Acquisition

K3 Business Technology Group PLC
02 June 2005



                        K3 BUSINESS TECHNOLOGY GROUP PLC
                            ('K3' or 'the Company')

                         ANNOUNCES PROPOSED ACQUISITION 
                                       OF
                     INFORMATION ENGINEERING GROUP LIMITED

Key Points

• K3, the IT solutions provider, announces that it has conditionally
agreed to acquire the entire issued share capital of Information Engineering
Group Limited ('IEG'), a UK distributor of SYSPRO Enterprise Resource Planning
software to the manufacturing sector.

• The initial consideration for the acquisition is £3.81 million
together with deferred consideration and earn out arrangements of up to £2.25
million.

• The acquisition will further the Company's strategic aim of becoming
the leading UK supplier of Microsoft-based supply chain management solutions to
small and medium enterprises in the retail, distribution and manufacturing
sectors. It will bring the Company high levels of recurring revenue,
cross-selling opportunities and significant realisable synergies.

• Established in 1986 and headquartered in Manchester, IEG is a
distributor and implementer of SYSPRO manufacturing, financial and distribution
software throughout the UK. SYSPRO is a Microsoft-based software suite which
provides customers with real-time information throughout the supply chain
process. IEG's other services include project management, implementation
consultancy, training and support.

• For the year to 31 December 2003, IEG generated revenues of £4.6m
and operating profits before goodwill amortisation of £0.1m for that financial
year. These results do not include annualised cost savings of approximately
£0.6m realised by IEG in 2004. As at 31 December 2003 IEG had net liabilities of
£0.2 million.

• A circular will be sent to shareholders today convening an
extraordinary general meeting to be held on 20 June 2005 to seek authority to
facilitate the Acquisition.

• In a separate announcement today, K3 has also issued its preliminary
results for the year to 31 December 2004.

Andy Makeham, chief executive of K3, said:

'We have been seeking opportunities to act as a consolidator within the
manufacturing software sector and therefore the acquisition of IEG is an
exciting development.

IEG provides a market-leading ERP solution for mid-range manufacturers and the
business generates high levels of recurring revenue. It complements and
strengthens our existing manufacturing software portfolio and there is scope for
both cross-selling and cost savings. We expect IEG to be immediately earnings
enhancing.

K3 has been significantly transformed over the past 12 months and we now have in
place a strong platform from which to grow. Our goal remains that of becoming a
leading supplier of Microsoft-based supply chain management solutions to SMEs in
the retail, distribution and manufacturing sectors.'


Enquiries:

K3 Business Technology      Andy Makeham, Chief Executive         T: 020 7448 1000
Group                       David Bolton, Finance Director        Thereafter: 01282 864111

Biddicks                    Katie Tzouliadis                      T: 020 7448 1000

Robert W. Baird Limited     Shaun Dobson                          T: 020 7488 1212
                            Nick Tulloch


ACQUISITION OF INFORMATION ENGINEERING GROUP LIMITED

Acquisition Statistics

Number of Consideration Shares to be issued on Admission             2,263,158

Timetable of Events

Latest time and date for receipt of Forms of Proxy                   2.00 p.m. on 18 June 2005 

Extraordinary general meeting                                        2.00 p.m. on 20 June 2005 

Admission & dealings in the Consideration Shares on AiM commence     21 June 2005

Completion of the acquisition                                        21 June 2005

Introduction

K3 announces that it has conditionally agreed to acquire the entire issued share
capital of Information Engineering Group Limited ('IEG'), a UK distributor of
SYSPRO Enterprise Resource Planning software to the manufacturing sector (the
'Acquisition'), for initial consideration of £3.81 million, to be satisfied by a
combination of cash and shares, together with deferred consideration and earn
out arrangements of up to £2.25 million. The Acquisition will further K3's
strategic aim of becoming the leading UK supplier of Microsoft-based supply
chain management solutions to small and medium enterprises ('SMEs') in the
retail, distribution and manufacturing sectors. Further details of the
Acquisition are set out below.

Completion of the Acquisition is conditional on certain resolutions being passed
by shareholders of K3 at an extraordinary general meeting of the Company
convened for 2.00 p.m. on 20 June 2005 (the 'EGM').

Information on IEG

IEG, founded in 1986 and headquartered in Manchester, is a UK distributor and
implementer of SYSPRO manufacturing, financial and distribution software. SYSPRO
is a Microsoft-based software suite providing Enterprise Resource Planning,
Advanced Planning and Scheduling, e-commerce and accounting functionality within
a single organisation or across multiple sites, thereby providing customers with
real-time information throughout the supply chain process.

IEG implements SYSPRO solutions throughout the UK. IEG's other services include
project management, implementation consultancy, training and support.

In April 2003, IEG acquired two smaller competitors for an aggregate
consideration of approximately £0.4 million. Following the integration of these
companies and the completion of other cost initiatives, IEG has realised
annualised cost savings in 2004 of £0.6 million, the benefits of which are not
reflected in the results for the year ended 31 December 2003; IEG recorded
revenues of £4.6 million and operating profits before goodwill amortisation of
£0.1 million for that financial year. As at 31 December 2003, IEG had net
liabilities of £0.2 million.

Background to and reasons for the Acquisition

It is Microsoft's stated intention to dominate the business application software
market to SMEs and through ''Project Green'' they intend to develop the full
spectrum of business application software in ready-to-use template formats. K3
has a very strong relationship with Microsoft and together they are developing a
framework that will allow each such template to integrate with K3's range of
business applications.

K3's stated strategy is to become the leading UK supplier of Microsoft-based
supply chain management solutions to SMEs in the retail, distribution and
manufacturing sectors.

To that end, in March 2004, the Company sold its business based in Crewe,
Cheshire, a supplier of legacy Enterprise Resource Planning software to the
manufacturing sector. The product offering was not Microsoft-based and was
therefore not in keeping with K3's ongoing strategy set out above. The proceeds
from the sale of the Crewe business were applied to part finance subsequent
acquisitions made by K3, the first of which was K3 Elucid Limited in April 2004
('Elucid'), one of the UK's market leading providers of multi-channel business
solutions to small and medium-sized distribution companies, representing the
Company's first move into the distribution sector. In October 2004, the Company
acquired K3 Landsteinar Limited, K3 Landsteinar (Ireland) Limited and Miracle
Hindsight Limited (together, 'Landsteinar'), one of the principal UK suppliers
of Microsoft Navision retail solutions to medium-sized retailers, thereby
fulfilling the Company's strategy to deliver supply chain management software to
the retail sector.

The proposed acquisition of IEG brings to the Company a market-leading, midrange
Microsoft-based Enterprise Resource Planning solution for the manufacturing
sector, high levels of recurring revenue, cross selling opportunities and
significant realisable synergies. Furthermore, as a result of the Acquisition,
the Company is able to provide a complete range of Microsoft-based supply chain
management solutions to each of its three target sectors. The Directors expect
the Acquisition to be immediately earnings enhancing.

The Directors believe that the platform is now in place to grow each of the
Company's businesses both organically and through the strategic acquisitions of
complementary businesses.

Details of the Acquisition and financing arrangements

Terms of the Acquisition
Under the terms of the acquisition agreement between Patrick McCarthy, Andrew
Latham and The Royal Bank of Scotland plc ('the Vendors') and the Company dated
2 June 2005 ('the Acquisition Agreement'), K3 has agreed to acquire the entire
issued share capital of IEG for initial consideration of £1.66 million in cash,
comprising a pre-payment of £0.175 million made by the Company to the Vendors
(other than the Bank) on 28 July 2004, cash of £1.2 million and the payment by
K3 of £0.29 million in respect of an outstanding director's loan together with
the issue to the Vendors of £2.15 million in new Ordinary Shares in the Company
at a price of 95p per share ('the Consideration Shares').

In addition, loan notes are to be issued to the Vendors on completion of the
Acquisition pursuant to which up to £2.25 million may be payable to the Vendors,
£0.55 million of which is to be paid on 30 November 2005 with a further £0.1
million to be paid on 30 November 2006. The remaining sum of up to £1.6 million
is to be paid as deferred consideration under an earn-out arrangement based on
the profit before tax and goodwill amortisation ('Profit') (the calculation of
which is subject to certain adjustments) achieved by IEG for each of the
financial periods from 1 June 2005 to 31 May 2006 (the 'First Period') and 1
June 2006 to 31 May 2007 (the 'Second Period') respectively. In each of the
First Period and the Second Period the payment to the Vendors of the deferred
consideration is triggered by the Profit for the relevant period being at least
£0.75 million. The Vendors will then receive £3.40 for every £1.00 by which the
Profit in the First Period exceeds £0.75 million up to a maximum of £850,000
(i.e. where the Profit for the First Period is £1.00 million) and £3.00 for
every £1.00 by which the Profit in the Second Period exceeds £0.75 million up to
a maximum of £750,000 (i.e. where the Profit for the Second Period is £1.00
million). Any deferred consideration due in respect of the First Period shall be
paid on the later of five business days after determination of the relevant
Profit and 30 November 2006 and payment of any deferred consideration due in
respect of the Second Period shall be paid on the later of five business days
after determination of the relevant Profit and 30 November 2007. Should the net
assets of IEG as at 31 May 2005 (the 'May Net Assets') be less than the net
assets of IEG as at 31 December 2004 (the 'December Net Assets'), then the
profit for the First Period upon which the amount of deferred consideration
payable to the Vendors in the First Period is calculated shall be reduced by the
same amount by which the May Net Assets are less than the December Net Assets.
Should the Profit in either the First Period or the Second Period be more than
£1.0 million then 50 per cent. of any sum in excess of £1.0 million may be
carried forward or backward respectively in respect of the relevant Profit
calculation.

Under the terms of the loan note instrument of the Company to be dated on
completion of the Acquisition ('the Loan Note Instrument'), the Company has the
option to elect to satisfy up to £0.25 million of the amount owing to each
Vendor in each of the First Period and the Second Period by allotting to them
Ordinary Shares at a price per Ordinary Share equal to the average mid-market
price for the 15 business days prior to the due date for payment of the deferred
consideration for the relevant period (the 'Mid-Market Price'), discounted by 20
per cent., provided that such option will not be exercised by the Company unless
the relevant Mid-Market Price is at least £1.20 per Ordinary Share.

The Loan Note Instrument also contains customary restrictions on what actions
the Company can take in respect of the business of IEG following completion of
the Acquisition in order to protect the deferred consideration payable to the
Vendors.

The loan notes are unsecured and unguaranteed and attract interest at the rate
of 6 per cent. per annum on the first £0.65 million from completion of the
Acquisition; on the deferred consideration for the First Period, from the end of
the First Period; and on the deferred consideration for the Second Period, from
the end of the Second Period, in each case such interest accruing to the date of
redemption of the relevant loan notes, such interest to be payable on actual
redemption. The loan notes contain provisions for set off by the cancellation of
such number of loan notes as equates to any agreed or determined claim under the
warranties contained in the Acquisition Agreement.

In the event of certain insolvency events or a change of control of the Company
or IEG then the loan notes become repayable based upon the Profit calculated by
reference to the date of the happening of such event.

Under the terms of the Acquisition Agreement, in the event that the Mid-Market
Price of the Consideration Shares still held by the Vendors on 30 November 2007
is less than 95p, then the Vendors shall be entitled to call upon the Company to
make a payment in cash to the Vendors to make up 75 per cent. of the deficit
between the actual Mid-Market Price on 30 November 2007 and 95p per Ordinary
Share, being the price at which the Consideration Shares are to be allotted to
the Vendors.

There is currently outstanding a director's loan owing by Patrick McCarthy to
IEG in the sum of £0.29 million. The Company has agreed to pay this amount to
Patrick McCarthy prior to Completion on the condition that such sum is
immediately paid by Patrick McCarthy to IEG to clear his outstanding director's
loan account. In the event that completion of the Acquisition does not take
place such amount will remain outstanding as a loan due from Patrick McCarthy to
the Company.

Completion of the Acquisition is conditional, amongst other things, upon:

• the passing of the necessary resolutions at the EGM;

• no material breach of warranty arising between exchange and
completion of the Acquisition Agreement;

• no material adverse change affecting IEG between exchange and
completion of the Acquisition Agreement; and

• the conditions precedent, required to be satisfied under certain
financing documents in relation to the Acquisition being satisfied.

The Vendors (other than the Bank) have agreed to give certain warranties to the
Company relating to IEG, including customary indemnities in relation to
taxation. Any claims under the warranties are subject to certain limitations.
The maximum liability of the Vendors (other than the Bank) is capped at the
amount of consideration received by them, no individual claim can be brought
unless it exceeds £5,000 and no claims can be brought unless the aggregate
amount of such claims exceed £50,000 and no claims (save with regard to
taxation) can be brought after the date which is 18 months after completion of
the Acquisition Agreement. In order to protect the goodwill of the Company and
its subsidiaries ('the Group'), the Vendors (other than the Bank) have also
agreed not to compete with the IEG business, or to solicit its employees,
suppliers or customers for a period of three years following completion of the
Acquisition.

Both Patrick McCarthy and Andrew Latham are to be employed by the Company from
completion of the Acquisition as General Manager and Technical Manager of IEG
respectively. Such appointments shall be subject to employment contracts to be
entered into between the Company and Patrick McCarthy and Andrew Latham
respectively on completion of the Acquisition. Each contract is for an initial
fixed term of 24 months continuing thereafter terminable by either party giving
the other six months' written notice.

The Vendors have agreed to give undertakings pursuant to the Acquisition
Agreement with effect from Admission not to dispose of any interests in any of
the Consideration Shares to be issued to them (subject to certain exemptions)
until after the first anniversary of Admission. Following this date, the Vendors
can dispose of up to 25 per cent. of their respective holdings of Consideration
Shares in each consecutive three month period, such restrictions terminating on
the second anniversary of Admission. Subject to certain conditions, the Vendors
have agreed that from Admission they will not dispose of the Consideration
Shares issued to them other than through Robert W. Baird Limited ('Baird'), such
obligations terminating on the third anniversary of Admission. Notwithstanding
the above, the Company and Baird have consented to the disposal by the Vendors
(other than the Bank) of Consideration Shares issued to them with an aggregate
value of £500,000.

Pursuant to the Acquisition, IEG has entered into a deed of variation in
relation to its existing arrangements for the distribution of SYSPRO Enterprise
Resource Planning software (the 'Software') in the UK to enable Syspro Limited,
the owner of the Software, to appoint IEG as a non-exclusive distributor of the
Software in the UK pending a new distributorship agreement being entered into
between Syspro Limited and IEG.

Financing arrangements

The Company currently has an outstanding loan to CA Fastigheter AB
('Fastigheter'), an associated company of Per Johan Claesson, a non-executive
director of the Company (the 'Fastigheter Loan'). The Fastigheter Loan amounts
to £0.75 million. The Fastigheter Loan was made by Fastigheter in connection
with the acquisition of Landsteinar in October 2004. The Fastigheter Loan was
made on 1 October 2004 and, at that time, it was envisaged by both the Company
and Fastigheter that the Fastigheter Loan would be a short-term arrangement.
However, in order to facilitate the Acquisition and for the purposes of the
Company's working capital, Fastigheter has agreed to continue the Fastigheter
Loan.

Johan and Marianne Claesson AB ('JMC'), which is also an associated company of
Per Johan Claesson, has agreed, for the purpose of facilitating the Acquisition
only, to make available to the Company a loan facility of up to £1 million (the
'JMC Facility'). The JMC Facility is expected to be drawn down in full on
completion of the Acquisition. Interest shall accrue on the JMC Loan Facility at
a rate of 8.5 per cent. per annum, calculated daily and payable quarterly, with
the first payment being due on 30 September 2005. The JMC Facility is to be
repaid in 12 quarterly installments commencing on 31 March 2006.

The Company has agreed with Fastigheter and JMC that, in consideration of
Fastigheter agreeing to continue the Fastigheter Loan and JMC making the JMC
Facility available to the Company, debentures (the 'Debentures') will be granted
by the Company in favour of each of Fastigheter and JMC over the Company's
assets (including the Company's investments in its subsidiaries other than those
of IEG) by way of security for monies outstanding under each of the Fastigheter
Loan and the JMC Facility. In addition, the Company has agreed that, should
there be a future refinancing of the Group, then the first 40 per cent. of funds
raised through such activity shall be applied in repaying any bank indebtedness
of the Group, with the remainder being applied in repaying first the JMC
Facility and then the Fastigheter Loan.

The Company has also agreed with JMC that, in consideration of JMC making the
JMC Facility available to the Company, the Company shall grant to JMC warrants
to subscribe for 400,000 Ordinary Shares pursuant to a warrant instrument of the
Company (the 'Warrant Instrument') to be entered into on completion of the
Acquisition. Under the terms of the Warrant Instrument, JMC may subscribe
(subject to certain conditions) for up to 400,000 Ordinary Shares at any time
during the three year period commencing on the date of the Warrant Instrument at
a price per Ordinary Share being the lower of £1.00 and the price at which any
shares are issued by the Company by way of rights issue or open offer during the
period of 12 months from the date of the Warrant Instrument.

By reason of the fact that Per Johan Claesson is a non-executive director and a
substantial shareholder (as defined in the AiM Rules) of the Company and both
Fastigheter and JMC are associates (as defined in the AiM Rules) of Per Johan
Claesson, the above arrangements are deemed to be related party transactions
under the AiM Ruules, requiring notification to Shareholders. With the exception
of Per Johan Claesson, the Board of K3 considers, having consulted with Baird,
that the terms of these related party transactions are fair and reasonable
insofar as K3 shareholders are concerned.

The granting of Debentures to each of Fastigheter and JMC are substantial
property transactions under section 320 of the Act by virtue of Per Johan
Claesson, being a director of the Company and are conditional upon the approval
of Shareholders. This approval will be sought pursuant to the Section 320
Resolution at the Extraordinary General Meeting.

The total expenses of the Acquisition and its associated financing arrangements
are expected to be £0.5 million.

Consideration Shares

The Consideration Shares will be issued credited as fully paid and will rank
pari passu in all respects with the existing Ordinary Shares, including the
right to receive all dividends and other distributions declared or paid thereon
following Admission.

Application will be made to the London Stock Exchange for the new Ordinary
Shares to be issued pursuant to the Acquisition to be admitted to trading on
AiM. It is expected that Admission will become effective and dealings in the New
Ordinary Shares will commence on AiM on 21 June 2005.

Extraordinary General Meeting

The EGM will be convened at 2.00 p.m. on 20 June 2005 to pass certain
resolutions concerning the Acquisition and to approve the financing arrangements
set out above.

Current trading and prospects

In a separate announcement today, the Group has issued its preliminary results
for the year ended 31 December 2004.

K3's growth prospects have been transformed with the changes made during 2004.
The re-shaping of the Company has taken K3 into related sectors, which offer
more attractive opportunities for earnings growth and there is now have a solid
platform in place from which to move forward. Most importantly, all divisions
now have a strong product offering of Microsoft-based solutions.

There are good growth opportunities across all three divisions, most
particularly within retail and distribution and the launch of the new
SmartVisionCRM product offering the prospect of revitalisation of the
manufacturing software division. Since the year end, Elucid has secured a major
contract worth some £0.3 million and Landsteinar has secured seven new business
contracts worth in total £6.7 million.

ENDS



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