6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-20281

CREATIVE TECHNOLOGY LTD.

(Exact name of Registrant as specified in its charter)

SINGAPORE

(Jurisdiction of incorporation or organization)

31 International Business Park

Creative Resource

Singapore 609921

(Address of principal executive offices)

Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or 40-F.

Form 20-F             X Form 40-F                 

Indicate by check mark whether by furnishing the information contained in this Form, the Registrant

is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the

Securities Exchange Act of 1934.

Yes                           No                         X

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-

N/A

This report consists of the foregoing cover page, the signature page, and the following attached exhibits, which are hereby incorporated by reference.

Exhibit 1

Notice of Annual General Meeting (“AGM”) to be held in Singapore, together with Proxy Statement, Proxy Form for use at the AGM and Appendixes to the Notice of AGM on matters relating to the repurchase of the Company’s ordinary shares and the proposed alterations to the Company’s Memorandum and Articles of Association.

Exhibit 2

Creative Technology Ltd.’s fiscal 2006 Annual Report and Supplementary Information To Annual Report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CREATIVE TECHNOLOGY LTD.

/s/ Ng Keh Long

ŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸŸ

Ng Keh Long

Chief Financial Officer

Date: October 12, 2006

EX-1

Exhibit 1

Creative Technology Ltd.

9 October 2006

Dear Shareholder,

ANNUAL GENERAL MEETING

You are cordially invited to attend the Annual General Meeting (“AGM”) of Creative Technology Ltd (“Creative” or the “Company”) to be held in Singapore on Tuesday, 31 October 2006 at 31 International Business Park, Creative Resource, Singapore 609921. The AGM is to be held at 10.30 a.m. (Singapore time).

We enclose the following documents for your careful review:

(1) Notice of AGM to be held in Singapore, together with a Proxy Statement, Proxy Form for use at the AGM and Appendices A, B(1) and B(2) to the Notice of AGM on matters relating to the buy back of the Company’s Ordinary Shares proposed as Resolution 8 in the Notice of AGM and the alterations to the Memorandum and Articles of Association of the Company proposed as Resolution 9 in the Notice of AGM;

(2) Annual Report of Creative with Creative’s audited financial statements for the year ended 30 June 2006, prepared in compliance with United States Generally Accepted Accounting Principles.

If you are unable to attend the AGM but wish to vote in respect of the resolutions set out in the Notice of AGM, you may do so by completing and submitting the Proxy Form by post or electronic transmission, to arrive at the registered office of Creative in Singapore no later than 10.30 am (Singapore time) on 29 October 2006. Proxy forms sent to Creative’s transfer agent must arrive at the transfer agent no later than 24 October 2006 for forwarding to Creative’s registered office in Singapore.

For the benefit of the Shareholders who are unable to attend the AGM, an Information Meeting will be held at the office of Creative’s US subsidiary, Creative Labs, Inc., located at 1901 McCarthy Boulevard, Milpitas, California 95035, USA on Tuesday, 31 October 2006 at 10.30 am (California time) for the purpose of discussing any matters relating to the financial condition and results of the operations of Creative and any other matters of interest to those present at that meeting. You are also cordially invited to be present at that meeting.

Yours sincerely,

SIM WONG HOO

Chairman and Chief Executive Officer

Creative Technology Ltd

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NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 24th Annual General Meeting of Creative Technology Ltd (“Creative” or the “Company”) will be held at 31 International Business Park, Creative Resource, Singapore 609921 on Tuesday, 31 October 2006 at 10.30 a.m. to transact the following business:-

AS ORDINARY BUSINESS

1. To receive and adopt the Directors’ Report and the Audited Accounts of the Company for the fiscal year ended 30 June 2006 and the Auditors’ Report thereon.

2. To re-elect Mr. Lee Kheng Nam, who will retire from the Board at the Annual General Meeting and, being eligible, offer himself for re-election.

3. To approve Directors’ fees of S$240,000 for the year ended 30 June 2006.

4. To re-appoint Messrs PricewaterhouseCoopers as Auditors and to authorise the Directors to fix their remuneration.

5. To approve an Ordinary Dividend (tax exempt in Singapore) of US$0.25 per Ordinary Share for the year ending 30 June 2007.

AS SPECIAL BUSINESS

Ordinary Resolutions:

6. General authority to issue Shares

Pursuant to Section 161 of the Companies Act (Cap. 50) (the “Companies Act”), authority be and is hereby given to the Directors to issue such number of Shares in the Company at any time to such persons and upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fit without having to first offer them to the Shareholders provided that the aggregate number of Shares to be issued pursuant to this Resolution does not exceed 25 per cent of the issued share capital of the Company at the relevant time.

7. Authority to issue Shares pursuant to the exercise of options granted or to be granted under the Creative Technology (1999) Share Option Scheme

Pursuant to Section 161 of the Companies Act, authority be and is hereby given to the Directors of the Company to allot and issue from time to time such number of Shares as may be required to be issued pursuant to the exercise of options granted or to be granted under the Creative Technology (1999) Share Option Scheme pursuant to and in accordance with the terms thereof.

8. Authority to buy back Ordinary Shares of the Company

Pursuant to Section 76C and 76E respectively of the Companies Act, the Directors of the Company be and are hereby authorised to make market purchases and off-market purchases from time to time of up to 10% of the issued ordinary share capital of the Company as at the date of this resolution at the price of up to, but not exceeding the Maximum Price (as defined in the Appendix A to this Notice of AGM (“Appendix A”)), in accordance with the “Guidelines on Share Buy Backs” set out in the Appendix A and in

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the case of off-market purchases only, in accordance with the “Equal Access Scheme” set out in the Appendix A, and this mandate shall, unless revoked or varied by the Company in general meeting, continue to be in force until the date that the next Annual General Meeting of the Company is held or is required to be held, whichever is the earlier.

Special Resolution:

9. The Proposed Alterations to the Memorandum and Articles of Association of the Company

That:

(a) Clause 5 of the Memorandum of Association of the Company;

(b) Articles 2, 5, 6, 7, 8,10, 13, 20, 23, 26, 28, 31, 33, 46, 47, 48, 50, 50A, 50B, 50C, 51, 51A, 56, 57(3), 58, 62, 67, 68, 69, 71, 74, 78, 90(2), 96(2), 100, 105, 114, 115, 119, 126, 127, 128, 130 and 134 of the Articles of Association of the Company (the “Articles”);

be and are hereby altered and/or inserted in the manner and to the extent as set out in Appendices B(1) and B(2) to this Notice of AGM, such alterations to the Memorandum and Articles of Association to take effect immediately.

10. To transact any other business which may be properly transacted at an Annual General Meeting.

BY ORDER OF THE BOARD

NG KEH LONG

Company Secretary

Singapore

9 October 2006

NOTES:-

a. A member entitled to attend and vote at the Annual General Meeting is entitled to appoint not more than two proxies to attend and vote instead of him. A proxy need not be a member of the Company.

b. All proxies should be lodged with the Company Secretary at the Company’s registered office at 31 International Business Park, Creative Resource, Singapore 609921, not less than 48 hours before the time appointed for the Annual General Meeting or any adjournment thereof.

c. Any proxy given pursuant to the solicitation may be revoked by the person giving it at any time before its use by delivering to the Company (Attention: Mr. Ng Keh Long, Company Secretary) a written notice of revocation or a duly executed proxy bearing a later date or by attending the meeting and voting in person.

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PROXY STATEMENT

9 October 2006

The accompanying proxies are solicited on behalf of the Board of Directors (the “Board”) of Creative Technology Ltd (“Creative” or the “Company”), a company incorporated in Singapore under the Companies Act (Cap. 50) of Singapore, for use at Creative’s 2006 Annual General Meeting of Shareholders (the “Annual General Meeting”). The Annual General Meeting is to be held on 31 October 2006 (the “Annual Meeting Date”), at 10.30 a.m. (Singapore time), at 31 International Business Park, Creative Resource, Singapore 609921. Persons whose names appear on the Depository Register in Singapore and Registered Shareholders of Creative’s Ordinary Shares, (the “Ordinary Shares” or “Shares”), who are registered forty-eight (48) hours before the time set for the Annual General Meeting shall be entitled to vote at the Annual General Meeting. At the close of business on 18 August 2006, the number of issued Ordinary Shares of Creative was 83,328,511. One-third of the outstanding Ordinary Shares of Creative as at forty-eight (48) hours before the time set for the Annual General Meeting will constitute a quorum for the transaction of business at the Annual General Meeting. This Proxy Statement, the accompanying proxies, the related notice of the Annual General Meeting and Creative’s Annual Report were mailed to shareholders on or about 9 October 2006.

VOTING RIGHTS AND SOLICITATION OF PROXIES

Shareholders are entitled to one vote for each Ordinary Share held on the Annual Meeting Date.

Any person signing a proxy in the form accompanying this Proxy Statement has the power to revoke it either prior to the Annual General Meeting at which the matter to be voted by proxy will be acted upon or at the Annual General Meeting prior to the vote on the matter. A proxy may be revoked by a subsequent proxy that is signed by the person who signed the earlier proxy or by attendance at the Annual General Meeting and voting in person. To be effective, a proxy must be deposited at Creative’s registered office located at 31 International Business Park, Creative Resource, Singapore 609921, at least forty-eight (48) hours before the time set for the Annual General Meeting or any adjournment thereof.

Shareholders may appoint any member of the Board or any other person as their proxy.

The expense of printing and mailing proxy materials will be borne by Creative. In addition to the solicitation of proxies by mail, solicitation may be made by certain directors, officers and other employees of Creative by personal interview, telephone or facsimile. No additional compensation will be paid for such solicitation. Creative will request brokers and nominees who hold Ordinary Shares in their names to furnish proxy materials to beneficial owners of the Ordinary Shares and will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation materials to such beneficial owners.

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PROXY STATEMENT

9 October 2006

BACKGROUND

Executive Officers and Directors

Creative’s directors and executive officers are as follows:-

Name	Age	Position
Sim Wong Hoo (1)(2)	51	Chairman of the Board and Chief Executive Officer
Tan Lip-Bu (1)(2)	46	Director
Tang Chun Choy (3)	58	Director
Lee Kheng Nam (1)(2)(3)	58	Director
Ng Kai Wa (3)	50	Director
Ng Keh Long	47	Chief Financial Officer

(1) Member of Compensation Committee

(2) Member of Option Committee for Creative Technology (1999) Share Option Scheme

(3) Member of Audit Committee

SIM WONG HOO founded Creative in Singapore in 1981 and has been its Chairman of the Board and Chief Executive Officer since its inception.

TAN LIP-BU became a Director of Creative in 1990. He is the Founder and Chairman of Walden International, a leading international venture capital firm that manages over US$1.6 billion in committed capital. Mr. Tan has been active in the venture capital business in the United States since the 1980’s and has been a lead investor and/or a board member in more than 50 companies, mostly in telecommunications, semiconductor/components and enterprise software related industries. Listed companies of which he is a director include Cadence Design Systems, Creative Technology, Centillium Communications, Flextronics, Integrated Silicon Solutions, Leadis, Semiconductor Manufacturing International Corporation (“SMIC”) and SINA. Mr. Tan is also a board member of the National Venture Captial Association (“NVCA”), a member of the Committee of 100 in the United States, and a member of the Visiting Committee for the Department of Electrical Engineering and Computer Science at the Massachusetts Institute of Technology.

TANG CHUN CHOY became a Director of Creative in 1990. He has more than 30 years of venture capital, banking, operational and engineering experience. He spent the last 15 years with Walden International and was its Co-Founder and Vice Chairman. Prior to joining the Walden Group in 1989, Mr. Tang was with the then Chemical Bank for 10 years and his last position, from 1985 to 1988 was its General Manager, based in Singapore. He has also held various management and executive positions at Chemical Bank’s offices in New York and Jakarta from 1981 to 1985. Earlier in his career, from 1971 to 1976, Mr. Tang was a Senior Engineer and Project Coordinator at Esso Singapore Pte Ltd. He holds directorships in several public and private companies. Mr. Tang holds a Bachelor of Engineering Degree (Hons) from the then University of Singapore and a Master of Business Administration Degree from the University of British Columbia.

LEE KHENG NAM became a Director of Creative in 1991. He is currently the Chairman of Advantec Pte Ltd, an investment holding company. From March 1995 to February 2004, Mr Lee

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was the President of Vertex Management Pte Ltd and executive director of Vertex Venture Holdings Ltd, which are wholly-owned subsidiaries of Singapore Technologies Pte Ltd (“ST”) engaged in the venture capital direct investment and fund management business. Mr. Lee is a Director of a number of public corporations, including Creative Technology Ltd, United Test and Assembly Centre Ltd and China Finance Online Ltd, and had served as a Director of several other public corporations engaged in the technology and telecommunication sectors including Centillium Communications Inc, Chartered Semiconductor Manufacturing Ltd, GRIC Communications Inc., Gemplus International S.A. and ActivCard Corp. Prior to joining ST, Mr. Lee was with NatSteel group as the Manager of the Project Development Department and the Ministry of National Development where he was Deputy Director of Planning. Mr. Lee holds a Bachelor of Science degree in Mechanical Engineering Degree (First Class Honors) from Queen’s University, Canada and a Master of Science degree in Operations Research & Systems Analysis from the U.S. Naval Postgraduate School.

NG KAI WA became a Director of Creative in 2005. He has been the Co-founder, Chairman and Chief Executive Officer of InnoMedia Pte Ltd since 1995. InnoMedia is a leading supplier of broadband IP Telephony solutions that deliver high quality-voice and video over IP network, targeted to the broadband service providers, enterprises, consumers and OEM customers. Prior to that, he was the Co-founder, Chief Technology Officer and Vice Chairman of the Board of Creative Technology Ltd. Mr. Ng holds an Executive Master of Business Administration Degree from the National University of Singapore and a Diploma in Electronic and Electrical Engineering from Ngee Ann Polytechnic.

NG KEH LONG joined the Company in April 1993 as Financial Controller and held various financial positions until May 1996, when he was appointed as Vice President, Corporate Treasurer and Acting Chief Financial Officer. In 1998 he was appointed as Chief Financial Officer. Prior to joining Creative, he was a Senior Manager with Price Waterhouse (now PricewaterhouseCoopers), where he gained more than ten years’ experience in finance, accounting and auditing. Mr. Ng is a member of the Institute of Certified Public Accountants in Singapore.

Creative has proposed to pay each of its four non-executive Directors S$60,000 (US$38,000) for fees and reimbursement of any expenses incurred in connection with attendance at Board, Board committee or general meetings of the Company.

It is provided in the Company’s Articles of Association that all Directors except Executive Directors are to retire at least once every three years by rotation if they are appointed by the Company at general meeting. The retiring Directors are nonetheless eligible for re-election. Accordingly, Mr. Lee Kheng Nam will, on the date of the Annual General Meeting, retire as Director. The Board therefore recommend his re-election at this Annual General Meeting as Director.

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PROXY STATEMENT

9 October 2006

SHAREHOLDINGS AND SHARE TRADING

The following table sets forth certain information regarding the ownership of Creative’s Ordinary Shares as of 18 August 2006 (i) by each person who is known by Creative to own beneficially more than 5% of its outstanding Ordinary Shares, (ii) by each director, and (iii) by all directors and officers as a group, except as otherwise set forth in the footnotes to the table below.

Name	Number of Shares Beneficially Owned(1)	Percentage of Total Outstanding Shares (%)(2)
Sim Wong Hoo	25,984,602	31.2
Tan Lip-Bu	85,000	*
Tang Chun Choy	20,000	*
Lee Kheng Nam Ng Kai Wa	10,000 2,362,005	* 2.8
All Officers and directors as a group	29,649,982	35.6

NOTES: * Less than 1%

(1) Except as otherwise noted, each person or entity named in the table has sole voting and investment power with respect to all Ordinary Shares listed as owned by such person or entity. Shares beneficially owned include Shares that may be acquired pursuant to the exercise of fully vested options or warrants issued by Creative that are exercisable within 60 days of 18 August 2006.

(2) Percentage of Total Outstanding Shares is calculated separately for each person and assumes, for the purpose of the calculation that Shares issuable upon exercise of options or warrants exercisable within 60 days of 18 August 2006 held by such person (but no other shareholders) have been issued as of such date.

Creative’s Ordinary Shares have been traded in the over-the-counter market and quoted on the NASDAQ National Market System since its initial public offering in August 1992. Creative’s Ordinary Shares have been traded on the Singapore Exchange Securities Trading Limited (“SGX-ST”) since 15 June 1994. As of 18 August 2006, there were approximately 15,046 shareholders of record of the Ordinary Shares, of which approximately 258 were registered in the US and approximately 14,788 in Singapore. Because many of the US shares are held by brokers and other institutions on behalf of shareholders, Creative is unable to estimate the total number of shareholders represented by these US record holders.

On 18 August 2006, the closing price of Creative’s Ordinary Shares on the NASDAQ National Market System was US$5.81 and on the SGX-ST was S$9.25. On 18 August 2006, each Singapore dollar equalled 0.6355 US dollars, as certified for customs purposes by the Federal Reserve Bank of New York.

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PROXY STATEMENT

9 October 2006

PROPOSAL NO. 1 - To receive and adopt Creative’s Directors’ Report, Audited Accounts and Auditors’ Report for the fiscal year ended 30 June 2006.

Creative’s Annual Report for its fiscal year ended 30 June 2006 (the “Annual Report”) accompanies this Proxy Statement. The Annual Report includes Creative’s consolidated financial statements prepared in conformity with United States generally accepted accounting principles and the Supplementary Information to the Annual Report (the “Supplementary Information”). For the purposes of complying with the Companies Act, the Company has prepared the Supplementary Information containing financial information required to be presented under the Companies Act. The financial statements together with their respective Auditors’ Reports prepared by PricewaterhouseCoopers accompany this Proxy Statement.

THE BOARD RECOMMENDS A VOTE FOR THE RECEIPT AND ADOPTION OF THE DIRECTORS’ REPORT, AUDITED ACCOUNTS AND AUDITORS’ REPORT.

PROPOSAL NO. 2 - Re-election of Directors

It is provided in the Company’s Articles of Association that all Directors except Executive Directors are to retire from office at least once every three years by rotation if they are appointed by the Company at general meeting. The retiring Director is nonetheless eligible for re-election.

Accordingly on the date of the Annual General Meeting, Mr. Lee Kheng Nam shall retire as a Director by rotation. He has offered himself for re-election. The Board believes that it is in the best interests of Creative to re-elect Mr. Lee Kheng Nam as Director.

THE BOARD RECOMMENDS A VOTE FOR THE RE-ELECTION OF MR. LEE KHENG NAM AS A DIRECTOR OF CREATIVE.

PROPOSAL NO. 3 - Approval of Directors’ Fees

As at the end of Creative’s fiscal year 2006, Creative had four non-Executive Directors on its Board of Directors. In Singapore, it is customary that Directors are paid a fee for their contributions to the Company. As such, Creative seeks the approval of its Shareholders for the payment of Directors’ Fees of S$60,000 to each of its four non-Executive Directors namely, Messrs Tan Lip-Bu, Tang Chun Choy, Lee Kheng Nam and Ng Kai Wa for the fiscal year ended 30 June 2006 for their contributions to the Company (aggregate of S$240,000).

THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF DIRECTORS’ FEES OF S$240,000 FOR THE YEAR ENDED 30 JUNE 2006.

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PROXY STATEMENT

9 October 2006

PROPOSAL NO. 4 - Reappointment of independent public accountants and fixing their remuneration

The Board intends to engage PricewaterhouseCoopers as Creative’s independent public accountants to perform the audit of its financial statements for the fiscal year ending 30 June 2007. PricewaterhouseCoopers has audited Creative’s financial statements for the last sixteen fiscal years. The Board expects that representatives of PricewaterhouseCoopers will be present at the Annual General Meeting who will be given an opportunity to make a statement at the meeting if they desire to do so, and will be available to respond to appropriate questions. PricewaterhouseCoopers has consented to act as auditors of the Company for the fiscal year ending 30 June 2007.

THE BOARD RECOMMENDS A VOTE FOR THE REAPPOINTMENT OF PRICEWATERHOUSECOOPERS FOR FISCAL YEAR ENDING 2007 AND TO AUTHORISE THE DIRECTORS TO FIX THEIR REMUNERATION.

PROPOSAL NO. 5 - Approval of Ordinary Dividends

An Ordinary Dividend (tax exempt in Singapore) of US$0.25 for each Ordinary Share of the Company has been recommended for the current financial year ending 30 June 2007. Shareholders subject to tax in other jurisdictions should consult their respective tax advisers. In the previous financial year an Ordinary Dividend of US$0.25 was paid to Shareholders.

The recommended dividends take into consideration the Company’s present cash position, projected cash flow generated from operations and projected capital requirements for the current financial year, including the amounts expected to be utilised for its share repurchase plan. The Ordinary Dividend is intended to be ongoing and the Company intends to continue to pay ordinary dividends in future periods subject to the review of its cash position, cash flow, capital requirements and market conditions.

Payment of the Ordinary Dividend is subject to the approval of Shareholders at the Annual General Meeting. If approved by Shareholders at the Annual General Meeting, the dividends will be paid on 1 December 2006. Details of the payment of dividends and the related record date/book closure date will be announced after the Annual General Meeting.

THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL NO. 5 DESCRIBED ABOVE AND IN THE NOTICE OF ANNUAL GENERAL MEETING.

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PROXY STATEMENT

9 October 2006

PROPOSAL NO. 6 - Ordinary Resolution: General authority to issue Shares

The Company is required to obtain the approval of its Shareholders at a meeting thereof prior to any issuance of new Ordinary Shares. If obtained, such approval, unless revoked earlier by the Shareholders in general meeting, will be effective from the date of the meeting at which it was given (the “2006 AGM Date”) to the date of Creative’s next Annual General Meeting of Shareholders or the date by which such meeting should have been held (the “2007 AGM Date”). The Board would like to seek Shareholders’ approval to authorise the Company to issue new Shares of up to 25% of the total number of its outstanding Shares on the date the approval is given. The Board believes that it is advisable and in the best interest of Creative and its Shareholders to have a sufficient number of new Ordinary Shares available for issuance in future financing transactions, acquisitions and other proper corporate opportunities and purposes. Having additional Ordinary Shares available for issuance in the future would give Creative greater flexibility to pursue corporate opportunities and enable it to issue new Ordinary Shares without the expense and delay of convening an extraordinary meeting of Shareholders.

Creative is seeking Shareholders’ approval to issue new Ordinary Shares of up to 25% of the issued share capital of the Company for the time being during the period from the 2006 AGM Date to the 2007 AGM Date. Approval of this proposal requires the affirmative vote of the majority of Creative’s Shareholders who are voting at the Annual General Meeting in person or by proxy. If obtained, Shareholders’ approval of this proposal will lapse on the 2007 AGM Date with respect to Ordinary Shares that have not been issued.

THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL NO. 6 DESCRIBED ABOVE AND IN THE NOTICE OF ANNUAL GENERAL MEETING.

PROPOSAL NO. 7 - Ordinary Resolution: Authority to issue Shares pursuant to the exercise of options granted or to be granted under the Creative Technology (1999) Share Option Scheme.

Creative obtained Shareholders’ approval on 30 December 1998 to adopt the Creative Technology (1999) Share Option Scheme (the “1999 Scheme”). As of 18 August 2006, there were a total of 8,587,628 options outstanding under the 1999 Scheme exercisable into an aggregate of 8,587,628 new Ordinary Shares.

The Companies Act requires Creative to obtain the approval of its Shareholders at a meeting thereof prior to any issue of new Ordinary Shares. If obtained, such approval is effective from the 2006 AGM Date to the 2007 AGM Date. The Board believes that it is advisable and in the best interest of Creative and its Shareholders to have the flexibility to issue new Ordinary Shares covered by the options granted or to be granted under the 1999 Scheme upon exercise thereof. This will dispense with the need and expense of convening extraordinary meetings of Shareholders to approve every issue of new Ordinary Shares covered by such options upon exercise thereof. The Board is seeking the approval of its Shareholders to issue new Ordinary Shares pursuant to the exercise of these options.

Approval of this proposal requires the affirmative vote of a majority of Creative’s Shareholders who are voting at the Annual General Meeting in person or by proxy. If obtained, Shareholders’ approval of this proposal will lapse on the 2007 AGM Date.

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PROXY STATEMENT

9 October 2006

THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL NO. 7 DESCRIBED ABOVE AND IN THE NOTICE OF ANNUAL GENERAL MEETING.

PROPOSAL NO. 8 – Ordinary Resolution: Authority to buy back Ordinary Shares of the Company

At the Annual General Meeting of the Company held on 28 October 2005, Shareholders approved a general mandate to the Directors to exercise the powers of the Company to repurchase Shares of the Company. This general mandate will lapse at the forthcoming Annual General Meeting of the Company unless renewed at that meeting.

The Board is seeking a renewal of the mandate to authorise the Directors to buy back Ordinary Shares (“2006 Mandate”), by way of market purchases and off-market purchases of up to 10% of the issued share capital of the Company as at the date of this resolution at a maximum price which will be fixed in accordance with a certain formula, details of which are set out in the Appendix A. Further information on the proposed 2006 Mandate is also set out in the Appendix A.

Approval of this proposal requires the affirmative vote of a majority of Creative’s Shareholders who are present and voting at the Annual General Meeting in person or by proxy on a poll who would not become obliged to make an offer under the Singapore Code on Take-overs and Mergers as a result of a buy back of Shares under the proposed 2006 Mandate. If obtained, Shareholders’ approval of this proposal will, unless revoked or varied by the Company in general meeting, continue in force until the date that the next Annual General Meeting of the Company is held or is required by law to be held, whichever is the earlier.

Please refer to Appendix A for a comprehensive write-up on the Share Buy Back Mandate.

THE BOARD, SAVE FOR MR SIM WONG HOO, WHO HAS ABSTAINED FROM MAKING A RECOMMENDATION, RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL NO. 8 DESCRIBED ABOVE AND IN THE NOTICE OF ANNUAL GENERAL MEETING.

PROPOSAL NO. 9 – Special Resolution: Alterations to the Memorandum and Articles of Association of the Company

The Companies (Amendment Act) 2005 of Singapore (“The Companies Amendment Act”) which came into operation in the Republic of Singapore on 30 January 2006 introduced key amendments to the Companies Act. These amendments include the abolition of the concepts of par value and authorised capital, and allowing repurchased shares to be held as treasury shares. With the abolition of the concept of par value pursuant to the Companies Amendment Act, shares of a company no longer have any par or nominal value. The concepts of share premium and issue of shares at a discount have also been abolished accordingly.

The Companies Amendment Act also introduces new provisions on treasury shares. Under these new provisions, shares which are the subject of a share repurchase by a company can be held by that company as treasury shares instead of being cancelled. The right to attend and vote at meetings and the right to dividend or other distributions will be suspended for so long as such repurchased shares are held in treasury.

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Alterations are proposed to the Memorandum and Articles of Association of the Company in order to update them generally and to be in line with the changes introduced by the Companies Amendment Act. The Company is also taking this opportunity to streamline and rationalise certain other provisions in the Articles.

Creative is seeking Shareholders’ approval to alter the Memorandum and Articles of Association in the manner mentioned in Appendices B(1) and B(2). Approval of this proposal requires the affirmative vote of three-fourths of Creative’s Shareholders who are voting at the Annual General Meeting in person or by proxy. If obtained, the alterations of the Memorandum and Articles of Association will take effect immediately upon approval by the Shareholders.

Please refer to Appendices B(1) and B(2) for a comprehensive write-up of the proposed alterations to the Memorandum and Articles of Association.

THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL NO. 9 DESCRIBED ABOVE AND IN THE NOTICE OF ANNUAL GENERAL MEETING

OTHER BUSINESS

The Board does not presently intend to bring any other business before the Annual General Meeting, and so far as is known to the Board, no matters are to be brought before the Annual General Meeting, except as specified in the Notice of AGM. As to any business that may properly come before the Annual General Meeting, however, it is intended that proxies, in the form enclosed, will be voted in respect thereof in accordance with the judgment of the persons voting such proxies.

RESPONSIBILITY STATEMENT

The Directors collectively and individually accept responsibility for the accuracy of the information given in Appendices A, B(1) and B(2) of this Notice of AGM and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and opinions expressed in Appendices A, B(1) and B(2) of this Notice of AGM are fair and accurate and that there are no material facts the omission of which would make any statement in the Appendices A, B(1) and B(2) to this Notice of AGM misleading.

ACTION FOR SHAREHOLDERS

If you are in any doubt as to the action you should take, you should consult your stockbroker or other professional adviser immediately.

If you have sold all your shares in the capital of the Company, you should immediately hand over this Notice of AGM and the enclosed proxy form to the stockbroker or agent through whom you effected the sale, for transmission to the purchaser.

NG KEH LONG

Company Secretary

9 October 2006

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APPENDIX A

SHARE BUY BACK MANDATE

Introduction

The Company had on 28 October 2005 obtained Shareholders’ approval of a mandate (“Existing Mandate”) for the Directors to exercise the power of the Company to make share repurchases of up to 8,268,616 ordinary shares (“Shares”) at the price of up to but not exceeding the Maximum Price (as defined below). This authority conferred on the Directors will expire at the forthcoming annual general meeting (“AGM”) of the Company.

The Company proposes to seek a new mandate (“2006 Mandate”) to make market and off-market purchases from time to time of up to 10% of the issued share capital of the Company as at the date of the AGM at the price of up to, but not exceeding the Maximum Price in accordance with the “Guidelines on Share Buy Backs” set out below.

For the purpose of the proposed 2006 Mandate, the Maximum Price is,

(i) if the market purchase is effected on the SGX-ST, the price per Share based on twenty (20) per cent above the highest price at which a board lot of the Shares was transacted on the SGX-ST;

(ii) if the market purchase is effected on NASDAQ, the price per Share based on twenty (20) per cent above the highest price at which a Share was transacted on NASDAQ,

in the case of market purchases, on the trading day immediately preceding the date of market purchase by the Company and in the case of off-market purchases, on the trading day immediately preceding the date the Company makes an announcement of an offer under the Equal Access Scheme (details of which are set out below).

The 2006 Mandate shall, unless revoked or varied by the Company in general meeting, continue in force until the date that the next annual general meeting of the Company is held or is required by law to be held, whichever is the earlier.

Appendix 2 of the Singapore Code on Takeovers and Mergers

Pursuant to Appendix 2 of the Singapore Code on Takeovers and Mergers (“Takeover Code”), any resulting increase in the percentage of voting rights held by a shareholder and persons acting in concert with him from a Share buy back by the Company will be treated as an acquisition for the purpose of Rule 14 of the Takeover Code. Consequently, a Director and persons acting in concert (as such term is defined in the Takeover Code) with him could, depending on the level of increase in his or their interest in the Company, become obliged to make an offer under Rule 14 of the Takeover Code as a result of the Company’s buy back of Shares.

Exemption under Appendix 2 for Mr Sim Wong Hoo and parties acting in concert with him

Mr Sim Wong Hoo, the Chairman and Chief Executive Officer of the Company, who is also a Director, is as at 18 August 2006, being the latest practicable date prior to the printing of the Notice of AGM (“Latest Practicable Date”), the registered and beneficial owner of 25,984,602 Shares representing approximately 31.18% of the issued share capital of the Company as at the Latest Practicable Date.

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For illustrative purposes, assuming that the 2006 Mandate is for the buy back of up to 8,332,851 Shares, if the power under the 2006 Mandate is exercised in full and the Company chooses to (a) reduce its issued share capital (as at the Latest Practicable Date) by cancellation or (b) transfer to its treasury of 8,332,851 Shares, the interest in voting rights of Mr Sim would increase by 3.47% to 34.65% (based on the assumption that there is no change in the number of Shares held by him), as shown in the table below :-

Direct and deemed interest of Mr Sim Wong Hoo (%)
As at the Latest Practicable Date	After a buy back of 8,332,851 Shares under the 2006 Mandate1
31.18%	34.65%

In the event that Shareholders’ approval is obtained for the 2006 Mandate, Mr Sim would, unless exempted by the Securities Industry Council, become obligated to make a general offer under the Takeover Code if, as a result of the Company buying back Shares and subsequent cancelling or transferring such Shares to treasury, his interest in the voting rights of the Company and that of parties acting in concert with him increases by more than 1% in any period of 6 months.

Accordingly, an application for the exemption of Mr Sim and parties acting in concert with him from the requirement to make a takeover offer in accordance with the Takeover Code (“Exemption”) was made to the Securities Industry Council in respect of the 2006 Mandate to be proposed. The Exemption was granted to Mr Sim and parties acting in concert with him on 15 September 2006. This Exemption is valid only for the duration of the 2006 Mandate.

The Exemption from the Securities Industry Council is subject to the following conditions:-

(i) the Notice of AGM contains advice to the effect that by voting in favour of the resolution for the 2006 Mandate, Shareholders are waiving their rights to a general offer at the required price, from Mr Sim Wong Hoo and parties acting in concert with him should Mr Sim’s interest in the Company increase as a result of the Company buying back Shares pursuant to the 2006 Mandate by more than 1% in any period of 6 months; and information on their names and voting rights at the time of the resolution and after the proposed buy back are disclosed in the same Notice of AGM;

(ii) the resolution for the 2006 Mandate is approved by a majority of those Shareholders present and voting at the meeting on a poll who could not become obliged to make an offer as a result of the Company buying back Shares;

(iii) Mr Sim and parties acting in concert with him abstain from voting for and/or recommending Shareholders to vote in favour of the resolution for the 2006 Mandate; and

¹ This is based on the assumption that Mr Sim will not sell his interest in the Company and that, save for the change in his interest resulting directly from the share repurchases by the Company, there is no other change in his interest in the voting rights of the Company for the duration of the 2006 Mandate.

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(iv) Mr Sim and parties acting in concert with him not having acquired and not to acquire any Shares between the date on which they know that the announcement of the Share buy back proposal is imminent and the earlier of:

• the date on which the 2006 Mandate expires;

• the date on which the Company announces it has bought back such number of Shares as authorised by the 2006 Mandate or it has decided to cease buying back Shares, as the case may be,

if such acquisitions, taken together with the buy back, would cause their aggregate voting rights to increase by more than 1% in the preceding 6 months.

If the Company ceases to buy back its Shares and the increase in the voting rights held by Mr Sim and parties acting in concert with him as a result of the buy back of Shares at such time is less than 1%, Mr Sim may acquire further voting rights in the Company. However, any increase in the percentage voting rights held by Mr Sim and parties acting in concert with him as a result of the buy back will be taken into account together with any voting rights acquired after cessation in determining whether Mr Sim and parties acting in concert with him have increased their aggregate voting rights in the Company by more than 1% in any 6-month period.

The Exemption will expire at the earliest of:-

(i) the date the 2006 Mandate lapses;

(ii) when the Company has bought such number of Shares as authorised by the 2006 Mandate; or

(iii) when the Company has decided to cease buying back Shares.

As at the Latest Practicable Date, there are no parties acting in concert with Mr Sim. Mr Sim has not purchased any Shares in the 6 months preceding the Latest Practicable Date.

If the Exemption had not been granted, and the Company buys and cancels or transfers to treasury Shares pursuant to the 2006 Mandate, the price at which Mr Sim would be under an obligation to make a takeover offer for all the Shares would be the higher of (a) the highest price paid by Mr Sim and parties acting in concert with him for the Shares (if any) or (b) the highest price paid by the Company for the Shares, in the 6 months preceding the date that the obligation to make a general offer arises.

Shares bought by the Company pursuant to the Existing Mandate

Pursuant to the Existing Mandate, the Company has not bought back any Shares for the period from 28 October 2005 to 18 August 2006, being the Latest Practicable Date.

Source of Funds

In buying back Shares, the Company may only apply funds legally available for such purchase in accordance with its Memorandum and Articles of Association, and the applicable laws in Singapore. The Company may not buy Shares on the Singapore Exchange Securities Trading Limited (“SGX-ST”) or NASDAQ for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the SGX-ST and NASDAQ respectively. The buy back of Shares by the Company may be made out of the Company’s profits or capital so long as the Company is solvent.

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Pursuant to Section 76F(4) of the Companies Act (Cap. 50) (the “Act”), the Company is solvent if (a) it is able to pay its debts in full at the time of payment and will be able to pay its debts as they fall due in the normal course of business in the 12 months following such date of payment; and (b) the value of its assets is not less than the value of its liabilities (including contingent liabilities) and such value of its assets will not, after any purchase of Shares for purposes of any proposed acquisition or release of the Company’s obligations, become less than the value of its liabilities (including contingent liabilities). In determining that the Company is solvent, the Directors must have regard to the most recently audited financial statements, other relevant circumstances, and may rely on valuations or estimates of assets or liabilities. In determining the value of contingent liabilities, the Directors may take into account the likelihood of the contingency occurring, as well as any counter-claims by the Company.

The Shares purchased by the Company shall, unless held as treasury shares, be deemed to be cancelled immediately on acquisition by the Company.

When Shares are purchased or acquired, and cancelled:

(a) if the Shares are purchased or acquired entirely out of the capital of the Company, the Company shall reduce the amount of its share capital by the total amount of the purchase price paid by the Company for the Shares (excluding brokerage, stamp duties, applicable goods and services tax, clearance fees and other related expenses) (the “Purchase Price”);

(b) if the Shares are purchased or acquired entirely out of profits of the Company, the Company shall reduce the amount of its profits by the total amount of the Purchase Price; or

(c) where the Shares are purchased or acquired out of both the capital and the profits of the Company, the Company shall reduce the amount of its share capital and profits proportionately by the total amount of the Purchase Price.

Financial Impact

The financial impact on the Company arising from purchases or acquisitions of Shares which may be made pursuant to the proposed Share Buy Back Mandate will depend, inter alia, on whether the Shares are purchased or acquired out of profits and/or capital of the Company, the number of Shares purchased or acquired, the price paid for such Shares and whether the Shares purchased or acquired are held in treasury or cancelled.

The net tangible assets of the Company and the consolidated net tangible assets of the Group will be reduced by the Purchase Price paid by the Company for the Shares.

When Shares purchased or acquired are cancelled, the Company’s share capital will be reduced by the Purchase Price if the purchase or acquisition is made out of capital. If however, Shares are purchased or acquired entirely out of profits of the Company, the Company’s distributable profits will be reduced by the Purchase Price. Where Shares are purchased or acquired out of both the capital and the profits of the Company, the Company’s share capital and distributable profits will be reduced by the proportion of the Purchase Price paid out of capital and profits respectively.

The buy back of Shares pursuant to the 2006 Mandate will not have any material impact on the consolidated earnings of the Company.

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The Directors do not propose to exercise the 2006 Mandate to such an extent as would have a material adverse effect on the working capital requirements of the Company or the gearing levels which, in the opinion of the Directors, are from time to time appropriate for the Company.

Waiver

Shareholders should note that by voting in favour of the 2006 Mandate, they are waiving their rights to a general offer from Mr Sim Wong Hoo, in cash or accompanied by a cash alternative at the higher of (a) the highest price paid by Mr Sim and parties acting in concert with him for the Shares (if any) or (b) the highest price paid by the Company for the Shares, in the 6 months preceding the date that the obligation to make a general offer arises.

The Directors are not aware of any other Shareholder or group of Shareholders acting in concert (whether with Mr Sim Wong Hoo or parties acting in concert with him) who may become obligated to make a mandatory offer in the event that the Board exercises the power to buy back Shares pursuant to the 2006 Mandate.

Appendix 2 of the Takeover Code requires that the resolution to authorise the 2006 Mandate be approved by a majority of those Shareholders present and voting at the meeting on a poll who could not become obliged to make an offer under the Takeover Code as a result of the Share buy back. Accordingly, Ordinary Resolution 8 relating to the 2006 Mandate set out in the Notice of AGM is proposed to be taken on a poll and Mr Sim Wong Hoo shall abstain from voting on such Ordinary Resolution.

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GUIDELINES ON SHARE BUY BACKS

1. SHAREHOLDERS’ APPROVAL

a) The purchase of Shares by the Company must be approved in advance by the Shareholders at a general meeting of the Company, by way of a general mandate.

b) A general mandate authorising the purchase of Shares by the Company will expire on the earlier of:-

i) the conclusion of the next annual general meeting of the Company;

ii) the expiration of the period within which the next annual general meeting of the Company is required to be held; or

iii) the time when such mandate is revoked or varied by an ordinary resolution of the Shareholders of the Company in general meeting.

c) The authority conferred on the Directors by the 2006 Mandate to purchase Shares may be renewed at the next annual general meeting of the Company.

2. FUNDING OF SHARE PURCHASES

a) In purchasing Shares, the Company may only apply funds legally available for such purchase in accordance with its Memorandum and Articles of Association, and the applicable laws in Singapore.

b) The Company may not purchase its Shares on the SGX-ST or NASDAQ for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the SGX-ST and NASDAQ respectively.

c) Any purchases of Shares by the Company may be made out of the Company’s profits or capital so long as the Company is solvent.

3. TRADING RESTRICTIONS

a) The number of Shares which can be purchased pursuant to the 2006 Mandate is such number of Shares which represents up to a maximum of ten (10) per cent of the issued share capital of the Company as at the date of the AGM.

b) Based on the issued and paid-up share capital of the Company as at the Latest Practicable Date, an exercise in full of such mandate would result in the purchase of up to approximately 8,332,851 Shares.

4. PRICE RESTRICTIONS

The purchase by the Company for the Shares shall be at the price of up to but not exceeding the Maximum Price.

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5. STATUS OF SHARES PURCHASED BY THE COMPANY

Cancellation of Shares

The listing of all Shares purchased by the Company (whether on the SGX-ST or otherwise) will be automatically cancelled, if such Shares are not held as treasury shares and the related certificates for those Shares must be cancelled and destroyed. Under Singapore law, the Shares bought back by the Company will be treated as immediately cancelled, if not held as treasury shares. The total number of issued Shares will be reduced by the number of Shares purchased or acquired by the Company.

Treasury Shares

Pursuant to the Act, Shares which are held as treasury shares may be, inter alia, sold for cash, transferred for the purposes of or pursuant to an employee share option scheme, transferred as consideration for the acquisition of shares in or assets of another company or of another person, cancelled, or sold, transferred or otherwise used for such other purposes as may be prescribed by the Minister for Finance.

The aggregate number of Shares held by the Company as treasury shares shall not at any time exceed 10% of the total number of Shares of the Company at that time.

The treasury shares will not confer upon the Company any right to attend or vote at meetings, nor any right to receive dividends and/or distribution (whether in cash or otherwise) of the Company’s assets (including any distribution of assets to members on a winding up). However the allotment of treasury shares as fully paid bonus shares is allowed. A subdivision or consolidation of any treasury share into treasury shares of a smaller amount is also allowed as long as the total value of the treasury shares after the subdivision or consolidation is the same as before.

6. REPORTING REQUIREMENTS

a) Within thirty (30) days of the passing of a Shareholders’ resolution to approve purchases of Shares by the Company, the Company must lodge a copy of such resolution with the Accounting and Corporate Regulatory Authority.

b) The Company must notify in the prescribed form, the Accounting and Corporate Regulatory Authority within thirty (30) days of a purchase of Shares on the SGX-ST or otherwise. Such notification shall include details of the date of the purchase, the total number of Shares purchased by the Company, the number of Shares cancelled, the number of Shares held as treasury shares, the Company’s issued share capital as at the date of the Shareholders’ resolution approving the purchase, the amount of paid up capital held as treasury shares, the Company’s issued share capital after the purchase, the amount of consideration paid by the Company for the purchase and whether the Shares were purchased out of profits or the capital of the Company .

c) A buy back of Shares of more than 5% of the Company’s outstanding Shares (calculated on a cumulative basis from the last NASDAQ filing) must be reported to NASDAQ within 10 days of the buy back by the Company (whether on the SGX-ST or NASDAQ).

d) In its quarterly and annual reports on Forms 6-K and 20-F in the United States, the Company intends to report on the existence of the Shares buy back

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programme, the size of the programme, the number of Shares purchased pursuant to such Shares buy back programme and the aggregate consideration paid to purchase the Shares.

7. INTERESTED PERSONS

The Company is prohibited from knowingly buying Shares on the SGX-ST from an interested person, that is, a Director, the chief executive of the Company or Substantial Shareholder of the Company or any of their associates (as defined in the SGX-ST Listing Manual), and an interested person is prohibited from knowingly selling his Shares to the Company.

8. SUSPENSION OF BUY BACKS

Share purchases are prohibited after a price sensitive development has occurred or has been the subject of a decision until such time as the price sensitive information has been publicly announced.

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EQUAL ACCESS SCHEME

1. NAME OF THE SCHEME

This scheme shall be called the “Equal Access Scheme”.

2. OBJECT OF THE SCHEME

The purpose of the Equal Access Scheme is to allow the Company to buy Shares from all its Shareholders in compliance with Section 76C of the Companies Act, Chapter 50 (the “Act”).

3. DURATION OF THE SCHEME

This Equal Access Scheme shall commence from the date that the 2006 Mandate is obtained and shall last until the date of the expiration of the 2006 Mandate.

4. OFFER

An offer by the Company to buy Shares from Shareholders pursuant to this Equal Access Scheme (“Offer”) must be made to all Shareholders. Every Offer is subject to the terms and conditions set out herein and to any other terms and conditions as may be stipulated in the Offer, provided always that all such terms and conditions shall comply with the relevant provisions in the Act.

5. OFFER DOCUMENT

The Offer must be made in a document to the Shareholders (“Offer Document”) which must contain the following information:-

a) all the terms and conditions which may be applicable to the Offer including any stipulated terms and conditions herein;

b) the periods and procedures for the acceptance by the Shareholders; and

c) details of all Share purchases by the Company in the previous 12 months, including the total number of Shares purchased, the purchase price per Share or the highest and lowest prices paid for the purchases, where relevant, and the total consideration paid for the purchases.

6. LIMITATION ON NUMBER OF SHARES TO BE BOUGHT

The total number of Shares which the Company may offer to purchase from its Shareholders during the duration of this Equal Access Scheme shall not, after aggregation with the number of Shares bought via market purchases pursuant to the 2006 Mandate, exceed ten (10) per cent of the issued share capital of the Company as at the date of the AGM.

7. NUMBER OF SHARES IN AN OFFER

The Offer to each Shareholder must be to purchase the number of Shares equal to the shareholding percentage of such Shareholder in the Company as at the date of the Offer, such number to be stipulated in the Offer to the Shareholders.

8. MAXIMUM PRICE

The purchase of Shares by the Company shall be at the price of up to but not exceeding the Maximum Price.

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9. TERMS AND CONDITIONS

The terms and conditions set out herein shall apply to all Offers. All terms and conditions which may be stipulated in the Offer Document shall, except as otherwise permitted by the Act, be the same for all Offers.

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APPENDIX B(1)

LETTER TO SHAREHOLDERS REGARDING THE RATIONALE FOR THE PROPOSED ALTERATIONS TO THE MEMORANDUM & ARTICLES OF ASSOCIATION

1. INTRODUCTION

1.1 AGM.

The Directors are convening its 24th Annual General Meeting (“AGM”) to be held on 31 October 2006 to seek Shareholders’ approval for among others, the proposed alterations to the Memorandum and Articles of Association of the Company.

1.2 Appendix B – Alterations to the Memorandum & Articles of Association of the Company.

This is an addendum to the Notice of AGM dated 9 October 2006.

Appendix B(1) Letter to the Shareholders sets out the rationale for the proposed alterations to the Memorandum and Articles of Association; and

Appendix B(2) sets out the proposed alterations to them.

The purpose of this addendum is to provide Shareholders with information relating to the proposed alterations to the Memorandum & Articles of Association set out as agenda item No. 9 in the Notice of AGM.

2. THE PROPOSED ALTERATIONS TO THE MEMORANDUM AND ARTICLES

2.1 The Companies Amendment Act. The Companies Amendment Act which came into operation on 30 January 2006 introduced key amendments to the Companies Act. These amendments include the abolition of the concepts of par value and authorised capital, and allowing repurchased shares to be held as treasury shares.

With the abolition of the concept of par value pursuant to the Companies Amendment Act, shares of a company no longer have any par or nominal value. The concepts of share premium and the issue of shares at a discount have also been abolished accordingly.

The Companies Amendment Act also introduced new provisions on treasury shares. Under these new provisions, shares which are the subject of a share repurchase by a company can be held by that company as treasury shares instead of being cancelled. The right to attend and vote at meetings and the right to dividend or other distributions will be suspended for so long as the repurchased shares are held in treasury.

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2.2 Alterations to the Memorandum and Articles. Alterations are proposed to the Memorandum and Articles in order to update them generally and to be in line with the changes introduced to the Companies Act. The Company is also taking this opportunity to streamline and rationalise certain other provisions in the Articles. The alterations to the Articles are proposed to take effect immediately.

2.3 The Proposed Alterations to Clause 5 of the Memorandum. Clause 5 sets out the authorised capital of the Company and the division of the capital into ordinary shares of $1.00 each. It is proposed that Clause 5 be deleted following the abolition of the concepts of authorised capital and par value pursuant to the Companies Act.

2.4 The Proposed Alterations to the Articles. The following is a summary of the main proposed alterations to the Articles:

2.4.1 Article 2

Article 2 is the interpretation section of the Articles, and is proposed to be altered as follows:

(i) definition of “Company” is altered so that the Articles would not need to be subsequently amended in the event the Company changes its name;

(ii) definition of “dividend” is altered to have its meaning cross referenced to the provisions of the Companies Act;

(iii) the expression “permitted alternative form” is added to allow for notices and accounts, etc of the Company to be circulated via electronic means;

(iv) the expression “Stock Exchange” is altered to mean the Singapore Exchange Securities Trading Limited or its successors in title;

(v) that the expression “treasury shares” is to have the meaning ascribed to it in the Companies Act, namely, shares which were (or are treated as having been) purchased by the Company in circumstances in which Section 76H of the Companies Act applies, and have been held by the Company continuously since the treasury shares were so purchased;

(vi) the expression “year” has been defined to mean calendar year; and

(vii) that, except where otherwise expressly provided in the Articles, references in the Articles to “holder(s)” of shares or a class of shares and “member(s)” shall exclude the Company in relation to shares held by it as treasury shares.

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2.4.2 Article 5

Article 5 provides for the issuance of shares by the Company and is proposed to be amended to provide, in addition to any permissive direction being given by the Company in general meeting, that new shares also need not be offered to existing members in proportion to their existing holdings but shall be subject to the limits and manner of calculation as may be prescribed by the Singapore Exchange Securities Trading Limited (“SGX-ST”) and as was permitted under applicable rules, including those prescribed by the National Association of Securities Dealers’ Automated Quotations System (“NASDAQ”). This is in line with current listing rules of the SGX-ST which permits a listed company to obtain a general share issue mandate (as discussed below) in respect of which authority may be given, inter alia, for shares to be issued otherwise than on a pro rata basis to members.

The existing Article 5(2) had stated that unless otherwise determined by the Company in general meeting or otherwise agreed by the holder of all shares for the time being issued, all shares shall before issue to be offered for subscription to the existing members in the proportion as nearly as the circumstance may admit to the number of shares then held by them. It is proposed that this be deleted from Article 5 and be re-stated, with alterations, as Article 50A. The purpose is to give a general mandate to the Directors to issue shares in Article 5 and to contain all alterations to the capital, including those in the existing Article 5(2), under the heading “Alteration of Capital”.

2.4.3 Article 6

The existing Article 6 will be deleted in its entirety and the existing Article 7 is renumbered as Article 6. No amendment is made to the text of the renumbered Article 6. The renumbered Article 6 deals with the variation of rights of the shareholders.

2.4.4 Article 7

Existing Article 8 to be amended and renumbered as Article 7. The renumbered Article 7 provides that the Company may repurchase its shares on such terms as the Company may think fit and in the manner prescribed by the Companies Act, and all shares repurchased by the Company shall be cancelled, if not held as treasury shares pursuant to the new Article 8. Consequential changes are proposed to the renumbered Article 7 to cater for the holding of any purchased or acquired shares as treasury shares in accordance with the Companies Act.

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2.4.5 Article 8

It is proposed that a new Article 8 be inserted to allow the Company to hold its shares in treasury. The new Article 8 shall provide that the Company may hold or deal with its treasury shares in the manner authorised by, or prescribed pursuant to, the Companies Act. These shares shall have no voting rights and shall not be entitled to any dividend or other distribution (whether in cash or otherwise) of the Company’s assets (including any distribution of assets to members on a winding up) made by the Company.

2.4.6 Article 10

Article 10 provides that the Company may exercise the powers of paying commissions conferred by the Companies Act and may also pay such brokerage as may be lawful. Although Section 69 of the Companies Act relating to the power to pay certain commissions has been repealed pursuant to the Companies Amendment Act, the Company may nevertheless retain a power to pay commissions or brokerage under the Articles. Article 10 is thus proposed to be altered to provide that the Company may pay commissions or brokerage on any issue of shares at such rate or amount and in such manner as the Directors may deem fit.

2.4.7 Article 13

Article 13 on share certificates provides (inter alia) that every share certificate must specify the number and class of shares to which it relates and the amount paid up thereon. Article 13 is proposed to be altered to provide that the amount (if any) unpaid on the shares must also be specified in the share certificate, in order to comply with Section 123 of the Companies Act. Other changes are proposed to bring the Article in line with market practice.

2.4.8 Articles 20 and 23

Article 20 deals with calls on members in respect of any money unpaid on their shares and Article 23 deals with sums due upon allotment of shares. It is proposed that these Articles be altered to remove all references to nominal value and share premium in line with the abolition of these concepts pursuant to the Companies Act.

2.4.9 Article 26

Article 26 provides for payment in advance of calls on shares and is proposed to be amended to clarify that such payments made shall extinguish, so far as the same shall extend, the liability upon the shares in respect of which it is made.

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2.4.10 Article 28

Article 28 provides for the retention of instruments of transfer indefinitely. Drafting changes are proposed to allow the Company to destroy instruments of transfer, cancelled share certificates, dividend mandates and notifications of change of addresses after the expiration of six years as these documents can be voluminous over a period of time. Consequently, the heading of this Article is also amended to read “Retention period of transfer instruments, cancelled share certificates, dividend mandates and notifications”.

2.4.11 Article 31

Article 31 deals with the directors’ right to decline to accept a transfer of shares and is proposed to be altered to delete the references to stamp duty payable on share certificates since, under current law, stamp duty is payable electronically and a certificate of payment of stamp duty is issued by the Inland Revenue Authority of Singapore.

2.4.12 Article 33

Article 33 provides that the register of transfers may be closed as determined by the Directors. It is proposed to amend this Article to take into account the requirements under NASDAQ regarding books closure.

2.4.13 Article 46

Article 46 allows for the conversion of shares to stock and vice versa. It is proposed to delete references to different denominations of shares in line with abolition of the concept of nominal value by the Companies Amendment Act.

2.4.14 Article 47

Article 47 relates to transfers of stock in the capital of the Company. In conjunction with the abolition of the concept of nominal value pursuant to the Companies Amendment Act, where references are made to the nominal amount of the shares from which the stock arose, they are proposed to be deleted. Further, references to “amount of stock” are proposed to be replaced with “number of stock units”.

2.4.15 Article 48

Article 48 relate to the rights of stockholder in the Company. Drafting changes are proposed to replace references to “amount of stock” with “number of stock units” in conjunction with the abolition of the concept of nominal value pursuant to the Companies Amendment Act.

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2.4.16 Article 50

Article 50 provides that the Company may by ordinary resolution inter alia increase its capital by such sum to be divided into shares of such amount as the resolution shall prescribe. It is proposed that in conjunction with the abolition of the concept of par value and authorised capital pursuant to the Companies Amendment Act, Article 50 be amended to provide that the Company may (i) consolidate and divide all or any of its shares (ii) sub-divide its shares subject to the provisions of the Companies Act; and (iii) cancel shares which have not been taken or which have been forfeited. Consequently, the heading of this Article is also amended to read “Power to consolidate, subdivide and cancel shares”.

2.4.17 New Articles 50A, 50B & 50C

A new Article 50A is proposed to provide that all new shares must first be offered to the existing shareholders in proportion to the number of the existing shares to which they are entitled.

A new Article 50B is proposed to give to the Directors a general authority to issue shares by way of rights, bonus or otherwise, and/or grant offers, agreements or options that might require shares to be issued and issue shares in pursuance of any instruments made or granted by the Directors provided that these new issues are subject to the limits and manner of calculation as may be prescribed by SGX-ST and as may be permitted by any stock exchange upon which the Company may be listed.

A new Article 50C is proposed to state that all new shares shall be subject to the provisions in the Statutes and these Articles with reference to allotment, payment of calls, lien, transfer, transmission, forfeiture and otherwise.

2.4.18 Article 51

Article 51, which provides that the Company may reduce its share capital, any capital redemption reserve fund or any share premium account as authorised by law, is proposed to be altered to delete the references to the capital redemption reserve fund and share premium account since, under the Companies Act, any amounts standing to the credit of the Company’s capital redemption reserve and share premium account now forms part of its share capital. It is proposed to further provide in Article 51 that the Company may also reduce any undistributable reserve, and to provide that upon cancellation of any share purchased or otherwise acquired by the Company (if not held as treasury shares), the amount of share capital of the Company shall be reduced by the extent to which any such cancelled share was purchased or acquired out of the capital of the Company. Consequently, the heading of this Article is amended to read “Power to reduce share capital and Share Buy Back”.

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2.4.19 Article 51A

Previously, a company was prohibited from providing financial assistance to third parties to acquire its own shares, as this might lead to an improper depletion of the company’s assets to the detriment of its creditors. The proposed new Article 51A liberalises the restrictions on the giving of financial assistance by the Company to third parties in line with Sections 76(9A), (9B), (9C) and (9D) of the Companies Act.

2.4.20 Articles 56 and 78

Article 56 lists the ordinary business to be transacted at general meetings and extraordinary general meetings and currently does not include that of fixing of the Directors’ fees. It is proposed to alter and add clarity to the language of Article 56 and also to include the fixing of Directors’ fees as ordinary business to be transacted at general meetings to bring it in line with the current practice of other listed companies. For consistency, consequent changes are also proposed to Article 78 to amend “remuneration” to “fees”.

2.4.21 Article 57(3)

Article 57(3) provides for accidental omission to give and non-receipt of notice of a meeting. For clarity, it is proposed to amend Article 57(3) to provide that such omission or non-receipt shall not invalidate any resolution passed at the meeting.

2.4.22 Article 58

Article 58 relates to a quorum at general meetings. The Article defines “member” to include a person attending as a proxy or as representing a corporation which is a member. As limited liability partnerships are currently allowed under the Companies Act, the definition of “member” under Article 58 is proposed to be amended to include a person representing a limited liability partnership (“LLP”) which is a member. Changes are also proposed to clarify that joint holders of shares will be treated as one member.

2.4.23 Article 62

Article 62 deals with the exceptions to a resolution being put to the vote of a general meeting and decided by a show of hands. Article 62 is proposed to be altered to provide that a poll can be demanded by a member present in person or by proxy and holding not less than 10 per cent. of the total number of paid-up shares of the Company (excluding treasury shares), instead of the total sum paid up on all the shares conferring that right, following the requirements of Section 178 of the Companies Act and the introduction of provisions on treasury shares in the Companies Act.

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2.4.24 Article 67

Article 67 deals with a resolution in writing signed by all members of the Company in a general meeting and is proposed to be deleted in compliance with Sections 183 and 184A of the Companies Act that allows the passing of resolutions by written means to be available only to private companies. No new article is proposed to be introduced. Instead, to preserve the numbering, Article 67 is intentionally left blank.

2.4.25 Article 68

Article 68 provides that every member shall be entitled to be present and to vote at any general meeting. For the avoidance of doubt, it is proposed that this Article be amended to expressly exclude the Company, as holder of treasury shares, from having voting rights.

2.4.26 Article 69

Article 69 provides that subject to any rights or restrictions for the time being attached to any class of shares, each member entitled to vote at a general meeting may vote in person or by proxy or by attorney. This Article is proposed to be altered to make it subject also to Article 8 (as proposed to be inserted) which will provide that the Company shall not exercise any right (including the right to attend and vote at general meetings) in respect of treasury shares other than as provided by the Companies Act.

2.4.27 Article 71

Article 71 provides for a member which is a corporation to attend the Company’s meetings through a representative. In line with the proposed amendment to Article 58, it is proposed to amend this Article to include an LLP as a member. For clarity, it is also proposed to amend this Article to provide that the corporation or LLP is deemed present at such meetings if attended by its representative. Consequently, the heading of this Article is also amended to read “Corporations and limited liability partnerships acting by representatives”.

2.4.28 Article 74

Article 74 provides that the instrument appointing a proxy and the power of attorney, if any, under which is it signed or a notarially certified copy of the power of attorney must be deposited at the Company’s registered office. It is proposed that this Article be amended to delete the requirement for the copy of the power of

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attorney to be notarially certified to make it less onerous for members. Deletion of the word “notarially” gives the Share Registrar and/or Company Secretary the discretion to interpret the requirement of “certified” as they think fit.

2.4.29 Article 90(2)

Article 90(2) defines “non-executive Director” to mean a Director who does not hold any other office of profit in the Company or any subsidiary or associated company. It is now proposed to substitute the words ‘subsidiary or associated company’ with ‘related corporation’, in accordance with Section 201B(2) of the Companies Act. Drafting changes are also made to Article 90(2) to correct typographical errors.

2.4.30 Article 96(2)

Article 96(2) provides that the Directors may confer by telephone or other electronic means of communications and their participation in this manner shall be deemed to constitute presence in person at a meeting. The Article is expanded to include that the meeting as aforesaid is deemed to be held at the registered office of the Company or at a place agreed upon by the Directors attending the meeting, provided that at least one Director present at the meeting was at that place for the duration of the meeting. This can be a practical problem if not expressly provided in the Articles.

2.4.31 Article 100

Article 100 provides that a committee may meet and adjourn its meeting as it thinks proper. There is currently no direct provision on the forming of such a committee. It is proposed that this Article be amended to provide that the Directors may delegate any of their powers to committees consisting of such member or members of their body as well as to persons other than Directors in order to provide the Company with greater flexibility in harnessing the relevant expertise from within as well as outside the Company.

2.4.32 Article 105

Article 105 provides that the Directors may from time to time appoint one or more of their body to the office of Executive Director for such period and on such terms as they think fit. Drafting changes are made to correct typographical errors.

2.4.33 Article 114

Article 114 provides that the Directors shall lay before the Company at each annual general meeting the accounts of the Company. It is proposed to amend this Article to state that the interval between the date of the annual general meeting and the

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close of a financial year of the Company shall not exceed four months to comply with Section 201 of the Companies Act. Consequently, the heading of this Article is also amended to read “Presentation of accounts and timely submission”.

2.4.34 Article 115

Article 115 provides that the accounts of the Company is to be sent by post to its members. This Article is proposed to be amended to be consistent with the proposed amendments to Article 128 regarding the sending of documents to members via electronic means.

2.4.35 Article 119

Article 119 allows the payment of dividends out of the profits of the Company. For clarity, it is proposed to amend the Article by stating that profits from the sale and purchase of treasury shares shall not form part of the profits from which dividends may be paid out of.

2.4.36 Article 126

Article 126, which deals with the capitalisation of profits and reserves, is proposed to be altered to permit the issue of bonus shares for which no consideration is payable and to capitalise any sum standing to the credit of the Company’s reserves, and to delete the references to the capital redemption reserve fund and the share premium account since, under the Companies Act, any amounts standing to the credit of the Company’s capital redemption reserve and share premium account become part of its share capital.

Article 126 is also proposed to be altered to make it clear that such power is without prejudice to the provisions of Article 5 (as proposed to be amended) and also to enable the Company to issue bonus shares pursuant to a general mandate given by shareholders to the Company under Article 5 (as proposed to be amended), without having to seek specific approval of shareholders for each issue of bonus shares. Consequently the heading of this Article is also amended to read “Bonus issues and capitalisation of profits and reserves”.

2.4.37 Article 127

Drafting changes are proposed for a new Article 127 (1) to give full power to the Directors to make such provisions as they think fit for any fractional entitlements which would arise when the Company issues bonus shares or capitalises its undivided profits.

A new Article 127(2) is also proposed to give Directors the powers to issue shares for which no consideration is payable and to capitalise any undivided profits, in

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each case, on terms that such shares shall, upon issue, be held for the benefit of participants of any share incentive or option scheme or plan implemented by the Company. Such alteration proposed for the new Article 127(2) will facilitate and provide greater flexibility to the Company for the delivery of shares to participants in respect of vested awards granted pursuant to any share-based incentive plan that may be implemented by the Company in the future.

2.4.38 Articles 128, 130 and 134

Articles 128, 130 and 134 currently provide that notices may be served by the Company or, in the case of Article 134 by the liquidator, either personally or by post.

The Companies Act (with the exception of Section 28(a) and (c)) introduced new provisions that permit electronic distribution of notices of meetings, statutory reports and other documents to members, officers and Auditors of the Company under certain specified conditions. Electronic transmission may be in the form of sending the notice or documents using electronic communications to the current address of the recipient such that they are accessible by the recipient.

To update the Articles, it is proposed that Articles 128, 130 and 134 be altered to allow notice to be served on any member whose address is in the Company’s register and to permit the Company to serve or deliver notices using electronic communications in accordance with Sections 387A and 387B of the Companies Act, and/or any other applicable regulations or procedures.

2.5 Text of the Memorandum and Articles to be altered. The text of the clauses of the Memorandum and Articles which are proposed to be deleted or altered are set out in Appendix B(2) of this letter.

2.6 Shareholders’ Approval. The proposed alterations to the Memorandum and Articles are subject to Shareholders’ approval in the form of a special resolution.

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APPENDIX B(2)

ALTERATIONS TO THE MEMORANDUM AND ARTICLES OF ASSOCIATION

The alterations which are proposed to be made to the Memorandum and Articles of Association of the Company are set out below. For ease of reference the full text to the Clauses and Articles proposed to be altered have been reproduced and, where appropriate, deletions from the existing articles are marked by underlining the same, while the new provisions and additions/alterations to the existing provisions are indicated in bold.

PROPOSED ALTERATION TO THE MEMORANDUM

Clause 5

5. The share capital of the company is S$100,000/- divided into 100,000 ordinary shares of S$1/- each. The shares in the original or any increased capital may be divided into several classes, and there may be attached thereto respectively any preferential, deferred or other special rights, privileges, conditions as restrictions as to dividends, capital, voting or otherwise.

Proposed Alterations to Clause 5

By deleting Clause 5 in its entirety.

PROPOSED ALTERATIONS TO THE ARTICLES

Existing Article 2

2. Definitions

In these Articles: -

“the Act”	means the Companies Act (Cap. 50) or any statutory modification thereof for the time being in force;
“Articles”	means these Articles of Association or as amended from time to time;
“Company”	means CREATIVE TECHNOLOGY LTD;
“Directors” or “the Board”	means the Directors for the time being of the Company as a body or a quorum of the Directors present at a meeting of the Directors;
“dividend”	includes bonus;

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“market day”	means a day on which the Stock Exchange is open for trading of securities;
“member”	means a registered shareholder of the Company; Provided always that where the Depository is named in the Register of Members of the Company:-
	(a)    the Depository shall be deemed not to be a member of the Company; and
	(b)    the depositors shall be deemed to be members of the Company in respect of the shares of the Company entered against their respective names in the Depository Register;
“month”	means a calendar month;
“NASDAQ”	means the National Association of Securities Dealers’ Automated Quotations System;
“office”	means the registered office of the Company;
“seal”	means the common seal of the Company;
“Secretary”	means any person appointed to perform the duties of a secretary of the Company;
“Statutes”	means the Act and every other Act being in force concerning companies and affecting the Company;
“Stock Exchange”	means the Stock Exchange of Singapore Limited
“$”	refers to the lawful currency of Singapore.

the expressions “depositor”, “Depository”, “depository agent” and “Depository Register” shall have the meanings ascribed to them respectively in the Act;

references in these Articles to “holders” of the shares or a class of shares shall:-

(i) exclude the Depository except where otherwise expressly provided in these Articles or where the term “registered holders” or “registered holder” is used in these Articles; and

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(ii) where the context so requires, be deemed to include references to depositors whose names are entered in the Depository Registry in respect of those shares;

except where the context otherwise requires, and “holding” and “held” shall be construed accordingly;

references in these Articles to “Register of Members” shall include the Depository Register, where applicable;

expressions referring to writing shall, unless contrary intention appears, be construed as including references to printing, lithography, photography and other modes of representing or reproducing words in a visible form;

words or expressions contained in these Articles shall be interpreted in accordance with the provisions of the Interpretation Act (Cap.1) and of the Act;

words denoting the singular number only shall include the plural number and vice versa; words denoting the masculine gender only shall include the feminine and neuter genders; words denoting persons shall include corporations and other bodies of persons;

the marginal notes in these Articles are inserted for convenience and reference only are in no way designed to limit or circumscribe the scope of these Articles.

Proposed Alterations to Existing Article 2

The words underlined above in the existing Article 2 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

2. Definitions

In these Articles: -

WORDS	MEANINGS
“the Act”	means the Companies Act (Cap. 50) or any statutory modification, thereof for the time being in force;
“Articles”	means these Articles of Association or as amended from time to time;
“Company”	means the abovenamed Company by whatever name from time to time called;

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“Directors ” or “the Board”	means the Directors for the time being of the Company as a body or a quorum of the Directors present at a meeting of the Directors;
“dividend”	means the dividend permissible under the Act and includes bonus;
“market day(s)”	means a day on which the Stock Exchange is open for trading in securities;
“member(s)”	means a registered shareholder of the Company; Provided always that where the Depository is named in the Register of Members of the Company: -
	(a)    the Depository shall be deemed not to be a member of the Company; and
	(b)    the depositors shall be deemed to be members of the Company in respect of the shares of the Company entered against their respective names in the Depository Register;
	save that references in these Articles to “member(s)” shall where the Act requires, exclude the Company where it is a member by reason of its holding of its shares as treasury shares;
“month”	means a calendar month;
“NASDAQ”	means the National Association of Securities Dealers’ Automated Quotations System;
“office”	means the registered office of the Company;
“permitted alternative form”	means electronic mail, facsimile, telex, website hyperlinks and such other means of electronic communication as may be agreed to by the Company and its members from time to time or as otherwise provided by the Act;
“seal”	means the common seal of the Company;
“Secretary”	means any person appointed to perform the duties of a secretary of the Company;
“Statute(s)”	means the Act and every other Act being in force concerning companies and affecting the Company;

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“Stock Exchange”	means the Singapore Exchange Securities Trading Limited or its successors in title;
“treasury shares”	means issued shares of the Company which was (or is treated as having been) purchased by the Company in circumstances which section 76H of the Act applies and has since such purchase been continuously held by the Company;
“year”	means calendar year;
“$”	refers to the lawful currency of Singapore;

the expressions “depositor”, “Depository”, “depository agent” and “Depository Register” shall have the meanings ascribed to them respectively in the Act;

references in these Articles to “holders” of the shares or a class of shares shall;-

(i) exclude the Depository except where otherwise expressly provided in these Articles or where the term “registered holders” or “registered holder” is used in these Articles;

(ii) where the context so requires, be deemed to include references to depositors whose names are entered in the Depository Registry in respect of those shares; and

(iii) except where otherwise expressly provided in these Articles, exclude the Company in relation to shares held by it as treasury shares;

and “holding” and “held” shall be construed accordingly;

references in these Articles to “Register of Members” shall include the Depository Register, where applicable;

expressions referring to writing shall, unless contrary intention appears, be construed as including references to printing, lithography, photography and other modes of representing or reproducing words in a visible form;

words or expressions contained in these Articles shall be interpreted in accordance with the provisions of the Interpretation Act (Cap.1) and of the Act;

words denoting the singular number only shall include the plural number and vice versa; words denoting the masculine gender only shall include the feminine and neuter genders; words denoting persons shall include corporations and other bodies of persons.

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Existing Article 5

5. Issue of shares

(1) No shares shall be issued by the Directors without the prior approval of the Company in general meeting.

(2) Unless otherwise determined by the Company in general meeting or otherwise agreed by the holders of all the shares for the time being issued, all unissued shares shall before issue be offered for subscription to the members in proportion as nearly as the circumstances will admit to the number of shares then held by them. Any such offer shall be made by notice specifying the number and class of shares and the price at which the same are offered and limiting the time (such period as the Directors think fit) within which the offer if not accepted will be deemed to be declined and, after the expiration of that time, or on the receipt of an intimation of the person to whom the offer is made that he declines to accept the shares offered, the Directors may dispose of those shares in such manner as they think most beneficial to the Company. The Directors may likewise so dispose of any new shares which (by reason of the ratio which the new shares bear to shares held by persons entitled to an offer of new shares) cannot, in the opinion of the Directors, be conveniently offered in accordance with this Article.

(3) Subject as aforesaid, all unissued shares shall be at the disposal of the Directors and they may allot or grant options over or otherwise deal with or dispose of the same to such person, at such times, and generally on such terms as they think proper, but so that no shares shall be issued at a discount except in accordance with the Act.

(4) No ordinary shares or class of ordinary shares may be issued with the effect of nullifying, restricting or disparately reducing the per share voting rights of the holders of an outstanding class or classes of ordinary shares of the Company.

Proposed Alterations to Existing Article 5

The words underlined above in the existing Article 5 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

5. Issue of shares

(1) Subject to the Statutes and these Articles (in particular Articles 50A and 50B), no shares may be issued by the Directors without the prior approval of the Company in general meeting but subject thereto and to any special

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rights attached to any shares for the time being issued, the Directors may allot and issue shares or grant options over or otherwise dispose of the same to such persons on such terms and conditions and for such consideration and at such time and subject or not to the payment of any part of the amount thereof in cash as the Directors may think fit, and any shares may be issued with such preferential, deferred, qualified or special rights, privileges or conditions as the Directors may think fit, and preference shares may be issued which are or at the option of the Company are liable to be redeemed, the terms and manner of redemption being determined by the Directors, Provided always that:

(a) (subject to any direction to the contrary that may be given by the Company in general meeting) any issue of shares for cash to members holding shares of any class shall be offered to such members in proportion as nearly as may be to the number of shares of such class then held by them and the provisions of the second sentence of Article 50A with such adaptations as are necessary shall apply; and

(b) any other issue of shares, the aggregate of which would exceed the limits referred to in Article 50B, shall be subject to the approval of the Company in general meeting.

(2) No ordinary shares or class of ordinary shares may be issued with the effect of nullifying, restricting or disparately reducing the per share voting rights of the holders of an outstanding class or classes of ordinary shares of the Company.

(3) The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking equally with, or in priority to such shares.

Existing Article 6

6. (1) Rights to be attached to new shares

Without prejudice to any special rights or privileges attached to any then existing shares in the capital of the Company, any new shares may be issued upon such terms and conditions, and with such rights and privileges attached thereto, as the Company by special resolution may direct or, if no such direction be given, as the Directors shall determine, and in particular, such shares may be issued

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with preferential, qualified or deferred rights to dividends and in the distribution of assets of the Company, and with a special or restricted right of voting, and any preference shares may be issued on the terms that it is, or at the option of the Company, liable to be redeemed.

(2) Rights varied by the issue of further shares

The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking equally with, or in priority to such shares.

Proposed Alterations to Existing Article 6

By deleting Article 6 in its entirety and re-numbering the existing Article 7 as Article 6.

6. Variation of rights

If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of three-fourths of the issued shares of that class, or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class. To every such separate general meeting the provisions of these Articles relating to general meetings shall mutatis mutandis apply, but so that the necessary quorum shall be two persons at least holding or representing by proxy one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll. Provided always that where the necessary majority for such a special resolution is not obtained at the meeting, consent in writing if obtained from the holders of three-fourths of the issued shares of the class concerned within two months of the meeting shall be as valid and effectual as a special resolution carried at the meeting.

Existing Article 8

8. Prohibition of dealing in its own shares

Subject to and in accordance with the provisions of the Act, the Company may purchase or otherwise acquire ordinary shares issued by it on such terms as the Company may think fit and in the manner prescribed by the Act. All shares repurchased by the Company shall be cancelled.

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Proposed Alterations of Article 8 and re-numbering as Article 7

By renumbering as Article 7 and adding the words in bold below:

7. Prohibition of dealing in its own shares

Subject to and in accordance with the provisions of the Act, the Company may purchase or otherwise acquire ordinary shares issued by it on such terms as the Company may think fit and in the manner prescribed by the Act. Unless as permitted under Article 8 hereof all shares repurchased by the Company shall be cancelled immediately on purchase or acquisition by the Company. On the cancellation of a share as aforesaid, the rights and privileges attached to that share shall expire. In any other instance, the Company may hold or deal with any such share so purchased or acquired by it in such manner as may be permitted by, and in accordance with, the Act.

Proposed New Article 8

By inserting a new Article 8 as follows:

8. Treasury shares

The Company may hold or deal with its treasury shares in the manner authorised by, or prescribed pursuant to, the Act. The treasury shares shall have no voting rights and shall not be entitled to any dividend or other distribution (whether in cash or otherwise) of the Company’s assets (including any distribution of assets to members on a winding up) that may be made by the Company.

Existing Article 10

10. Power to pay commission and brokerage

The Company may exercise the powers of paying commissions conferred by the Act, provided that the rate per cent. or the amount of the commission paid or agreed to be paid shall be disclosed in the manner required by the Act and the commission shall not exceed the rate of 10 per cent. of the price at which the shares in respect whereof the same is paid are issued or an amount equal to 10 per cent. of that price (as the case may be). Such commission may be satisfied by the payment of cash or the allotment of fully or partly paid shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage as may be lawful.

Proposed Alterations to Existing Article 10

The words underlined above in the existing Article 10 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

10. Power to pay commission and brokerage

The Company may exercise the powers of paying commissions or brokerage on any issue at such rate or amount and in such manner as the Directors may deem fit. Such commissions or brokerage may be satisfied by the payment of cash or the allotment of fully or partly paid shares or partly in one way and partly in the other.

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Existing Article 13

13. Form of share certificate

Every certificate of the title to shares shall be issued under the seal in such form as the Directors shall from time to time prescribe, shall bear the autographic or facsimile signatures of one Director and the Secretary or a second Director or some other person appointed by the Directors and shall specify the number and class of shares to which it relates and the amounts paid thereon. The facsimile signatures may be reproduced by mechanical, electronic or other method approved by the Directors.

Proposed Alterations to Existing Article 13

The words underlined above in the existing Article 13 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

13. Form of share certificate

Every certificate of the title to shares shall be issued under the seal in such form as the Directors shall from time to time prescribe, shall bear the autographic or facsimile signatures of either two Directors or one Director and the Secretary or some other person appointed by the Directors and shall specify the number and class of shares to which it relates and the amounts paid and the amount (if any) unpaid thereon. The facsimile signatures may be reproduced by mechanical, electronic or other method approved by the Directors. No certificate shall be issued representing shares of more than one class.

Existing Article 20

20. Calls on shares

The Directors may from time to time make calls upon the members in respect of any money unpaid on their shares (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times, provided that no call shall exceed one fourth of the nominal value of the share or be payable at less than one month from the date fixed for the payment of the last preceding call, and each member shall (subject to receiving at least 14 days’ notice

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specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked or postponed as the Directors may determine.

Proposed Alterations to Existing Article 20

The words underlined above in the existing Article 20 (other than its heading) are proposed to be deleted:

20. Calls on shares

The Directors may from time to time make calls upon the members in respect of any money unpaid on their shares and not by the conditions of allotment thereof made payable at fixed times provided that no call shall be payable at less than one month from the date fixed for the payment of the last preceding call, and each member shall (subject to receiving at least 14 days’ notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked or postponed as the Directors may determine.

Existing Article 23

23. Sum due on allotment

Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall for the purposes of these Articles be deemed to be a call duly made and payable on the date on which by the terms of issue the same becomes payable, and in case of non-payment all the relevant provisions of these Articles as to payment of interest and expenses, forfeiture, or otherwise shall apply as if the sum had become payable by virtue of a call duly made and notified.

Proposed Alterations to Existing Article 23

The words underlined above in the existing Article 23 (other than its heading) are proposed to be deleted:

23. Sum due on allotment

Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, shall for the purposes of these Articles be deemed to be a call duly made and payable on the date on which by the terms of issue the same becomes payable, and in case of non-payment, all the relevant provisions of these Articles as to payment of interest and expenses, forfeiture, or otherwise shall apply as if the sum had become payable by virtue of a call duly made and notified.

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Existing Article 26

26. Payment in advance of calls

The Directors may, if they think fit, receive from any member willing to advance the same all or any part of the money uncalled and unpaid upon any shares held by him, and upon all or any part of the money so advanced may (until the same would, but for the advance, become payable) pay interest at such rate not exceeding (unless the Company in general meeting shall otherwise direct) 8 per cent. per annum as may be agreed upon between the Directors and the member paying the sum in advance. Capital paid on shares in advance of calls shall not, whilst carrying interest, confer a right to participate in profits.

Proposed Alterations to Existing Article 26

The words in bold below are proposed to be added to the existing Article 26:

26. Payment in advance of calls

The Directors may, if they think fit, receive from any member willing to advance the same all or any part of the money uncalled and unpaid upon any shares held by him, and such payments in advance of calls shall extinguish, so far as the same shall extend, the liability upon the shares in respect of which it is made, and upon all or any part of the money so advanced may (until the same would, but for the advance, become payable) pay interest at such rate not exceeding (unless the Company in general meeting shall otherwise direct) 8 per cent. per annum as may be agreed upon between the Directors and the member paying the sum in advance. Capital paid on shares in advance of calls shall not, whilst carrying interest, confer a right to participate in profits.

Existing Article 28

28. Retention of transfers

All instruments of transfer which shall be registered shall be retained by the Company but any instrument of transfer which the Directors may refuse to register shall (except in any case of fraud) be returned to the party presenting the same.

Proposed Alterations to Existing Article 28

The words underlined above in the existing Article 28 (including part of its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

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28. Retention period of transfer instruments, cancelled share certificates, dividend mandates and notifications

The Company shall be entitled to destroy all instruments of transfer which have been registered at any time after the expiration of six years from the date of registration thereof and all dividend mandates and notifications of change of address at any time after the expiration of six years from the date of recording thereof and all share certificates which have been cancelled at any time after the expiration of six years from the date of the cancellation thereof and it shall conclusively be presumed in favour of the Company that every entry in the Register of Members purporting to have been made on the basis of an instrument of transfer or another document so destroyed was duly and properly made and every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered and every share certificate so destroyed was a valid and effective certificate duly and properly cancelled and every other document hereinbefore mentioned so destroyed was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company provided always that:-

(a) the provisions aforesaid shall apply only to the destruction of a document in good faith and without notice of any claim (regardless of the parties thereto) to which the document might be relevant;

(b) nothing herein contained shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any other circumstances which would not attach to the Company in the absence of this Article; and

(c) references herein to the destruction of any document include references to the disposal thereof in any manner.

Existing Article 31

31. Instrument of transfer

The Directors may decline to accept any instrument of transfer unless:-

(a) such fee not exceeding $2.00 as the Directors may from time to time determine is paid to the Company in respect thereof;

(b) the instrument of transfer is duly stamped in accordance with any law for the time being in force relating to stamp duty;

(c) the instrument of transfer is deposited at the office or such other place (if any) as the Directors may appoint accompanied by the certificates of the shares to which it relates and such other evidence as the Directors may reasonably require to

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show the right of the transferor to make the transfer and, if the instrument of transfer is executed by some other person on his behalf, the authority of the person so to do; and

(d) such fee not exceeding $2.00 as the Directors may from time to time determine is paid to the Company in respect of the registration of any probate, letters of administration, certificate of marriage or death, power of attorney or any document relating to or affecting the title to the shares.

Proposed Alterations to Existing Article 31

The words underlined above in the existing Article 31 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

31. Instrument of transfer

The Directors may decline to register any instrument of transfer unless: -

(a) such fee not exceeding $2.00 as the Directors may from time to time determine, is paid to the Company in respect thereof;

(b) the amount of proper duty (if any) chargeable for each instrument of transfer under any law for the time being in force relating to stamps is paid;

(c) the instrument of transfer is deposited at the office or at such other place (if any) as the Directors may appoint accompanied by a certificate of payment of stamp duty (if any), the certificates of the shares to which the transfer relates, and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer and, if the instrument of transfer is executed by some other person on his behalf, the authority of the person so to do; and

(d) such fee not exceeding $2.00 as the Directors may from time to time determine is paid to the Company in respect of the registration of any probate, letters of administration, certificate of marriage or death, power of attorney or any document relating to or affecting the title to the shares.

All instruments of transfer which are registered may be retained by the Company, but any instrument of transfer which the Directors may decline to register shall be returned to the person depositing the same except in the case of fraud.

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Existing Article 33

33. Register of Transfers

The Company shall maintain a Register of Transfers which shall be kept under the control of the Directors, and in which shall be entered the particulars of every transfer of shares. The Register of Transfers may be closed at such times and for such periods as the Directors may from time to time determine provided always that it shall not be closed for more than 30 days in the aggregate in any year.

Proposed Alterations to Existing Article 33

The words underlined above in the existing Article 33 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

33. Register of Transfers

The Company shall maintain a Register of Transfers which shall be kept under the control of the Directors, and in which shall be entered the particulars of every transfer of shares. The Register of Transfers may be closed during such times as the Directors may think fit, provided always that such Register shall not be closed for more than thirty days in each year and that the Company shall give prior notice of such closure as may be required to any stock exchange upon which the Company may be listed, stating the period and the purpose or purposes for which the closure is made.

Existing Article 46

46. Power to convert into stock

The Company may by ordinary resolution passed at a general meeting convert any paid-up shares into stock and reconvert any stock into paid-up shares of any denomination.

Proposed Alterations to Existing Article 46

The words underlined above in the existing Article 46 (other than its heading) are proposed to be deleted:

46. Power to convert into stock

The Company may by ordinary resolution passed at a general meeting convert any paid-up shares into stock and reconvert any stock into paid-up shares.

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Existing Article 47

47. Transfer of stock

The holders of stock may transfer the same or any part thereof in the same manner and subject to the same Articles as and subject to which the shares from which the stock arose might previously to conversion have been transferred or as near thereto as circumstances admit; but the Directors may from time to time fix the minimum amount of stock transferable and restrict or forbid the transfer of fractions of that minimum, but the minimum shall not exceed the nominal amount of the shares from which the stock arose.

Proposed Alterations to Existing Article 47

The words underlined above in the existing Article 47 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

47. Transfer of stock

The holders of stock may transfer the same or any part thereof in the same manner and subject to the same Articles as the shares from which the stock arose might previously to conversion have been transferred or as near thereto as circumstances admit; but the Directors may from time to time fix the minimum number of stock units transferable and restrict or forbid the transfer of fractions of that minimum.

Existing Article 48

48. Rights of stockholders

The holders of stock shall according to the amount of the stock held by them have the same rights, privileges and advantages as regards dividends voting at meetings of the Company and other matters as if they held the shares from which the stock arose, but no such privilege or advantage (except participation in the dividends and profits of the Company and in the assets on winding up) shall be conferred by any such aliquot part of stock which would not if existing in shares have conferred that privilege or advantage.

Proposed Alterations to Existing Article 48

The words underlined above in the existing Article 48 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

48. Rights of stockholders

The holders of stock shall according to the number of the stock units held by them have the same rights, privileges and advantages as regards dividends, voting at meetings of the Company and other matters as if they held the shares from which the stock arose, but no such privilege or advantage (except participation in the dividends

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and profits of the Company and in the assets on winding up) shall be conferred by any such aliquot part of stock which would not if existing in shares have conferred that privilege or advantage.

Existing Article 50

50. Power to increase the share capital, consolidate, cancel and sub-divide shares

The Company may from time to time by ordinary resolution: -

(a) increase the share capital by such sum to be divided into shares of such amount as a resolution shall prescribe;

(b) consolidate and divide all or any of its share and sub-capital into shares of larger amount than its existing shares;

(c) subdivide its shares or any of them into shares of smaller amount than is fixed by the memorandum; so however that in the subdivision the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;

(d) cancel shares which at the date of the passing of the resolution in that behalf have not been taken or agreed to be taken by any person or which have been forfeited and diminish the amount of its share capital by the amount of the shares so cancelled.

Proposed Alterations to Existing Article 50

The words underlined above in the existing Article 50 (including its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

50. Power to consolidate, subdivide and cancel shares

The Company may from time to time by ordinary resolution: -

(a) consolidate and divide all or any of its shares;

(b) subdivide its shares or any of them (subject nevertheless to the provisions of the Act) provided always that in such subdivision the proportion between the amount paid and the amount (if any) unpaid on each reduced share capital shall be the same as it was in the case of the share from which the reduced share is derived; and

(c) cancel shares which at the date of the passing of the resolution in that behalf have not been taken or agreed to be taken by any person or which have been forfeited and diminish the amount of its share capital by the amount of the shares so cancelled.

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Proposed New Articles 50A, 50B and 50C

By inserting new Articles 50A, 50B and 50C as follows:

50A. Pre-emption Rights

Subject to any direction to the contrary that may be given by the Company in general meeting, all new shares shall, before issue, be offered to such persons who as at the date of the offer are entitled to receive notices from the Company of general meetings in proportion, as far as the circumstances admit, to the number of the existing shares to which they are entitled. The offer shall be made by notice specifying the number of shares offered, and limiting to a time within which the offer, if not accepted, will be deemed to be declined, and, after the expiration of that time, or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered, the Directors may dispose of those shares in such manner as they think most beneficial to the Company. The Directors may likewise so dispose of any new shares which (by reason of the ratio which the new shares bear to shares held by persons entitled to an offer of new shares) cannot, in the opinion of the Directors, be conveniently offered under this Article 50A.

50B. General Mandate to Issue Shares

Notwithstanding Article 50A above but subject to the Statutes, the Company may, by ordinary resolution in general meeting give to the Directors a general authority, either unconditionally or subject to such conditions as may be specified in the ordinary resolution, to:-

(a) (i)       issue shares in the Company (“shares”) whether by way of rights, bonus or otherwise; and/or

(ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares; and

(b) (notwithstanding the authority conferred by the ordinary resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while the ordinary resolution was in force,

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provided that:-

(1) the aggregate number of shares to be issued pursuant to the ordinary resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to the ordinary resolution) shall be subject to such limits and manner of calculation as may be prescribed by the Stock Exchange from time to time and as may be permitted by any stock exchange upon which the Company may be listed;

(2) in exercising the authority conferred by the ordinary resolution, the Company shall comply with the provisions of the Listing Manual of the Stock Exchange for the time being in force (unless such compliance is waived by the Stock Exchange) and these Articles and such provisions as may be required by any stock exchange upon which the Company may be listed;

(3) (unless revoked or varied by the Company in general meeting) the authority conferred by the ordinary resolution shall not continue in force beyond the conclusion of the annual general meeting of the Company next following the passing of the ordinary resolution, or the date by which such annual general meeting of the Company is required by law to be held, or the expiration of such other period as may be prescribed by the Statutes (whichever is the earliest).

50C. General Provisions Relating to New Shares

Except so far as otherwise provided by the conditions of issue or by these Articles, all new shares shall be subject to the provisions of the Statutes and of these Articles with reference to allotment, payment of calls, lien, transfer, transmission, forfeiture and otherwise.

Existing Article 51

51. Power to reduce share capital

The Company may by special resolution reduce its share capital, any capital redemption reserve fund or any share premium account in any manner and with, and subject to, any incident authorized, and consent required by law.

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Proposed Alterations to Existing Article 51

The words underlined above in the existing Article 51(other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

51. Power to reduce share capital and Share Buy Back

(a) The Company may from time to time by special resolution reduce its issued share capital or any undistributable reserve in any manner and subject to any incident authorised and consent required by law. Without prejudice to the generality of the foregoing, upon cancellation of any share purchased or otherwise acquired by the Company pursuant to these Articles, the number of issued shares of the Company shall be diminished by the number of shares so cancelled, and, where any such cancelled share was purchased or acquired out of the capital of the Company, the amount of issued capital of the Company shall be reduced accordingly.

(b) The Company may, subject to and in accordance with the Act, purchase or otherwise acquire its issued shares on such terms and in such manner as the Company may from time to time think fit. Any share which is so purchased or acquired by the Company shall, unless held as a treasury share in accordance with the Act, be deemed to be cancelled immediately on purchase or acquisition by the Company. On the cancellation of any share as aforesaid, the rights and privileges attached to that share shall expire. In any other instance, the Company may hold or deal with any such share which is so purchased or acquired by it in such manner as may be permitted by and in accordance with the Act.

Proposed New Article 51A

By inserting a new Article 51A as follows:

51A. Financial Assistance for Acquisition of the Company’s shares

Subject to the provisions of Sections 76(9A), (9B), (9C) and (9D) of the Act, the Company may from time to time, by a resolution of the Board give financial assistance to any party for the purpose of, or in connection with, an acquisition or proposed acquisition of the shares or units of shares in the Company or the holding company if the amount of assistance does not exceed 10% of the aggregate of the total paid up capital and the reserves of the Company, or by resolution of all its members present in person or by proxy at the relevant general meeting if the amount of assistance exceeds 10% of the total paid up capital and the reserves of the Company.

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Existing Article 56

56. Special business

All business shall be special that is transacted at an extraordinary general meeting, and also all that is transacted at an annual general meeting, with the exception of declaring a dividend, the consideration of the accounts, balance sheets, the report of the Directors and auditors, the election of Directors in the place of those retiring, and the appointment and fixing of the remuneration of the auditors.

Proposed Alterations to Existing Article 56

The words underlined above in the existing Article 56 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

56. Special business

The following business transacted at an annual general meeting shall be deemed to be ordinary:

a) declaring a dividend, b) the consideration of the accounts, balance sheets and the reports of the Directors and auditors, c) the election of Directors in place of those retiring by rotation or otherwise, d) fixing of fees of Directors and e) the appointment and fixing of the remuneration of the auditors.

All other business transacted at an annual general meeting and all business transacted at an extraordinary general meeting shall be considered as special business.

Existing Article 57(3)

57(3). Accidental omission to give and non-receipt of notice

The accidental omission to give notice of a meeting to or the non-receipt of notice of a meeting by any person entitled to receive notice shall not invalidate the proceedings at the meeting.

Proposed Alterations to Existing Article 57(3)

The words underlined above in the existing Article 57(3) (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

57(3). Accidental omission to give and non-receipt of notice

The accidental omission to give notice of meeting to or the non-receipt of a notice of a meeting by any person entitled to receive notice shall not invalidate any resolution passed at the meeting.

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Existing Article 58

58. Quorum

No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business. Members holding at least one-third of all the issued shares of the Company shall form quorum. For the purposes of this Article “member” includes a person attending as a proxy or as representing a corporation which is a member.

Proposed Alterations to Existing Article 58

The words in bold below are proposed to be added to the existing Article 58:

58. Quorum

No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business. Members holding at least one-third of all the issued shares of the Company shall form a quorum. For the purposes of this Article “member” includes a person attending as a proxy or as representing a corporation or limited liability partnership which is a member, and joint holders of any share shall be treated as one member.

Existing Article 62

62. Method of voting

At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless before or on the declaration of the result of the show of hands a poll is demanded:-

(a) by the Chairman;

(b) by at least two members present in person or by proxy;

(c) by any member or members present in person or by proxy, or any number or combination of such members or proxies, holding or representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or

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(d) by any member present in person or by proxy, or any number or combination of such members or proxies, holding or representing as the case may be, shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Unless a poll is so demanded a declaration by the Chairman that a resolution has on a show of hands been carried or carried unanimously, or by a majority of the total votes cast on the resolution, or lost, and an entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution. The demand for a poll may be withdrawn. In case of any dispute as to the admission or rejection of a vote, the Chairman shall determine the same and such determination made in good faith shall be final and conclusive.

Proposed Alterations to Existing Article 62

The words underlined above in the existing Article 62 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

62. Method of voting

At any general meeting, a resolution put to the vote of the meeting shall be decided by a show of hands unless before or on the declaration of the result of the show of hands a poll is demanded:-

(a) by the Chairman;

(b) by at least two members present in person or by proxy;

(c) by any member present in person or by proxy or any number or combination of such members or proxies, holding or representing as the case may be, not less than 10% of the total voting rights of all the members having the right to vote at the meeting; or

(d) by any member present in person or by proxy, or any number or combination of such members or proxies holding or representing as the case may be, shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than 10% of the total number of paid-up shares of the Company conferring that right.

Unless a poll be so demanded a declaration by the Chairman of the meeting that a

56

resolution has on a show of hands been carried or carried unanimously or by majority of the total votes cast on the resolution or lost and an entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution. The demand for a poll may be withdrawn. In case of any dispute as to the admission or rejection of a vote the Chairman shall determine the same and such determination made in good faith shall be final and conclusive.

Existing Article 67

67. Resolution by circular

Any resolution signed in writing whether by hand or facsimile by all members for the time being of the Company entitled to attend and vote at general meetings of the Company shall be valid as if it had been passed at a general meeting of the Company duly convened and held. Any such resolution may consist of several documents in like form each signed by or on behalf of one or more member. In the case of a corporate body which is a member, such resolution may be signed on its behalf by its corporate representative or proxy or attorney duly authorised in writing to sign the resolution on its behalf.

Proposed Alterations to Existing Article 67

By deleting Article 67 in its entirety and substituting therefor the following:

67. INTENTIONALLY LEFT BLANK

Existing Article 68

68. Right to vote

Every member shall be entitled to be present and to vote at any general meeting either personally or by proxy in respect of any shares upon which all calls due to the Company have been paid.

Proposed Alterations to Existing Article 68

The words in bold below are proposed to be added to the existing Article 68:

68. Right to vote

Every member (except the Company as holder of treasury shares, if any) shall be entitled to be present and to vote at any general meeting either personally or by proxy in respect of any shares upon which all calls due to the Company have been paid.

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Existing Article 69

69. Voting rights of members

Subject to any rights or restrictions as to voting for the time being attached to any class or classes of shares:-

(a) at a meeting of members or classes of members, each member entitled to vote may vote in person or by proxy;

(b) on a show of hands, every member present in person or by proxy, shall have one vote, provided that if a member is represented by two or more proxies, only one of the proxies, as the Chairman shall determine, shall be entitled to vote; and

(c) on a poll every member present in person or by proxy shall have one vote for each share he holds or represents.

For the purpose of determining the number of votes which a member, being a depositor, or his proxy may cast at any general meeting on a poll, the reference to shares held or represented shall, in relation to shares of that depositor, be the number of shares entered against his name in the Depository Register as at 48 hours before the time of the relevant general meeting as supplied to the Company by the Depository.

Proposed Alterations to Existing Article 69

The words in bold below are proposed to be added to the existing Article 69:

69. Voting rights of members

Subject to any rights or restrictions as to voting for the time being attached to any class or classes of shares for the time being forming part of the capital of the Company and to the provisions in Article 8 (Treasury shares) :-

(a) at a meeting of members or classes of members, each member entitled to vote may vote in person or by proxy;

(b) on a show of hands, every member present in person or by proxy, shall have one vote, provided that if a member is represented by two or more proxies, only one of the two or more proxies, as the Chairman shall determine, shall be entitled to vote; and

(c) on a poll every member present in person or by proxy shall have one vote for each share he holds or represents.

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For the purpose of determining the number of votes which a member, being a depositor, or his proxy may cast at any general meeting on a poll, the reference to shares held or represented shall, in relation to shares of that depositor, be the number of shares entered against his name in the Depository Register as at 48 hours before the time of the relevant general meeting as supplied to the Company by the Depository.

Existing Article 71

71. Corporations acting by representatives

Any corporation which is a member of the Company may by resolution of its directors or other governing body authorize any person to act as its representative at any general meeting of the Company or of any class of members of the Company and the person so authorized shall be entitled to exercise the same powers on behalf of the corporation as a corporation would exercise if it were personally present at the meeting.

Proposed Alterations to Existing Article 71

The words in bold below are proposed to be added to the existing Article 71:

71. Corporations and limited liability partnerships acting by representatives

Any corporation or limited liability partnership which is a member of the Company may by resolution of its directors or other governing body authorise any person to act as its representative at any general meeting of the Company or of any class of members of the Company and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation or limited liability partnership as a corporation or limited liability partnership would exercise if it were personally present at the meeting and such corporation or limited liability partnership shall for the purpose of these Articles (but subject to the Act) be deemed to be present in person at any such meeting if a person so authorised is present thereat.

Existing Article 74

74. Deposit of instrument appointing a proxy

The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority shall be deposited at the registered office of the Company, or at such other place in Singapore as is specified for that purpose in the notice convening the meeting, not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote, or, in the case of the poll, not less than 24 hours before the time appointed for the taking of the poll, and in default the instrument of proxy shall not be treated as valid.

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Proposed Alterations to Existing Article 74

The words underlined above in the existing Article 74 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

74. Deposit of instrument appointing a proxy

The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority shall be deposited at the registered office of the Company, or at such other place in Singapore as is specified for that purpose in the notice convening the meeting, not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote, or, in the case of the poll, not less than 24 hours before the time appointed for the taking of the poll, and in default, the instrument of proxy shall not be treated as valid.

Existing Article 78

78. Remuneration of Directors

The remuneration of the Directors shall from time to time be determined by the Company in general meeting. Such remuneration shall not be increased except pursuant to an ordinary resolution passed at a general meeting where notice of the proposed increase shall have been given in the notice convening the meeting. Such remuneration shall be divided among the Directors in such proportions and in such manner as they may agree and in default of agreement, equally, except that in the latter event any Director who shall hold office for part only of the period in respect of which such remuneration is payable shall be entitled to rank in such division for the proportion of remuneration related to the period during which he has held office.

Proposed Alterations to Existing Article 78

The words underlined above in the existing Article 78 (including part of its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

78. Fees of Directors

The fees of the Directors shall from time to time be determined by the Company in general meeting. Such fees shall not be increased except pursuant to an ordinary

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resolution passed at a general meeting where notice of the proposed increase shall have been given in the notice convening the meeting. Such fees shall be divided among the Directors in such proportions and in such manner as they may agree and in default of agreement, equally, except that in the latter event any Director who shall hold office for part only of the period in respect of which such fees is payable shall be entitled to rank in such division for the proportion of fees related to the period during which he has held office.

Existing Article 90(2)

90(2). Audit Committee

(i) An audit committee shall be appointed from by the Directors from among their number (pursuant to a resolution of the Board) and shall composed of not fewer than three members of which a majority shall not be :-

(a) executive Directors of the Company or any related corporation;

(b) spouse, parent, brother, sister, son or adopted son or daughter or adopted daughter of an executive Director of the Company or of any related corporation; or

(c) any person having a relationship which, in the opinion of the Directors, would interfere with the exercise of independent judgment in carrying out the function of an audit committee.

(ii) The members of an audit committee shall elect a Chairman from among their number who is not an executive Director or employee of the Company or any related corporation.

(iii) The audit committee may regulate its own procedure and in particular the calling of meetings, the notice to be given of such meetings, the voting and proceedings thereat, the keeping of the minutes and the custody, production and inspection of such minutes.

(iv) In these Articles, “non-executive Director” or “a person who is not an executive Director” means a Director who is not an employee of and does not hold any other office of profit in, the Company or any subsidiary or associated company of the Company in conjunction with his office of Director and his membership of an audit committee, and executive Director shall be read accordingly.

Proposed Alterations to Existing Article 90(2)

The words underlined above in the existing Article 90(2) (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

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90(2). Audit Committee

(i) An audit committee shall be appointed by the Directors from among their number (pursuant to a resolution of the Board) and shall composed of not fewer than three members of whom a majority shall not be :-

(a) executive Directors of the Company or any related corporation;

(b) spouse, parent, brother, sister, son or adopted son or daughter or adopted daughter of an executive Director of the Company or of any related corporation; or

(c) any person having a relationship which, in the opinion of the Directors, would interfere with the exercise of independent judgment in carrying out the functions of an audit committee.

(ii) The members of an audit committee shall elect a Chairman from among their number who is not an executive Director or employee of the Company or any related corporation.

(iii) The audit committee may regulate its own procedure and in particular the calling of meetings, the notice to be given of such meetings, the voting and proceedings thereat, the keeping of the minutes and the custody, production and inspection of such minutes.

(iv) In these Articles, “non-executive Director” or “a person who is not an executive Director” means a Director who is not an employee of and does not hold any other office of profit in the Company or any related corporation of the Company in conjunction with his office of Director and his membership of an audit committee, and executive Director shall be read accordingly.

Existing Article 96(2)

96(2) Conference by telephone or any electronic means

The Directors may, if they think fit, confer by telephone or any other electronic means of communication by which all persons participating are able, contemporaneously, to hear and be heard by all other participants, and participation in this manner shall be deemed to constitute presence in person at a meeting. The Directors participating in any such meetings shall be counted in the quorum for such meting and all resolutions passed by a majority of the Directors for the time being of the Company at such meetings shall, notwithstanding the Directors are not present together in one place at the time of the meeting, be as valid and effectual as if it had been passed at a meeting of the Directors of the company duly convened and held. The signature of a Director by telefax, cable, telegram or other electronic means (duly authenticated) on the attendance sheet of the Minutes shall be conclusive evidence of his presence at the meeting. The minutes of such a meeting signed by the Chairman shall be conclusive evidence of any resolution of any meeting conducted in the manner as aforesaid.

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Proposed Alterations to Existing Article 96(2)

The words in bold below are proposed to be added to the existing Article 96(2):

96(2) Conference by telephone or any electronic means

The Directors may, if they think fit, confer by telephone or any other electronic means of communication by which all persons participating are able, contemporaneously, to hear and be heard by all other participants, and participation in this manner shall be deemed to constitute presence in person at a meeting. The Directors participating in any such meetings shall be counted in the quorum for such meeting and all resolutions passed by a majority of the Directors for the time being of the Company at such meetings shall, notwithstanding the Directors are not present together in one place at the time of the meeting, be as valid and effectual as if it had been passed at a meeting of the Directors of the Company duly convened and held. The signature of a Director by telefax, cable, telegram or other electronic means (duly authenticated) on the attendance sheet of the Minutes shall be conclusive evidence of his presence at the meeting. A meeting conducted by telephone or other means of communication as aforesaid is deemed to be held at the registered office of the Company or at the place agreed upon by the Directors attending the meeting, provided at least one of the Directors present at the meeting was at that place for the duration of the meeting. The minutes of such a meeting signed by the Chairman shall be conclusive evidence of any resolution of any meeting conducted in the manner as aforesaid.

Existing Article 100

100. Meetings of committee

A committee may meet and adjourn its meetings as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present, and in the case of an equality of votes the Chairman shall have a second or casting vote.

Proposed Alterations to Existing Article 100

The words in bold below are proposed to be added to the existing Article 100:

100. Meetings of committee

(1) The Directors may delegate any of their powers to committees consisting of such member or members of their body and (if thought fit) one or more other persons co-opted as hereinafter provided. Any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may from time to time be imposed upon it by the Directors. Any such regulations may provide for or authorise the co-option to the committee of persons other than Directors and for such co-opted members to have voting rights as members of the committee.

(2) A committee may meet and adjourn its meetings as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present, and in the case of an equality of votes, the Chairman shall have a second or casting vote.

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Existing Article 105

105. Appointment of Executive Director

The Directors may from time to time appoint one or more of their body to the office of Executive Director for such period and on such terms as they think fit and, subject to the terms of any agreement entered into in any particular case, may revoke any such appointment. A Director so appointed shall not, while holding that office, be subject to retirement by rotation or be taken into account in determining the rotation or retirement of Directors but his appointment shall be automatically determined if he ceases from any cause to be a Director. Where an Executive Director is appointed for a fixed term, the term shall not exceed five years.

Proposed Alterations to Existing Article 105

The words underlined above in the existing Article 105 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

105. Appointment of Executive Director

The Directors may from time to time appoint one or more of their body to the office of executive Director for such period and on such terms as they think fit and, subject to the terms of any agreement entered into in any particular case, may revoke any such appointment. A Director so appointed shall not, while holding that office, be subject to retirement by rotation or be taken into account when determining the rotation or retirement of Directors but his appointment shall be automatically terminated if he ceases for any cause to be a Director. Where an executive Director is appointed for a fixed term, the term shall not exceed five years.

Existing Article 114

114. Presentation of accounts

The Directors shall from time to time in accordance with the Act cause to be prepared and to be laid before the Company in general meeting such profit and loss accounts, balance sheets and reports as are referred to in the Act. The interval between the close of a financial year of the Company and the issue of accounts relating to it shall not exceed six months.

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Proposed Alterations to Existing Article 114

The words underline above in the existing Article 114 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

114. Presentation of Accounts and timely submission

The Directors shall from time to time in accordance with the Act cause to be prepared and to be laid before the Company in general meeting such profit and loss accounts, balance sheets and reports as are referred to in the Act. The interval between the close of a financial year of the Company and the date of the annual general meeting shall not exceed four months (or such other period as may be permitted by the Act and/or any other applicable regulations or procedures).

Existing Article 115

115. Copies of accounts

A copy of every balance sheet (including every document required by law to be annexed thereto) which is to be laid before the Company in general meeting together with a copy of the Auditor’s report shall not less than 14 days before the date of the meeting be delivered or sent by post to every member of and every holder of debentures of the Company. Provided that this Article shall not require a copy of those documents to be sent to any person of whose address the Company is not aware or to more than one of the joint holders of any shares or debentures.

Proposed Alterations to Existing Article 115

The words in bold below are proposed to be added to the existing Article 115:

115. Copies of accounts

A copy of every balance sheet (including every document required by law to be annexed thereto) which is to be laid before the Company in general meeting together with a copy of the Auditor’s report shall not less than 14 days before the date of the meeting, be delivered or sent by post or served using permitted alternative form to every member of and every holder of debentures of the Company. Provided that this Article shall not require a copy of those documents to be sent to any person of whose address the Company is not aware or to more than one of the joint holders of any shares or debentures.

Existing Article 119

119. Payment of dividends

No dividend shall be paid otherwise than out of profits or shall bear interest against the Company.

65

Proposed Alterations to Existing Article 119

The words in bold below are proposed to be added to the existing Article 119:

119. Payment of Dividends

(1) No dividend shall be paid otherwise than out of profits available for distribution under the provisions of the Statutes or shall bear interest against the Company.

(2)    (a) Subject to Article 119(2)(b), any profits of the Company applied towards the purchase or acquisition of its own shares in accordance with sections 76B to 76G of the Act shall not be payable as dividends to the shareholders of the Company.

(b) Article 119(1) shall not apply to any part of the proceeds received by the Company as consideration for the sale or disposal of treasury shares which the Company has applied towards the profits of the Company.

(c) Any gains the Company derived from the sale or disposal of treasury shares shall not be payable as dividends to the shareholders of the Company.

Existing Article 126

126. Power to capitalise profits

The Company in general meeting may upon the recommendation of the Directors by ordinary resolution resolve that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the Company’s reserve accounts or to the credit of the profit and loss account or otherwise available for distribution, and accordingly that such sum be set free for distribution amongst the members who would have been entitled thereto if distributed by way of dividend and in the same proportions on condition that the same be not paid in cash but be applied either in or towards paying up any amounts for the time being unpaid on any shares held by such members respectively or paying up in full unissued shares or debentures of the Company to be allotted, distributed and credited as fully paid up to and amongst such members in the proportion aforesaid, or partly in the one way and partly in the other, and the Directors shall give effect to such resolution. A share premium account and a capital redemption reserve may, for the purposes of this Article, be applied only in the paying up of unissued shares to be issued to members of the Company as fully paid bonus shares.

66

Proposed Alterations to Existing Article 126

The words underlined above in the existing Article 126 (including part of its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

126. Bonus issues and capitalisation of profits and reserves

The Directors may, with the sanction of an ordinary resolution of the Company (including any ordinary resolution passed pursuant to Articles 5 and 50B:

(a) issue bonus shares for which no consideration is payable to the Company by the persons registered as holders of shares at the close of business on:

(i) the date of the ordinary resolution (or such other date as may be specified therein or determined as therein provided); or

(ii) in the case of an ordinary resolution passed pursuant to Article 50B, such other date as may be determined by the Directors, in proportion to their then holdings of shares; and

(b) capitalise any sum standing to the credit of any of the Company’s reserve accounts or other undistributable reserve or any sum standing to the credit of profit and loss account by appropriating such sum to the persons registered as holders of shares at the close of business on:

(i) the date of the ordinary resolution (or such other date as may be specified therein or determined as therein provided); or

(ii) in the case of an ordinary resolution passed pursuant to Article 50B such other date as may be determined by the Directors,

in proportion to their then holdings of shares and applying such sum on their behalf in paying up in full for new shares (or, subject to any special rights previously conferred on any shares or class of shares for the time being issued) for allotment and distribution credited as fully paid up to and amongst them as bonus shares in the proportion aforesaid.

67

Existing Article 127

127. Implementation of resolution to capitalise profits

Whenever such a resolution as aforesaid shall have been passed the Directors shall make all appropriations and applications of the undivided profits resolved to be capitalised thereby, and all allotments and issues of fully paid shares or debentures, if any, and generally shall do all acts and things required to give effect thereto, with full power to the Directors to make such provision by the issue of fractional certificates or by payment in cash or otherwise as they think fit for the case of shares or debentures becoming distributable in fractions, and also to authorize any person to enter on behalf of all the members entitled thereto into an agreement with the Company providing for the allotment to them respectively, credited as fully paid up, of any further shares or debentures to which they may be entitled upon such capitalisation, or (as the case may require) for the payment up by the Company on their behalf, by the application thereto of their respective proportions of the profits resolved to be capitalised, of the amounts or any part of the amounts remaining unpaid on their existing shares, and any agreement made under such authority shall be effective and binding on all such members.

Proposed Alterations to Article 127

The words underlined above in the existing Article 127 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

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127. Implementation of resolution to capitalise profits

(1) The Directors may do all acts and things considered necessary or expedient to give effect to any such bonus issue and/or capitalisation under Article 126, with full power to the Directors to make such provisions as they think fit for any fractional entitlements which would arise on the basis aforesaid (including provisions whereby fractional entitlements are disregarded or the benefit thereof accrues to the Company rather than to the members concerned). The Directors may authorise any person to enter on behalf of all the members interested into an agreement with the Company providing for any such bonus issue or capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned.

(2) In addition and without prejudice to the powers provided for by Article 126, the Directors shall have the power to issue shares for which no consideration is payable and to capitalise any undivided profits or other moneys of the Company not required for the payment or provision of any dividend on any shares entitled to cumulative or non-cumulative preferential dividends (including profits or other moneys carried and standing to any reserve or reserves) and to apply such profits or other moneys in paying up in full, in each case on terms that such shares shall, upon issue, be held by or for the benefit of participants of any share incentive or option scheme or plan implemented by the Company and approved by shareholders in general meeting and on such terms as the Directors shall think fit.

Existing Article 128

128. Service of notice or other document

A notice may be given by the Company to any member either personally or sending it by post to him at his registered address, or such other address supplied by him to the Company for the giving of notices to him. Any notice to be sent to a member at an address outside Singapore shall be sent by airmail. Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the notice, and to have been effected in the case of a notice of a meeting on the day after the date of its posting, and in any other case at the time at which the letter would be delivered in the ordinary course of post.

Proposed Alterations to Existing Article 128

The words underlined above in the existing Article 128 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

69

128. Service of notice or other document

(1) A notice or other document (including, without limitation, any accounts, balance-sheet or report) which is required or permitted to be given, sent or served under the Act or under these Articles, by the Company to any member may be given either personally or using a permitted alternative form or sending it to him by post at his registered address or such other address supplied by him to the Company for the giving of notices to him, except that any notice to be sent to a member at an address outside Singapore shall be sent by airmail. Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the notice, and to have been effected in the case of a notice of a meeting on the day after the date of its posting, and in any other case at the time at which the letter would be delivered in the ordinary course of post. Any notice given, sent or served using a permitted alternative form shall be deemed to have been duly given, sent or served upon transmission of the electronic communication to the current address of such person or as otherwise provided under the Act and/or other applicable regulations or procedures.

(2) Any notice on behalf of the Company or of the Directors shall be deemed effectual if it purports to bear the signature of the Secretary or other duly authorised officer of the Company, whether such signature is printed, written or electronically signed.

Existing Article 130

130. Service of notices after death or bankruptcy of a member

A notice may be given by the Company to the persons entitled to a share in consequence of the death or bankruptcy of a member by sending it through the post in a prepaid letter addressed to them by name, or by the title of representatives of the deceased, or assignee of the bankrupt, or by any like description, at the address, if any, in Singapore supplied for the purpose by the persons claiming to be so entitled, or (until such an address has been so supplied) by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred.

Proposed Alterations to Existing Article 130

The words underlined above in the existing Article 130 (other than its heading) are proposed to be deleted and the words in bold below are proposed to be added in place:

70

130. Service of notices after death or bankruptcy of a member

Any notice or document delivered or sent by post or left at the registered address or given, sent or served using a permitted alternative form to the current address (as the case may be) to any member in pursuance of these Articles shall, notwithstanding that such member be then deceased or that the member is bankrupt, and whether or not the Company have notice of his demise or bankruptcy, be deemed to have been duly served in respect of any registered shares whether held solely or jointly with other persons by such member until some other person be registered in his stead as the holder or joint holders thereof and such service shall for all purposes of these Articles be deemed a sufficient service of such notice or document on his executors or administrators and all persons (if any) jointly interested with him in any such share.

Existing Article 134

134. Service of notice after winding up

In the event of a winding up of the Company every member of the Company who is not for the time being in the Republic of Singapore shall be bound, within 14 days after the passing of an effective resolution to wind up the Company voluntarily, or within the like period after the making of an order for the winding up of the Company, to serve notice in writing on the Company appointing some householder in the Republic of Singapore upon whom all summonses, notices, processes, orders and judgments in relation to or under the winding up of the Company may be served, and in default of such nomination the liquidator of the Company shall be at liberty on behalf of such member to appoint some such person, and service upon any such appointee shall be deemed to be a good personal service on such member for all purposes, and where the liquidator makes any such appointment he shall, with all convenient speed, give notice thereof to such member by a registered letter sent through the post and addressed to such member at his address as appearing in the Register of Members, and such notice shall be deemed to be served on the day following that on which the letter is posted.

Proposed Alterations to Existing Article 134

The words in bold below are proposed to be added to existing Article 134:

134. Service of notices after winding up

In the event of a winding up of the Company every member of the Company who is not for the time being in the Republic of Singapore shall be bound, within 14 days after the passing of an effective resolution to wind up the Company voluntarily, or within the like period after the making of an order for the winding up of the Company, to serve notice in writing on the Company appointing some householder in the Republic of Singapore upon whom subject to such householder’s prior written consent all summonses, notices, processes, orders and judgments in relation to or under the winding up of the Company

71

may be served, and in default of such nomination the liquidator of the Company shall be at liberty on behalf of such member to appoint some such person, subject to such person’s prior written consent, and service upon any such appointee shall be deemed to be a good personal service on such member for all purposes, and where the liquidator makes any such appointment he shall, with all convenient speed, give notice thereof to such member by a registered letter sent through the post and addressed to such member at his address as appearing in the Register of Members or served using a permitted alternative form to the current address, and such notice shall be deemed to be served on the day following that on which the letter is posted.

72

CREATIVE TECHNOLOGY LTD

(Incorporated in the Republic of Singapore)

PROXY FORM FOR THE ANNUAL GENERAL MEETING

I/ We                                                                                                                                                                               being a member/ members of the above-mentioned Company hereby appoint                                                                                                                                                                                                                       of                                                                                                                                                                                                      or failing him,                                                                                                                                                                                                              of                                                                                                                                                         or failing him, the Chairman of the meeting as my/ our proxy to vote on my/ our behalf at the Annual General Meeting of the Company to be held on 31 October 2006 and at any adjournment thereof.

I/ We direct that my/ our proxy to vote in the following manner:-

RESOLUTIONS	FOR*	AGAINST*	ABSTAIN*
Ordinary Resolutions:
Resolution 1 To receive and adopt the Company’s Financial Statements, including the Directors’ Report, Audited Accounts and Auditors’ Report for the fiscal year ended 30 June 2006
Resolution 2 To re-elect Mr. Lee Kheng Nam as Director
Resolution 3 To approve Directors’ fees of S$240,000
Resolution 4 To approve the reappointment of PricewaterhouseCoopers as the Company’s independent public accountants for the fiscal year ending 30 June 2007 and to authorise the Directors to fix their remuneration
Special Businesses – Ordinary Resolutions
Resolution 5 To approve the Ordinary Dividend of US$0.25 per Ordinary Share
Resolution 6 To approve the issuance of new Ordinary Shares of up to 25% of the issued share capital for the time being from the 2006 AGM Date to the 2007 AGM Date pursuant to Section 161 of the Companies Act
Resolution 7 To approve issuance of new Ordinary Shares upon exercise of employee share options granted or to be granted under the Creative Technology (1999) Share Option Scheme from the 2006 AGM Date to the 2007 AGM Date pursuant to Section 161 of the Companies Act
Resolution 8 To approve the buy back of Ordinary Shares of the Company
Special Business – Special Resolution
Resolution 9 To approve the alterations to the Memorandum and Articles of Association of the Company.

* Please indicate with an “X” in the appropriate box how you wish your proxy to vote.

73

Dated this                      day of                                  2006.

Number of

shares held

Signature(s) of Members / or Common Seal

IMPORTANT: Please read the notes overleaf

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Notes :

1. Please insert the total number of Shares registered in your name. If the number of Shares is not inserted, this proxy form will be deemed to relate to the entire number of Shares registered in your name. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares entered against your name in both the Depository Register and in the Register of Members, you should insert the total number of your Shares held in these Registers. If no number is inserted, the proxy form will be deemed to relate to all the Shares held by you.

2. A member entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote instead of him.

3. When a member appoints more than one proxy, the appointments shall be invalid unless he specifies the proportion of his holding (expressed as a percentage of the whole) to be represented by each proxy.

4. An instrument appointing a proxy must be deposited at the registered office of the Company at 31 International Business Park, Creative Resource, Singapore 609921, not less than 48 hours before the time set for the Annual General Meeting or any postponement or adjournment thereof.

5. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or if such appointor is a corporation under its common seal or under the hand of its officer or attorney, both duly authorised in writing. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of members whose Shares are entered against their names in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if such members are not shown to have Shares entered against their names in the Depository Register as at 48 hours before the time appointed for holding the Annual General Meeting as certified by The Central Depository (Pte) Limited to the Company.

6. A corporation which is a member may authorise by resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Annual General Meeting, in accordance with Section 179 of the Companies Act.

7. Please indicate with an “X” in the appropriate box how you wish your proxy to vote. If this form is returned without any indication as to how your proxy shall vote, he may vote or abstain from voting as he thinks fit.

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EX-2

Exhibit 2

CREATIVE TECHNOLOGY LTD

ANNUAL REPORT

TABLE OF CONTENTS

Chairman’s Message	2
Selected Consolidated Financial Data	5
Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Report of Independent Registered Public Accounting Firm	21
Consolidated Balance Sheets	22
Consolidated Statements of Operations	23
Consolidated Statements of Cash Flows	24
Consolidated Statements of Shareholders’ Equity	25
Notes to Consolidated Financial Statements	26
Stock Market Information	46
The Creative Network	47
Corporate Directory	49

1

CHAIRMAN’S MESSAGE

Dear Shareholders,

Fiscal 2006 was a difficult and challenging year for Creative. However, we continued to realize significant achievements on the product and technology fronts, the most high-profile of which I believe was the award of a U.S. patent for the user interface for portable media players (which we refer to as the “ZEN™ Patent”). Creative then scored a major success with a payment of $100 million from Apple as part of our recent settlement, which includes a license for Apple to use the ZEN Patent.

The award of the ZEN Patent in August 2005 was an important milestone in our research and development efforts, particularly for personal digital entertainment products. It recognized our early innovation and development efforts in portable media players. The ZEN Patent was awarded to Creative for our invention of the user interface for portable media players, including many of the Creative ZEN and earlier NOMAD® Jukebox MP3 players, and found in some competing players, such as the Apple® iPod® products, and certain cell phones with music functions. The ZEN Patent covers the user interface that enables users of portable media players to efficiently and intuitively navigate among and select tracks on players which store large numbers of songs.

During this fiscal year, we have explored and continue to explore the opportunities that the patent affords us, including licensing programs, partnerships and potential legal remedies. We initiated our first such legal action in May 2006 when we filed complaints against Apple for infringement of the ZEN Patent. In August 2006, we entered into a broad settlement with Apple ending all legal disputes between the two companies. The settlement terms included a requirement for Apple to pay Creative $100 million for a paid-up license to use the ZEN Patent in their products. In addition, we will also join Apple’s “Made for iPod” program, under which we will be able to make and sell accessory products such as speaker systems for Apple’s iPod players.

Our success with the ZEN Patent has opened up significant new future opportunities for us. In addition to the potential for future income from licensing programs with portable media player and cell phone companies, our upcoming participation in the “Made for iPod” program can provide significant new market opportunities for our high growth and high margin businesses, such as docking and portable speaker systems, earphones and headphones, and our forthcoming new X-Fi enabled audio enhancement products. We will be announcing our iPod accessory products later this year.

Before I continue with other developments on the product and technology front, I would like to give you a review of the financial performance for the past fiscal year. Our financial performance was negatively affected by the adverse market conditions for MP3 digital audio players during the year. The MP3 market continued to be adversely affected by the aggressive pricing practices and intense competition, exerting severe pressure on gross margins. This situation was aggravated by the market price instability for flash memory, resulting in a substantial write-down of flash memory inventory when flash memory prices dropped sharply. The effect of the turbulent and disruptive business environment for MP3 players is reflected in the financial results for the year - a steep decline in gross margins, resulting in a large operating loss and a net loss for the fiscal year.

Sales for fiscal year 2006 were $1.1 billion compared to $1.2 billion for the fiscal year 2005. Gross profit as a percentage of sales was 15% in fiscal 2006, compared to 22% in fiscal 2005. Net loss for fiscal 2006 was $118 million, compared to net income of $0.6 million in fiscal 2005. Net loss for fiscal 2006 included net investment gains of $19 million and one-time charges of $42 million primarily related to goodwill and restructuring charges for 3Dlabs, while net income for fiscal 2005 included net investment gains of $74 million and a non-cash impairment charge for 3Dlabs of $65 million. Excluding these investment gains and other charges, the results would have been a net loss of $95 million for fiscal 2006 and $9 million for fiscal 2005.

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On the product and technology front, in addition to the ZEN Patent as highlighted above, an important milestone was reached in our audio product business with the launch of the Sound Blaster® X-Fi™ sound cards. In the previous year, we had further strengthened our unrivaled leadership position in PC audio with the introduction of what I believe will be the future direction of audio – the new Xtreme Fidelity™ audio standard. The new Sound Blaster X-Fi cards are the first products under the new Xtreme Fidelity audio standard and using the X-Fi Xtreme Fidelity audio processor. The Sound Blaster X-Fi sound cards have ground-breaking technologies to dramatically improve the audio experience with music, games, movies and audio creation.

The newly introduced Xmod, an X-Fi USB module, helps to bring the X-Fi experience to desktop and notebook PC and Mac users. The small module is easy to use and plugs easily to the USB port without the need to install any software. It instantly enhances poor quality MP3 music to very high-quality, 24-bit surround audio.

During the year we had continued to focus our R&D resources on innovation in both technical product design and visual ID of our products, which are key to our MP3 digital audio and other personal digital entertainment products. We also continued to work on leveraging our leadership in audio technology to improve our competitive position in the MP3 digital audio market. The success of these efforts can be seen in the highly acclaimed award-winning ZEN Vision:M, which won both “Best of CES 2006: MP3 & Portable Video” and the coveted “Best of CES 2006: Best In Show” awards at the Consumer Electronics Show in Las Vegas in January 2006. The ZEN Vision: M, with a 30GB or 60GB capacity, is a versatile digital player for video, photos and music with a vibrant 2.5” full-color screen, and has garnered many positive reviews.

In addition to the ZEN Vision:M, we introduced other exciting new products in our line-up of MP3 digital audio players, including the ZEN Vision W, ZEN V and ZEN V Plus players. The ZEN Vision W sports a large 4.3” wide aspect screen that allows you to view movies and photos in beautiful widescreen format. You can carry up to 15,000 songs on the player, or listen to your favorite music on the built-in FM radio. The tiny ZEN V and ZEN V Plus are flash-based players with a colorful OLED display and a scratch-resistant coating. The ZEN V Plus offers all of the great features of the ZEN V, and it adds video and FM radio playback.

For speaker products, we have focused on expanding our line of PlayDock®, TravelDock™ and TravelSound™ portable speakers which combine great design, portability and ease of use with excellent audio clarity for a variety of MP3 players. Creative has also introduced a range of headphone and earphones such as the ZEN Aurvana™ In-Ear Earphones with noise-isolation technology, which offer superb audio reproduction and highly effective ambient noise reduction.

Moving forward, our key focus in the near term is to return to profitability by focusing on several key strategic areas, including:

• growing our audio business by expanding the market for X-Fi beyond sound cards and the PC;

• focusing our speaker business on what we believe are the high-growth and higher margin segments of the market, including docking and portable speaker systems for the MP3 digital audio market, headphones and lifestyle speakers for the home;

• streamlining our MP3 player business with a focus on a few strategic high-volume and profitable products instead of the large number of product offerings we currently have;

• exploring strategic alternatives for improving operations including in the areas of supply chain, procurement and inventory management; and

• reducing the overall level of operating expenses.

We see tremendous potential growth opportunities for expanding X-Fi beyond the PC space into the consumer electronics and cell phone markets, and beyond the X-Fi sound cards into speakers and headphones, portable music and video players, digital entertainment products for the living room, and other X-Fi-enabled audio enhancement products such as the Xmod and X-Fi docking devices. In particular, with our upcoming participation in the “Made for iPod” program, we are very excited about the further market

3

potential for our future family of such X-Fi audio enhancement products in the iPod market. We also look forward to the new market opportunities for our speaker systems and our recently introduced line of earphones and headphones provided by this program.

I believe the future of Creative lies in focusing on our key competence - advanced audio technologies. We have invented numerous ground-breaking audio technologies and we will now significantly increase our focus on marketing and exploiting them to their full potential. With a strong focus on advanced audio technologies, we can maximize our returns by expanding our audio business to include licensing of technologies and selling of audio components or sub-systems, which are the high margin segments of the audio business.

Sim Wong Hoo

Chairman & Chief Executive Officer

4

SELECTED CONSOLIDATED FINANCIAL DATA

The following table contains selected data from Creative’s Consolidated Statements of Operations for the five years ended June 30, 2006. The data for the three years ended June 30, 2006 is derived from and should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this annual report. The data for the two years ended June 30, 2003 and 2002 is derived from the audited financial statements which are not included in this annual report.

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

(US$’000, EXCEPT PER SHARE DATA):

	For the years ended June 30
	2006			2005			2004			2003			2002(1)
Sales, net (2)	$	1,127,531		$	1,224,411		$	814,853		$	701,769		$	805,905
Cost of goods sold		963,217			949,151			533,513			452,952			543,382
Gross profit		164,314			275,260			281,340			248,817			262,523
Operating expenses:
Selling, general and administrative (2)		195,197			196,258			167,588			162,839			170,122
Research and development		77,186			82,325			69,504			58,775			38,248
Other charges (3)		37,351			65,225			—			—			26,080
Operating (loss) income		(145,420	)		(68,548	)		44,248			27,203			28,073
Gain (loss) from investments, net		18,904			74,405			72,602			(6,049	)		(45,414	)
Interest income		6,241			3,571			4,592			2,623			3,612
Interest expense		(9,411	)		(3,674	)		(1,001	)		(1,495	)		(648	)
Others		3,572			(4,260	)		5,685			3,736			2,191
(Loss) income before income taxes and minority interest		(126,114	)		1,494			126,126			26,018			(12,186	)
Provision for income taxes (4)		7,150			(969	)		8,539			(2,720	)		(5,698	)
Minority interest in loss (income)		805			63			(418	)		79			(1,843	)
Net income (loss)	$	(118,159	)	$	588		$	134,247		$	23,377		$	(19,727	)
Basic (loss) earnings per share	$	(1.42	)	$	0.01		$	1.66		$	0.30		$	(0.27	)
Weighted average ordinary shares outstanding (‘000)		83,093			82,661			80,654			79,202			73,182
Diluted (loss) earnings per share	$	(1.42	)	$	0.01		$	1.61		$	0.29		$	(0.27	)
Weighted average ordinary shares and equivalents outstanding (‘000)		83,093			85,333			83,630			80,851			73,182
Dividends declared per share	$	0.25		$	0.50		$	0.25		$	0.25		$	0.25

5

CONSOLIDATED BALANCE SHEET DATA (US$’000):

	As of June 30
	2006		2005		2004		2003		2002 (1)
Cash and cash equivalents	$	213,995	$	187,246	$	211,077	$	232,053	$	166,917
Working capital		405,907		506,527		297,502		209,389		165,945
Total assets		830,613		1,077,474		940,848		646,843		666,378
Long-term debt, net of current maturities		206,593		209,455		35,614		39,027		16,782
Shareholders’ equity		393,153		581,132		691,497		428,837		423,952

Notes:

(1) Financial data for fiscal year 2002 includes the results of 3Dlabs Inc., Ltd (“3Dlabs”), which was acquired during fiscal year 2002, from the date the acquisition was completed.

(2) In fiscal year 2002, Creative adopted Emerging Issues Task Force (“EITF”) Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).” As a result, certain consideration paid to distributors and resellers of its products has been reclassified as a revenue offset rather than as selling, general and administrative expense.

(3) Included in the results of operations are the following other charges: in fiscal year 2006, a $37.3 million charge which comprised a $31.4 million impairment charge relating to the goodwill and other intangible assets of 3Dlabs, a $4.9 million restructuring charge relating to 3Dlabs, and $1.0 million in employee separation costs under a worldwide workforce reduction exercise; in fiscal year 2005, a $65.2 million impairment charge relating to the goodwill and intangible assets of 3Dlabs; and in fiscal year 2002, a $26.1 million charge for the write-off of in-process technology arising from the acquisition of 3Dlabs.

(4) As described in Note 10 of “Notes to Consolidated Financial Statements,” Creative was granted a new Pioneer Certificate under the International Headquarters Award that will expire in March 2010. Under the new Pioneer Certificate, profits arising from qualifying activities will be exempted from income tax in Singapore, subject to certain conditions. As a result of obtaining the new Pioneer Certificate, provision for income taxes in fiscal year 2006 and 2004 includes a $10.0 million and $12.3 million reversal of income taxes. The reversal was related to corporate taxes provided for in full for profits arising from qualifying activities from the commencement date of the new Pioneer Certificate until the second quarter of fiscal year 2004, based on the standard tax rates of 24.5% for fiscal year 2001 and 22% for fiscal years 2002 and 2003 and 20% for fiscal year 2004. These standard corporate income tax rates continue to be applicable to profits arising from activities excluded from the new Pioneer Certificate. See Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for further discussion.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Except for the historical information contained herein, the matters set forth are forward-looking statements and are subject to certain risks and uncertainties that could cause Creative’s actual results to differ materially. Such risks and uncertainties include: Creative’s ability to timely develop new products that gain market acceptance and to manage frequent product transitions; competitive pressures in the marketplace; a reduction or cancellation of sales orders for Creative products; accelerated declines in the average selling prices of Creative’s products or any prices of components; Creative’s ability to successfully integrate acquisitions; potential fluctuations in quarterly results due to the seasonality of Creative’s business and the difficulty of projecting such fluctuations; possible disruption in commercial activities caused by factors outside of Creative’s control, such as terrorism, armed conflict and labor disputes; a reduction in demand for computer systems, peripherals and related consumer products as a result of poor economic conditions, social and political turmoil; major health concerns; the proliferation of sound functionality in new products from competitors at the application software, chip and operating system levels; the deterioration of global equity markets; exposure to excess and obsolete inventory; Creative’s reliance on sole sources for many of its chips and other key components; component shortages which may impact Creative’s ability to meet customer demand; Creative’s ability to protect its proprietary rights; Creative’s ability to successfully manage its expanding operations; the vulnerability of certain markets to current and future currency fluctuations; the effects of restricted fuel availability and rising costs of fuel; fluctuations in the value and liquidity of Creative’s investee companies; and the potential decrease in trading volume and value of Creative’s Ordinary Shares as a result of the Flow Back Restriction that commenced on June 1, 2003 and Creative’s previous plan and any future plans to delist from NASDAQ and to eliminate its U.S. reporting obligations. For further information regarding the risks and uncertainties associated with Creative’s business, please refer to its filings with the SEC, including its Form 20-F for fiscal 2005 filed with the SEC. Creative undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in Creative’s expectations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon Creative’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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Management believes the following critical accounting policies affect its more significant estimates and assumptions used in the preparation of its consolidated financial statements:

Revenue recognition;

Allowances for doubtful accounts, returns and discounts;

Product warranties;

Valuation of inventories;

Valuation of investments;

Valuation of goodwill and other intangible assets;

Assessment of the probability of the outcome of current litigation; and

Accounting for income taxes.

REVENUE RECOGNITION

Revenue from product sales is recognised when persuasive evidence of an arrangement exists, title and risk of loss have been transferred, delivery has occurred, the price is fixed or determinable, and collection is probable. Allowances are provided for estimated returns, discounts and warranties. Management analyzes historical returns, current economic trends and changes in customer demand and acceptance of its products when evaluating the adequacy of the sales returns allowance. Such allowances are adjusted periodically to reflect actual and anticipated experience. When recognizing revenue, Creative records estimated reductions to revenue for customer and distributor programs and incentive offerings, including price protection, promotions, other volume-based incentives and rebates. Significant management judgement and estimates must be used in connection with establishing these allowances in any accounting period. Creative may take action when necessary in response to market conditions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered.

ALLOWANCES FOR DOUBTFUL ACCOUNTS, RETURNS AND DISCOUNTS

Creative distributes its products primarily through third party resellers. Creative establishes allowances for doubtful accounts, returns and discounts for specifically identified doubtful accounts, returns and discounts based on credit profiles of its customers, current economic trends, contractual terms and conditions and historical payment, return and discount experience. Management performs ongoing credit evaluations of customers’ financial condition and uses letters of credit in certain circumstances. Credit insurance coverage is obtained when coverage is available and feasible. However, Creative is not able to procure credit insurance coverage for all customers as insurers have excluded certain customers and geographic markets. In the event actual returns, discounts and bad debts differ from the company’s estimates, or Creative adjusts these estimates in future periods, its operating results and financial position could be adversely affected.

PRODUCT WARRANTIES

The warranty period for the bulk of Creative’s products typically ranges between 1 to 3 years. The product warranty accrual reflects management’s best estimate of probable liability under its product warranties. Management determines the warranty provision based on known product failures (if any), historical experience, and other currently available evidence. If actual experience of product returns or cost of repair differ from the management’s estimates, revisions to the estimated warranty liability would be required and could have a material effect on Creative’s future results of operations.

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VALUATION OF INVENTORIES

Creative states inventories at the lower of cost or market. The company records a write-down for inventories of components and products which have become obsolete or are in excess of anticipated demand or net realizable value. Management performs a detailed assessment of inventory at each balance sheet date to establish provisions for excess and obsolete inventories. Management’s evaluation includes a review of, among other factors, historical sales, current economic trends, forecasted sales, demand requirements, product lifecycle and product development plans, quality issues, and current inventory levels. The markets for PC peripherals and personal digital entertainment products are subject to a rapid and unpredictable pace of product and component obsolescence and demand changes. If future demand or market conditions for the company’s products are less favorable than forecasted or if unforeseen technological changes negatively impact the utility of component inventory, Creative may be required to record write-downs which would negatively affect gross margins in the period when the write-downs are recorded and its operating results and financial position could be adversely affected.

VALUATION OF INVESTMENTS

Creative holds equity investments in various companies from less than 1% to 100% of the issuer’s outstanding capital stock. Investments in companies in which Creative acquires more than 50% of the outstanding capital stock and which are under Creative’s effective control, are treated as investments in subsidiaries, and the balance sheets and results of operations are fully consolidated after making an allowance for any minority interests. Companies in which Creative’s investments total between 20% and 50% of such company’s capital stock are treated as associated companies and recorded on an equity basis, whereby the cost of investment is adjusted to recognise Creative’s share of all post acquisition results of operations.

As for investments of less than 20%, non-quoted investments are carried at cost, less provisions for permanent impairment where necessary, and quoted investments are reported at fair value with the unrealised gains and losses included as a separate component of shareholders’ equity. The investment portfolio is monitored on a periodic basis for impairment. Creative’s investments in these companies are inherently risky because the markets for the technologies or products they have under development are typically in the early stages and may never develop. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held companies are estimated based upon one or more of the following: pricing models using historical and forecasted financial information and current market rates, liquidation values, the values of recent rounds of financing, or quoted market prices of comparable public companies.

In order to determine whether a decline in value is other-than-temporary, Creative evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the company’s industry, and the company’s relative competitive position within the industry; and Creative’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

VALUATION OF GOODWILL AND OTHER INTANGIBLE ASSETS

Creative uses the purchase method of accounting for business combinations, in line with Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 141 “Business Combinations.” The purchase method of accounting for acquisitions requires extensive use of accounting estimates and judgements to allocate the purchase price paid to the fair value of the net tangible and intangible assets acquired, including in-process technology. The allocation of the purchase price is based on independent appraisals. The amounts and useful lives assigned to intangible assets could impact future amortization. The amount assigned to in-process technology is expensed immediately. If the assumptions and estimates used to allocate the purchase price are not correct, purchase price adjustments or future asset impairment charges could be required.

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Creative reviews goodwill and purchased intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Factors that Creative may consider important which could trigger an impairment review include the following:

• significant under-performance relative to historical or projected future operating results;

• significant changes in the manner of use of the acquired assets or the strategy for Creative’s overall business;

• significant negative industry or economic trends;

• significant decline in Creative’s stock price for a sustained period; and

• Creative’s market capitalization relative to net book value.

When the existence of one or more of the above factors indicate that the carrying value of goodwill and other intangibles assets may be impaired, Creative measures the amount of impairment based on a combination of market comparable method and projected discounted cash flow method using a discount rate determined by the management to commensurate with the risk inherent in Creative’s current business model. Additionally, in response to changes in the PC peripherals and consumer electronics industries and changes in global or regional economic conditions, Creative may strategically realign its resources and consider restructuring, disposing or otherwise exiting businesses, which could result in an impairment of property, plant and equipment, identifiable intangibles or goodwill.

ASSESSMENT OF THE PROBABILITY OF THE OUTCOME OF CURRENT LITIGATION

Creative records accruals for loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

ACCOUNTING FOR INCOME TAXES

In preparing its financial statements, Creative estimates its income taxes for each of the jurisdictions in which it operates. This involves estimating the actual current tax exposure and assessing temporary differences resulting from differing treatment of items, such as reserves and accruals for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within Creative’s consolidated balance sheet. Significant management judgement is required in determining the provision for income taxes, deferred tax assets and liabilities and future taxable income for purposes of assessing the ability to realize any future benefit from its deferred tax assets. Creative provides for a valuation allowance with regard to its deferred tax assets as management believes that a substantial uncertainty exists regarding the realizability of these assets.

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RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected statement of operations data as a percentage of sales:

	Years ended June 30
	2006		2005		2004
Sales, net	100	%	100	%	100	%
Cost of goods sold	85		78		65
Gross profit	15		22		35
Operating expenses:
Selling, general and administrative	18		16		21
Research and development	7		7		8
Other charges	3		5		—
Operating (loss) income	(13	)	(6	)	6
Gain from investments, net	2		6		9
Interest income	1		—		—
Interest expense	(1	)	—		—
Others	—		—		1
(Loss) income before income taxes and minority interest	(11	)	—		16
Provision for income taxes	1		—		1
Minority interest in loss (income)	—		—		—
Net (loss) income	(10	)%	—	%	17	%

The following table sets forth Creative’s net sales by product category expressed as a percentage of sales for the past three fiscal years:

	Percentage of Net Sales for fiscal years ended June 30
	2006		2005		2004
Personal Digital Entertainment	65	%	63	%	33	%
Audio	13	%	14	%	25	%
Speakers	13	%	14	%	23	%
All Other Products	9	%	9	%	19	%

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YEAR ENDED JUNE 30, 2006 COMPARED TO YEAR ENDED JUNE 30, 2005

Net sales

Net sales for the year ended June 30, 2006 decreased by 8% compared to the year ended June 30, 2005. Sales of personal digital entertainment (“PDE”) products, which include digital audio players and digital cameras, decreased by 5% compared to fiscal year 2005 and represented 65% of sales in fiscal year 2006 compared to 63% of sales in fiscal year 2005. During the first six months of fiscal year 2006, sales of PDE products increased by 34% compared to the same period in the prior fiscal year, but sales of such products slowed significantly in the second half of the fiscal year. The slowdown in sales of PDE products in the second half of fiscal year 2006 was mainly due to a steep drop in flash memory prices during that period, which has created uncertainty and price instability in the retail market for flash-based digital audio players and contributed to a significant slowdown in worldwide sales of digital audio players, and Creative’s decision to streamline its lineup of digital audio players to focus on strategic and more profitable products. Sales of audio products, which consist of Sound Blaster audio cards and chipsets, decreased by 12% compared to fiscal year 2005 and represented 13% of sales in fiscal year 2006 compared to 14% in fiscal year 2005. The decrease in audio product sales was mainly due to a decrease in sales of low-end audio sound cards. Sales of speakers decreased by 12% in fiscal year 2006 compared to fiscal year 2005 and represented 13% of sales in fiscal year 2006 compared to 14% in fiscal year 2005. The decrease was primarily attributable to lower sales of non-multimedia speakers. Sales from all other products, which include graphics products, communication products, accessories and other miscellaneous items, decreased by 16% compared to fiscal year 2005 and represented 9% of sales in fiscal years 2006 and 2005. The decrease was primarily attributable to decreases in sales of graphics and communication products.

Gross profit

Gross profit in fiscal year 2006 was 14.6% of sales compared to 22.5% in fiscal year 2005. The decrease in gross profit was primarily attributable to a substantial write-down of flash memory inventory in the third quarter of fiscal year 2006 due to a steep drop in the flash memory prices. The drop in flash memory prices has caused market uncertainty that resulted in lower sales and reductions in the selling prices of digital audio players, which negatively impacted gross profit.

Operating expenses

Selling, general and administrative (“SG&A”) expenses in fiscal year 2006 decreased marginally by 1% compared to fiscal year 2005. As a percentage of sales, SG&A expenses were 18% of sales compared to 16% of sales in fiscal year 2005.

Research and development (“R&D”) expenses decreased by 6% compared to fiscal year 2005. As a percentage of sales, R&D expenses were 7% of sales in fiscal years 2006 and 2005.

Other charges of $37.3 million for fiscal year 2006 comprised a $4.9 million of restructuring charge related to 3Dlabs, a $31.4 million impairment of goodwill and other intangible assets charge related to 3Dlabs, and $1.0 million in employee separation costs under a worldwide workforce reduction exercise. The restructuring charge related to 3Dlabs was due to a change in business strategy to refocus on the portable handheld device market instead of the professional workstation graphics business. The restructuring charge comprised $3.0 million in employee severance costs, $0.3 million in facility exit costs and $1.6 million in fixed assets impairment write-downs. As a result of the change in business strategy, the fair value of 3Dlabs could no longer support the carrying value of the goodwill and other intangible assets associated with the acquisition of 3Dlabs in May 2002, and accordingly, Creative recorded a $31.4 million impairment of goodwill and other intangible assets in fiscal year 2006. See Note 3 and 12 of “Notes to Consolidated Financial Statements.”

The impairment of goodwill and intangible assets charge of $65.2 million in fiscal year 2005 resulted from a review of the goodwill and intangible assets of 3Dlabs during the second quarter of fiscal year 2005. During the second quarter of fiscal year 2005, management noted that the revenue of 3Dlabs continued to

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perform below expectations due to delays in the launch of new products. Therefore, in accordance with SFAS No. 142, an impairment test was performed by an independent assessor on the goodwill and other intangible assets of 3Dlabs. The fair value was determined based on a combination of the projected discounted cash flow method and the market comparable method whereby market multiples of 3Dlabs were compared to the market multiples of other publicly traded companies in similar lines of business. The conclusion of the impairment review was that the fair value of 3Dlabs could no longer support the carrying value of the remaining goodwill and other intangible assets associated with them. As a result, Creative recorded goodwill and other intangible assets impairment charge of $65.2 million in fiscal year 2005.

Net investment gain

Net investment gain of $18.9 million in fiscal year 2006 included a $20.9 million net gain from sales of investments offset by $2.0 million in write-downs of investments. Net investment gain of $74.4 million in fiscal year 2005 comprised a $86.0 million net gain from sales of investments offset by $11.6 million in write-downs of investments. The bulk of the net gain from the sales of investments was derived from sales of shares of SigmaTel, Inc. (“SigmaTel”).

As part of its long-term business strategy, from time to time, Creative makes strategic equity investments in companies that can provide Creative with technologies or products that management believes will give Creative a competitive advantage in the markets in which Creative competes.

Net interest

Net interest for fiscal year 2006 was an expense of $3.2 million compared to an expense of $0.1 million for fiscal year 2005. The higher net interest expense in fiscal year 2006 was due to the five-year $175.0 million syndicated term loan, of which $100.0 million was drawn-down in December 2004 and the remaining $75.0 million in February 2005.

Others

Others was an income of $3.6 million in fiscal year 2006, compared to an expense of $4.3 million in fiscal year 2005. Other income of $3.6 million in fiscal year 2006 comprised mainly of $1.4 million in dividends received from investments and $2.0 million in sundry income, the bulk of which pertained to a write-back of unclaimed invoices. Other expenses in fiscal year 2005 include an exchange loss of $4.2 million and share of equity-method investees’ losses of $1.6 million, offset partially by a $1.2 million in dividends received from investments.

Provision for income taxes

Provision for income taxes of foreign subsidiaries is based on the corporate income tax rates of the country in which the subsidiary is located. Net operating profits from some of the subsidiaries were not allowed to offset with the net operating losses sustained by subsidiaries from a different tax jurisdiction. In Singapore, Creative was granted a new Pioneer Certificate under the International Headquarters Award that will expire in March 2010. Profits arising from qualifying activities under the new Pioneer Certificate will be exempted from income tax, subject to certain conditions. The Singapore corporate income tax rate of 20% is applicable to the profits excluded from the new Pioneer Certificate.

In fiscal year 2006, tax write-back includes a $10.0 million reversal of income taxes. The reversal was related to corporate taxes provided for in full for profits arising from qualifying activities from the commencement date of the new Pioneer Certificate until the second quarter of fiscal year 2004, based on the standard tax rates of 24.5% for fiscal year 2001, 22% for fiscal years 2002 and 2003, and 20% for fiscal year 2004.

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YEAR ENDED JUNE 30, 2005 COMPARED TO YEAR ENDED JUNE 30, 2004

Net sales

Net sales for the year ended June 30, 2005 increased by 50% compared to the year ended June 30, 2004. The revenue increase was mainly attributable to a substantial increase in sales of digital audio players. Sales of personal digital entertainment (“PDE”) products, which include digital audio players and web cameras, increased by 187% compared to fiscal year 2004 and represented 63% of sales in fiscal year 2005 compared to 33% of sales in fiscal year 2004. The strong demand for PDE products was driven by a number of factors, including the global marketing campaign launched in November 2004, competitive pricing of the Zen Micro hard drive player and the MuVo family of flash players and increased retail distribution of PDE products due to increased demand worldwide for digital audio players and web cameras. Sales of audio products, which consist of Sound Blaster audio cards and chipsets, decreased by 18% compared to fiscal year 2004, and as a percentage of sales, represented 14% of sales in fiscal year 2005 compared to 25% in fiscal year 2004. The decrease in audio sales was primarily due to lower sales of low-end audio products, which have been negatively impacted by sales of integrated motherboard audio solutions in value PCs. Sales of speakers decreased marginally by 4% in fiscal year 2005 compared to fiscal year 2004 and represented 14% of sales in fiscal year 2005 compared to 23% of sales in fiscal year 2004. Sales from all other products, which include graphics products, communication products, accessories and other miscellaneous items, decreased by 29% compared to fiscal year 2004 and represented 9% of sales in fiscal year 2005 compared to 19% of sales in fiscal year 2004. The decrease was primarily attributable to decreases in sales of graphics and communication products due to delays in the launch of new products by 3Dlabs and intense competition.

Gross profit

Gross profit in fiscal year 2005 was 22.5% of sales compared to 34.5% in fiscal year 2004. The decrease in gross profit was primarily attributable to the following: the mix of products sold in fiscal year 2005 with a higher percentage of sales coming from digital audio players, which generally have lower gross profit margins, and a lower percentage of sales coming from higher margin audio products; a write down in inventory due to a decline in the value of certain components including flash memory and hard drives; and significant price reductions on various digital audio players during the third and fourth quarters of fiscal year 2005. The markets in which Creative competes, especially the market for digital audio players, are characterized by intense competition and aggressive pricing practices. The price reductions on digital audio players were consistent with Creative’s competitive pricing strategy to solidify its position and to become a long-term leader in the market.

Operating expenses

SG&A expenses in fiscal year 2005 increased by 17% compared to fiscal year 2004. The increase in SG&A expenses was mainly attributable to an increase in sales volume and an increase in sales and marketing expenses, including the launch of a global marketing campaign. As a percentage of sales, SG&A expenses were 16% of sales compared to 21% of sales in fiscal year 2004.

R&D expenses increased by 18% compared to fiscal year 2004, primarily due to an increase in spending on product development. As a percentage of sales, R&D expenses were 7% of sales in fiscal year 2005 compared to 8% in fiscal year 2004.

The impairment of goodwill and intangible assets of $65.2 million in fiscal year 2005 resulted from a review of the goodwill and intangible assets of 3Dlabs during the second quarter of fiscal year 2005. In accordance with SFAS No. 142, Creative reviews goodwill and purchased intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Creative typically performs its annual impairment assessment for goodwill and other intangible assets in the fourth quarter of its fiscal year. However, during the second quarter of fiscal year 2005, management noted that the revenue of 3Dlabs continued to perform below expectations due to delays in the launch of new products. As such, in accordance with SFAS No. 142, an impairment test was

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performed on the goodwill and other intangible assets that were acquired in connection with the acquisition of 3Dlabs in May 2002. An independent assessor was engaged to perform the impairment review. The fair value was determined based on a combination of the projected discounted cash flow method and the market comparable method whereby market multiples of 3Dlabs were compared to the market multiples of other publicly traded companies in similar lines of business. The conclusion of the impairment review was that the fair value of 3Dlabs could no longer support the carrying value of the remaining goodwill and other intangible assets associated with them. As a result, Creative recorded a goodwill impairment charge of $62.5 million and other intangible assets impairment charge of $2.7 million in the second quarter of fiscal year 2005. See Note 3 of “Notes to Consolidated Financial Statements”. As at the end of the fiscal year 2005, Creative concluded that there had not been any significant change in the fair value of the intangible assets since the second quarter of fiscal year 2005.

Net investment gain

Net investment gain of $74.4 million in fiscal year 2005 comprised a $86.0 million net gain from sales of investments offset by $11.6 million in write-downs of investments. The bulk of the net gain from the sales of investments was derived from sales of shares of SigmaTel. Net investment gain of $72.6 million in fiscal year 2004 comprised a $52.9 million net gain from sales of investments and a $23.1 million non-cash gain on a “deemed disposal” of interests in SigmaTel, which was then an associated company, offset by $3.4 million in write-downs of investments. The “deemed disposal” of interests in SigmaTel resulted from SigmaTel’s initial public offering of common stock in the United States. As a result of SigmaTel’s initial public offering, Creative’s ownership percentage in the company was reduced even though Creative did not dispose any of its shareholdings during the initial public offering. This reduction was treated in accordance with U.S. GAAP as a “deemed disposal,” which represents the net increase in Creative’s share of the net assets of SigmaTel, as a result of the initial public offering. The net gain of $52.9 million in fiscal year 2004 from sales of investments includes a $38.1 million net gain from sales of interests in SigmaTel where it ceased to be an equity-method investee company.

As part of its long-term business strategy, from time to time, Creative makes strategic equity investments in companies that can provide Creative with technologies or products that management believes will give Creative a competitive advantage in the markets in which Creative competes.

Net interest

Net interest for fiscal year 2005 was an expense of $0.1 million compared to net interest income of $3.6 million for fiscal year 2004. The decrease in net interest income by $3.7 million was mainly due to a lower average cash balance and additional interest expense arising from the five-year $175.0 million syndicated term loan that was drawn-down in fiscal year 2005.

Others

Others was an expense of $4.3 million in fiscal year 2005 compared to income of $5.7 million in fiscal year 2004. Net expense in fiscal year 2005 include an exchange loss of $4.2 million compared to a gain of $4.5 million in fiscal year 2004, and share of equity-method investees’ losses of $1.6 million in fiscal year 2005 compared to share of equity-method investees’ gains of $0.3 million in fiscal year 2004.

Provision for income taxes

Provision for income taxes of foreign subsidiaries is based on the corporate income tax rates of the country in which the subsidiary is located. Net operating profits from some of the subsidiaries were not allowed to offset with the net operating losses sustained by subsidiaries from a different tax jurisdiction. In Singapore, Creative was granted a new Pioneer Certificate under the International Headquarters Award that will expire in March 2010. Profits arising from qualifying activities under the new Pioneer Certificate will be exempted from income tax, subject to certain conditions. The Singapore corporate income tax rate of 20% is applicable to the profits excluded from the new Pioneer Certificate.

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In fiscal year 2004, tax write-back includes a $12.3 million reversal of income taxes. The reversal was related to corporate taxes provided for in full for profits arising from qualifying activities from the commencement date of the new Pioneer Certificate until the second quarter of fiscal year 2004, based on the standard tax rates of 24.5% for fiscal year 2001, 22% for fiscal years 2002 and 2003, and 20% for fiscal year 2004.

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QUARTERLY RESULTS

The following is a summary of Creative’s unaudited quarterly results for the eight quarters ended June 30, 2006, together with the percentage of sales represented by such results. Consistent with the PC peripherals and digital entertainment markets, demand for Creative’s products is generally stronger in the quarter ended December 31, compared to any other quarter of the fiscal year due to consumer buying patterns. In management’s opinion, the results detailed below have been prepared on a basis consistent with the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented when read in conjunction with the financial statements and notes thereto contained elsewhere herein. Creative’s business is seasonal in nature and the quarterly results are not necessarily indicative of the results to be achieved in future quarters.

	Unaudited data for quarters ended (in US$’000 except per share data)
	Jun 30 2006			Mar 31 2006			Dec 31 2005			Sep 30 2005			Jun 30 2005			Mar 31 2005			Dec 31 2004			Sep 30 2004
Sales, net	$	230,875		$	225,657		$	390,826		$	280,173		$	305,409		$	333,840		$	375,142		$	210,020
Cost of goods sold		198,371			235,799			305,440			223,607			274,417			256,519			273,398			144,817
Gross profit		32,504			(10,142	)		85,386			56,566			30,992			77,321			101,744			65,203
Operating expenses:
Selling, general and administrative		42,753			51,959			55,220			45,265			48,051			51,208			56,931			40,068
Research and development		15,682			18,843			22,734			19,927			20,300			19,687			22,620			19,718
Other charges		—			37,351			—			—			—			—			65,225			—
Operating (loss) income		(25,931	)		(118,295	)		7,432			(8,626	)		(37,359	)		6,426			(43,032	)		5,417
Net (loss) gain from investments		(34	)		2,030			6,880			10,028			9,304			14,766			51,539			(1,204	)
Interest income		2,000			1,847			1,399			995			967			1,243			651			710
Interest expense		(2,701	)		(2,449	)		(2,244	)		(2,017	)		(1,792	)		(1,275	)		(456	)		(151	)
Others		6,072			2,488			(5,140	)		152			(4,796	)		(5,728	)		5,555			709
(Loss) income before income taxes and minority interest		(20,594	)		(114,379	)		8,327			532			(33,676	)		15,432			14,257			5,481
Provision for income taxes		7,632			(229	)		(115	)		(138	)		1,855			(53	)		(2,236	)		(535	)
Minority interest in loss (income)		230			279			(1	)		297			(123	)		534			(178	)		(170	)
Net (loss) income	$	(12,732	)	$	(114,329	)	$	8,211		$	691		$	(31,944	)	$	15,913		$	11,843		$	4,776
Basic (loss) earnings per share	$	(0.15	)	$	(1.38	)	$	0.10		$	0.01		$	(0.38	)	$	0.19		$	0.14		$	0.06
Weighted average ordinary shares outstanding (‘000)		83,179			82,895			82,740			83,556			83,576			83,307			82,320			81,443
Diluted (loss) earnings per share	$	(0.15	)	$	(1.38	)	$	0.10		$	0.01		$	(0.38	)	$	0.18		$	0.14		$	0.06
Weighted average ordinary shares and equivalents outstanding (‘000)		83,179			82,895			83,532			84,690			83,576			86,274			85,930			84,237

17

	Unaudited data for quarters ended (as a percentage of sales)
	Jun 30 2006		Mar 31 2006		Dec 31 2005		Sep 30 2005		Jun 30 2005		Mar 31 2005		Dec 31 2004		Sep 30 2004
Sales, net	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%
Cost of goods sold	86		105		78		80		90		77		73		69
Gross profit	14		(5	)	22		20		10		23		27		31
Operating Expenses:
Selling, general and administrative	18		23		14		16		16		15		15		19
Research and development	7		8		6		7		6		6		6		10
Impairment of goodwill / intangible assets	—		17		—		—		—		—		17		—
Operating (loss) income	(11	)	(53	)	2		(3	)	(12	)	2		(11	)	2
Net (loss) gain from investments	—		1		2		4		3		5		14		(1	)
Interest income	1		1		—		—		—		—		—		—
Interest expense	(1	)	(1	)	(1	)	(1	)	—		—		—		—
Others	2		1		(1	)	—		(2	)	(2	)	1		1
(Loss) income before income taxes and minority interest	(9	)	(51	)	2		—		(11	)	5		4		2
Provision for income taxes	3		—		—		—		1		—		(1	)	—
Minority interest in loss (income)	—		—		—		—		—		—		—		—
Net (loss) income	(6	)%	(51	)%	2	%	—	%	(10	)%	5	%	3	%	2	%

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at June 30, 2006 were $214.0 million compared to the balance of $187.2 million at June 30, 2005.

Operating Activities

Net cash provided by operating activities during fiscal year 2006 was $49.3 million compared with $208.1 million used in fiscal year 2005. The cash provided by operating activities of $49.3 million was mainly due to a $21.6 million net decrease in accounts receivable and other assets and prepaid expenses, a $161.0 million net decrease in inventory and a $36.3 million adjustment for non-cash items. The decrease in inventory was in line with management’s intention to maintain a lower inventory balance. Cash provided by operating activities was offset partially by a $49.6 million net decrease in accounts payable and accrued and other liabilities. The $36.3 million in adjustments to non-cash items comprised mainly $25.0 million of depreciation and amortization, $31.5 million in impairment of goodwill and intangible assets, offset partially by a $20.9 million in net gains from the disposal of investments.

Net cash used in operating activities during fiscal year 2005 was $208.1 million compared with $22.8 million in fiscal year 2004. The cash used in operating activities of $208.1 million was mainly due to a $96.2 million net increase in accounts receivable and other assets and prepaid expenses and a $212.0 million net increase in inventory. As of June 30, 2005, Creative had $395.9 million in inventory compared to $183.9 million in inventory as of June 30, 2004. Creative built up its inventory to better position the company to take advantage of the expanding markets for digital audio players and to support the strong

18

revenue growth that the company expected. However, due to softer than expected demand for digital audio players in the second half of fiscal year 2005, Creative’s inventory levels were higher than anticipated in the third and fourth quarters. Cash used in operating activities was offset partially by $20.5 million in adjustments for non-cash items and a net increase in accounts payable and accrued and other liabilities of $80.0 million. The $20.5 million in adjustments to non-cash items primarily comprised of $27.9 million in depreciation and amortization, $11.6 million in write-offs of investments and other non-current assets, $85.8 million in net gains from the disposal of investments, and $65.2 million in impairment of goodwill and intangible assets.

Investing Activities

Net cash provided by investing activities during fiscal year 2006 was $9.3 million compared with $42.5 million in fiscal year 2005. The $9.3 million cash provided in fiscal year 2006 primarily comprised sales proceeds of investments amounting to $29.2 million, offset partially by net capital expenditures of $13.3 million and a $4.0 million increased in other non-current assets pertaining to additional investments in equity-method investee companies.

Net cash provided by investing activities during fiscal year 2005 was $42.5 million compared with $24.1 million in fiscal year 2004. The $42.5 million cash provided in fiscal year 2005 primarily comprised sales proceeds of investments amounting to $98.1 million, offset partially by net capital expenditures of $34.2 million and the purchase of investments amounting to $17.8 million.

Financing Activities

Net cash used in financing activities during fiscal year 2006 was $35.0 million compared with $142.2 million provided by financing activities in fiscal year 2005. Cash used in financing activities of $35.0 million primarily consisted of a $20.7 million dividend payment (see Note 8 of “Notes to Consolidated Financial Statements”), $8.1 million in open market repurchases of Creative’s ordinary shares, $3.8 million of repayments of debt obligations and $3.7 million of repayments of capital leases, offset partially by proceeds from the exercise of ordinary share options amounting to $2.9 million.

Net cash provided by financing activities during fiscal year 2005 was $142.2 million compared with cash used of $25.0 million in fiscal year 2004. Cash provided by financing activities of $142.2 million primarily consisted of $175.0 million in proceeds from the draw-down of a five year $175.0 million syndicated term loan facility with a group of international banks and $14.8 million in proceeds from the exercise of ordinary share options, offset partially by dividend payment of $41.4 million to shareholders. See Note 8 of “Notes to Consolidated Financial Statements”.

Current and Expected Liquidity

As of June 30, 2006, in addition to its cash reserves and excluding long term loans, Creative has credit facilities totaling $98.0 million for overdrafts, guarantees, letters of credit and fixed short-term loans, of which approximately $95.4 million were unutilized.

As part of its long-term business strategy, from time to time, Creative makes strategic equity investments in companies that can provide Creative with technologies or products that management believes will give Creative a competitive advantage in the markets in which Creative competes.

Management believes that Creative has adequate resources to meet its projected working capital and other cash needs for at least the next twelve months. To date, inflation has not had a significant impact on Creative’s operating results.

19

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table presents the contractual obligations and commercial commitments of Creative as of June 30, 2006:

	Payments Due by Period (US$’000)
Contractual Obligations	Total		Less than 1 year		1 to 3 years		4 to 5 years		After 5 years
Long Term Debt	$	195,790	$	3,780	$	7,560	$	182,560	$	1,890
Capital Lease Obligations		975		957		10		8		—
Operating Leases		28,911		7,050		7,421		4,453		9,987
Unconditional Purchase Obligations		71,935		71,935		—		—		—
Other Obligations		331		—		331		—		—
Total Contractual Cash Obligations	$	297,942	$	83,722	$	15,322	$	187,021	$	11,877

Unconditional purchase obligations are defined as contractual obligations for the purchase of goods or services, which are enforceable and legally binding on the Company and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. The expected timing of payment of the obligations set forth above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

As of June 30, 2006, Creative has utilized approximately $2.6 million under guarantees and letters of credit.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Please refer to Note 1 of “Notes to Consolidated Financial Statements” for the discussion of recently issued accounting pronouncements.

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REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND

SHAREHOLDERS OF CREATIVE TECHNOLOGY LTD.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of shareholders’ equity present fairly, in all material respects, the financial position of Creative Technology Ltd. and its subsidiaries at June 30, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Creative’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers

Singapore

September 21, 2006

21

CREATIVE TECHNOLOGY LTD.

CONSOLIDATED BALANCE SHEETS

(In US$’000, except per share data)

	June 30, 2006		June 30, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	213,995	$	187,246
Accounts receivable, less allowances of $18,806 and $21,288		133,002		163,184
Inventory		234,942		395,886
Other assets and prepaids		53,248		43,144
Total current assets		635,187		789,460
Property and equipment, net		109,174		117,187
Investments		74,581		125,914
Other non-current assets		11,671		44,913
Total Assets	$	830,613	$	1,077,474
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	104,923	$	151,070
Accrued liabilities		100,690		103,768
Income taxes payable		18,930		20,712
Current portion of long term obligations and others		4,737		7,383
Total current liabilities		229,280		282,933
Long term obligations		206,593		209,455
Minority interest in subsidiaries		1,587		3,954
Shareholders’ equity:
Share capital (‘000);
Outstanding: 83,271 and 83,593 shares		298,474		8,286
Additional paid-in capital		—		337,990
Other reserves		52,265		—
Unrealized holding gains on investments		19,453		65,280
Deferred share compensation		—		(378	)
Retained earnings		22,961		169,954
Total shareholders’ equity		393,153		581,132
Total Liabilities and Shareholders’ Equity	$	830,613	$	1,077,474

The accompanying notes are an integral part of these consolidated financial statements.

22

CREATIVE TECHNOLOGY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In US$’000, except per share data)

	Years ended June 30
	2006			2005			2004
Sales, net	$	1,127,531		$	1,224,411		$	814,853
Cost of goods sold		963,217			949,151			533,513
Gross profit		164,314			275,260			281,340
Operating expenses:
Selling, general and administrative		195,197			196,258			167,588
Research and development		77,186			82,325			69,504
Other charges		37,351			65,225			—
Operating (loss) income		(145,420	)		(68,548	)		44,248
Gain from investments, net		18,904			74,405			72,602
Interest income		6,241			3,571			4,592
Interest expense		(9,411	)		(3,674	)		(1,001	)
Others		3,572			(4,260	)		5,685
(Loss) income before income taxes and minority interest		(126,114	)		1,494			126,126
Provision for income taxes		7,150			(969	)		8,539
Minority interest in loss (income)		805			63			(418	)
Net (loss) income	$	(118,159	)	$	588		$	134,247
Basic earnings per share	$	(1.42	)	$	0.01		$	1.66
Weighted average ordinary shares outstanding (‘000)		83,093			82,661			80,654
Diluted earnings per share	$	(1.42	)	$	0.01		$	1.61
Weighted average ordinary shares and equivalents outstanding (‘000)		83,093			85,333			83,630

The accompanying notes are an integral part of these consolidated financial statements.

23

CREATIVE TECHNOLOGY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase (decrease) in cash and cash equivalents (in US$’000)

	Years ended June 30
	2006			2005			2004
Cash flows from operating activities:
Net (loss) income	$	(118,159	)	$	588		$	134,247
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of fixed assets		20,967			22,994			20,317
Amortisation of intangible assets		2,184			3,383			3,299
Deferred share compensation amortization		1,892			1,504			2,256
Minority interest in (loss) income		(805	)		(63	)		418
Equity share in loss (gain) of unconsolidated investments		260			1,640			(287	)
Loss (gain) on disposal of fixed assets		281			(139	)		395
Write downs of investments and other non-current assets		2,034			11,571			3,374
Gain from investments, net		(20,938	)		(85,755	)		(14,812	)
Profits arising from deemed disposal of other non-current assets		—			—			(23,053	)
Impairment of goodwill / intangible assets		31,478			65,225			—
Deferred income taxes, net		554			(393	)		4,707
Gain on disposal of interests in associated company		—			(264	)		(38,110	)
Foreign currency exchange (gain) loss		(1,656	)		819			(2,047	)
Changes in assets and liabilities, net:
Accounts receivable		30,281			(77,728	)		(24,181	)
Inventory		160,979			(211,987	)		(103,532	)
Other assets and prepaids		(8,641	)		(18,490	)		(18,011	)
Accounts payable		(46,199	)		64,891			33,194
Accrued and other liabilities		(3,410	)		15,130			8,468
Income taxes		(1,782	)		(1,008	)		(9,404	)
Net cash provided by (used in) operating activities		49,320			(208,082	)		(22,762	)
Cash flows from investing activities:
Capital expenditures, net		(13,348	)		(34,191	)		(15,646	)
Proceeds from sales of fixed assets		146			347			161
Proceeds from disposal of interests in associated company		—			234			45,372
Proceeds from sale of quoted investments		29,152			98,129			23,777
Purchase of new subsidiaries (net of cash acquired)		(131	)		—			(270	)
Purchase of investments		(2,491	)		(17,766	)		(11,700	)
Increase in other non current assets, net		(4,049	)		(4,281	)		(17,625	)
Net cash provided by investing activities		9,279			42,472			24,069
Cash flows from financing activities:
(Decrease) increase in minority shareholders’ loan and equity balance		(958	)		366			—
Buyout of subsidiary’s minority interest		(604	)		—			(84	)
Proceeds from exercise of ordinary share options		2,949			14,773			9,385
Repurchase of ordinary shares		(8,134	)		—			—
Proceeds from debt obligations		—			175,000			823
Repayments of debt obligations		(3,780	)		(3,542	)		(12,300	)
Repayments of capital leases		(3,747	)		(3,079	)		(2,669	)
Dividends paid to ordinary shareholders		(20,700	)		(41,357	)		(20,192	)
Net cash (used in) provided by financing activities		(34,974	)		142,161			(25,037	)
Net increase (decrease) in cash and cash equivalents		23,625			(23,449	)		(23,730	)
Effects of exchange rate changes on cash and cash equivalents		3,124			(382	)		2,754
Cash and cash equivalents at beginning of year		187,246			211,077			232,053
Cash and cash equivalents at end of year	$	213,995		$	187,246		$	211,077
Supplemental disclosure of cash flow information:
Interest paid	$	9,433		$	3,517		$	433
Income taxes paid, net	$	3,772		$	4,471		$	8,841
Non cash transaction:
Fixed assets acquired under capital lease	$	—		$	—		$	6,689

The accompanying notes are an integral part of these consolidated financial statements.

24

CREATIVE TECHNOLOGY LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In US$’000, except share data)

	Ordinary Shares (‘000)		Share Capital			Additional Paid In Capital			Other Reserves		Unrealised Holding Gains (Losses) on Investments			Deferred Share Compensation			Retained Earnings			Total
Balance at June 30, 2003	79,714		$	7,713		$	314,572		$	—	$	14,189		$	(4,305	)	$	96,668		$	428,837
Shares issued under employee options and share purchase plans	1,655			239			9,146			—		—			—			—			9,385
Dividends paid	—			—			—			—		—			—			(20,192	)		(20,192	)
Reversal of unvested deferred share compensation, net	—			—			(58	)		—		—			58			—			—
Amortization of deferred share compensation	—			—			—			—		—			2,256			—			2,256
Comprehensive income	—			—			—			—		136,964			—			134,247			271,211
Balance at June 30, 2004	81,369			7,952			323,660			—		151,153			(1,991	)		210,723			691,497
Shares issued under employee options and share purchase plans	2,224			334			14,439			—		—			—			—			14,773
Dividends paid	—			—			—			—		—			—			(41,357	)		(41,357	)
Reversal of unvested deferred share compensation, net	—			—			(109	)		—		—			109			—			—
Amortization of deferred share compensation	—			—			—			—		—			1,504			—			1,504
Comprehensive (loss) income	—			—			—			—		(85,873	)		—			588			(85,285	)
Balance at June 30, 2005	83,593			8,286			337,990			—		65,280			(378	)		169,954			581,132
Shares issued under employee options and share purchase plans	678			103			2,846			—		—			—			—			2,949
Repurchase of ordinary shares	(1,000	)		(150	)		150			—		—			—			(8,134	)		(8,134	)
Dividends paid	—			—			—			—		—			—			(20,700	)		(20,700	)
Reversal of unvested deferred share compensation, net	—			—			(378	)		—		—			378			—			—
Amortization of deferred share compensation	—			—			1,892			—		—			—			—			1,892
Effect of Companies (Amendment)	—			290,235			(290,235	)		—		—			—			—			—
Act 2005 (see Note 17)
Transfer to other reserves	—			—			(52,265	)		52,265		—			—			—			—
Comprehensive loss	—			—			—			—		(45,827	)		—			(118,159	)		(163,986	)
Balance at June 30, 2006	83,271		$	298,474		$	—		$	52,265	$	19,453		$	—		$	22,961		$	393,153

The accompanying notes are an integral part of these consolidated financial statements.

25

CREATIVE TECHNOLOGY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements include the financial statements of Creative Technology Ltd and Creative’s subsidiaries under its effective control from their respective dates of acquisition, after elimination of inter-company transactions and balances. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates and such differences could be material. Creative conducts a substantial portion of its business in United States dollars (“US$” or “$”). All dollar amounts included in the financial statements and in the notes herein are United States dollars unless designated as Singapore dollars (“S$”). Creative operates on a thirteen week calendar closing on the Friday closest to the natural calendar quarter. Our financial year 2006 ended on June 30, 2006, the Friday nearest to June 30, 2006, while our prior financial years ended on July 1, 2005 and July 2, 2004. All quarters and fiscal years are described by their natural calendar dates.

Foreign exchange

The functional currency of Creative and its subsidiaries is predominantly the US dollar and accordingly, gains and losses resulting from the translation of monetary assets and liabilities denominated in currencies other than the US dollar are reflected in the determination of net income (loss). From time to time, Creative enters into forward exchange contracts to reduce its exposure to foreign exchange translation gains and losses. Forward exchange contracts are marked to market each period and the resulting gains and losses are included in the determination of net income or loss. No forward exchange contracts were outstanding at June 30, 2006. Included in other expenses are exchange gains of $0.7 million and $4.5 million in fiscal years 2006 and 2004, and exchange losses of $4.2 million in fiscal year 2005.

At June 30, 2006, the monetary assets and liabilities of Creative are denominated in the following currencies:

	Approximate Percentage of $ Balance Denominated in:
	US$		S$		EURO		Other Currencies
Cash and cash equivalents	47	%	2	%	29	%	22	%
Accounts receivable, less allowances	66	%	—		19	%	15	%
Total current liabilities	73	%	18	%	1	%	8	%
Long-term obligations	91	%	9	%	—		—

The exchange rates for the S$ and Euro utilized in translating the balance sheet at June 30, 2006, expressed in US$ per one S$ and Euro was 0.6300 and 1.2713, respectively.

Cash equivalents

Cash equivalents consist of highly liquid investment instruments with original or remaining maturities of three months or less at the time of purchase. All deposits are in short-term deposit and money market

26

accounts with various banks. This diversification of risk is consistent with Creative’s policy to maintain liquidity and ensure the safety of principal. Included in cash equivalents as of June 30, 2006 and 2005 are fixed rate deposits of $170.0 million and $128.9 million, respectively.

In fiscal year 2006, Creative has presented the effects of exchange rate changes on cash and cash equivalents, and has revised amounts in prior periods for comparative purposes.

Fair value of financial instruments

For certain of Creative’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts shown for long-term obligations also approximate fair value because current interest rates charged to Creative for debts of similar maturities are substantially the same.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using standard cost, appropriately adjusted at the balance sheet date to approximate actual cost on a weighted average basis. In the case of finished products and work-in-progress, cost includes materials, direct labor and an appropriate proportion of production overheads.

Management performs a detailed assessment of inventory at each balance sheet date to establish provisions for excess and obsolete inventories. The evaluation includes a review of, among other factors, historical sales, current economic trends, forecasted sales, demand requirements, product lifecycle and product development plans, quality issues, and current inventory levels.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the remaining facility lease term or the estimated useful lives of the improvements. No depreciation is provided on freehold land and construction in progress.

Investments

Creative holds equity investments in various companies pursuant to which it has acquired anywhere from less than 1% to 100% of the issuer’s outstanding capital stock. Investments in which Creative acquires more than 50% of the outstanding capital stock of an entity and which are under the effective control of Creative, are treated as investments in subsidiaries, and the balance sheets and results of operations of these subsidiaries are fully consolidated after making allowance for any minority interests. Companies in which Creative’s investment totals between 20% and 50% of such company’s capital stock are treated as associated companies and recorded on an equity basis, whereby Creative adjusts its cost of investments to recognise its share of all post acquisition results of operations. In the event where a subsidiary or associated company issues shares to a third party at a price different from Creative’s carrying value of such shares, the difference is taken to the income statement.

Non-quoted investments of less than 20% in an entity are carried at cost, less provisions for permanent impairment where necessary.

In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” quoted investments of less than 20% in an entity are classified as available-for-sale. Such investments are reported at fair value with the unrealized gains and losses included as a separate component of shareholders’ equity. Unrealized losses are charged against income when a decline in fair value is determined to be other than temporary. Realized gains and losses upon the sale or disposition of such investments are based on the average cost of the specific investments sold.

27

The investment portfolio is monitored on a periodic basis for impairment. Creative’s investments in these companies are inherently risky because the markets for the technologies or products they have under development are typically in the early stages and may never develop. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held companies are estimated based upon one or more of the following: pricing models using historical and forecasted financial information and current market rates, liquidation values, the values of recent rounds of financing, or quoted market prices of comparable public companies.

In order to determine whether a decline in value is other-than-temporary, Creative evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the company’s industry, and the company’s relative competitive position within the industry; and Creative’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

The following is a summary of investments as of June 30 (in US$’000):

	As of June 30
	2006		2005
Non-quoted equity investments	$	11,056	$	9,553
Quoted equity investments		63,525		116,361
Total investments	$	74,581	$	125,914

Goodwill and other intangible assets

Goodwill and other intangible assets are stated at cost and relate principally to the acquisition of new subsidiaries accounted for under the purchase method. Under this method, the purchase price has been allocated to the assets acquired, liabilities assumed and in-process technology based on their estimated fair market values at the dates of acquisition. Amounts allocated to acquired in-process technology are expensed in the period in which the acquisition is consummated. Intangible assets are amortized on a straight line basis over the estimated useful lives of the assets, ranging from one to seven years. Goodwill is not subject to amortization, but evaluated at least annually for impairment.

Reviews for impairment of goodwill and other intangible assets are also conducted whenever events indicate that the carrying amount might not be recoverable. Factors that Creative may consider important which could trigger an impairment review include the following:

• significant under performance relative to historical or projected future operating results;

• significant changes in the manner of use of the acquired assets or the strategy for Creative’s overall business;

• significant negative industry or economic trends;

• significant decline in Creative’s stock price for a sustained period; and

• Creative market capitalization relative to net book value.

When the existence of one or more of the above factors indicates that the carrying value of the goodwill or intangible assets may be impaired, Creative measures any impairment based on a combination of market comparable method, and projected discounted cash flow method using a discount rate determined by the management to commensurate with the risk inherent in Creative’s current business model.

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Product warranties

The warranty period for the bulk of Creative’s products typically ranges between 1 to 3 years. The product warranty accrual reflects management’s best estimate of probable liability under its product warranties. Management determines the warranty provision based on known product failures (if any), historical experience, and other currently available evidence.

Revenue recognition

Creative generally recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have been transferred, delivery has occurred, the price is fixed or determinable, and collection is probable. Allowances are provided for estimated returns, discounts and warranties, based on historical experience, current economic trends and changes in customer demand and acceptance of its products. Such allowances are adjusted periodically to reflect actual and anticipated experience. When recognizing revenue, Creative records estimated reductions to revenue for customer and distributor programs and incentive offerings, including price protection, promotions, other volume-based incentives and rebates.

Research and development

Research and development costs are charged to operations as incurred.

Assessment of the probability of the outcome of current litigation

Creative records accruals for loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

Income taxes

Deferred tax assets and liabilities, net of valuation allowances, are established for the expected future tax consequences of events resulting from the differences between the financial reporting and income tax bases of Creative’s assets and liabilities and from tax credit carry forwards. No provision has been made for the undistributed earnings of certain subsidiaries outside of Singapore since it is Creative’s intention to reinvest these earnings in those subsidiaries. Reinvested earnings of such subsidiaries have been immaterial to date.

Concentrations of credit risk

Financial instruments that potentially subject Creative to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. Creative limits the amount of credit exposure to any one financial institution. Creative sells its products to original equipment manufacturers, distributors and key retailers. Creative believes that the concentration of credit risk in its trade receivables is substantially mitigated due to performance of ongoing credit evaluations of its customers’ financial condition, use of short collection terms, use of letters of credit in certain circumstances, procurement of credit insurance coverage and the geographical dispersion of sales. Creative establishes allowances for doubtful accounts, returns and discounts for specifically identified doubtful accounts, returns and discounts based on credit profiles of its customers, current economic trends, contractual terms and conditions and historical payment, return and discount experience.

Stock-based compensation

Effective July 1, 2005, Creative accounts for stock-based employee compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment.” Accordingly, stock-based compensation cost is measured on the date of grant, based on the fair value of the award, and is recognized as expense over the employee requisite service period. Creative previously applied Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations, and provided the required pro forma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosures.” See Note 9.

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Employees pension scheme

Creative participates in a number of defined contribution retirement plans in certain countries of operations. Contributions are based on a percentage of each eligible employee’s salary and are expensed as the related salaries are incurred. Creative incurred expenses of approximately $8.1 million, $7.5 million and $6.4 million with respect to these retirement plans for the fiscal years 2006, 2005 and 2004, respectively.

Recently issued accounting pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation Number 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109.” The interpretation contains a two step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The provisions are effective beginning in the first quarter of fiscal year 2007. Creative is evaluating the impact this statement will have on its consolidated financial statements.

In September 2005, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issues Task Force Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty” (“EITF 04-13”). EITF 04-13 discusses whether inventory purchase and sales transactions with the same counterparty that are entered into in contemplation of one another should be combined and treated as a nonmonetary exchange and addresses (a) under what circumstances should two or more transactions with the same counterparty (counterparties) be viewed as a single nonmonetary transaction within the scope of APB Opinion No. 29, “Accounting for Nonmonetary Transactions” (“APB 29”) and Financial Accounting Standard No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB 29” (“FAS 153”) and (b) if nonmonetary transactions within the scope of APB 29 and FAS 153 involve inventory, are there any circumstances under which the transactions should be recognized at fair value. The pronouncement is effective for new inventory arrangements entered into, or modifications or renewals of existing inventory arrangements occurring in interim or annual reporting periods beginning after March 15, 2006. Adoption of this pronouncement has no material effect on Creative’s financial statements.

NOTE 2—NET INCOME (LOSS) PER SHARE

In accordance with SFAS No. 128, “Earnings per Share,” Creative reports both basic earnings per share and diluted earnings per share. Basic earnings per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of ordinary and potentially dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares are excluded from the computation if their effect is anti-dilutive. In computing the diluted earnings per share, the treasury stock method is used to determine, based on average stock prices for the respective periods, the ordinary equivalent shares to be purchased using proceeds received from the exercise of such equivalent shares. Other than the dilutive effect of stock options, there are no other financial instruments that would impact the weighted average number of ordinary shares outstanding used for computing diluted earnings per share. The potentially dilutive ordinary equivalent shares outstanding under the employee share purchase plan were not material.

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The following is a reconciliation between the average number of ordinary shares outstanding and equivalent shares outstanding (in ‘000):

	As of June 30
	2006	2005	2004
Weighted average ordinary shares outstanding	83,093	82,661	80,654
Weighted average dilutive stock options outstanding	—	2,672	2,976
Weighted average ordinary shares and equivalents outstanding	83,093	85,333	83,630

For fiscal year 2006, approximately 0.8 million shares were excluded from the computation of dilutive earnings per share, as the effect of including such shares would be anti-dilutive.

NOTE 3 — BALANCE SHEET DETAIL (in US$’000)

	As of June 30
	2006		2005
Inventory:
Raw materials	$	110,469	$	166,318
Work in progress		1,198		18,711
Finished products		123,275		210,857
Total inventory	$	234,942	$	395,886

	Estimated Useful Life	As of June 30
		2006			2005
Property and equipment:
Freehold land	—	$	3,524		$	3,524
Leasehold land and buildings	25 to 96 years		105,817			98,504
Construction in progress	—		—			2,737
Machinery and equipment	3 - 6 years		63,012			65,163
Furniture, fixtures and office equipments	2 - 8 years		83,307			91,152
Leasehold improvements	Term of lease		12,164			11,605
		$	267,824		$	272,685
Accumulated depreciation			(158,650	)		(155,498	)
Net property and equipment		$	109,174		$	117,187

Included in property and equipment are assets purchased under capital lease obligations with a cost and accumulated depreciation of approximately $16.5 million and $16.0 million for fiscal year 2006, and $15.8 million and $12.8 million for fiscal year 2005, respectively.

Depreciation charged to results of operations, including depreciation related to assets under capital leases, amounted to $21.0 million, $23.0 million and $20.3 million for fiscal years 2006, 2005 and 2004, respectively.

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Creative routinely reviews the remaining estimated useful lives of their machinery and equipment to determine if such lives should be adjusted due to the likelihood of technological obsolescence arising from changes in production techniques or in market demand for the use of its machinery and equipment.

	As of June 30
	2006			2005
Other non-current assets:
Other intangible assets	$	37,568		$	37,668
Accumulated impairment charges		(4,727	)		(2,696	)
Accumulated amortization		(31,087	)		(28,903	)
Other intangible assets, net		1,754			6,069
Goodwill		91,976			91,976
Accumulated impairment charges		(91,976	)		(62,529	)
Goodwill, net		—			29,447
Other non-current assets		9,917			9,397
Total other non-current assets	$	11,671		$	44,913

Other intangible assets consist of mainly patents and trademarks.

Creative reviews goodwill and purchased intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with the Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Creative typically performs its annual impairment assessment for goodwill and other intangible assets in the fourth quarter of its fiscal year. However, during the third quarter of fiscal 2006, Creative’s subsidiary, 3Dlabs, restructured its graphics business to focus its business on the portable handheld device market instead of the professional workstation graphics market. As a result, the fair value of 3Dlabs could no longer support the carrying value of the goodwill and other intangible assets associated with the acquisition of 3Dlabs in May 2002, and accordingly, Creative recorded a goodwill impairment charge of $29.4 million and other intangible assets impairment charge of $2.0 million in fiscal 2006.

In fiscal year 2005, an impairment test was performed on the goodwill and other intangible assets of 3Dlabs and the conclusion of the impairment review was that the fair value of 3Dlabs could no longer support the carrying value of the goodwill and other intangible assets associated with them. As a result, Creative recorded a goodwill impairment charge of $62.5 million and other intangible assets impairment charge of $2.7 million in fiscal year 2005.

Goodwill and other intangible assets fully amortized were excluded from the table above. Other intangible assets amortization expense was $2.2 million, $3.4 million and $3.3 million for fiscal years 2006, 2005 and 2004, and is estimated to be $1.2 million and $0.3 million in fiscal years 2007 and 2008, respectively, and $28,000 for fiscal years 2009 to 2011.

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	As of June 30
	2006		2005
Other accrued liabilities:
Marketing accruals	$	28,992	$	23,384
Payroll accruals		20,346		21,362
Royalty accruals		5,299		5,808
Warranty accruals		9,536		12,418
Other accruals		36,517		40,796
Total other accrued liabilities	$	100,690	$	103,768

Other accruals of $36.5 million and $40.8 million as of June 30, 2006 and 2005 includes accruals for various operating expense items that individually account for less than 5% of the total current liabilities.

	As of June 30
	2006		2005
Long term obligations:
Long term debt	$	192,010	$	194,555
Capital lease obligations		18		888
Deferred tax liability		14,565		14,012
Total long term obligations	$	206,593	$	209,455

NOTE 4—PRODUCT WARRANTIES

The warranty period for the bulk of Creative’s products typically ranges between 1 to 3 years. The product warranty accrual reflects management’s best estimate of probable liability under its product warranties. Management determines the warranty provision based on known product failures (if any), historical experience, and other currently available evidence.

Changes in the product warranty accrual for the fiscal year 2006 were as follows (in US$’000):

	As of June 30
	2006			2005
Balance at the beginning of the year	$	12,418		$	6,232
Accruals for warranties issued during the period		50,352			27,603
Adjustments related to pre-existing warranties (include changes in estimates)		(206	)		(176	)
Settlements made during the period		(53,028	)		(21,241	)
Balance at the end of the year	$	9,536		$	12,418

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NOTE 5—LEASES AND COMMITMENTS

Creative leases the use of land and certain of its facilities and equipment under non-cancelable operating lease arrangements.

Minimum future lease commitments for non-cancelable leases as of June 30, 2006, are as follows (in US$’000):

	Operating Leases
Fiscal years ending June 30,
2007	$	7,050
2008		4,176
2009		3,245
2010		2,450
2011		2,003
Thereafter		9,987
Total minimum lease commitments	$	28,911

Rental expense under all operating leases was $14.0 million, $13.4 million and $14.1 million for fiscal years 2006, 2005 and 2004, respectively.

Future minimum lease commitments, which are secured by the underlying assets, as of June 30, 2006, under capital leases are as follows (in US$’000):

	Capital Leases
Fiscal years ending June 30,
2007	$	1,001
2008		11
2009		6
2010		8
2011		—
Thereafter		—
Total minimum lease commitments	$	1,026
Less: Interest		(51	)
Total capital lease commitments	$	975

NOTE 6—COMPREHENSIVE (LOSS) INCOME

The components of total comprehensive (loss) income are as follows (in US$’000):

	Years ended June 30
	2006			2005			2004
Net (loss) income	$	(118,159	)	$	588		$	134,247
Movement in unrealized holding (losses) gains		(28,074	)		(12,937	)		139,410
Reclassification adjustments:
- Gains included in net (loss) income		(17,753	)		(72,936	)		(2,446	)
		(45,827	)		(85,873	)		136,964
Total comprehensive (loss) income	$	(163,986	)	$	(85,285	)	$	271,211

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NOTE 7—SHARE REPURCHASES

Details of share repurchases by Creative since the commencement date of the program on November 6, 1998 are set out below:

	Number of Shares Repurchased (in millions)	Average Price (US$)
Fiscal year 1999 to fiscal year 2004	26.3	$	13
Fiscal year 2005	—		—
Fiscal year 2006	1.0	$	8
Total	27.3	$	13

At the Annual General Meeting (“AGM”) held on October 28, 2005, the shareholders approved the share repurchase mandate allowing Creative to buy up to 10% of the issued share capital of Creative outstanding as of the date of the AGM. This amounts to approximately 8.3 million shares. This authority to repurchase these shares shall continue in force unless revoked or revised by the shareholders in a general meeting, or until the date that the next AGM of Creative is held or is required to be held, whichever is the earlier.

The Companies (Amendment) Act 2005 of Singapore (Companies Amendment Act), which became effective on January 30, 2006, introduced key amendments to the Companies Act, Chapter 50 of Singapore (Companies Act). As a result of these amendments, a Singapore company can now repurchase shares out of share capital, as well as from distributable profits and ordinary shares repurchased by a company can be held by that company as treasury shares instead of being cancelled.

NOTE 8—DIVIDENDS

At the Annual General Meeting held on October 28, 2005, Creative’s shareholders approved an ordinary dividend of $0.25 for each outstanding ordinary share of Creative for the fiscal year ended June 30, 2006. Dividends of $20.7 million were paid on December 2, 2005 to all shareholders of record as of November 16, 2005. In fiscal year 2005, Creative paid an ordinary and special dividend of $0.25 each, amounting to $41.4 million, and an ordinary dividend of $0.25 in fiscal year 2004, amounting to $20.2 million.

NOTE 9—EMPLOYEE STOCK OPTION PLANS

In December 1998, Creative adopted the Creative Technology (1999) Share Option Scheme (“1999 Scheme”) which allows options to be granted to full-time employees as well as consultants and non-executive directors. The total number of shares that may be granted under the 1999 Scheme is 7.5 million, provided that such amount shall be automatically increased on the first day (July 1) of each of the five fiscal years ending June 30, 2001, 2002, 2003, 2004 and 2005 by four percent of the issued share capital of Creative as at the last day of the immediate preceding fiscal year. The Option Committee has the discretion to decide the vesting schedule in the letter of offer. If it is not specifically stated in the letter of offer, 1/4 of the total amount of the grant vests on the first anniversary of the grant date and 1/48 of the total amount of the grant vests on the last day of each calendar month thereafter. The exercise price of options granted under the 1999 Scheme may be less than the fair market value of the shares as of the date of grant and the options expire after the tenth anniversary of the date of grant, except in the case of options granted to participants other than employees, options expire not later than the fifth anniversary of the date of grant. Creative issues new shares to satisfy its share based exercises.

Effective July 1, 2005, Creative adopted the provisions of SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) establishes accounting for share-based awards exchanged for employee services.

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Accordingly, stock-based compensation cost is measured on the date of grant, based on the fair value of the award, and is recognized as expense over the employee requisite service period. Creative previously applied Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations, and provided the required pro forma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation.”

Prior to the adoption of SFAS No. 123(R), Creative provided the disclosures required under SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosures.” The following table illustrates the effect on net income and earnings per share for the corresponding period if Creative had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in US$’000, except per share data):

	Years ended June 30
	2005			2004
Net income as reported	$	588		$	134,247
Less: Total stock-based employee compensation expense determine under fair value based method for all awards, net of related tax effects		(1,087	)		(2,949	)
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		1,504			2,256
Pro forma net income	$	1,005		$	133,554
Earnings (loss) per share:
Basic - as reported	$	0.01		$	1.66
Basic - pro forma	$	0.01		$	1.66
Diluted - as reported	$	0.01		$	1.61
Diluted - pro forma	$	0.01		$	1.60

Creative elected to adopt the modified-prospective application method as provided by SFAS No. 123(R). Accordingly, during the fiscal year ended June 30, 2006, Creative recorded stock-based compensation cost of $1,893,000 in the financial statements, totaling the amount that would have been recognized had the fair value method been applied since the effective date of SFAS No. 123. Previously disclosed amounts have not been restated in the financial statements.

In connection with the adoption of SFAS No. 123(R), Creative also made a one-time adjustment in the quarter ended September 30, 2005 to reverse the unamortised share compensation balance of $378,000 against the additional paid-in capital account.

There were no options granted under the 1999 Scheme in fiscal 2005. During the fiscal year ended June 30, 2006, Creative granted 3,120,000 stock options under the 1999 Scheme with a total grant date fair value of $5,087,000. The weighted average grant date fair value of options granted was $1.63 per share.

The fair value of each share option granted is estimated on the date of grant using the Black Scholes option-pricing model. The option-pricing model requires the input of highly subjective assumptions, including the option’s expected life, risk-free interest rates, dividend yield and the price volatility of the underlying share. The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends. The expected share price volatility assumption was determined using the historical volatility of Creative’s shares. The following table presents the weighted-average assumptions used in the Black Scholes option-pricing model for the share option grants.

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	Fiscal Year 2006	Fiscal Year 2005	Fiscal Year 2004
Expected volatility	36%	—	35%
Risk-free interest rates	2.31% to 4.40%	—	1.24% to 2.27%
Dividend yield	3.0%	—	2.0%
Expected life of options (in years)	0.60 years after vest date	—	0.01 years after vest date

	Years ended June 30
	2006		2005		2004
Weighted average fair value of stock options granted:
Stock options:
At market	$	1.63	$	—	$	2.06
Below market	$	—	$	—	$	—

Summary of outstanding options under Creative’s employee share option plans

The following table summarizes the option information under the Creative’s employee share option plans as at June 30, 2006.

	Number of Options (‘000)		Weighted-Average Exercise Price ($)
Outstanding at June 30, 2003	10,592		6.59
Granted	150		10.14
Exercised	(1,517	)	5.64
Cancelled/Forfeited/Expired	(304	)	6.48
Outstanding at June 30, 2004	8,921		6.82
Granted	0		0.00
Exercised	(2,224	)	6.48
Cancelled/Forfeited/Expired	(116	)	6.83
Outstanding at June 30, 2005	6,581		6.93
Granted	3,120		7.50
Exercised	(677	)	4.29
Cancelled/Forfeited/Expired	(355	)	8.92
Outstanding at June 30, 2006	8,669		7.26
Exercisable at June 30, 2006	5,516		7.12

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The options outstanding and exercisable as at June 30, 2006 were in the following exercise price ranges:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares Outstanding (‘000)	Weighted Average Exercise Price		Aggregate Intrinsic Value ($’000)		Weighted Average Remaining Contractual Term (in years)	Number of Shares Exercisable (‘000)	Weighted Average Exercise Price		Aggregate Intrinsic Value ($’000)		Weighted Average Remaining Contractual Term (in years)
$1.00 to $2.99	126	$	2.78	$	356	4.70	126	$	2.78	$	356	4.70
$3.00 to $4.99	1,892	$	4.47	$	2,138	5.30	1,892	$	4.47	$	2,138	5.30
$5.00 to $6.99	218	$	5.67	$	51	4.85	201	$	5.62	$	51	4.70
$7.00 to $10.99	6,427	$	8.22	$	—	5.98	3,291	$	8.88	$	—	3.29
$11.00 to $18.99	6	$	18.40	$	—	3.67	6	$	18.40	$	—	3.67
	8,669	$	7.26	$	2,545	5.78	5,516	$	7.12	$	2,545	4.06

The intrinsic value is determined by the difference between Creative’s closing share price of $5.60 as of June 30, 2006 and the grant price. The aggregate intrinsic value in the table above represents the amount that would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the fiscal year ended June 30, 2006 was $1,964,000. As at June 30, 2006, Creative expects to recognize the total unrecognized compensation cost relating to non-vested stock-based compensation of $3,590,000 over a weighted average period of 3.29 years.

NOTE 10—INCOME TAXES

Creative was granted a Pioneer Certificate in 1990 under the Singapore Economic Expansion Incentives (Relief from Income Tax) Act, Cap. 86 for the design and manufacture of digital computer video, audio and multimedia products, including personal computers and related components, chipsets and software but not including interest income. The Pioneer Certificate exempted income derived from such activities (“Pioneer Income”) from tax in Singapore, subject to certain conditions. The Pioneer Certificate expired in March 2000.

Creative was granted a new Pioneer Certificate under the International Headquarters Award that will expire in March 2010. Under the new Pioneer Certificate, profits arising from qualifying activities will be exempted from income tax in Singapore, subject to certain conditions. As a result of obtaining the new Pioneer Certificate, there were tax write-backs of $10.0 million and $12.3 million in fiscal years 2006 and 2004. The reversal was related to corporate taxes provided for in full for profits arising from qualifying activities from the commencement date of the new Pioneer Certificate until the second quarter of fiscal year 2004, based on the standard tax rates of 24.5% for fiscal year 2001 and 22% for fiscal years 2002 and 2003 and 20% for fiscal year 2004. These standard corporate income tax rates continue to be applicable to profits arising from activities excluded from the new Pioneer Certificate.

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The Singapore and other components of (loss) income before income taxes are as follows (in US$’000):

	Years ended June 30
	2006			2005			2004
Singapore	$	(74,910	)	$	18,211		$	47,990
Other countries		(51,204	)		(16,717	)		78,136
Income before income taxes and minority interest	$	(126,114	)	$	1,494		$	126,126
The provision for income taxes consists of (in US$’000):
	Years ended June 30
	2006			2005			2004
Singapore	$	(9,313	)	$	(1,896	)	$	(10,346	)
Other countries		2,163			2,865			1,807
Provision for income taxes	$	(7,150	)	$	969		$	(8,539	)

Creative’s effective tax provision for fiscal years 2006, 2005 and 2004 reconciles to the amount computed by applying the Singapore statutory rate of 20.0% for 2006, 2005 and 2004 to income before income taxes and minority interest, as follows (in US$’000):

	Years ended June 30
	2006			2005			2004
Income (benefit) tax at Singapore statutory rate	$	(25,223	)	$	299		$	25,225
Tax exempt loss (income)
Singapore		13,633			(2,971	)		(9,050	)
Others		(4,547	)		(14,316	)		(12,809	)
Non-deductible expenses and write-offs		679			406			1,159
Change in valuation allowances		5,692			(81	)		(1,697	)
Rate differences and others		12,808			19,447			896
Tax refund receivable		(10,192	)		(1,815	)		(12,263	)
Provision for income taxes	$	(7,150	)	$	969		$	(8,539	)

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Deferred tax assets at June 30, 2006 and 2005 consisted of the following (in US$’000):

	As of June 30
	2006			2005
Non-deductible reserves	$	24,493		$	26,963
Net operating loss carryforwards		59,095			54,760
Other		612			833
Total deferred tax assets		84,200			82,556
Valuation allowance for deferred tax assets		(84,200	)		(82,556	)
	$	—		$	—

Deferred tax liabilities at June 30, 2006 and 2005 consisted of the following (in US$’000):

	As of June 30
	2006		2005
Unremitted offshore interest income	$	7,256	$	7,256
Undistributed profit of certain foreign subsidiaries		6,144		6,144
Others		1,165		612
Total deferred tax liabilities	$	14,565	$	14,012

Creative had net operating loss carryforward of approximately $167.4 million and $136.8 million as at June 30, 2006 and June 30, 2005, substantially expiring between 2009 to 2025. The utilization of the net operating losses by Creative is subject to certain conditions.

Valuation allowance is provided for Creative’s deferred tax assets as management believes substantial uncertainty exists regarding the realizability of these assets.

Creative has United States tax deductions not included in the net operating loss carryforward described above aggregating approximately $59.0 million and $58.8 million at June 30, 2006 and June 30, 2005, as a result of the exercise of employee stock options, the tax benefit of which has not been realized. The tax benefit of the deductions, when realized will be accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.

NOTE 11—DEBT OBLIGATIONS

In November 2004, Creative entered into a five-year $175.0 million syndicated term loan facility with a group of international banks. The proceeds from this facility were used primarily to fund the growth in working capital requirements arising from the growth in the company’s revenue. The facility is unsecured and bears interest at LIBOR plus a margin of 0.45% for the first three years and LIBOR plus a margin of 0.95% for the remaining two years. The loan facility contains certain financial covenants, including requirements for Creative to maintain certain ratios for its working capital, but does not restrict Creative’s ability to borrow nor distribute earnings. The entire loan facility of $175.0 million was drawn down in fiscal 2005.

On November 21, 2002, Creative Technology Centre Pte Ltd (“CTC”), a Singapore subsidiary of Creative, entered into a nine-year term loan facility for up to S$54.0 million ($34.0 million) with a bank. The loan is repayable in thirty-six quarterly installments of S$1.5 million ($0.9 million). The repayment commenced on March 31, 2003. The interest on the outstanding loan balance is based on bank’s floating rate plus margin 1.5%. The loan is secured by a first mortgage on the building and by way of a fixed and floating charge over all assets of CTC. At June 30, 2006, S$33.0 million ($20.8 million) was outstanding.

40

The following table presents the payments due by period for the long term debt and capital lease obligations as of June 30, 2006:

	Payments Due by Period (US$’000)
Debt Obligations	Total		Less than 1 year		1 to 3 years		4 to 5 years		After 5 years
Long Term Debt	$	195,790	$	3,780	$	7,560	$	182,560	$	1,890
Capital Lease Obligations		975		957		10		8		—
Total Debt Obligations	$	196,765	$	4,737	$	7,570	$	182,568	$	1,890

Creative has various other credit facilities relating to overdrafts, letters of credit, bank guarantees and short term loans with several banks totaling approximately $98.0 million at June 30, 2006. Within these credit facilities, sub-limits have been set on how Creative may utilize the overall credit facilities. At June 30, 2006, $0.2 million in letters of credit and $2.4 million in bank guarantees were drawn under these facilities. Facilities under letters of credit, bank guarantees, overdraft and short-term loan bear interest at approximately the banks’ prime rates.

NOTE 12 — OTHER CHARGES

In February 2006, Creative announced that 3Dlabs will refocus its graphics business on the portable handheld device market instead of the professional workstation graphics market. As a result, the fair value of 3Dlabs could no longer support the carrying value of the goodwill and other intangible assets associated with the acquisition of 3Dlabs in May 2002, and accordingly, Creative recorded a goodwill impairment charge of $29.4 million and other intangible assets impairment charge of $2.0 million in fiscal 2006. In addition to the goodwill and intangible assets impairment charges, 3Dlabs has also recorded restructuring charges of $4.9 million in operating expenses and an inventory charge of $4.3 million to cost of goods sold. The $4.9 million restructuring charges in operating expenses comprised $3.0 million in employee separation costs, $0.3 million in facility exit costs and fixed assets impairment write-downs of $1.6 million. Besides 3Dlabs’ restructuring charges, as part of ongoing worldwide cost-cutting measures, $1.0 million in employee separation costs were charged to operating expenses as part of restructuring costs in fiscal 2006.

Employee separation costs for 3Dlabs and other Creative subsidiaries represent the costs of involuntary severance benefits for approximately 200 employees. As of June 30, 2006, majority of these employees were no longer employed by the company. Facility exit costs consisted primarily of lease termination costs and research and development expenses on some 3Dlabs’ graphics chips.

The following table displays the accruals established for employee separation and facility exit costs (in US$’000):

	Initial Charges		Amounts Paid			Adjustments for Over Accruals			Accruals as of June 30, 2006
Employee separation costs	$	3,958	$	(2,521	)	$	(163	)	$	1,274
Facility exit costs		318		(291	)		—			27
Total	$	4,276	$	(2,812	)	$	(163	)	$	1,301

The adjustments for over accruals of $163,000 were reversed to the selling, general and administrative expenses.

41

Fixed assets impairment write-downs of $1.6 million were attributed to computer hardware and software associated with the 3Dlabs’ facilities that were shut down.

The $4.3 million inventory charge comprised stock obsolescence provisions for 3Dlabs’ graphics cards.

NOTE 13—INTELLECTUAL PROPERTY INDEMNIFICATION OBLIGATIONS

Creative indemnifies certain customers, distributors, suppliers, and subcontractors for attorneys’ fees and damages and costs awarded against these parties in certain circumstances in which its products are alleged to infringe third party intellectual property rights, including patents, trademarks, or copyrights. The terms of its indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to its potential liability for indemnification relating to intellectual property infringement claims. Creative cannot estimate the amount of potential future payments, if any, that the company might be required to make as a result of these agreements. Creative does not expect there to be any consequent material adverse effect on its financial position or results of operations. However, there can be no assurance that Creative will not have any future financial exposure under those indemnification obligations.

NOTE 14—LEGAL PROCEEDINGS

During the course of its ordinary business operations, Creative and its subsidiaries are involved from time to time in a variety of intellectual property and other disputes, including claims against Creative alleging copyright infringement, patent infringement, contract claims, employment claims and business torts. Ongoing disputes exist with, among other entities, Compression Labs, Incorporated (a patent infringement action filed in the Eastern District of Texas, U.S., against Creative Labs, Inc. and 27 other defendants); Nichia Corporation (a patent infringement action filed in the Northern District of California against Creative and other defendants); and representative purchasers of MP3 players (an action alleging false advertising and unfair competition in connection with reported storage capacity). Creative also from time to time receives licensing inquiries and/or threats of potential future patent claims from a variety of entities. Creative believes it has valid defenses to the various claims asserted against it, and intends to defend the actions vigorously. However, should any of these claimants prevail in their suits or claims, Creative does not expect there to be any consequent material adverse effect on its financial position or results of operations.

NOTE 15—INVESTMENTS

Net investment gain of $18.9 million in fiscal year 2006 comprised a $20.9 million net gain from sales of investments offset by $2.0 million in write-downs of investments. Net investment gain of $74.4 million in fiscal year 2005 comprised a $86.0 million net gain from sales of investments offset by $11.6 million in write-downs of investments.

NOTE 16—RELATED PARTY TRANSACTIONS

In fiscal year 2005, Creative procured advertisement production services from a company in which Creative’s CEO and Chairman, Sim Wong Hoo, is deemed to have a substantial interest. The services provided to Creative for the year amounted to $175,000 and were negotiated under normal commercial terms. In fiscal year 2006, Sim Wong Hoo has reduced his deemed interest in that company and is no longer deemed to have a substantial interest in that company.

42

In January 2003, a company controlled by a director, Ng Kai Wa, entered into a rental agreement with a subsidiary of Creative, which was prior to Ng Kai Wa’s appointment as a director of Creative in June 2005. The rental agreement expired during fiscal year 2006 and the company has moved out of Creative’s premises in April 2006. The rental received by Creative was $189,000 in fiscal year 2005 and $150,000 in fiscal year 2006.

NOTE 17—SHARE CAPITAL AND OTHER RESERVES

Effective January 30, 2006, Creative was subjected to the amendments promulgated under the Companies (Amendment) Act 2005 of Singapore. These amendments included the abolition of the ordinary share par value and authorized capital. The relevant amendments have resulted in all ordinary shares being recorded with no par value. The amendments do not affect the actual number of ordinary shares issued and the paid-in capital of Creative. As a result of the abolition of the ordinary share par value, a significant portion of the additional paid-in capital amounting to $290.2 million became part of the share capital account as at June 30, 2006 and increased the share capital account on that date to $298.5 million. The remaining balance of $52.3 million in the additional paid-in capital were classified as other reserves where it comprised mainly compensation expense for stock options, tax benefits relating to exercise of non qualified stock options by US employees and reserves arising from the buyout of a subsidiary’s convertible preference shares.

NOTE 18—SUBSEQUENT EVENT

In August 2006, Creative and Apple announced a broad settlement ending all legal disputes between the two companies. The settlement terms included a requirement for Apple to pay Creative $100.0 million for a paid-up license to use Creative’s ZEN Patent in all Apple products.

NOTE 19—SEGMENT REPORTING

Creative operates primarily in one industry segment and provides advanced multimedia solutions for personal computers and personal digital entertainment products. Creative has manufacturing plants and distribution centers in Malaysia and China, with the European distribution center located in Dublin, Ireland and the Americas distribution center located in Milpitas, California. Creative focuses its worldwide sales and marketing efforts predominantly through sales offices in North America, Europe and the Asia Pacific region.

The following is a summary of net sales by product category (in US$’000):

	Years ended June 30
	2006		2005		2004
External net sales:
Personal Digital Entertainment	$	732,253	$	768,649	$	268,133
Audio		146,378		166,325		202,490
Speakers		153,911		175,729		183,913
All Other Products		94,989		113,708		160,317
Consolidated	$	1,127,531	$	1,224,411	$	814,853

43

The following is a summary of operations by geographical regions (in US$’000):

	Years ended June 30
	2006			2005			2004
External net sales:
Asia Pacific	$	204,133		$	233,152		$	125,909
The Americas		457,677			522,489			378,653
Europe		465,721			468,770			310,291
Consolidated	$	1,127,531		$	1,224,411		$	814,853
	Years ended June 30
	2006			2005			2004
Operating (loss) income:
Asia Pacific	$	(130,916	)	$	(77,026	)	$	33,106
The Americas		2,337			2,397			(171	)
Europe		(16,841	)		6,081			11,313
Consolidated	$	(145,420	)	$	(68,548	)	$	44,248
	Years ended June 30
	2006			2005			2004
Depreciation and amortization expenses:
Asia Pacific	$	19,204		$	20,259		$	15,257
The Americas		2,439			2,634			4,238
Europe		1,508			3,484			4,121
Consolidated	$	23,151		$	26,377		$	23,616
	Years ended June 30
	2006			2005			2004
Provision for income taxes:
Asia Pacific	$	(7,992	)	$	(1,705	)	$	(10,122	)
The Americas		(552	)		1,353			350
Europe		1,394			1,321			1,233
Consolidated	$	(7,150	)	$	969		$	8,539

	As of June 30
	2006		2005
Identifiable assets:
Asia Pacific	$	574,499	$	748,601
The Americas		156,442		201,569
Europe		99,672		127,304
Consolidated	$	830,613	$	1,077,474

Long-lived assets are based on the physical location of the assets at the end of each of the fiscal years. Goodwill of $29.4 million as of June 30, 2005 was allocated to Asia Pacific region. Geographic revenue information for the three years ended June 30, 2006 is based on the location of the selling entity.

44

(In US$’000)	As of June 30
	2006		2005
Identifiable assets:
Singapore	$	395,902	$	460,791
United States of America		156,442		201,569
Ireland		95,841		122,888
Rest of the World		182,428		292,226
Consolidated	$	830,613	$	1,077,474

(In US$’000)	Years ended June 30
	2006		2005		2004
Revenue by geographic region:
Singapore	$	118,552	$	114,860	$	66,446
United States of America		457,677		522,489		378,653
Ireland		465,721		468,770		310,291
Rest of the World		85,581		118,292		59,463
Consolidated	$	1,127,531	$	1,224,411	$	814,853

Major customers: In fiscal years 2006, 2005 and 2004, no customer accounted for more than 10% of net revenues. As of June 30, 2006, one customer accounted for more than 10% of net accounts receivable, and as of June 30, 2005 and 2004, two customers accounted for more than 10% of net accounts receivable.

45

STOCK MARKET INFORMATION

Creative’s ordinary shares have been traded on the NASDAQ Global Market (“NASDAQ”) since August 3, 1992, under the symbol “CREAF.” Creative’s ordinary shares have been traded on the Singapore Exchange (“SGX-ST”) since June 15, 1994. In January 2003, Creative announced that it intends to move to a single primary stock exchange listing on the SGX-ST. Consequently, Creative announced its intention to delist its ordinary shares from NASDAQ and to initiate steps that could facilitate the elimination of its U.S. public reporting obligations. On June 1, 2003, a flow back restriction was commenced. The flow back restriction stops the electronic transfer of Creative’s ordinary shares from the register of The Central Depository (Pte) Limited in Singapore to accounts with brokers located in the United States. The delisting of Creative ordinary shares from NASDAQ would not affect the status of Creative’s shares on the SGX-ST. In October 2004, Creative announced that it had suspended its plan to delist from NASDAQ. Creative will keep shareholders informed in the event that the company decides to resume such plans.

The following table presents, for the registered shares on the NASDAQ and SGX-ST: (i) the annual high and low market prices for the five most recent full fiscal years; (ii) the high and low market prices for each full fiscal quarter for the two most recent full fiscal years; and (iii) the high and low market prices for each month for the most recent six months. These prices do not include retail markups, markdowns, or commissions.

	NASDAQ (Price in US$/Share)		SGX-ST (Price in Singapore $/Share)
	High	Low	High	Low
Annual High and Low
Fiscal 2002	15.05	4.20	27.90	8.15
Fiscal 2003	10.50	5.65	18.90	10.10
Fiscal 2004	12.59	7.73	20.40	13.80
Fiscal 2005	16.89	6.46	27.20	11.00
Fiscal 2006	8.95	4.72	14.40	7.75
Quarterly High and Low
Fiscal 2005:
First Quarter	11.50	9.50	19.00	16.80
Second Quarter	15.66	11.05	24.40	18.30
Third Quarter	16.89	9.40	27.20	15.90
Fourth Quarter	10.26	6.46	17.00	11.00
Fiscal 2006:
First Quarter	8.43	6.38	13.90	11.00
Second Quarter	8.82	7.13	14.20	12.30
Third Quarter	8.95	7.13	14.40	11.80
Fourth Quarter	7.56	4.72	12.10	7.75
Monthly High and Low:
March 2006	7.81	7.13	12.80	11.80
April 2006	7.56	6.10	12.10	10.00
May 2006	6.45	5.44	10.10	8.80
June 2006	5.77	4.72	9.10	7.75
July 2006	6.33	5.26	9.95	8.40
August 2006	6.90	5.22	11.40	8.45

As of August 18, 2006, there were approximately 15,046 shareholders of record of the ordinary shares, of which approximately 258 were registered in the US, and approximately 14,788 in Singapore. Because many of the US shares are held by brokers and other institutions on behalf of shareholders, Creative is unable to estimate the total number of shareholders represented by these US record holders.

On August 18, 2006, the closing price of Creative’s ordinary shares on the NASDAQ Global Market was $5.81 and on the SGX-ST was S$9.25.

46

THE CREATIVE NETWORK

Worldwide Corporate Headquarters	Creative Advanced Technology Center
Creative Technology Ltd.	1500 Green Hills Road, Suite 205
31 International Business Park,	Scotts Valley, CA 95066
Creative Resource,	Tel: +1-831-440 2800 Fax: +1-831-438 8509
Singapore 609921
Tel: +65-6895 4000 Fax: +65-6895 4999	3Dlabs (Alabama) Inc.
Website: www.creative.com	9668 Madison Boulevard,
	Madison, AL 35758
US Headquarters	Tel: +1-256-319 1100 Fax:+1-256-319 1114
Creative Labs, Inc.	Website: www.3dlabs.com
1901 McCarthy Boulevard,
Milpitas, CA 95035	INSIDE ASIA
Tel: +1-408-428 6600 Fax: +1-408-428 6611
Website: www.us.creative.com	Singapore
	Broadxent Pte Ltd
European Headquarters	31 International Business Park,
Creative Labs (Ireland) Ltd	Creative Resource,
Ballycoolin Business Park	Singapore 60991
Blanchardstown, Dublin 15, Ireland	Tel: +65-6890 5200 Fax: +65-6890 5269
Tel: +353-1-820 6444 Fax: +353-1-820 9557
Website: www.europe.creative.com	China
	Creative Technology (China) Co. Ltd
INSIDE USA	No. 16 Lane 647, Songtao Road, Hi-Tech Park,
	Pudong New District, Shanghai,
Operations Center	People’s Republic of China 201203
2011 Senter Road,	Tel: +86-21-6100 1100 Fax: +86-21-6100 1105
San Jose, CA 95112
Tel: +1-408-289 5600	Creative Future Computer Co. Ltd
	15 WanQuanZhuang Road,
Creative Labs Customer Response Center	HaiDian District
1523 Cimarron Plaza,	Beijing, People’s Republic of China 100089
Stillwater, Oklahoma 74075	Tel : +86-10-8255-1800 Fax: +86-10-8255-1020
Tel: +1-405-742 6600 Fax: +1-405-742 6644
	Creative Technology (Qingdao) Ltd
Cambridge SoundWorks, Inc.	Huashan Township, Jimo City,
100 Brickstone Square, 5th Floor	Qingdao, Shandong
Andover, MA 01810	People’s Republic of China 266216
Tel: +1-978-623 4400 Fax: +1-978-475 7265	Tel : +86-532-8456-0336 Fax: +86-532-8456-0338
Website: www.cambridgesoundworks.com
	Hong Kong
	Creative Labs (HK) Ltd
E-mu Systems, Inc.	Units 2807-12 28/F, Tower 1, Metroplaza
1500 Green Hills Road, Suite 101	223, Hing Fong Road
Scotts Valley, CA 95066	Kwai Fong, N.T., Hong Kong
Tel: +1-831-438 1921 Fax: +1-831-438 8612	Tel: +852-2331 2930 Fax: +852-2957 9190
Website: www.emu.com
	Japan
	Creative Media K.K.
	Kanda Eight Bldg.,
	3F, 4-6-7 Soto-Kanda, Chiyoda-KU,
	Tokyo 101-0021, Japan
	Tel: +81-3-3256 5577 Fax: +81-3-3256 5221

47

Malaysia	Germany
Cubic Electronics Sdn Bhd	Creative Labs GmbH
No.1, Jalan T.U.43,	Feringastrasse 4
Taman Tasik Utama, Air Keroh,	85774 Unterföhring, Germany
75450 Melaka, Malaysia	Tel: +49-89-992 8710 Fax: +49-89-9928 7122
Tel: +60-6-251 2888 Fax: +60-6-251 2999
Creative Labs Sdn Bhd	Italy
Unit 11.06 Level 11 AMODA	Creative Labs Srl
22 Jalan Imbi	Strada 4 ED A/2
55100 Kuala Lumpur, Malaysia	20090 Assago Milanofiori, (MI), Italy
Tel: +03-2142 6759 Fax: +03-2144 4948	Tel: +39-02-822 8161 Fax: +39-02-5750 0768
Taiwan
Creative Labs Taiwan Co., Ltd	Poland
2F, No. 5, Lane 345, YangGuang Street,	Creative Labs Sp. z o.o
Neihu District, Taipei City 114-68,	02-708 Warsaw
Taiwan,R.O.C.	ul. Bzowa 21, Poland
Tel: +886-2-8797 2928 Fax: +886-2-8797 2488	Tel: +48-22-853 02 66 Fax: +48-22-843 2283
Australia/New Zealand	Portugal
Creative Labs Pty Ltd	Creative Labs Lda.
P. O. Box 7514	Edificio Monsanto
Silverwater 2128	Rua Alto do Montijo, Lt. 1 / 2
Australia	2794-088 Carnaxide, Portugal
Tel: +61-2-9021 9800 Fax: +61-2-9021 9899	Tel: +351 214 169 010 Fax: +351 214 169 011
United Arab Emirates	Spain
Creative Labs (M.E.) FZE	Creative Labs, S.L.
P.O. Box 17506	Constitución 1, 4º - 3º
Jebel Ali Free Zone, Dubai	Edificio Diagonal 2
United Arab Emirates	08960 Sant Just Desvern, Barcelona, Spain
Tel: +97-14-881 0260 Fax: +97-14-881 0261	Tel: +34-93-470 3150 Fax: +34-93-499 0811
INSIDE EUROPE	Sweden
	Creative Technologies Scandinavia AB
Benelux	Spånga Center, Stormbyvägen 2-4,
Creative Labs NV	S-163 29 Spånga, Sweden
Royal House, Coremansstraat 34 bus 2	Tel: +46-8-564 72020 Fax: +46-8-795 7835
B-2600 Berchem, Belgium
Tel: +32-3-2878777 Fax: +32-3-2308550	United Kingdom
	Creative Labs (UK) Ltd
Denmark	Unit 3, The Pavilions
Creative Labs A/S	Ruscombe Business Park
Gydevang 39-41	Ruscombe, Berkshire, RG10 9NN,
DK-3450, Allerød, Denmark	United Kingdom
Tel: +45-48-16 84 00 Fax: +45-48-16 84 01	Tel: +44-118-9344 322 Fax: +44-118-9320 271
France	3Dlabs Ltd
Creative Labs, SA	Meadlake Place
102/116 Rue Victor Hugo	Thorpe Lea Road
92686 Levallois Perret Cedex, France	Egham, Surrey, TW20 8HE, United Kingdom
Tel: +33-1-55 21 33 50 Fax: +33-1-55 21 33 51	Tel: +44-178-4470 555 Fax: +44-178-4470 699

48

CORPORATE DIRECTORY

BOARD OF DIRECTORS

Sim Wong Hoo,	Chairman
Tan Lip-Bu,	Director
Tang Chun Choy,	Director
Lee Kheng Nam,	Director
Ng Kai Wa,	Director

CORPORATE HEADQUARTERS	COMPANY SECRETARY
31 International Business Park	Ng Keh Long
Creative Resource	31 International Business Park
Singapore 609921	Creative Resource
Tel: 65-6895-4000	Singapore 609921
US HEADQUARTERS	REGISTRAR / TRANSFER AGENT
1901 McCarthy Boulevard	Lim Associates (Pte) Ltd
Milpitas CA 95035 USA	10 Collyer Quay
Tel: 1-408-428-6600	#19-08 Ocean Building
	Singapore 049315
	&
EUROPE HEADQUARTERS	Mellon Investor Services LLC
	Shareholder Relations
Ballycoolin Business Park	P. O. Box 3315
Blanchardstown	South Hackensack, NJ 07606 USA
Dublin 15, Republic of Ireland	or
Tel: 353-1-820-6444	480 Washington Boulevard
	Jersey City, NJ 07310-1900 USA
CORPORATE COUNSEL	INDEPENDENT ACCOUNTANTS
Arfat Selvam Alliance LLC	PricewaterhouseCoopers
16 Collyer Quay	8 Cross Street #17-00
#11-02 Hitachi Tower	PWC Building
Singapore 049318	Singapore 048424

49

CREATIVE TECHNOLOGY LTD.

(Incorporated in Singapore)

AND SUBSIDIARY COMPANIES

SUPPLEMENTARY INFORMATION TO ANNUAL REPORT 2006

For the financial year ended 30 June 2006

Contents

Directors’ Report	1
Statement by Directors	5
Auditors’ Report	6
Unconsolidated Balance Sheet	7
Notes to the Unconsolidated Balance Sheet	8
Statistics of Shareholding	14
Corporate Directory	15

CREATIVE TECHNOLOGY LTD.

AND SUBSIDIARY COMPANIES

DIRECTORS’ REPORT

For the financial year ended 30 June 2006

The directors present their report to the members together with the audited financial statements of the Group for the financial year ended 30 June 2006 and the unconsolidated balance sheet of the Company at 30 June 2006. The audited financial statements of the Group are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

The statutory financial statements of the Group and the unconsolidated balance sheet of the Company are presented in United States of America dollar (“US$”) as the principal currency in which the Company and its subsidiaries conduct their business is the US$.

1. DIRECTORS

The directors of the Company at the date of this report are:

Sim Wong Hoo

Tan Lip-Bu

Tang Chun Choy

Lee Kheng Nam

Ng Kai Wa

2. ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES AND DEBENTURES

Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object was to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, other than as disclosed under “Employee Stock Option Plans” on pages 2 to 3.

3. DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES

(a) According to the register of directors’ shareholdings, the interests of the directors holding office at the end of the financial year in the share capital of the Company and related corporations were as follows:

	Holdings registered in the name of the director		Holdings in which the director is deemed to have an interest
Name of director	At 1.7.2005 or date of appointment	At 30.6.2006	At 1.7.2005 or date of appointment	At 30.6.2006
Creative Technology Ltd.
(Ordinary shares)
Sim Wong Hoo	25,984,602	25,984,602	—	—
Tan Lip-Bu	85,000	85,000	—	—
Tang Chun Choy	20,000	20,000	—	—
Lee Kheng Nam	—	—	10,000	10,000
Ng Kai Wa	2,362,005	2,362,005	—	—

1

CREATIVE TECHNOLOGY LTD.

AND SUBSIDIARY COMPANIES

DIRECTORS’ REPORT

For the financial year ended 30 June 2006

3. DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES (continued)

In addition, by virtue of his interest of not less than 20% in the issued share capital of Creative Technology Ltd., Sim Wong Hoo is also deemed under the Companies Act to have interests in all of the Company’s subsidiaries.

(b) According to the register of directors’ shareholdings, certain of the directors holding office at 30 June 2006 had interests in the options to subscribe for ordinary shares of the Company granted pursuant to the Creative Technology (1999) Share Option Scheme (“1999 Scheme”):

	Holdings registered in the name of the director
Name of director	At 1.7.2005	At 30.6.2006
Creative Technology Ltd.
Tan Lip-Bu	—	80,000
Tang Chun Choy	—	80,000
Lee Kheng Nam	—	80,000
Ng Kai Wa	—	80,000

None of the directors of the Company at the end of the financial year had any interest in debentures of the Company or any related corporations.

4. DIRECTORS’ CONTRACTUAL BENEFITS

Since the end of the previous financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member or with a company in which he has a substantial financial interest, except as disclosed in this report and the financial statements.

5. EMPLOYEE STOCK OPTION PLANS

In December 1998, the Company adopted the Creative Technology (1999) Share Option Scheme (“1999 Scheme”) which allows options to be granted to full-time employees as well as consultants and non-executive directors. The total number of shares that may be granted as options is 7.5 million provided that such amount shall be automatically increased on the first day (1 July) of each of the five financial years ending 30 June 2001, 2002, 2003, 2004 and 2005 by four percent of the issued share capital of the Company as at the last day of the immediate preceding financial year. The Option Committee, made up of the Board of Directors has the discretion to decide the vesting schedule in the letter of offer. If it is not specifically stated in the letter of offer, 1/4 of the total amount of the grant vest on the first anniversary of the grant date and 1/48 of the total amount of the grant on the last day of each calendar month thereafter. The exercise price of options granted under the 1999 Scheme may be less than the fair market value of the shares as of the date of grant and the options expire after the tenth anniversary of the date of grant, except in the case of options granted to participants other than employees, options expire not later than the fifth anniversary of the date of grant. The Company issues new shares to satisfy its share-based exercise.

2

CREATIVE TECHNOLOGY LTD.

AND SUBSIDIARY COMPANIES

DIRECTORS’ REPORT

For the financial year ended 30 June 2006

5. EMPLOYEE STOCK OPTION PLANS (continued)

There were no options granted under the 1999 Scheme in the financial year 2005. During the financial year ended 30 June 2006, the Company granted 3,120,000 stock options under the 1999 Scheme with a total grant date fair value of US$5,087,000. The weighted average grant date fair value of options granted was US$1.63 per share.

A summary of options granted to employees and non-employee directors under the Company’s stock option plans is presented below:

	Options Outstanding
	Number of Shares (‘000)		Weighted Average Exercise Price (US$)	Weighted Average Remaining Contractual Life (years)
Balance at 1 July 2005	6,581		6.93	5.23
Granted – at fair market value	3,120		7.50
Exercised	(677	)	4.29
Cancelled	(355	)	8.92
Balance at 30 June 2006	8,669		7.26	5.78

The total number of options exercisable at 30 June 2006 and 2005 under the 1999 Scheme were 5,516,000 and 6,027,000, respectively.

6. AUDIT COMMITTEE

The Audit Committee of the Board of Directors was formed in 1992. The members of the Committee, all of whom are non-executive directors, are as follows:

Lee Kheng Nam (Chairman)

Tang Chun Choy

Ng Kai Wa

In performing its functions, the Committee reviewed the audit plan and the overall scope of work of the external auditors. It met with the auditors to discuss the results of their examination and their evaluation of the system of internal accounting controls of the Company and its subsidiaries.

The Committee also reviewed the unconsolidated balance sheet of the Company and the consolidated financial statements of the Group as well as the auditors’ report thereon and recommended to the Board of Directors the nomination of PricewaterhouseCoopers as auditors of the Company at the forthcoming annual general meeting.

3

CREATIVE TECHNOLOGY LTD.

AND SUBSIDIARY COMPANIES

DIRECTORS’ REPORT

For the financial year ended 30 June 2006

7. AUDITORS

The auditors, PricewaterhouseCoopers have expressed their willingness to accept re–appointment.

On behalf of the directors

Sim Wong Hoo	Lee Kheng Nam
Director	Director
Singapore, 21 September 2006

4

CREATIVE TECHNOLOGY LTD.

AND SUBSIDIARY COMPANIES

STATEMENT BY DIRECTORS

In the opinion of the directors,

(i) the consolidated financial statements of the Group as set out in the Annual Report are drawn up so as to give a true and fair view of the state of affairs of the Group at 30 June 2006, and of the results of the business, cash flows and changes in equity of the Group for the financial year then ended;

(ii) the unconsolidated balance sheet of the Company together with notes are drawn up so as to give a true and fair view of the state of affairs of the Company at 30 June 2006; and

(iii) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the directors

Sim Wong Hoo	Lee Kheng Nam
Director	Director
Singapore, 21 September 2006

5

CREATIVE TECHNOLOGY LTD.

AND SUBSIDIARY COMPANIES

AUDITORS’ REPORT TO THE MEMBERS OF CREATIVE TECHNOLOGY LTD.

(In compliance with the requirements of the Singapore Companies Act)

We have audited the consolidated financial statements of Creative Technology Ltd. (the “Company”) and its subsidiary companies (the “Group”) as at 30 June 2006, and for the year ended 30 June 2006, set out on pages 22 to 45 of the Annual Report, in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). The consolidated financial statements of the Group are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). These financial statements are the responsibility of the directors. Our responsibility is to express an opinion on these financial statements based on our audit. We reported separately on the financial statements of the Group on 21 September 2006 and our report is included thereon.

We have also audited the accompanying unconsolidated balance sheet of the Company as part of the audit of the consolidated financial statements referred to above. The unconsolidated balance sheet of the Company is the responsibility of the directors and should be read in conjunction with the consolidated financial statements. The unconsolidated balance sheet of the Company as at 30 June 2006 and notes therein as set out on page 7 to 13 are presented as required by the Singapore Companies Act, Cap. 50 (the “Act”).

In our opinion,

(a) the consolidated financial statements of the Group, and the accompanying unconsolidated balance sheet of the Company, are properly drawn up in accordance with the provisions of the Act and US GAAP, so as to give a true and fair view of the state of affairs of the Group and of the Company as at 30 June 2006, and the results, cash flows and changes in equity of the Group for the financial year ended on that date; and

(b) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

PricewaterhouseCoopers

Certified Public Accountants

Singapore, 21 September 2006

6

CREATIVE TECHNOLOGY LTD.

UNCONSOLIDATED BALANCE SHEET

As at 30 June 2006

		2006	2005
	Note	US$’000	US$’000
ASSETS
Current assets
Cash and cash equivalents	3	172,961	128,767
Accounts receivable, net	4	7,773	15,124
Amounts receivable from subsidiaries	9	243,828	302,224
Inventories	5	117,486	224,031
Other assets and prepaids	6	31,527	25,372
Total current assets		573,575	695,518
Property, plant and equipment, net	7	4,217	5,159
Other non-current assets	8	4,313	7,294
Interest in subsidiaries	9	227,883	318,527
Total assets		809,988	1,026,498
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable		76,464	111,880
Amounts due to subsidiaries	9	22,838	24,330
Accrued liabilities	10	37,085	42,914
Income taxes payable		905	1,452
Current portion of long-term obligations	12	65	50
Total current liabilities		137,357	180,626
Amount due to subsidiaries	9	91,059	76,259
Long-term obligations	12	175,019	175,081
Deferred taxation	11	13,400	13,400
Total liabilities		416,835	445,366
Shareholders’ equity
Share capital	13	298,474	8,286
Additional paid-in capital	13	—	310,150
Other reserves	14	24,802	—
Revaluation reserve	15	19,453	65,280
Retained earnings		50,424	197,416
Total shareholders’ equity		393,153	581,132
Total liabilities and shareholders’ equity		809,988	1,026,498

The accompanying notes form an integral part of this unconsolidated balance sheet

Auditors’ Report – Page 6

7

CREATIVE TECHNOLOGY LTD.

NOTES TO THE UNCONSOLIDATED BALANCE SHEET

For the financial year ended 30 June 2006

These notes form an integral part of and should be read in conjunction with the accompanying unconsolidated balance sheet.

1. GENERAL

The Company is domiciled and incorporated in Singapore and is listed on both the Singapore Exchange Securities Trading Limited (“SGX”) and NASDAQ National Market. The address of its registered office is:

31 International Business Park

Creative Resource

Singapore 609921

The principal activities of the Company consist of the design, manufacture and distribution of digitised sound and video boards, computers and related multimedia and personal digital entertainment products.

The Company is required to file its audited balance sheet in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) with the Accounting and Corporate Regulatory Authority (“ACRA”). This standalone Company balance sheet is referred to as unconsolidated balance sheet herein.

Under the Companies (Accounting Standards for Listed Companies) Order 2003 of the Singapore Companies (Amendment) Act, where a SGX listed company is also listed on a foreign exchange which requires the Company to comply with accounting standards other than Financial Reporting Standards, the Company shall apply these alternative accounting standards if they are approved accounting standards by SGX and the Company has notified ACRA its intention. As the accounting principles generally accepted in the United States (“US GAAP”) is an approved accounting standards and the Company has notified ACRA of its intention, the Company unconsolidated balance sheet has been prepared in accordance with US GAAP.

The unconsolidated balance sheet of the Company should be read in conjunction with the consolidated financial statements, its basis of preparation and significant accounting policies. The consolidated financial statements are prepared in accordance with US GAAP and are included in the Annual Report of the Company.

The unconsolidated balance sheet is expressed in United States dollar (“US$”), which is the functional and presentation currency. All dollar amounts included in the unconsolidated balance sheet and in the notes herein are US$ unless designated as Singapore dollar (“S$”).

8

CREATIVE TECHNOLOGY LTD.

NOTES TO THE UNCONSOLIDATED BALANCE SHEET

For the financial year ended 30 June 2006

2. SIGNIFICANT ACCOUNTING POLICY

Subsidiaries

For the purpose of presenting the unconsolidated balance sheet of the Company in accordance with US GAAP, the Company equity accounted for its share of the net asset values of the respective subsidiaries and associated companies.

3. CASH AND CASH EQUIVALENTS

	2006	2005
	US$’000	US$’000
Cash and bank balances	9,711	11,454
Fixed rate deposits	163,250	117,313
	172,961	128,767

4. ACCOUNTS RECEIVABLE

	2006		2005
	US$’000		US$’000
Accounts receivable (third parties)	10,422		19,248
Less: Allowance for doubtful trade debts and sales return	(2,649	)	(4,124	)
	7,773		15,124

5. INVENTORIES

	2006	2005
	US$’000	US$’000
Raw materials	68,173	144,691
Work-in-progress	476	15,451
Finished products	48,837	63,889
	117,486	224,031

6. OTHER ASSETS AND PREPAIDS

	2006	2005
	US$’000	US$’000
Prepaid royalties	369	251
Prepaid sales taxes	6,541	6,554
Tax recoverable	21,842	14,263
Prepaid expenses, other receivables and deposits	2,775	4,304
	31,527	25,372

9

CREATIVE TECHNOLOGY LTD.

NOTES TO THE UNCONSOLIDATED BALANCE SHEET

For the financial year ended 30 June 2006

7. PROPERTY, PLANT AND EQUIPMENT

	2006		2005
	US$’000		US$’000
Cost
Machinery and equipment	17,462		20,283
Furniture, fixtures and office equipment	27,280		26,281
Leasehold improvements	5,290		4,494
Total cost	50,032		51,058
Total accumulated depreciation	(45,815	)	(45,899	)
Property, plant and equipment, net	4,217		5,159

Included in the above are fixed assets of the Company acquired under capital leases with net book value of US$52,000 (2005: US$109,000) [see Note 12].

8. OTHER NON-CURRENT ASSETS

	2006		2005
	US$’000		US$’000
Intangible assets	16,533		16,633
Accumulated amortisation	(15,019	)	(13,626	)
Intangible assets, net	1,514		3,007
Other non-current assets	2,799		4,287
	4,313		7,294

9. SUBSIDIARIES

	2006		2005
	US$’000		US$’000
Unquoted equity shares, at cost	251,375		247,322
Add: Amount due from subsidiaries (a)	316,038		304,134
Less: Share of losses of subsidiaries	(358,983	)	(298,209	)
Add: Revaluation reserve (Note 15)	19,453		65,280
Interest in subsidiaries	227,883		318,527
(a)      Amount due from subsidiaries	559,866		606,358
Less: current amounts	(243,828	)	(302,224	)
	316,038		304,134
(b)      Amount due to subsidiaries	(113,897	)	(100,589	)
Less: current amounts	22,838		24,330
	(91,059	)	(76,259	)

Included in the non-current amounts due from subsidiaries is an unsecured loan bearing interest at LIBOR plus a margin of 0.95%. The remaining non-current amounts due from and due to subsidiaries are interest-free and unsecured. Non-current amounts are not expected to be repaid within the 12 months after the balance sheet date.

10

CREATIVE TECHNOLOGY LTD.

NOTES TO THE UNCONSOLIDATED BALANCE SHEET

For the financial year ended 30 June 2006

10. ACCRUED LIABILITIES

	2006	2005
	US$’000	US$’000
Marketing accruals	1,307	1,381
Payroll accruals	7,707	9,142
Royalty accruals	2,139	1,624
Products warranty accruals	8,651	11,410
Other accruals	17,281	19,357
	37,085	42,914

11. INCOME TAXES

The Company was granted a Pioneer Certificate in 1990 under the Singapore Economic Expansion Incentives (Relief from Income Tax) Act, Cap. 86 for the design and manufacture of digital computer video, audio and multimedia products, including personal computers and related components, chipsets and software but not including interest income. The Pioneer Certificate exempted income derived from such activities (“Pioneer Income”) from tax in Singapore, subject to certain conditions. The Pioneer Certificate expired in March 2000.

The Company was granted a new Pioneer Certificate under the International Headquarters Award that will expire in March 2010. Under the new Pioneer Certificate, profits arising from qualifying activities will be exempted from income tax in Singapore, subject to certain conditions. As a result of obtaining the new Pioneer Certificate, there was a tax write-back of US$10.0 million and US$12.3 million in the financial year 2006 and 2004. The reversal was related to corporate taxes provided for in full for profits arising from qualifying activities from the commencement date of the new Pioneer Certificate until the second quarter of financial year 2004, based on the standard tax rates of 24.5% for financial year 2001 and 22% for financial year 2002 and 22% for financial year 2003 and 20% for financial year 2004. These standard corporate income tax rates continue to be applicable to profits arising from activities excluded from the new Pioneer Certificate. The estimated tax recoverable has been recorded on the balance sheet as disclosed in Note 6.

The tax effect of significant items comprising the Company’s deferred tax liabilities are as follows:

	2006	2005
	US$’000	US$’000
Deferred tax liabilities:
Unremitted offshore interest income	7,256	7,256
Undistributed profit of certain foreign subsidiaries and others	6,144	6,144
	13,400	13,400

11

CREATIVE TECHNOLOGY LTD.

NOTES TO THE UNCONSOLIDATED BALANCE SHEET

For the financial year ended 30 June 2006

12. LONG-TERM OBLIGATIONS

Long-term obligations consist of the following:

	2006		2005
	US$’000		US$’000
Capital leases and hire purchase contracts (a)	84		131
Less: current amounts	(65	)	(50	)
	19		81
Bank loan (b)	175,000		175,000
	175,019		175,081

(a) Capital leases and hire purchase contracts

Minimum lease obligations:
Within 1 year	74		57
Within 2 to 5 years	21		96
	95		153
Less: amounts representing interest	(11	)	(22	)
Total capital lease obligations	84		131

The liability is secured on the property, plant and equipment acquired under capital lease contracts (see Note 7).

(b) Bank Loan

Refer to Note 11 of the consolidated financial statements for details of the bank loans.

13. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL

	No. of shares				Amount
									Additional Paid-In Capital
	Authorised share capital		Issued share capital		Authorised share capital		Issued share capital		Amortised portion of deferred share compensation		Arising on issuance of warrants and options in connection with the acquisition of subsidiaries		Capital redemption reserves		Share premium		Total additional- paid-in- capital
	‘000		‘000		S$’000		US$’000		US$’000		US$’000		US$’000		US$’000		US$’000
Balance at beginning of the year	200,000		83,593		50,000		8,286		15,958		6,951		3,825		283,416		310,150
Proceeds from share issue	—		678		—		100		—		—		—		2,847		2,847
Share-based compensation	—		—		—		—		1,893		—		—		—		1,893
Share buyback	—		(1,000	)	—		(150	)	—		—		150		—		150
Effect of Companies (Amendment) Act 2005
- Transfer to share capital	(200,000	)	—		(50,000	)	290,238		—		—		(3,975	)	(286,263	)	(290,238	)
- Transfer to other reserves	—		—		—		—		(17,851	)	(6,951	)	—		—		(24,802	)
Balance at end of the year	—		83,271		—		298,474		—		—		—		—		—

12

CREATIVE TECHNOLOGY LTD.

NOTES TO THE UNCONSOLIDATED BALANCE SHEET

For the financial year ended 30 June 2006

13. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL (continued)

Under the Companies (Amendment) Act 2005 that came into effect on 30 January 2006, the concepts for par value and authorised share capital are abolished and the amount in the share premium account as of 30 January 2006 is required to become part of the company’s share capital.

14. OTHER RESERVES

	2006	2005
	US$’000	US$’000
Transfer from additional paid-in capital:
Effect of Companies (Amendment) Act 2005
Amortised portion of deferred share compensation	17,851	—
Arising on issuance of warrants and options in connection with the acquisition of subsidiaries	6,951	—
	24,802	—

15. REVALUATION RESERVE

The revaluation reserve comprised the unrealised gains/(losses) on revaluation of investments held by the subsidiaries.

The movement in the revaluation reserve account during the year is as follows:

	2006		2005
	US$’000		US$’000
Balance at the beginning of the year	65,280		151,153
Share of unrealised losses on investment of certain subsidiaries	(45,827	)	(85,873	)
Balance at the end of the year (Note 9)	19,453		65,280

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, other assets and receivables, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts shown for long term obligations approximate fair value because current interest rates charged to the Company for debts of similar maturities are substantially the same.

13

CREATIVE TECHNOLOGY LTD.

STATISTICS OF SHAREHOLDING

As at 18 August 2006

Issued and Fully Paid Up Capital	:  S$501,544,388
Class of Shares	:  Ordinary shares with equal voting rights

Size of Shareholding	Number of Shareholders	Percentage of Shareholders (%)		Number of Shares	Percentage of Shares (%)
1 – 999	7,801	51.85		2,250,601	2.70	%
1,000 - 10,000	7,008	46.58		14,911,247	17.89	%
10,001 - 1,000,000	226	1.50		9,204,127	11.05	%
1,000,001 and over	11	0.07		56,962,536	68.36	%
Total	15,046	100.00	%	83,328,511	100.00	%

		TOP TWENTY SHAREHOLDERS
Name of Shareholder		Number of Shares	Percentage (%)
1	Sim Wong Hoo	13,381,552	16.06	%
2	Merrill Lynch (Singapore) Pte Ltd	8,690,383	10.43	%
*3	CEDE & Co	8,464,141	10.16	%
4	Citibank Nominees Singapore Pte Ltd	7,460,033	8.95	%
5	DBS Nominees Pte Ltd	6,250,972	7.50	%
6	Raffles Nominees Pte Ltd	3,489,494	4.19	%
7	HSBC (Singapore) Nominees Pte Ltd	2,559,830	3.07	%
8	Ng Kai Wa & Ng Sin Choon	2,000,000	2.40	%
9	DBSN Services Pte Ltd	1,821,925	2.19	%
10	United Overseas Bank Nominees Pte Ltd	1,715,628	2.06	%
11	DB Nominees (S) Pte Ltd	1,128,578	1.36	%
12	OCBC Nominees Singapore	677,443	0.81	%
13	BNP Paribas Nominees Singapore Pte Ltd	554,000	0.66	%
14	Ngan Tang Joo	377,950	0.45	%
15	UOB Kay Hian Pte Ltd	357,460	0.43	%
16	OCBC Securities Private Ltd	304,070	0.37	%
17	Chan Siew Kim Alice	300,000	0.36	%
18	Phillip Securities Pte Ltd	293,750	0.35	%
19	Western Properties Pte Ltd	257,000	0.31	%
20	DBS Vickers Securities (S) Pte Ltd	243,950	0.29	%
Total		60,328,159	72.40	%

____________

* A nominee name used by The Depository Trust Company of New York to register shares in.

	Number of Ordinary shares
Substantial Shareholders	Direct Interest	Deemed Interest
Sim Wong Hoo	25,984,602	—

14

CREATIVE TECHNOLOGY LTD.

CORPORATE DIRECTORY

BOARD OF DIRECTORS

Sim Wong Hoo,	Chairman
Tan Lip-Bu,	Director
Tang Chun Choy,	Director
Lee Kheng Nam,	Director
Ng Kai Wa,	Director

CORPORATE HEADQUARTERS	COMPANY SECRETARY
31 International Business Park	Ng Keh Long
Creative Resource	31 International Business Park
Singapore 609921	Creative Resource
Tel: 65-6895-4000	Singapore 609921
US HEADQUARTERS	REGISTRAR/TRANSFER AGENT
1901 McCarthy Boulevard	Lim Associates (Pte) Ltd
Milpitas CA 95035 USA	10 Collyer Quay
Tel: 1-408-428-6600	#19-08 Ocean Building
	Singapore 049315
EUROPE HEADQUARTERS	&
	Mellon Investor Services LLC
Ballycoolin Business Park	Shareholder Relations PO Box 3315
Blanchardstown Dublin 15	South Hackensack, NJ 07606 USA or
Republic of Ireland	480 Washington Boulevard, Jersey City
Tel: 353-1-820-6444	NJ 07310-1900 USA
CORPORATE COUNSEL	INDEPENDENT ACCOUNTANTS
Arfat Selvam Alliance LLC	PricewaterhouseCoopers
16 Collyer Quay	8 Cross Street #17-00
#11-02 Hitachi Tower	PWC Building
Singapore 049318	Singapore 048424

15