10:22     SMI CORP<00198> - Announcement & Resumption of Trading (5)          

    Completion date:   The date of issue of the new business                  
    licence to Stellar Cinema and the process is expected to                  
    take about three (3) months to complete.                                  
                                                                              
    3.   BASIS OF NEGOTIATION OF THE TERMS AND CONDITIONS OF                  
    THE STELLAR CINEMA S&P AGREEMENT, REASONS FOR AND BENEFITS                
    OF THE STELLAR CINEMA S&P AGREEMENT AND FUNDING ARRANGEMENT               
    3.1   Basis of negotiation of the terms and conditions of                 
    the Stellar Cinema S&P Agreement                                          
    The terms of the Stellar Cinema S&P Agreement were arrived                
    at after arm's length negotiations between the parties                    
    involved and taking into account a number of factors                      
    including, among other things, (i) the current financial                  
    position of the Group; (ii) the competitive environment                   
    of the media entertainment business which the Group is                    
    currently operating in Hong Kong; and (iii) the growth                    
    potential in the PRC media entertainment business.                        
                                                                              
    The consideration payable under the Stellar Cinema S&P                    
    Agreement was determined by reference to the unaudited net                
    asset value of Stellar Cinema as at 31 December 2004 as                   
    reflected in their unaudited management account for the                   
    year ended 31 December 2004.                                              
                                                                              
    3.2   Reasons for and benefits of the Stellar Cinema S&P                  
    Agreement                                                                 
    The Group is principally engaged in movie and thematic                    
    related entertainment businesses, including (i) the                       
    production, distribution and licensing of movies,                         
    television drama series, documentary and infotainment                     
    programmes; (ii) talent management, event production and                  
    marketing; and (iii) strategic investments in (a) Stellar                 
    Digital Information Company Limited - in respect of the                   
    operation of cyber cafes in the PRC upon completion of the                
    acquisition of the 50% interest, as published in a circular               
    to shareholders of the Company dated 15 March 2004, (b)                   
    Stellar Cinema - in respect of the development and                        
    redevelopment of cinemas, the operations and management                   
    of those newly built and/or renovated cinemas and the                     
    provisions of management services for the cinemas'                        
    ancillary services upon completion of the acquisition of                  
    the 25% interest, as published in a circular to shareholders              
    of the Company dated 15 March 2004, and (c) M Channel.                    
                                                                              
    Following successful accession to the World Trade                         
    Organisation by the PRC, import restriction on                            
    international films has been uplifted. Hence, it is                       
    expected that more and more high quality international                    
    films will be imported for release in cinemas in the PRC                  
    which, in turn, will give rise to increasing demand for                   
    an upgrade of facilities of the existing cinemas in the                   
    PRC and/or development of new cinemas with an objective                   
    to accommodating the release of high quality international                
    films for the enjoyment of the general public in the PRC.                 
                                                                              
    In addition, according to market intelligence obtained by                 
    the Company, box office revenue in the PRC recorded for                   
    the year ended 31 December 2004 are estimated to exceed                   
    the amount for year ended 31 December 2003. By comparing                  
    the box office revenue and population of the United States                
    of America with that of the PRC, the Directors believe that               
    there is an immense market potential in the development                   
    and re-development of cinemas in the PRC. With the                        
    continuously improving standards of living in the PRC, the                
    Directors anticipate that the general public in the PRC                   
    may be attracted by the facilities of the newly built and/or              
    renovated cinemas which, in turn, will enhance the box                    
    office revenue. The Directors, therefore, believe that by                 
    acquiring another 35% interest in Stellar Cinema to                       
    increase to an aggregate of 60% interest in Stellar Cinema                
    (one of the few investment holding companies in the PRC                   
    which has indirectly participated in the development of                   
    various cinema projects in major cities throughout the PRC)               
    will enable the Company to position itself as one of the                  
    early entrants to tap into the market for the development                 
    and re-development of cinemas in the PRC and expand its                   
    revenue stream.                                                           
                                                                              
    Accordingly, the Directors consider that under such                       
    circumstances, the terms and conditions of the Stellar                    
    Cinema S&P Agreement, as well as the respective                           
    consideration, are fair and reasonable so far as the                      
    Shareholders are concerned and are in the interests of the                
    Company.