Proposed Acquisition Of Shares In Kingsmen Indochina Pte. Ltd., Kingsmen Korea Limited And Kingsmen Nikko Limited (The "Kingsmen Affiliates")

1. Introduction

Further to the announcement of 19 May 2004, the Board of Directors of Kingsmen Creatives Ltd. (the "Company") wishes to announce that the Company has entered into:-

(a) a conditional Share Acquisition Agreement (the "First Share Acquisition Agreement') with Kingsmen International Pte Ltd (the "Vendor") on 29 June 2004, pursuant to which the Company will acquire (i) 80% of the entire existing issued and paid-up capital of Kingsmen Indochina Pte. Ltd.; (ii) 25% of the entire existing issued and paid-up capital of Kingsmen (Korea) Limited and (iii) 30% of the entire existing issued and paid-up capital of Kingsmen Nikko Limited (the "Sale Shares"); and

(b) a conditional Share Acquisition Agreement (the "Second Share Acquisition Agreement") with Lim Hock Chye Stephen, the managing director of Kingsmen Indochina Pte. Ltd., on 24 June 2004, pursuant to which the Company will acquire 10% of the entire existing issued and paid-up capital of Kingsmen Indochina Pte. Ltd. (the "Indochina Shares")

(collectively the "Acquisition").

Similarly to the Company, the Kingsmen Affiliates are in the business of three-dimensional communication design and production, and operate in Vietnam, Korea and Japan respectively. The proposed acquisition is a strategic step taken by the Company to strengthen its strategic presence in Asia as well as to improve the performance of the Company.

2. Consideration

The purchase consideration was determined following negotiations on a willing buyer and willing seller basis, after taking into account the valuation report (the "Valuation Report") by NMG Financial Service Consultants, the independent valuer, who appraised the value of the interest of the Kingsmen Affiliates to be acquired under the First Share Acquisition Agreement at S$3,915,500. The purchase consideration shall be satisfied:-

(a) in relation to the Sale Shares, an amount of S$2,942,000 payable in cash; and

(b) in relation to the Indochina Shares, an amount of S$229,675 for the Indochina Shares to be satisfied by the allotment and issuance of 1,093,690 new ordinary shares of par value S$0.075 each in the capital of the Company (the "Consideration Shares") at an issue price of S$0.21 for each Consideration Share in accordance with the terms of the Second Share Acquisition Agreement.

3. Conditions Precedent

Completion is conditional upon, inter alia:-

(a) the Company's receipt of satisfactory results in relation to its due diligence investigations on the legal matters of the Kingsmen Affiliates;

(b) the approval of shareholders in a general meeting of the Company to be convened for the proposed Acquisition;

(c) the Company's receipt of the Kingsmen Affiliates' audited or final (as applicable) accounts for the full year of 2003 and management accounts comprising balance sheets as at 30 June 2004 and profit and loss statements for the financial period from 1 January 2004 to 30 June 2004;

(d) all necessary regulatory approvals being obtained by Kingsmen International, the Kingsmen Affiliates and the Company for the purchase of the Sale Shares pursuant to the terms of the First Share Acquisition Agreement. Should any of these regulatory approvals be given subject to certain conditions, Kingsmen International, the Kingsmen Affiliates and the Company shall comply with such conditions so long as they can reasonably be fulfilled by the relevant party within a reasonable time; and

(e) in relation to the Indochina Shares, the Company having obtained the approval in-principle from the SGX-ST for the listing of and quotation of the Consideration Shares.

4. Financial Effects of the Acquisition

The financial effects of the Acquisition are for illustration purposes only and do not reflect the future actual financial position of the Company after the completion of the Acquisition. The financial effect of the Acquisition are based on the audited financial statements of the Company and the Kingsmen Affiliates companies for the financial year ended 31 December 2003 are as follows:-

Earnings per Share

Net Tangible Assets

Net Profits attributable to the assets acquired relating to the financial year ended 31 December 2003

5. The Acquisition as a Major Transaction

Chapter 10 of the Listing Manual governs the continuing listing obligations of a listed company in respect of acquisitions and realisations. Under Rule 1014, Shareholders' approval must be sought for "major transactions". Rule 1006 sets out the computation for relative figures. Shareholders' approval is required if any of the relative figures computed on the bases set out in Rule 1006 exceeds twenty per cent (20%) as such a transaction is classified as a "major acquisition". The relative bases computed on the bases set out in Rule 1006 are as follows :-

The proposed acquisitions under the First Share Acquisition Agreement and the Second Share Acquisition Agreement is therefore a "major transaction" on the basis of (b) and is therefore subject to shareholders' approval.

6. Funding for the Acquisition

The purchase of the Sale Shares by the Company will be funded by S$2,942,000 of the proceeds from the Initial Public Offering of the Company. The consideration for the Indochina Shares will be paid through the issuance of the Consideration Shares to Stephen Lim, in the manner described above.

7. Interests of Directors and Substantial Shareholders

Mr Soh Siak Poh Benedict, the Group Managing Director and Mr Ong Chin Sim Simon, the Group Executive Director, are the directors and shareholders of the entire issued and paid-up capital of Kingsmen International Pte. Ltd., each holding 50% of the equity interest. As such, the Acquisition will become an Interested Person Transaction under Chapter 9 of the Listing Manual and is therefore subject to shareholders' approval.

Save as disclosed, the Company is not aware of any of its directors and substantial shareholders having any interest direct or indirect in the proposed Acquisition.

As at 31 March 2004, the aggregate value of all transactions entered into by the Company and its subsidiaries with Kingsmen International Pte. Ltd. during the current financial year ended 31 December 2004 (excluding transactions less than S$100,000) is S$308,000 and the aggregate value of all interested person transactions entered into by the Company and its subsidiaries for such current financial year (excluding transactions less than S$100,000) is S$308,000.

8. Statement of the Audit Committee

Having considered, inter alia, the terms of the proposed Acquisition and after discussion with the independent financial adviser, Prime Partners Corporate Finance Pte Ltd, the Audit Committee is of the preliminary opinion that the financial terms of the Interested Person Transaction described in paragraph 7 are on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders. The final view of the Audit Committee will be set out in the Shareholders' Circular (as defined in paragraph 9 below).

9. Inspection of Documents

Copies of the First Share Acquisition Agreement, the Second Share Acquisition Agreement and the Valuation Report are available for inspection during normal business hours at the registered office of the Company at 3 Changi South Lane Singapore 486118 for three months from the date of this Announcement.

The Company will be despatching a shareholder circular (the "Shareholders' Circular") to its shareholders to seek approval for the transactions contemplated under the First Share Acquisition Agreement and the Second Share Acquisition Agreement.