4. Associate, investment and other companies namely: (c) (d) (e) (f) PHN Industries Sdn. Bhd.; Exedy Malaysia Sdn. Bhd.; Aluminium Alloy Industries Sdn. Bhd.; Marutech Elastomer Industries Sdn. Bhd.; Ara Borgstena Sdn. Bhd.; and Proton Finance Limited. 5. certain real properties currently owned by the Proton Group. 11

12 SCHEDULE 2 SALIENT TERMS OF THE PROPOSED DIVESTMENT No. Subject Matter Details 1. Subject matter of Proposed Divestment The entities to be disposed pursuant to the Proposed Divestment are as set out in Appendix 2A. 2. Consideration, valuation and adjustments Subject to financial and legal due diligence to be completed prior to the execution of the Proposed SPA: (i) (ii) Geely shall purchase 51% of the share capital of Lotus Advance from Proton Holdings for GBP 51 million; and Etika Automotive shall purchase 49% of the share capital of Lotus Advance from Proton Holdings for GBP 49 million, for an aggregate of GBP 100 million ("Sale Price"). The Purchasers shall pay an aggregate of 5% of the Sale Price in their respective proportion on the execution of the Proposed SPA as a deposit. The balance of the Sale Price shall be paid by the Purchasers in their respective proportion on completion of the Proposed Divestment ("SPA Completion") in the following manner: (i) (ii) 30% shall be paid into an escrow account to be dealt with in accordance with the terms of an escrow agreement to be agreed between the parties; and 65% shall be paid in cash to Proton Holdings. 3. Conditions precedent Implementation of the Proposed Divestment shall be conditional on the following: (c) (d) the Proposed SPA being in agreed form; approval from the shareholders of DRB-HICOM for the Proposed Divestment being obtained; such other conditions as the parties may reasonably consider necessary, including specific regulatory, third party or lender consents necessary for the implementation of the Proposed Divestment being obtained; and the implementation of the subscription for 49.9% of ordinary shares in Proton Holdings by Geely, and the proposed joint venture between Geely and DRB-HICOM in respect of Proton Holdings as described in the Proton HOA becoming unconditional, i.e. (i) the execution of definitive agreements pursuant to the Proton HOA and (ii) the fulfilment of its conditions precedent (save for the condition that the implementation of this Proposed Divestment becomes unconditional). 12

13 No. Subject Matter Details 4. Completion The Proposed Divestment and the Proposed Joint Venture shall complete simultaneously. 13

14 APPENDIX 2A SCOPE OF PROPOSED DIVESTMENT All stakes are 100% unless otherwise stated 14