mm2 Asia Acquires 51% of the Issued Share Capital of Vividthree Productions

The Board of Directors (the “Board”) of mm2 Asia Ltd. (the “Company”, and together with its subsidiaries, the “Group”) refers to its announcement on 3 March 2015.

The Board wishes to announce that its wholly-owned subsidiary, mm2 Entertainment Pte. Ltd (“Buyer”), has on 8 April 2015 entered into a sale and purchase agreement (the “SPA”) with Yeo Eng Pu, Charles, Hong Wei Chien, and Lee Hoon Hwee (collectively, the “Sellers” and each a “Seller”) for the acquisition from the Sellers of 51% of the issued and fully paid-up ordinary shares (“Sale Shares”) of the Target Company (the “Acquisition”).

DETAILS OF THE TARGET COMPANY
The Target Company is based in Singapore and is a leading player in Singapore’s three-dimensional (“3D”) animation field, specialising in 3D stereoscopic animation, 3D animation and visual effects for feature films and commercials. The Target Company also has a film production/content development arm. The clientele of the Target Company ranges from renowned advertising agencies to those from the corporate and government sectors.

The Target Company has an issued and fully paid-up share capital of S$50,000, consisting of 50,000 ordinary shares. Prior to the Acquisition, Yeo Eng Pu, Charles, Hong Wei Chien and Lee Hoon Hwee each owns 33%, 33% and 34% respectively of the entire issued and paid-up capital of the Target Company.

PURCHASE CONSIDERATION
Under the SPA, the total consideration payable for the Sale Shares is S$3,060,000 (the “Consideration”). The Consideration comprises an initial payment of S$600,000 to the Sellers upon signing of the SPA (“Initial Consideration”). The balance Consideration is payable to the Sellers in accordance with the Target Company’s achievement of the “Earn-out Amount” as described below (“Deferred Consideration”).

Earn-out Amount
In the event the Target Company’s Net Profit After Tax (“NPAT”) is equal to or exceeds S$2,000,000 (“Earn-out Amount”), based on the Target Company’s audited accounts for the financial year ending on 31 May 2016 (“FY2016 Accounts”), the Deferred Consideration is payable within three (3) months of the delivery of the Target Company’s FY2016 Accounts (“Final Completion”) and satisfied as follows:

(a) If the volume-weighted average price of the shares of the Company over 45 market days immediately prior to the date of Final Completion (“Reference Price”) is at or below S$0.35, the Buyer shall procure the Company to issue such number of Consideration Shares at
S$0.30 per share to the Sellers in order to satisfy the Deferred Consideration (“Consideration Shares”), which shall be subject to a moratorium of ten (10) months from the date of their issuance and allotment to the Sellers. For the avoidance of doubt, the Consideration Shares shall be issued to the Sellers at S$0.30 per share even if the Reference Price is below S$0.30; or

(b) If the Reference Price of the shares of the Buyer is above S$0.35 at Final Completion, Buyer shall have the option to pay the Deferred Consideration to the Sellers in cash, instead of the Company issuing Consideration Shares, together with a cash bonus which is computed
based on a factor of 5/30 of the Deferred Consideration payable. The Buyer may also elect to issue to the Sellers such number of Consideration Shares at S$0.30 per share, which shall also be subject to a moratorium of ten (10) months from the date of their issuance and allotment to the Sellers.

In the event the Target Company’s NPAT for FY2016 is less than the Earn-out Amount, the Consideration shall be proportionately reduced according to the percentage of shortfall of the Target Company’s NPAT for FY2016 against the Earn-out Amount (“Reduced Consideration”). In such instance, the Deferred Consideration shall be equal to the Initial Consideration subtracted from the Reduced Consideration. The Initial Consideration and Deferred Consideration (where not paid by the issue of Consideration Shares) will be funded through internal resources of the Group.

Basis of Consideration
The Consideration was determined based on arm’s length negotiations and arrived at on a willing- buyer and willing-seller basis. The key factor considered by the Buyer and the Company in arriving at the Consideration is the earnings and growth prospects of the Target Company having regard to its on-going and future media projects. The Consideration is based on a price-earnings ratio of three (3) times the Earn-out Amount.

Final Completion
The Buyer shall procure that the Company shall, on no later than one (1) month after every quarterly financial accounts of the Company from date of the SPA, pay such parts of the Net Realisable Cash (“NRC”) to the Sellers which is computed based on the following:-

NRC payable to Sellers = (cash in hand plus account receivables less account payables), based on the financial accounts of the Company as at date of SPA, provided that such account receivables and account payables are only those identified and agreed upon by the Buyer and Sellers on or prior to date of SPA.

The NRC as per management accounts of the Target Company at end-February 2015 was approximately S$911,000. The Company will announce the value of the NRC as at date of SPA in due course.

The Target Company shall pay the NRC to the Sellers provided that (i) an amount equal to the Excluded Property Sale Price (as defined below) less any stamp duty paid or payable by the Target Company shall first be paid by the Target Company to the Sellers as soon as reasonably practicable following completion of the sale of the property presently owned by the Target Company at 67 Ubi Road 1 #10-12 Oxley Bizhub Singapore 408730 (the “Excluded Property” sold to the Sellers at the “Excluded Property Sale Price”) from the Target Company to the Sellers (or their nominee), and the full payment of the Excluded Property Sale Price by the Sellers (or their nominee) to the Target Company; (ii) there is reasonably sufficient amount of cash retained in the Target Company such that the resulting net operating cashflow of the Company for such quarter after the date of the SPA is positive; (iii) the Target Company has already provided for a reasonable amount of provisions or write-off of its account receivables following such quarterly reviews and agreement by the Buyer and the Sellers; and (iv) the cumulative sum of such quarterly payments from the Target Company to the Sellers (not including the amount in (i) above) shall not exceed the amount of NRC computed in accordance with the abovementioned formula on the date of the SPA.

RATIONALE FOR THE ACQUISITION
This proposed strategic investment is aligned with the Group’s plans to diversify and expand into complementary business areas within the film production value chain. With this lateral extension into 3D animation services, the Board believes the Group will strengthen its competitive advantage as a movie producer and eventually gain access to new markets, customers and business opportunities.

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