Nam Tai Electronics, Inc.

116 Main Street
3rd Floor
Road Town, Tortola
British Virgin Islands
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
Common Shares, $0.01 par value per share

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE

As of December 31, 2003, there were 41,231,272 common shares of the registrant outstanding.

Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark which financial statement item the registrant has elected to follow: Item 17. [ ] Item 18. [X]

Consents of Independent Accountants (to incorporation of their report on Financial Statements into the Company’s Registration Statements on Forms F-3 and S-8)

This Annual Report on Form 20-F contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled Risk Factors under Item 3. Key Information.

Readers should not place undue reliance on forward-looking statements, which reflect management’s view only as of the date of this Report. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Readers should also carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission.

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and publishes its financial statements in United States dollars.

Unless the context otherwise requires, all references in this annual report, or Report, to “Nam Tai”, or “we”, or “our”, or “us”, and the “Company” refer to Nam Tai Electronics, Inc. and its consolidated subsidiaries and their respective predecessors. References to “dollars” or $ are to United States dollars.

Our historical consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States and are presented in U.S. dollars. The following selected statements of income data for each of the three years in the period ended December 31, 2003 and the balance sheet data as of December 31, 2002 and 2003 are derived from our consolidated financial statements and notes thereto included in this Report. The selected statements of income data for each of the two years in the period ended December 31, 1999 and 2000 and the balance sheet data as of December 31, 1999, 2000 and 2001 were derived from our audited financial statements, which are not included in this Report. The following data should be read in conjunction with the Section of the Report entitled Item 5. Operating and Financial Review and Prospects and our consolidated financial statements including the related footnotes. All reference to numbers of common shares, per share data and stock option data have been adjusted to give effect to a three-for-one stock split effective on June 30, 2003 on a retroactive basis and for the purposes of earnings per share calculation, all references to numbers of common shares, and per share data have been adjusted to reflect an issuance of a stock dividend to shareholders at a ratio of one dividend share for every ten shares, or a ten-for-one stock dividend, effective on November 7, 2003.


		Year ended December 31,

		1999			2000			2001			2002			2003

					(in thousands except per share data)
Consolidated statements of income data:
Net sales — third parties		$	145,054		$	207,456		$	212,934		$	228,167		$	385,524
Net sales — related party			—			6,232			21,072			7,849			20,782

Total net sales			145,054			213,688			234,006			236,016			406,306
Cost of sales			120,074			182,096			203,974			197,956			340,016

Gross profit			24,980			31,592			30,032			38,060			66,290
Operating costs and expenses:
	Selling, general and administrative		14,913			17,646			21,974			17,983			24,866
	Research and development		2,624			3,489			2,954			2,686			4,037
	Impairment of goodwill		—			—			—			339			—
	Non-recurring income		(848	)		—			—			—			—

Total operating expenses			16,689			21,135			24,928			21,008			28,903

Income from operations			8,291			10,457			5,104			17,052			37,387
Equity in income (loss) of affiliated companies			1,146			(189	)		1,867			10,741			498
Other income (expenses) — net			2,494			13,853			2,709			(6,043	)		5,525
Interest expense			(192	)		(165	)		(178	)		(790	)		(121	)
Write-off of investment in an unconsolidated subsidiary			(1	)		—			—			—			—

Income before income taxes and minority interests			11,738			23,956			9,502			20,960			43,289
Income taxes benefit (expense)			60			33			(227	)		(773	)		(399	)

Income before minority interests			11,798			23,989			9,275			20,187			42,890
Minority interests			—			12			(230	)		(164	)		(1,067	)

Income after minority interests			11,798			24,001			9,045			20,023			41,823
Discontinued operation			—			—			—			—			1,979

Net income		$	11,798		$	24,001		$	9,045		$	20,023		$	43,802

Earnings per share:
	Basic	$	0.38		$	0.80		$	0.27		$	0.57		$	1.09

	Diluted	$	0.38		$	0.78		$	0.26		$	0.57		$	1.07

Weighted average shares:
	Basic		30,783			30,077			33,905			34,885			40,336

	Diluted		31,075			30,938			34,298			35,430			40,839

We may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in this document and other documents filed with the Securities and Exchange Commission, in press releases, in reports to shareholders, on our website, and other documents. The Private Securities Reform Act of 1995 contains a safe harbor for forward-looking statements on which the Company relies in making such disclosures. In connection with this “safe harbor”, we are hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statements made by us or on our behalf. Any such statements are qualified by reference to the following cautionary statements:

We are dependent on a few large customers, the loss of any of which could substantially harm our business and operating results.

Historically, a substantial percentage of our sales have been to a small number of customers. During the years ended December 31, 2001, 2002 and 2003, sales to our customers accounting for 10% or more of our net sales aggregated approximately 44.1%, 60.2% and 46.7%, respectively, of our net sales. The loss of Epson Precision (HK) Ltd., Sony Ericsson Mobile Communications AB or Toshiba Matsushita Display Technology Co. Ltd., each of which accounted for more than 10% of our net sales during 2003, or a substantial reduction in orders from any of them, would materially and adversely impact our business and operating results.

Our quarterly and annual operating results are subject to significant fluctuations from a wide variety of factors.

Our quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect our business and operating results during any period. This could result from any one or a combination of factors, such as:

	•		the timing, cancellation or postponement of orders,

	•		the type of product and related margins,

	•		our customers’ announcement and introduction of new products or new generations of products,

	•		the life cycles of our customers’ products,

	•		our timing of expenditures in anticipation of future orders,

	•		our effectiveness in managing manufacturing processes, including, interruptions or slowdowns in production and changes in cost and availability of components, and

	•		the mix of orders filled.

The volume and timing of orders received during a quarter are difficult to forecast. From time to time, our customers encounter uncertain and changing demand for their products. Customers generally order based on their forecasts. If demand falls below such forecasts or if customers do not control inventories effectively, they may reduce, cancel or postpone shipments of orders.

As a consequence of any of the above factors, results of operations in any period should not be considered indicative of results to be expected in any future period, and fluctuations in operating results may also result in fluctuations in the market price of our common shares. Our results of operations in future periods may fall below the expectations of public market analysts and investors. This failure to meet expectations could cause the trading price of our common shares to decline substantially.

Cancellations or delays in orders could materially and adversely affect our gross margins and operating income.

Sales to our original equipment manufacturer, or OEM, customers are primarily based on purchase orders we receive from time to time rather than firm, long-term purchase commitments. Although it is our general practice to purchase raw materials only upon receiving a purchase order, for certain customers we will occasionally purchase raw materials based on such customers’ rolling forecasts. Further, during times of potential component shortages we have purchased, and may continue to purchase, raw materials and component parts in the expectation of receiving purchase orders for products that use these components. In the event actual purchase orders are delayed, are not received or are cancelled, we would experience increased inventory levels or possible write-down of raw material inventory that could materially and adversely affect our business and operating results. In 2001, we wrote down inventory for $3.8 million for slow-moving raw materials relating to cancelled, reduced or delayed orders. Subsequently, we were able to use some of these raw materials in production or we received compensation for the unused raw materials from certain of our customers, and the gain of $2.0 million was recorded in cost of sales during 2002.

If we are unable to produce our new products in a high-quality and cost-effective manner, our gross margins and business and operating results could be materially and adversely affected.

We have experienced increased costs associated with developing advanced manufacturing techniques to produce our complex products on a mass scale and at a low cost. This has negatively impacted our gross margins. For example, our initial production runs of liquid crystal display, or LCD, modules experienced low production yields and other inefficiencies. We have commenced production of radio frequency, or RF, modules, thin film transistor, or TFT, modules, color LCD modules and complementary metal oxide semiconductor, or CMOS, sensor modules, in relation to which we have relatively limited manufacturing experience. We expect that a substantial portion of our growth will come from our manufacture of these products. While we expect and plan for such increased costs in our new product manufacturing cycle, we cannot precisely predict the time and expense required to overcome initial problems and to ensure reliability and high quality at an acceptable cost. The increased costs and other difficulties associated with manufacturing RF modules, TFT modules, color LCD modules, CMOS sensor modules and other new products could have a negative impact on our future gross margins. In addition, even if we develop capabilities to manufacture new products, there can be no guarantee that a market will exist for such products or that such products will adequately respond to market trends. If we invest resources to develop capabilities to manufacture new products, like the investment in our new factory, for which a market does not develop, our business and operating results would be seriously harmed. Even if the market for our services grows, it may not grow at an adequate pace.

Our inability to utilize capacity at our new factory could materially and adversely affect our business and operating results.

In order to expand production capacity, we intend to use approximately $40 million to construct and equip a new factory consisting of approximately 250,000 square feet on land adjacent to our principal manufacturing facilities in Shenzhen, People’s Republic of China, or China. Construction began in September 2003, and we expect it to be completed by the end of the fourth quarter in 2004. For the year ended December 31, 2003, we spent $1.2 million on this construction. Once our new factory is completed, we will have committed substantial expenditures and resources constructing and equipping this factory but cannot guarantee that we will fully utilize such additional capacity. Our factory utilization is dependent on our success in providing manufacturing services for new or other products that we intend to produce at that factory, including image capturing devices and their modules, such as CMOS sensor modules, RF modules, TFT and color LCD modules and handset assemblies for cellular phones, at a price and volume sufficient to absorb our increased overhead expenses. Demand for contract manufacturing of these products may not be as high as we expect, and we may fail to realize the expected benefit from our investment in our new factory.

We face increasing competition, which has had an adverse effect on our margins.

Competition in the electronics manufacturing services, or EMS, industry is intense and is characterized by price erosion, rapid technological change, and competition from major international companies. This intense competition has resulted in pricing pressures, lower sales and reduced margins. Over the last several years our margins have declined substantially, from 17.2% in 1999 to approximately 16.3% in 2003. Continuing competitive pressures could materially and adversely affect our business and operating results.

We may not be able to compete successfully with our competitors, many of which have substantially greater resources than we do.

The electronics manufacturing services we provide are available from many independent sources as well as from our current and potential customers with in-house manufacturing capabilities. Our EMS competitors include Celestica, Inc., Flextronics International Ltd., Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc., Sanmina-SCI Corporation and Solectron Corporation. Our principal competitors in the manufacture of our traditional product lines of calculators, personal organizers and linguistic products include Kinpo Electronics, Inc. and Inventec Co. Ltd. Our competitors in the manufacturing of image capturing devices and their modules include Lite-On Technology Corporation, The Primax Group and Logitech, Inc. Our competitors in the manufacturing of RF modules include Wavecom and WKK International (Holdings) Ltd. We have numerous competitors in the telecommunication, subassemblies and components product lines, including Philips, Samsung and Varitronix. Many of our competitors have greater financial, technical, marketing, manufacturing, regional shipping capabilities and logistics support and personnel resources than we do. As a result, we may be unable to compete successfully with these organizations in the future.

We must spend substantial amounts to maintain and develop advanced manufacturing processes and engage additional engineering personnel in order to attract new customers and business.

We operate in rapidly changing industries. Technological advances, the introduction of new products and new manufacturing and design techniques could materially and adversely affect our business unless we are able to adapt to those changing conditions. As a result, we are continually required to commit substantial funds for, and significant resources to, engaging additional engineering and other technical personnel and to purchase advanced design, production and test equipment.

Our future operating results will depend to a significant extent on our ability to continue to provide new manufacturing solutions that compare favorably on the basis of time to introduction, cost, and performance with the manufacturing capabilities of OEMs and competitive third-party suppliers. Our success in attracting new customers and developing new business depends on various factors, including:

	•		utilization of advances in technology;

	•		development of new or improved manufacturing processes for our customer’s products;

	•		delivery of efficient and cost-effective services; and

	•		timely completion of the manufacture of new products.

We generally have no written agreements with suppliers to obtain components and our margins and operating results could suffer from increases in component prices.

We are typically responsible for purchasing components used in manufacturing products for our customers. We generally do not have written agreements with our suppliers of components. This typically results in our bearing the risk of component price increases because we may be unable to procure the required materials at a price level necessary to generate anticipated margins from the orders of our customers. Accordingly, increases in component prices could materially and adversely affect our gross margins and operating results.

Our business and operating results would be materially and adversely affected if our suppliers of needed components fail to meet our needs.

At various times, we have and continue to experience shortages of some of the electronic components that we use, and suppliers of some components lack sufficient capacity to meet the demand for these components. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production, of assemblies using that component, which contributed to an increase in our inventory levels and reduction in our gross margins. We expect that shortages and delays in deliveries of some components will continue. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing delays, which could harm our relationships with current or prospective customers and reduce our sales. We also depend on a small number of suppliers for certain of the components that we use in our business. For example, we purchase most of our integrated circuits from Toshiba Corporation and Sharp Corporation and certain of their affiliates. If we were unable to continue to purchase components from these limited source suppliers, our business and operating results would be materially and adversely affected.

Factors affecting the electronics industry in general and our customers in particular could harm our operations.

Most of our sales are to customers in the electronics industry, which is subject to rapid technological change, product obsolescence and short product life cycles and has suffered from an industry-wide slowdown since 2000. The factors affecting the electronics industry in general, or any of our major customers or competitors in particular, could have a material adverse effect on our business and operating results. Our success will depend to a significant extent on the success achieved by our customers in developing and marketing their products, including their products that use RF modules, color straight-twisted nematic, or STN, LCD modules, TFT modules and CMOS sensor modules, some of which may be new and untested. If our customers’ products become obsolete, fail to gain widespread commercial acceptance or become the subject of intellectual property disputes, this could harm our business and operating results.

Future acquisitions or strategic investments may not be successful and may harm our operating results.

An important element of our strategy is to review prospects for acquisition or strategic investments that would complement our existing companies and products, augment our market coverage and distribution ability or enhance our technological capabilities.

Future acquisitions or strategic investments could have a material adverse effect on our business and operating results because of:

	•		possible charges to operating results for purchased technology, restructuring or impairment charges related to goodwill or amortization expenses associated with intangible assets,

	•		potential increase in our expenses and working capital requirements and the incurrence of debt and contingent liabilities,

	•		difficulties in successfully integrating any acquired operations, technologies, customers products and businesses with our operations,

	•		diversion of our capital and management’s attention to other business concerns,

	•		risks of entering markets or geographic areas in which we have limited prior experience, or

	•		potential loss of key employees of acquired organizations or inability to hire key employees necessary for expansion.

For example, in 1998, we made a provision for, and subsequently wrote off, our entire $10.0 million investment in Albatronics (Far East) Company Limited, or Albatronics.

Our customers are dependent on shipping companies for delivery of our products and interruptions to shipping could materially and adversely affect our business and operating results.

Typically, we sell our products F.O.B. Hong Kong and our customers are responsible for the transportation of products from Hong Kong to their final destinations. Our customers rely on a variety of carriers for product transportation through various world ports. A work stoppage, strike or shutdown of one or more major ports or airports could result in shipping delays materially and adversely affecting our customers, which in turn could have a material adverse effect on our business and operating results. Similarly, an increase in freight surcharges due to rising fuel costs or general price increases could materially and adversely affect our business and operating results.

Because our operations are international, we are subject to significant worldwide political, economic, legal and other uncertainties.

We are incorporated in the British Virgin Islands and have subsidiaries incorporated in the Cayman Islands, Hong Kong and China. We have administrative offices in Hong Kong and our People’s Republic of China, or PRC, headquarters are located in Macao, China. We manufacture all of our products in China. As of December 31, 2003, approximately 76.5% of the net book value of our total fixed assets is located in China. We sell our products to customers in Hong Kong, North America, Europe, Japan, China and Southeast Asia. Our international operations may be subject to significant political and economic risks and legal uncertainties, including:

	•		changes in economic and political conditions and in governmental policies,

	•		changes in international and domestic customs regulations,

	•		wars, civil unrest, acts of terrorism and other conflicts,

	•		changes in tariffs, trade restrictions, trade agreements and taxation,

	•		difficulties in managing or overseeing foreign operations, and

	•		limitations on the repatriation of funds because of foreign exchange controls.

The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and decrease the profitability of our operations in that region.

Historically, our sales and operating results have been affected by seasonality. Sales of calculators, personal organizers and linguistic products are typically higher during the second and third quarters in anticipation of the start of the school year and the Christmas buying season. Similarly, our consumer services for electronics products have historically been lower in the first quarter from both the closing of our factories in China for the Chinese New Year holidays and the general reduction in sales following the holiday season. These sales patterns may not be indicative of future sales performance.

Our results could be harmed if we have to comply with new environmental regulations.

Our operations create some environmentally sensitive waste that may increase in the future depending on the nature of our manufacturing operations. The general issue of the disposal of hazardous waste has received increasing attention from the PRC national and local governments and foreign governments and agencies and has been subject to increasing regulation. Our business and operating results could be materially and adversely affected if we were to increase expenditures to comply with environmental regulations affecting our operations.

If there is an adverse outcome in a putative class action litigation that has been filed against us, our business could be seriously harmed.

On March 11, 2003, we were served with a complaint in an action captioned Michael Rocco v. Nam Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain directors are named as defendants. On or about April 9, 2003, a second complaint was filed in an action captioned A.J. & Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco Action, the Actions. The Actions have been consolidated since July 2003 and purports to represent a putative class of persons who purchased the common stock of Nam Tai from July 29, 2002 through February 18, 2003. Plaintiffs in the Actions assert claims under Section 10(b) of the Securities Exchange Act of 1934 and allege that misrepresentations and/or omissions were made during the alleged class periods concerning the partial reversal of an inventory provision and a charge to goodwill related to Nam Tai’s LCD panels and transformers segment, or LPT segment. We have filed a motion to dismiss the lawsuit and the putative class action has not been certified as a class action by the court. In any event, our motion to dismiss was heard in November 2003 and we are awaiting the judgment of the court thereof. Nam Tai believes it has meritorious defenses and it intends to defend the case vigorously. Nam Tai is aware of no other actions that have been filed which relate to these matters. The ultimate outcome of this litigation cannot be presently determined. However, this litigation could be very costly and divert our management’s attention and resources. In addition, we have no insurance covering our liability, if any, or that of our officers and directors, and we will have to pay the costs of defense. Any adverse determination in this litigation could also subject us to significant liabilities, any or all of which could materially and adversely affect our business and operating results.

We are substantially dependent upon the services of Mr. Tadao Murakami, our Chairman of the Board of Directors, Mr. Joseph Li, our Chief Executive Officer and President, and Mr. M. K. Koo, our Chief Financial Officer. We have employment agreements with each of Mr. Murakami, Mr. Koo and Mr. Joseph Li. Mr. Murakami’s employment may be terminated immediately and, pursuant to Mr. Koo’s and Mr. Joseph Li’s agreements, their employment may be terminated upon short notice. Mr. Koo’s and Mr. Li’s employment agreements provide that they may not compete with our business nor solicit any of our customers or employees for a period of six months following termination for any reason under the employment agreements. Mr. Murakami’s agreement does not have comparable provisions. Accordingly, Mr. Murakami may engage in a business that is in competition with us after his termination, which may have a material adverse effect on our business and operating results. We maintain no key person insurance on these individuals. The loss of the services of any of these officers could have a material adverse effect on our business and operating results.

We may be unable to succeed in recovering on our judgment debts against Tele-Art.

We have two judgments in our favor against Tele-Art, Inc. awarded by The High Court of Justice in the British Virgin Islands for approximately $35.0 million. Because Tele-Art, Inc. is in liquidation, we may not realize the entire amount of our judgments, and the actual amount of the recovery, if any, is uncertain and dependent on a number of factors. We may incur substantial additional costs in pursuing our recovery, and such costs may not be recoverable.

We do not have any patents, licenses, or trademarks material to our business. Instead, we rely on trade secrets, industry expertise and our customers sharing of intellectual property with us. We may be notified that we are infringing patents, copyrights or other intellectual property rights owned by other parties. In the event of an infringement claim, we may be required to spend a significant amount of money to develop a non-infringing alternative or to obtain licenses. We may not be successful in developing such an alternative or obtaining a license on reasonable terms, if at all. Any litigation, even without merit, could result in substantial costs and diversion of resources and could materially and adversely affect our business and operating results.

Although we have declared dividends during each of the last ten years, we may not be able to declare them or may decide not to declare them in the future. Our China subsidiaries are required to reserve 10% of profits for future development, which may affect our ability to declare dividends. We will determine the amounts of the dividends when they are declared and even if dividends are declared in the future, we may not continue them in any future period.

Our manufacturing facilities are located in China and some of our subsidiaries and several of our customers and suppliers are located in Hong Kong and China. Our PRC headquarters are located in Macao, China. As a result, our operations and assets are subject to significant political, economic, legal and other uncertainties associated with doing business in China, Hong Kong and Macao, which are discussed in more detail below.

The Chinese government could change its policies toward, or even nationalize, private enterprise, which could harm our business and operating results.

Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activities and decentralization of economic regulation with a move towards a market economy. The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time without notice. Changes in policies by the Chinese government resulting in changes in laws, regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion or imports and sources of supply could materially and adversely affect our business and operating results. The nationalization or other expropriation of private enterprises by the Chinese government could result in the total loss of our investment in China.

The Chinese legal system has inherent uncertainties that could materially and adversely impact our ability to enforce the agreements governing our factories and to do business.

We do not own the land on which our factories in China are located. We occupy our principal manufacturing facilities under land use agreements with agencies of the Chinese government and we occupy other facilities under lease agreements with peasant collectives or other companies. The performance of these agreements and the operations of our factories are dependent on our relationship with the local government. Our operations and prospects would be materially and adversely affected by the failure of the local government to honor these agreements or an adverse change in the law governing them. In the event of a dispute, enforcement of these agreements could be difficult in China. Unlike the United States, China has a civil law system based on written statutes in which judicial decisions have limited precedential value. The Chinese government has enacted laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, its experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes in China is unpredictable. These matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces and factors unrelated to the legal merits of a particular matter or dispute may influence their determination.

Fire, severe weather, flood or earthquake could cause significant damage to our facilities in China and disrupt our business operations.

Our products are manufactured exclusively at our factories located in China. Fire fighting and disaster relief or assistance in China is not well developed. Material damage to, or the loss of, our factories due to fire, severe weather, flood, earthquake or other acts of God or cause may not be adequately covered by proceeds of our insurance coverage and could materially and adversely affect our business and operating results. In addition, any interruptions to our business caused by such disasters could harm our business and operating results.

Controversies affecting China’s trade with the United States could harm our results of operations or depress our stock price.

While China has been granted permanent most favored nation trade status in the United States through its entry into the World Trade Organization, controversies between the United States and China may arise that threaten the status quo involving trade between the United States and China. These controversies could materially and adversely affect our business by, among other things, causing our products in the United States to become more expensive resulting in a reduction in the demand for our products by customers in the United States. Political or trade friction between the United States and China, whether or not actually affecting our business, could also materially and adversely affect the prevailing market price of our common shares.

Changes to Chinese tax laws and heightened efforts by the Chinese tax authorities to increase revenues could subject us to greater taxes.

Under applicable Chinese law, we have been afforded a number of tax concessions by, and tax refunds from, the Chinese tax authorities on a substantial portion of our operations in China by reinvesting all or part of the profits attributable to our Chinese manufacturing operations. However, the Chinese tax system is subject to substantial uncertainties with respect to its interpretation and enforcement. Following the Chinese government’s program of privatizing many state-owned enterprises, the Chinese government has oftempted to augment its revenues through heightened tax collection efforts. Continued efforts by the Chinese government to increase tax revenues could result in decisions or interpretations of the tax laws by the Chinese tax authorities that would increase our future tax liabilities or deny us expected concessions or refunds. For example, the tax reform of reducing the VAT tax refund from 17% to 13%, with effect from January 1, 2004, may affect our margins.

Our results have been affected by changes in currency exchange rates. Changes in currency rates involving the Japanese yen, Hong Kong dollar or Chinese renminbi could increase our expenses.

Our financial results have been affected by currency fluctuations, resulting in total foreign exchange losses of $62,000 during the year ended December 31, 2003 and total foreign exchange losses of $345,000 during the year ended December 31, 2002 and total foreign exchange gains of $530,000 during the year ended December 31, 2001. We sell most of our products in United States dollars and pay our expenses in United States dollars, Japanese yen, Hong Kong dollars, and Chinese renminbi. While we face a variety of risks associated with changes among the relative value of these currencies, we believe the most significant exchange risk presently results from material purchases we make in Japanese yen. Approximately 16%, 8% and 16% of our material costs have been in yen during the years ended December 31, 2001, 2002 and 2003, respectively, but sales made in yen accounted for less than 11% of sales for each of the last three years. An appreciation of yen against the U.S. dollar would increase our expenses when translated into U.S. dollars and would materially and adversely affect our margins unless we made sufficient sales in yen to offset against material purchases made in yen.

Approximately less than 1% and 8% of our revenue and 13% and 12% of our expenses were in Chinese renminbi and Hong Kong dollars, respectively, during the year ended December 31, 2003. Approximately 4% and 10% of our revenues and 18% and 15% of our expenses were in Chinese renminbi and Hong Kong dollars, respectively, during the year ended December 31, 2002. An appreciation of the Chinese renminbi or Hong Kong dollar against the U.S. dollar would increase our expenses when translated into U.S. dollars and could materially and adversely affect our margins. In addition, a significant devaluation in the Chinese renminbi or Hong Kong dollar could harm our business if it destabilizes the economy of China or Hong Kong, creates serious domestic problems or increases our borrowing costs.

From time to time, we have attempted to hedge our currency exchange risk. We did not engage in currency hedging transactions for fiscal year 2002 and 2003. We have experienced in the past and may experience in the future losses as a result of currency hedging.

Some of our subsidiaries’ offices and several of our customers and suppliers are located in Hong Kong, formerly a British Crown Colony. Sovereignty over Hong Kong was resumed by China effective July 1, 1997. Since then, Hong Kong has become a Special Administrative Region of China, enjoying a high degree of autonomy except for foreign and defense affairs. Moreover, China’s political system and policies are not practiced in Hong Kong. Under the principle of “one country, two systems,” Hong Kong maintains a legal system that is based on the common law and is different from that of China. It is generally acknowledged as an open question whether Hong Kong’s future prosperity in its role as a hub and gateway to China after China’s recent accession to the World Trade Organization (introducing a market liberalization in China) will be diminished. The continued stability of political, economic or commercial conditions in Hong Kong remains uncertain, and any instability could materially and adversely impact our business and operating results.

The spread of severe acute respiratory syndrome or similar illnesses may have a negative impact on our business and operating results.

In March 2003, several economies in Asia, including Hong Kong and southern China, where our operations are located, were affected by the outbreak of severe acute respiratory syndrome, or SARS. Since January 2004, there has been a total of six confirmed SARS cases in southern China, Taiwan and Singapore. If there is a recurrence of a serious outbreak of SARS, it may adversely affect our business and operating results. For example, the future SARS outbreak could result in quarantines or closures to some of our factories if our employees are infected with SARS and ongoing concerns regarding SARS, particularly its effect on travel, could negatively impact our China-based customers and suppliers and our business and operating results.

In addition, there has recently been an outbreak of avian influenza in humans in both Thailand and Vietnam, which has proven fatal in some instances. If such an outbreak were to spread to southern China, where our operation facilities are located, it may adversely affect our business operating results.

We are exposed to general economic conditions. The current slowdown in the technology products industry has affected and we expect it to continue to affect our business and operating results adversely.

As a result of the economic downturn in the United States and internationally, and reduced capital spending, sales to OEMs in the electronics industry declined beginning in the second quarter of fiscal year 2001 and continuing through 2002. Lower consumer

demand and high customer inventory levels have resulted in the delay and cancellation of orders for nearly all types of electronic products. As a result of order cancellations in 2001, we were required to write-down slow-moving inventory, which materially and adversely impacted our net income in 2001. Although the industry experienced a recovery in 2003, we cannot assure that this recovery is sustainable or that the industry will not further decline. If the economic conditions in the United States or the other markets we serve worsen or in the electronics and contract manufacturing businesses particularly, or if a wider or global economic slowdown occurs, this could materially and adversely impact our business and operating results.

The current economic downturn in the EMS industry could continue to have a material adverse effect on our business and operating results.

In 2001 and 2002, the EMS industry was in an economic slowdown with an uncertain outlook. Some of the major contract manufacturers and OEMs worldwide had announced job reductions and plant closures aimed at reducing costs. Industry analysts had reduced their projections of the future growth of the EMS segment. Furthermore, Wall Street analysts had reduced earnings and revenue estimates across the entire EMS sector and had reported that the EMS industry had excess capacity. For example, the EMS industry in which we operate experienced a decrease in demand in 2001 and 2002. Softening demand for our products and services caused by the ongoing economic downturn was responsible in part for a decline in our operating income in 2001, as well as our write-down for slow-moving inventory. Although the industry experienced a recovery in 2003, we cannot assure that this recovery is sustainable or that the industry will not further decline.

The global economy may remain weak and market conditions continue to be challenging in the EMS industry. As a result, individuals and companies may continue delaying or reducing expenditures, including those for electronic products. Further delays or reductions in spending in our industry in particular, and economic weakness generally, could materially and adversely affect our business and operating results.

The market price of our shares will likely be subject to substantial price and volume fluctuations.

The markets for equity securities have been volatile and the price of our common shares has been and could continue to be subject to wide fluctuations in response to variations in operating results, news announcements, trading volume, sales of common shares by our officers, directors and our principal shareholders, customers, suppliers or other publicly traded companies, general market trends both domestically and internationally, currency movements and interest rate fluctuations. Certain events, such as the issuance of common shares upon the exercise of our outstanding stock options could also materially and adversely affect the prevailing market price of our common shares.

Further, the stock markets have recently experienced extreme price and volume fluctuations that have affected the market prices of equity securities of many companies and that have been unrelated or disproportionate to the operating performance of such companies. These fluctuations may materially and adversely affect the market price of our common shares.

The concentration of share ownership in our senior management allows them to control or substantially influence the outcome of matters requiring shareholder approval.

On March 1, 2004, members of our management and Board of Directors as a group beneficially owned approximately 37.9% of our common shares. As a result, acting together they may be able to control and substantially influence the outcome of all matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. This ability may have the effect of delaying or preventing a change in control of Nam Tai, or causing a change in control of Nam Tai that may not be favored by our other shareholders.

It may be difficult to serve us with legal process or enforce judgments against our management or us.

We are a British Virgin Islands holding corporation having our PRC headquarters in Macao, China and some of our subsidiaries in Hong Kong. We have appointed Stephen Seung, 2 Mott Street, Suite 601, New York, New York 10013 as our agent upon whom process may be served in any action brought against us under the securities laws of the United States. However, outside the United States, it may be difficult for investors to enforce judgments against us obtained in the United States in any of these actions, including actions based upon civil liability provisions of the Federal securities laws. In addition, all of our officers and most of our directors reside outside the United States and all of our assets, and the assets of those persons who reside outside of the United States, are located outside of the United States. As a result, it may not be possible for investors to effect service of process within the United States upon those persons, or to enforce against those persons or us judgments obtained in United States courts grounded upon the liability provisions of the United States securities laws. There is substantial doubt as to the enforceability against us or any of our directors and officers located outside of the United States in original actions or in actions for enforcement of judgments of United States courts of liabilities based solely on the civil liability provisions of the securities laws of the United States.

No treaty exists between Hong Kong or the British Virgin Islands and the United States providing for the reciprocal enforcement of foreign judgments. However, the courts of Hong Kong and the British Virgin Islands are generally prepared to accept a foreign judgment as evidence of a debt due. An action may then be commenced in Hong Kong or the British Virgin Islands for recovery of this debt. A Hong Kong or British Virgin Islands court will only accept a foreign judgment as evidence of a debt due if:

	•		the judgment is for a liquidated amount in a civil matter;

	•		the judgment is final and conclusive and has not been stayed or satisfied in full;

	•		the judgment is not, directly or indirectly, for the payment of foreign taxes, penalties, fines or charges of a like nature (in this regard, a Hong Kong or British Virgin Islands court is unlikely to accept a judgment for an amount obtained by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the person in whose favor the judgment was given);

	•		the judgment was not obtained by actual or constructive fraud or duress;

	•		the foreign court has taken jurisdiction on grounds that are recognized by the common law rules as to conflict of laws in Hong Kong or the British Virgin Islands;

	•		the proceedings in which the judgment was obtained were not contrary to natural justice (i.e., the concept of fair adjudication);

	•		the proceedings in which the judgment was obtained, the judgment itself and the enforcement of the judgment are not contrary to the public policy of Hong Kong or the British Virgin Islands;

	•		the person against whom the judgment is given is subject to the jurisdiction of the Hong Kong or the British Virgin Islands court; and

	•		the judgment is not on a claim for contribution in respect of damages awarded by a judgment, which does not satisfy the criteria stated previously.

Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may also be limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement, and moratorium or similar laws relating to or affecting creditors’ rights generally, and will be subject to a statutory limitation of time within which proceedings may be brought.

No treaty exists between Macao and the United States providing for the reciprocal enforcement of foreign judgments. However, the courts of Macao are generally prepared to accept a foreign judgment as evidence of a debt due. An action may then be commenced in Macao for recovery of this debt. A Macao court will only accept a foreign judgment as evidence of a debt due if:

	•		there is no doubt to the authenticity of the judgment documents and the understanding of the judgment;

	•		pursuant to the law of the place of judgment, the judgment is final and conclusive;

	•		the judgment was not obtained by fraud or the matter in relation to the judgment is not within the exclusive jurisdiction of Macao courts;

	•		the judgment will not be challenged on the ground that the relevant matter has been adjudicated by the Macao court, except matters which have first been adjudicated by courts outside Macao;

	•		pursuant to the law of the place of the judgment, the defendant has been summoned and the proceedings in which the judgment was obtained were not contrary to natural justice; and

	•		the enforcement of the judgment will not cause any orders that may result in apparent public disorder.

Enforcement of a foreign judgment in Macao may also be limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement, and moratorium or similar laws relating to or affecting creditors’ rights generally, and will be subject to a statutory limitation of time within which proceedings may be brought.

Future issuances of preference shares could materially and adversely affect the holders of our common shares or delay or prevent a change of control.

Our Board of Directors may amend our Memorandum and Articles of Association without shareholder approval to create from time to time and issue one or more classes of preference shares (which are analogous to preferred stock of corporations organized in the United States). While currently no preference shares are issued or outstanding, we may issue preference shares in the future. Future issuance of preference shares could materially and adversely affect the rights of the holders of our common shares or delay or prevent a change of control.

Our status as a foreign private issuer exempts us from certain of the reporting requirements under the Securities Exchange Act of 1934 and corporate governance standards of the New York Stock Exchange, or NYSE, limiting the protections and information afforded to investors.

We are a foreign private issuer within the meaning of rules promulgated under the Securities Exchange Act of 1934. As such, we are exempt from certain provisions applicable to United States public companies including:

	•		the rules under the Securities Exchange Act of 1934 requiring the filing with the Commission of quarterly reports on Form 10-Q, current reports on Form 8-K or annual reports on Form 10-K;

	•		the sections of the Securities Exchange Act of 1934 regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Securities Exchange Act of 1934;

	•		the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and

	•		the sections of the Securities Exchange Act of 1934 requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months).

In addition, because the Company is a foreign private issuer, certain of the corporate governance standards of the NYSE that are applied to domestic companies listed on that exchange may not be applied to us.

Because of these exemptions, investors are not afforded the same protections or information generally available to investors holding shares in public companies organized in the United States or traded on the NYSE.

Nam Tai Electronics, Inc. was founded in 1975 and moved its manufacturing facilities to the People’s Republic of China, or China, in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates available and subsequently relocated to Shenzhen, China in order to capitalize on opportunities offered in Southern China. We were reincorporated as a limited liability International Business Company under the laws of the British Virgin Islands in August 1987. Our principal manufacturing and design operations are based in Shenzhen, China, approximately 30 miles from Hong Kong. Our PRC headquarters are located in Macao, China. Some of our subsidiaries’ offices are located in Hong Kong, which provides us access to Hong Kong’s infrastructure of communication and banking and facilitates management of our China operations and transportation of our products out of China through the port of Hong Kong.

Our corporate administrative matters are conducted in the British Virgin Islands through our registered agent, McW. Todman & Co., McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands. Our agent for service of process in the United States is Stephen Seung, 2 Mott Street, Suite 601, New York, New York 10013. Our principal executive offices are located in the British Virgin Islands at 116 Main Street, 3rd Floor, Road Town, Tortola, British Virgin Islands, and the telephone number is (284) 494-7752.

In 1978, Mr. Koo, the founder of the Company, began recruiting operating executives from the Japanese electronics industry. These executives brought years of experience in Japanese manufacturing methods, which emphasize quality, precision, and efficiency in manufacturing. Senior management currently includes Japanese professionals who provide technical expertise and work closely with both our Japanese component suppliers and customers.

For a number of years, we specialized in manufacturing large-volume, hand-held digital consumer electronic products and established a leading position in electronic calculators and handheld organizers for OEMs such as Texas Instruments Incorporated and Sharp Corporation. Over the years, we have broadened our product mix to include a range of digital products for business and personal use, as well as key components and subassemblies for telecommunications and consumer electronic products. In August 1999, we established Nam Tai Telecom (Hong Kong) Co. Ltd., which targets the expanding market for telecommunications components including LCD modules as well as end products, including cordless phones and family radio systems. Nowadays, color and monochrome LCD modules to display information have become one of our major products. Since December 2002, we have also produced RF modules for integration into cellular phones and other hand-held consumer electronic products, such as personal digital assistants, or PDAs, laptop computers and other products with wireless connectivity. In 2003, we further diversified our product mix by manufacturing CMOS sensor modules for integration into various image capturing devices such as digital cameras for cellular phones, and home entertainment products, flexible printed circuit, or FPC, subassemblies for integration into various LCD modules, front light panels for handheld video game devices, digital camera accessories for use with the cellular phones and home entertainment products.

In September 2000, we acquired for $2.0 million a 5% indirect shareholding in both TCL Mobile Communication (HK) Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together known as TCL Mobile, through the acquisition of 25% of the outstanding shares of Mate Fair Group Limited, or Mate Fair, a privately held investment holding company incorporated in the British Virgin Islands with a 20% shareholding interest in TCL Mobile. TCL Mobile is engaged in manufacturing, distributing and trading of digital mobile phones and accessories in China as well as overseas markets. In October 2002, we began to provide TCL Mobile with mobile LCD modules used in its mobile phones.

In October 2000, we completed the acquisition of the J.I.C. Group (BVI) Limited. The J.I.C. Group (B.V.I.) Limited and its subsidiaries, or the J.I.C. Group, are principally engaged in the manufacture and marketing of transformers and LCD panels, a key component for a variety of consumer electronic products. Of the purchase price of $32.8 million, we paid $11.0 million in cash and issued 3.48 million of our common shares.

In November 2002, Mate Fair sold a portion of its equity interest in Huizhou TCL Mobile Communication Co., Ltd. for which we received proceeds of approximately $10.4 million, reducing our direct equity interest (held through Mate Fair) in TCL Mobile to approximately 3%. In November 2002, we invested $5.1 million of the proceeds in TCL International Holdings Limited’s 3% convertible notes that are due in November 2005. In August 2003, we disposed of those convertible notes to independent third parties and received proceeds of approximately $5.03 million in cash. TCL International Holdings Limited is another company in the TCL Group, which consists of the TCL Corporation and its subsidiaries, and is publicly listed on The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange.

In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly known as TCL Holdings Corporation Ltd.), for a consider of $12.0 million. TCL Corporation, an enterprise established in the PRC, is the parent company of the TCL Group of companies. TCL Corporation changed from a limited liability company to a company limited by shares in April 2002. In January 2004, TCL Corporation listed its A-shares on the Shenzhen Stock Exchange at Chinese renminbi 4.26 (equivalent to $0.52) per A-share. The Company’s interest in TCL Corporation has since been diluted to 3.69% and represents 95.52 million promoter’s shares of TCL Corporation after its initial public offering.

In January 2002, we entered into a transaction which resulted in the listing of a company holding J.I.C. Group’s business on the Hong Kong Stock Exchange. To effect the transaction, we entered into an agreement with the liquidators of Albatronics, whose shares had been listed on the Hong Kong Stock Exchange and which was placed into voluntary liquidation in August 1999. Under the agreement, we agreed to transfer the J.I.C. Group into J.I.C. Technology Company Limited, a new company, for a controlling interest in J.I.C. Technology Company Limited. Albatronics’ listing status on the Hong Kong Stock Exchange was withdrawn and J.I.C. Technology Company Limited was listed on the Hong Kong Stock Exchange free from the liabilities of Albatronics. This arrangement was more cost effective than using an initial public offering. For our contribution to J.I.C. Technology Company Limited, we received a combination of ordinary and preference shares, which are analogous to common stock and convertible preferred stock, respectively, of companies organized under U.S. law and which upon their full conversion, could result in us, the creditors and the Hong Kong public owning approximately 92.9%, 5.8% and 1.3%, respectively, of the outstanding ordinary shares of J.I.C. Technology Company Limited. On June 4, 2002, the reverse merger was completed and all the shares of Albatronics were transferred to the liquidators for a nominal consideration. The preference shares are non-redeemable, non-voting shares that rank pari passu with ordinary shares of J.I.C. Technology Company Limited on the payment of dividends or other distribution other than on a winding-up. No holder of preference shares (including Nam Tai) may convert them if such conversion would result in the minimum public float of 25%, which required under the Hong Kong Stock Exchange Listing Rules, not being met. In August 2002, we acquired an additional 7,984,000 ordinary shares of J.I.C. Technology Company Limited for a cash consideration of $437,000. During the period from June to November 2003, we disposed of a total of 42,600,000 ordinary shares for cash consideration of $4.0 million. In November 2003, we converted 175,100,000 preference shares into 170,000,000 ordinary shares of J.I.C. Technology Company Limited. As of December 31, 2003, we held 263,900,688 ordinary shares of J.I.C. Technology Company Limited, equivalent to 74.86% of issued ordinary shares, and 423,320,000 preference shares. Upon full conversion of the preference shares owned, we will hold approximately 88.39% of J.I.C. Technology Company Limited.

In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star Investments Ltd., the ultimate holding company of JCT Wireless Technology Limited, or JCT. JCT is engaged in the design, development and marketing of wireless communication terminals and wireless application software and is using us to manufacture wireless communication terminals and their related modules for JCT. As of December 31, 2003, we recognized net sales of $20.8 million to JCT for 2003.

In January 2003, we disposed of 20% of our equity interest in Namtek Software Development Company Limited to a company that is owned by the management of Namtek Software Development Company Limited for a cash consideration of $160,000. As of the date of disposal, Namtek Software Development Company Limited was fair valued at $3.3 million.

On January 23, 2003, the listing of our shares was transferred to the NYSE from the NASDAQ National Market with symbol of “NTE”. On June 30, 2003, we implemented a three-for-one stock split with both the stock size and market price to be divided by three. As of December 31, 2003, there were 41,231,272 common shares outstanding.

In June 2003, one of our subsidiaries, J.I.C. Technology Company Limited, disposed of its transformers operation to a third party for a cash consideration of $2.4 million. The gain from disposal of this discontinued operation amounted to $2.0 million, net of $0.1 million shared by minority interest.

In August 2003, we set up our PRC headquarters in Macao, due to our continuous increase in investment in China. Macao, like Hong Kong, is a special administrative region of the China and has recently introduced an incentive program to attract investment in Macao.

In November 2003, our common shares were listed in the Regulated Unofficial Market (Freiverkehr) on the Frankfurt Stock Exchange, in Germany. The stocks are being traded on Xetra, the Deutsche Borse AG electronic trading system under the stock symbol of “884852”.

In December 2003, we placed approximately $5.3 million into an escrow account for an investment in Stepmind. The investment will be in two phases. For the first phase, approximately $2.64 million, representing 7.66% of the equity interest in Stepmind, was released to Stepmind in January 2004. The second phase amounting to approximately $2.65 million will be released to Stepmind in August 2004 subject to fulfillment of certain conditions. Upon successful subscription of the shares in the second phase, our total investment will represent 11.33% of the equity interest in Stepmind. Stepmind was founded in July 2000 and is a fabless solutions and components supplier, developing applications which require high performance and secured data links.

Also refer to the section of this Report entitled Item 5. Operating and Financial Review and Prospects for a further discussion of our investments and acquisitions.

An important element of our strategy is to acquire companies that would complement our existing products and services, augment our market coverage and sales ability or enhance our technological capabilities. Accordingly, we may acquire additional businesses, products or technologies in the future or make investments in related businesses for strategic business purposes.

Our principal capital expenditures and divestitures over the last three years include the following:

	•		$6.0 million for machinery for manufacturing RF modules,

	•		$1.2 million for new factory expansion,

	•		$0.4 million for machinery on FPC sub-assembly,

	•		$1.7 million for expansion of our high resolution color LCD module production capacity,

	•		$6.7 million for other capital equipment, and

	•		$1.1 million for construction of new trade union building for the use of our workers in China.

	•		$12.3 million for new STN LCD panel production line, and

	•		$4.0 million for completion of the new factory expansion.

	•		$13.0 million for the purchase and interior improvements on 24,200 square feet of contiguous prime office space at Shun Tak Centre in the Central district of Hong Kong,

	•		$6.4 million for the purchase of new staff residences in Hong Kong,

	•		$5.5 million for the construction and machinery for a new 138,000 square foot five-story factory building within the Company’s existing manufacturing complex,

	•		$5.5 million for the purchase of new chip on glass production lines, and

	•		$2.0 million for the additions to and improvement of the production facilities for producing LCD products.

In order to expand production capacity, we are building a new factory consisting of approximately 250,000 square feet adjacent to our principal manufacturing facilities in Shenzhen, China. The construction commenced in September 2003 and we expect construction to be completed by the end of the fourth quarter in 2004. We have budgeted $40.0 million to cover the cost of construction and fixtures and equipment for the new factory, of which $1.2 million has already been spent in 2003. We plan to finance these improvements to our manufacturing facilities from cash resources and banking facilities.

	•		$6.7 million for machinery for manufacturing RF modules,

	•		$2.0 million for the expansion of our high resolution color LCD module production capacity,

	•		$3.9 million for machinery for FPC subassembly, and

	•		$6.5 million for expansion of our LCD factory.

Our plans for capital expenditures are subject to change from time to time and could result from, among other things, our consummation of any significant amount of additional acquisition or strategic investment opportunities, which we regularly explore.

We are an electronics manufacturing and design services provider to a select group of the world’s leading OEMs of telecommunications and consumer electronic products. Through our electronics manufacturing services operations, we manufacture electronic components and subassemblies, including LCD panels, LCD modules, RF modules, FPC subassemblies and image sensors. These components are used in numerous electronic products, including cellular phones, laptop computers, digital cameras, copiers, fax machines, electronic toys, handheld video game devices and microwave ovens. We also manufacture finished products, including cellular phones, palm-sized PCs, personal digital assistants, electronic dictionaries, calculators and digital camera accessories for use with cellular phones.

We assist our OEM customers in the design and development of their products and furnish full turnkey manufacturing services that utilize advanced manufacturing processes and production technologies. Our services include hardware and software design, component purchasing, assembly into finished products or electronic subassemblies and post-assembly testing. These services are value-added and assist us in obtaining new business but do not represent a material component of our revenue. We also provide original design manufacturing, or ODM, services, in which we design and develop proprietary products that are sold by our OEM customers using their brand name.

We were founded in 1975 as an electronic products trading company based in Hong Kong and shifted our focus to manufacturing of electronic products in 1978. We moved our manufacturing facilities to China in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates available and subsequently relocated to Shenzhen, China in order to capitalize on opportunities offered in Southern China. We were reincorporated as a limited liability International Business Company under the laws of the British Virgin Islands in August 1987. Our principal manufacturing and design operations are based in Shenzhen, China, approximately 30 miles from Hong Kong. Our PRC headquarters are located in Macao, China. Some of our subsidiaries’ offices are located in Hong Kong, which provides us access to Hong Kong’s infrastructure of communication and banking and facilitates management of our China operations and transportation of our products out of China through the port of Hong Kong.

Historically, we have had substantial recurring sales from existing customers. About 89.1% of our 2003 net sales came from customers that also used our services in 2002. While we seek to diversify our customer base, a small number of customers currently generate a significant portion of our sales. Sales to our 10 largest customers accounted for 83.7%, 84.8% and 84.9% of our net sales during the years ended December 31, 2001, 2002 and 2003, respectively. Sales to customers accounting for 10% or more of our net sales in the year ended December 31, 2001, 2002 or 2003 were as follows:

Our largest OEM customers based on net sales during 2003 include the following (listed alphabetically):

At any given time, different customers account for a significant portion of our business. Percentages of net sales to customers vary from quarter to quarter and year to year and fluctuate depending on the timing of production cycles for particular products.

Sales to our OEM customers are primarily based on purchase orders we receive from time to time rather than firm, long-term purchase commitments from our customers. Although it is our general practice to purchase raw materials only upon receiving a purchase order, for certain customers we will occasionally purchase raw materials based on such customers’ rolling forecasts. Uncertain economic conditions and our general lack of long-term purchase commitments with our customers make it difficult for us to accurately predict revenue over the longer term. Even in those cases where customers are contractually obligated to purchase products from us or repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

The dollar amount (in thousands) and percentage of our net sales by business segment and product category for the years ended December 31, 2001, 2002 and 2003 were as follows:

(1)		Included in component assembly are our sales from our manufacture of rechargeable battery packs through a joint venture we had with Toshiba Battery Co., Ltd. We sold our interest in the joint venture to a Toshiba related company and ceased manufacturing rechargeable battery packs as of April 30, 2002. Accordingly, revenue from sales of battery packs was not included after that date.

(2)		LCD panels and components consist of products manufactured and sold by our subsidiaries in the J.I.C. Group. We acquired the J.I.C. Group in 2000 and their sales were consolidated with ours beginning on October 1, 2000.

(3)		We sold our transformers operation to a third party in June 2003.

Please refer to page F-34 of the consolidated financial statements and Item 8. Financial Information — Export Sales, which sets forth the information of net sales to customers by geographic area.

	•		Color and monochrome LCD modules to display information as part of telecommunication products such as cellular phones and telephone systems, appliances and office automation products, such as copiers and facsimile machines. Our LCD modules could be manufactured for use in most other hand-held consumer electronic devices, such as electronic games and digital cameras.

	•		RF modules, which we began manufacturing in December 2002, for integration into cellular phones. These modules could be manufactured for use in most other hand-held consumer electronic products, such as PDAs, laptop computers and other products with wireless connectivity.

	•		CMOS sensor modules, which we began manufacturing in June 2003, for integration into various image capturing devices such as digital cameras for cellular phones and home entertainment products.

	•		Cellular phones in SKD form.

	•		FPC subassemblies, which we began manufacturing in March 2003 for integration into various LCD modules.

	•		Front light panels for handheld video game devices, which we began manufacturing in January 2003.

	•		1.9 and 2.4 GHz high frequency cordless telephones, home feature phones, family radio systems and transceivers.

The LCD-based consumer electronic products we manufacture are primarily finished products and include:

	•		Digital camera accessories for use with the cellular phones and home entertainment products.

	•		Electronic calculators that include basic function calculators, desktop display style, scientific and advanced graphic calculators.

	•		Digital management devices that include PDAs and electronic personal organizers.

	•		Linguistic products, including electronic dictionaries, spell checkers and language translators.

We offer our OEM customers software development services principally for the operation of electronic dictionary products, many of which are manufactured by us, as well as personal organizers and MP3 devices. In addition to generating revenue from our development services, our software design, which typically occurs at the product design stage, often results in our providing manufacturing services to the OEM assembly customers.

With the acquisition of J.I.C. Group in October 2000, we began producing LCD panels and transformers.

LCD panels are information display components and are featured in numerous electronics products, including watches, clocks, calculators, pocket games, PDAs and cellular and wireless telephones. Currently, we use only a small portion of the LCD panels in our assembly operations. We plan to increase the volume of LCD panels we supply by approximately 50% to our assembly business in 2004.

Transformers are generally used to increase or reduce the voltage of an electric power supply to allow a particular part of electrical equipment to be used. The transformers we produce are used in home appliances, telecommunications equipment, computers and computer peripherals. We sold our transformers operation to a third party in June 2003.

	•		Chip on Film, or COF, is an assembly method for bonding integrated circuit chips and other components onto a flexible printed circuit. This process allows for greater compression of the size of a product when assembled enabling the production and miniaturization of small form factor devices like cellular phones, PDAs, digital cameras and notebook PCs. At December 31, 2003, we had two COF machines. These machines connect the bump of Large Scale Integrated, or LSI, driver onto FPC pattern with Anisotropic Conductive Film, or ACF, and mount chip resister cap components to FPC through Surface Mount Technology, or SMT, is available. These COF machines have the ability to pitch fine to 40 micrometers and a total production capacity of up to 400,000 chips per month.

	•		Chip On Glass, or COG, is a process that connects integrated circuits directly to LCD panels without the need for wire bonding. We apply this technology to produce advanced LCD modules for high-end electronic products, such as cellular phones and PDAs. At December 31, 2003, we had 13 COG lines. These machines provide an LCD, dimension of up to 200 millimeters (length) x 150 millimeters (width) x 2.8 millimeters (height), a process time per chip of five seconds, a pin pitch fine to 50 micrometers and a total production capacity of up to 4,000,000 chips per month.

	•		Chip On Board, or COB, is a technology that utilizes wire bonding to connect large-scale integrated circuits directly to printed circuit boards. We use COB in the assembly of consumer products such as calculators, personal organizers and linguistic products. At December 31, 2003, we had 48 COB machines. These machines are fully automatic bonding machines and use ultrasonic mounting technology. The bonding time, pressure, power and each wire loop are under machine programmable control. These machines provide a high speed chip mounting time of per 2 millimeters wire per 0.25 second, a bond pad fine to 75 micrometers and a total production capacity of up to 2,600,000 per month.

	•		Outer Lead Bonding, or OLB, is an advanced technology used to connect PCBs and large-scale integrated circuits with a large number of connectors. We use this technology to manufacture complex miniaturized products, such as high-memory PDAs. At December 31, 2003, we had three OLB machines. The machines include multi-pinned Tape Carrier Packaged Large Scale Integrated Circuit, or TCP LSIC, bonding which is up to 280 pins, which also provide ultra thin assembly with module thickness to around one millimeter and high accuracy bonding with pin pitch to 100 micrometers. The total production capacity is 12,000 per month.

	•		Tape Automated Bonding with Anisotropic Conductive Film, or TAB with ACF, is an advanced heat sealing technology that connects a liquid crystal display component with an integrated circuit in very small LCD modules, such as those used in cellular phones and pagers. At December 31, 2003, we had 27 systems of TAB with ACF machines. The machines provide process time of 25 seconds per component, a pin pitch fine to 200 micrometers and a total production capacity of up to 2,360,000 components per month.

	•		Fine Pitch Heat Seal Technology, or FPHS technology, allows us to connect LCD displays to PCBs produced by COB and outer lead bonding that enables very thin connections. This method is highly specialized and is used in the production of finished products such as PDAs. At December 31, 2003, we had eight machines utilizing FPHS technology. The machines provide a pin pitch fine to 260 micrometers and a total production capacity of up to 268,000 per month.

	•		Surface Mount Technology, or SMT, is a process by which electronic components are mounted directly on both sides of a printed circuit board, increasing board capacity, facilitating product miniaturization and enabling advanced automation of production. We use SMT for products such as electronic linguistic devices. At December 31, 2003, we had 21 SMT productions lines. The production time per chip ranges from 0.072 second per chip to 0.8 second per chip and high precision ranging from +/-0.09 millimeter to +/-0.1 millimeter. The components size ranges from 0.6 millimeter (length) x 0.3 millimeter (width) to 55 millimeters (length) x 55 millimeters (width). Ball Grid Array, or BGA, ball pitch is 0.5 millimeter and ball diameter is 0.2 millimeter. The total production capacity is 490,445,000 resistor capacitor chips per month.

	•		Twisted Nematic LCDs, or TN type LCD, is the most conventional and economical and is suitable for most common LCDs used in devices like calculators and watches. At December 31, 2003, we had two TN LCD lines. The lines use 360 millimeter by 400 millimeter glass sheets and have a total capacity of about 90,000 glass sheets per month.

	•		Super-Twisted Nematic LCDs, or STN, type LCDs allow for clearer visibility and wider viewing angle than TN-type LCDs. STN LCDs are suitable for use in devices like pocket games and PDA personal digital assistants. We began manufacturing these LCDs in the second quarter of 2002 and at December 31, 2003, we had one STN LCD line. It uses 360 millimeter by 400 millimeter glass sheets and has a capacity of about 40,000 to 50,000 glass sheets per month.

At December 31, 2003, we had three clean rooms at our principal manufacturing facilities, which housed COF and COG capabilities for LCD module manufacturing. We also had three clean rooms at another of our factories, which are used to manufacture LCD panels. Of our six clean rooms at December 31, 2003, three were class ten thousand and three were class thousand.

We maintain strict quality control programs for our products, including the use of total quality management, or TQM, systems and advanced testing and calibration equipment. Our quality control personnel test the quality of incoming raw materials and components. During the production stage, our quality control personnel also test the quality work-in-progress at several points in the production process. Finally, after the assembly stage, we conduct testing of finished products. In addition, we provide office space at our principal manufacturing facilities for representatives of our major customers to permit them to monitor production of their products and we provide them with direct access to our manufacturing personnel.

All of our manufacturing facilities are certified under ISO 9001 quality standards, the International Organization for Standardization’s, or ISO’s highest standards. The ISO is a Geneva-based organization dedicated to the development of worldwide standards for quality management guidelines and quality assurance. ISO 9000, which was the first quality system standard to gain worldwide recognition, requires a company to gather, analyze, document, monitor and make improvements where needed. Our certification under an ISO 9001 quality standard demonstrates that our manufacturing operations meet the most demanding of the established world standards. Our principal manufacturing facilities are also certified under an ISO 14001 quality standard, which was published in 1996 to provide a structured basis for environmental management control.

We purchase thousands of different component parts from numerous suppliers. We are not dependent upon any single supplier for any key component. We purchase components from suppliers in Japan, China and elsewhere. We generally base component orders on received purchase orders in an effort to minimize our inventory risk by ordering components and products only to the extent necessary although for certain customers we will occasionally purchase raw materials based on such customer’s rolling forecasts.

	•		off-the-shelf and custom integrated circuits or “chips,” most of which we purchase presently from Toshiba Corporation and Sharp Corporation and certain of their affiliates;

	•		LCD panels, which are available from many manufacturers. In 2003, we purchased LCD panels from Epson Hong Kong Ltd., Toshiba Matsushita Display Technology Co. Ltd., Optrex Corporation and Sharp Corporation for LCD panels and in the future we may produce some LCD supplies internally;

	•		CMOS sensor, which we purchase entirely from Omnivision Technologies Inc.;

	•		solar cells and batteries, which are standard “off-the-shelf” items that we generally purchase in Hong Kong from agents of Japanese manufacturers; and

	•		various mechanical components such as plastic parts, rubber keypads, PCBs, indium tin oxide, or ITO, glass used in the production of LCD panels, and packaging materials from various local suppliers in China.

Whenever practical, we use domestic China suppliers who are often able to provide items at low costs and with short lead times.

Certain components may be subject to limited allocation by certain of our suppliers. During 2000, there was an industry-wide shortage of components in the electronics industry as supply was unable to satisfy growing world demand. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production of assemblies using scarce components. These supply shortages have contributed to an increase in our inventory levels and reduction in our margins. We expect that shortages and delays in deliveries of some components will continue. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing delays, which could harm our relationships with current or prospective customers and reduce our sales.

The principal raw materials used by the Company are large scale integrated circuits or LSI circuits (CMOS), Semiconductors, LCD panels and batteries. At times the pricing and availability of these raw materials can be volatile, due to numerous factors beyond the Company’s control, including general economic conditions, currency exchange rates, industry cycles, production levels or a supplier’s tight supply. In the past, we have asked our customers to share in the increased costs of raw materials where such increased costs would adversely affect the Company’s business, results of operations and financial condition. Our customers have generally agreed when so requested in the past. We cannot assure you, however, that our customers will agree to share costs in the future and that our business, results of operations and financial condition would not be adversely affected by increased volatility of raw materials.

The typical cycle for a product to be designed, manufactured and sold to an OEM customer is one to two years, which includes the production period, the development period and the period for market research and data collection (which is undertaken primarily by our OEM customers). Initially an OEM customer gathers data from its sales personnel on products for which there is market interest, including features and unit costs. The OEM customer then contacts us, and possibly other prospective manufacturers, with forecasted total production quantities and design specifications or renderings. From that information, we in turn contact our suppliers and determine estimated component and material costs. We later advise our OEM customer of the development costs, charges (including molds, tooling and software design, if applicable) and unit cost based on the forecasted production quantities desired during the expected production cycle.

Once we and the OEM customer agree to the quotation for the development costs and the unit cost, we begin the product development if we are engaged to do so. This development period typically lasts less than six months, but may be longer if software design is included. During this time we complete all molds, tooling and software required to manufacture the product with the development costs generally borne by our customer. Upon completion of the molds, tooling and software, we produce samples of the product for the customer’s quality testing, and, once approved, commence mass production of the product. We recover the development costs in relation to molds, tooling and software from our customers.

The production period usually lasts approximately six to twelve months. In some cases, our customer handles all product design and development and engages us only at the point of initial production. Typically, more advanced products have shorter production runs. If total production quantities change, the OEM customer often provides only limited notice before discontinuing orders for a product. At any point in time we are in different stages of the development and production periods for the various models under development or in production for our OEM customers.

Generally, our production is based on purchase orders received from OEM customers. Purchase orders are often supported by letters of credit or written confirmation from the OEM customer and generally may not be cancelled once confirmed without the mutual consent of the parties. Even in those cases where customers are contractually obligated to purchase products from us or repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

We did not suffer a material loss resulting from the cancellation of OEM customer orders in 2001 to 2003. In 2001, we wrote down our inventory for $3.8 million for slow-moving raw materials relating to cancelled, reduced or delayed orders. However, subsequently we were able to use some of these raw materials in production or we received compensation for the unused raw materials from certain of our customers, and the gain of $2.0 million was recorded in cost of sales during 2002.

We focus on developing close relationships with our customers at the development and design phases and continuing throughout all stages of production. We identify, develop and market new technologies that benefit our customers and position us well as an EMS provider.

Sales and marketing operations are integrated processes involving direct salespersons, project managers and senior executives. We direct our sales resources and activities at several management and staff levels within our customers and prospective customers. We receive unsolicited inquiries resulting from word of mouth, from public relations activities, and through referrals from current customers. We evaluate these opportunities against our customer selection criteria and assign direct salespersons.

Historically, our sales and operating results are often affected by seasonality. Sales of calculators, personal organizers and linguistic products are often higher during the second and third quarters in anticipation of the start of the school year and the Christmas buying season. Similarly, our consumer services for electronics products have historically been lower in the first quarter resulting from both the closing of our factories in China for the Chinese New Year holidays and the general reduction in sales following the holiday season. As we have diversified our services for complex components, we expect that seasonality may be less of a factor affecting our business.

Typically, we sell products F.O.B. Hong Kong, which means that our customers are responsible for the transportation of finished products from Hong Kong to their final destination. Transportation of components and finished products to and from Shenzhen is by truck. Component parts purchased from Japan are generally shipped by air. To date, we have not been materially affected by any transportation problems. However, transportation difficulties affecting air cargo or shipping, such as an extended closure of ports that materially disrupts the flow of our customers’ products into the United States, could materially and adversely affect our sales and margins if, as a result, our customers delay or cancel orders or seek concessions to offset expediting charges they incurred pending resolution of the problems causing the port closures.

General competition in the contract EMS industry is intense and characterized by price erosion, rapid technological change and competition from major international companies. This intense competition has resulted in pricing pressures, lower sales and reduced margins. We believe that the principal competitive factors in our targeted markets are product quality, pricing, flexibility and timeliness in responding to design and schedule changes, reliability in meeting product delivery schedules, technological sophistication and geographic location. Many of our competitors have greater financial, technical, marketing, manufacturing, regional shipping capabilities and logistics support and personnel resources than we do and we may not be able to continue to compete successfully.

The EMS services we provide are available from many independent sources as well as from current and potential customers with in-house manufacturing capabilities. Our EMS competitors include Celestica, Inc., Flextronics International Ltd., Jabil Circuit, Inc., Sanmina-SCI Corporation, Hon Hai Precision Industry Co., Ltd. and Solectron Corporation. Our principal competitors in the manufacture of our traditional product lines of calculators, personal organizers and linguistic products include Kinpo Electronics, Inc. and Inventec Co. Ltd. Our principal competitors in the manufacture of image capturing devices and the CMOS sensor modules are Lite-On Technology Corporation, The Primax Group and Logitech, Inc. We have numerous competitors in the telecommunications, subassemblies and components product lines, including, Philips, Samsung and Varitronix.

We invest in research and development for manufacturing and assembly technology that provide us with the potential to offer better and more technologically advanced services to our OEM customers or assist us in working with our OEM customers in the design and development of future products. We plan to continue acquiring advanced design equipment and to enhance our technological expertise through continued training of our engineers and further hiring of qualified system engineers. These investments are intended to improve the speed, efficiency and quality of our assembly processes.

In our ODM business, we are responsible for the design and development of new products, the rights to which we own. We sell these products to OEM customers to be marketed to end users under the customers’ brand names. To date, we have successfully developed a number of electronic dictionaries, cordless telephones and calculator products. Our efforts to expand or maintain the ODM business may not be successful and we may not achieve material revenues or profits from our efforts. To date, our ODM design activities have not been a material portion of our research and development budget.

We do not have any patents, licenses or trademarks on which our business is substantially dependent. Instead, we rely on our trade secrets, industry expertise and long-term relationships with our customers and suppliers.

We are a holding company for Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited, Nam Tai Group Management Ltd., Nam Tai Electronic & Electrical Products Limited, Nam Tai Telecom (Cayman) Company Limited, Namtek Software Development Company Limited and J.I.C. Technology Company Limited and their subsidiaries. The chart below illustrates the organizational structure of the Company and our principal operating subsidiaries at December 31, 2003.

J.I.C. Technology Company Limited was formed in the Cayman Islands in January 2002 in connection with a reverse merger with Albatronics, of which we owned slightly more than 50% of the outstanding capital stock. J.I.C. Technology Company Limited was listed on the Hong Kong Stock Exchange in June 2002. We currently hold 74.86% of the ordinary shares of J.I.C. Technology Company Limited, and upon full conversion of the preference shares we own, we would own approximately 88.39% of J.I.C. Technology Company Limited.

J.I.C. Enterprises, incorporated in Hong Kong, was established in 1983 and has been in the LCD business for almost 20 years. Originally a small trading company for LCD panels and electronics products, J.I.C. Enterprises is now strategically focused on the sales and marketing of LCD panels and is responsible for customer relationship development.

Jetup Electronic was incorporated in 1993 in China and handles the manufacturing and processing works of LCD panels through its factory plants in Baoan County, Shenzhen.

Nam Tai Macao was established in August 2003 in Macao, China as our PRC headquarters, due to our continuous increase in investment in China. Macao, like Hong Kong, is a special region of China and has recently introduced an incentive program to attract investment in Macao. Its principal business is the provision of management and sales co-ordination and marketing services to other group companies.

Nam Tai Group Management was established on March 9, 2001 in Hong Kong and provides management services to other group companies.

Nam Tai Telecom (Cayman) Company Limited was incorporated in June 2003 in the Cayman Islands, and is the holding company for Zastron Electronic (Shenzhen) Company Limited.

Zastron Electronic (Shenzhen) Company Ltd. was organized as Zastron Plastic & Metal Products (Shenzhen) Ltd. in March 1992 as a limited liability company pursuant to the relevant laws of China. Zastron engaged in production of metallic parts and PVC plastic products, much of which is used in products manufactured in our principal manufacturing facilities. In August 2002, Zastron Plastic & Metal Products (Shenzhen) Ltd. changed its name to Zastron Electronic (Shenzhen) Co. Ltd. and the nature of business was expanded to include manufacturing of telecommunication products and LCD modules and become one of our principal manufacturing arms. In June 2002, Zastron’s equity interest was transferred from Nam Tai Electronic & Electrical Products Limited (Hong Kong) to Nam Tai Group Management Limited. In October 2002, Zastron’s silk screening business was transferred to Jieyao Electronics (Shenzhen) Co. Ltd., a former subsidiary of J.I.C. Technology Company Limited and was sold in June 2003. In December 2002, the equity interest of Zastron was transferred from Nam Tai Group Management Limited to Nam Tai Telecom (Hong Kong) Company Limited. In December 2003, the equity interest of Zastron was transferred from Nam Tai Telecom (Hong Kong) Company Limited to Nam Tai Telecom (Cayman) Company Limited.

Nam Tai Electronic & Electrical Products Limited was incorporated in June 2003 in the Cayman Islands, and is the holding company for Namtai Electronic (Shenzhen) Co., Ltd.

Namtai Electronic (Shenzhen) Co., Ltd. was established as Baoan (Nam Tai) Electronic Co. Ltd. in June 1989 as a contractual joint venture company with limited liability pursuant to the relevant laws of China. The equity of Baoan (Nam Tai) Electronic Co. Ltd. was owned 70% by Nam Tai Electronic & Electrical Products Limited and 30% by a Chinese company. In 1992, the Chinese company transferred all of its equity interest in the contractual joint venture to Nam Tai Electronic & Electrical Products Limited and the company changed its name to Namtai Electronic (Shenzhen) Co., Ltd. Namtai Electronic (Shenzhen) Co., Ltd. became a wholly owned subsidiary of Nam Tai Electronic & Electrical Products Limited. Namtai Electronic (Shenzhen) Co., Ltd. is one of our principal manufacturing arms and is engaged in research and development, manufacturing and assembling our electronic products in China. In December 2003, the equity interest of Namtai Electronic (Shenzhen) Co., Ltd. was transferred from Nam Tai Electronic & Electrical Products Limited (Hong Kong) to Nam Tai Electronic & Electrical Products Limited (Cayman Islands).

Namtek Software Development Company Limited was incorporated in May 2002 in the Cayman Islands and was established as the holding company for Shenzhen Namtek Co., Ltd.

Shenzhen Namtek Co., Ltd. was organized in December 1995 as a limited liability company pursuant to the relevant laws of China. Shenzhen Namtek Co., Ltd. commenced operations in early 1996 developing and commercializing software for the consumer electronics industry, particularly for our customers and for products we manufacture or we will manufacture in the future. At December 31, 2003, Shenzhen Namtek Co., Ltd employed approximately 77 software engineers and provides the facilities and expertise to assist in new product development and research, enabling us to offer our customers program design for microprocessors, enhanced software design and development services, and strengthening our ODM capabilities. In July 2002, Shenzhen Namtek Co., Ltd set up a branch office in Shanghai for employing more expertise to assist in new product development and research. As of December 31, 2003, Shenzhen Namtek Co., Ltd’s Shanghai office employed approximately 11 software engineers.

Namtek Japan Company Limited was incorporated in June 2003 in Tokyo, Japan and is the sales and marketing arm of software business of Namtek in Japan.

Our registered office and principal executive office in the British Virgin Islands is located at McNamara Chambers, P.O. Box 3342, Road Town, Tortola. Corporate administrative matters are conducted at this office through our registered agent, McNamara Corporate Services Limited. We do not own any property in the British Virgin Islands. The table below lists the locations, square footage, principal use and lease expiration dates of the facilities used in our principal operations.

In order to expand production capacity, we are building a new factory consisting of approximately 250,000 square feet on portions of the vacant land adjacent to our existing factory complex in Shenzhen, China. Construction began in September 2003 and we expect it to be completed by the end of the fourth quarter in 2004. After completion, the production capacity is expected to increase from 40% to 60%. We have budgeted $40.0 million to cover the cost of construction and fixtures and equipment for the new factory. As of December 31, 2003, the construction project has already incurred $1.2 million. We currently plan to finance these improvements to our manufacturing facilities from cash resources and banking facilities.

In 2001, our Hong Kong offices relocated to 15/F, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road, Central, Hong Kong. The office is conveniently located above the ferry terminal and beside the highway, permitting easy transportation by sea or by land to and from the manufacturing facilities in Shenzhen. The purchase and renovation of the 24,200 square feet of contiguous prime office space, including transaction fees, cost $13.0 million.

As of December 31, 2003, we own four residential flats in Hong Kong purchased for total consideration of $5,999,000. These properties are occupied by senior management and form part of their compensation.

Until 1996, we owned approximately ten acres of land in Hong Kong carried on our books at a cost of approximately $523,000. Between 1997 and 2003 we sold approximately 7.7 acres of land for net proceeds of $7,281,000, realizing a gain of $7,027,000. We plan to sell the remaining land and, pending the sale, to continue to carry the land at cost of approximately $134,000.

In August 2003, we set up our PRC headquarters in Macao, China due to our continuous increase in investment in China. Macao, like Hong Kong, is a special administrative region of China and has recently introduced an incentive program to attract investment in Macao.

Our principal manufacturing facilities are located in Baoan County, Shenzhen, China. The lease for this land was purchased for approximately $2.45 million in December 1993 and has a term of 50 years. This facility consists of 160,000 square feet of manufacturing space, 39,000 square feet of offices, 212,000 square feet of new dormitories, 26,000 square feet of full service cafeteria and recreation facilities and a swimming pool. The total cost of this addition to our complex, excluding land, was approximately $21.8 million. In November 2000, we began construction of another addition to our factory complex. We completed construction in October 2002, adding a new five-story factory with 138,000 square feet of production facilities, including one floor for assembling, one floor of office space, one floor for warehouse use and two floors of class thousand clean room facilities. Prior to this addition, we had only one floor of class ten thousand clean room facilities at our factory complex. As of December 31, 2002, we had spent $9.1 million to complete the construction of the new facility. With the new addition, we had approximately 626,000 square feet of manufacturing space at our principal manufacturing complex as of December 31, 2002, with only minimal additions in 2003.

In July 1999, we purchased a vacant lot of approximately 280,000 square feet (approximately 6.5 acres) bordering our current manufacturing complex located in Shenzhen, China at a cost of approximately $1.2 million. We are building another factory consisting of approximately 250,000 square feet. Construction has began in September 2003 and we expect it to be completed by the end of the fourth quarter in 2004. We have budgeted $40.0 million to cover the cost of construction and fixtures and equipment for the new factory, of which $1.2 million has already been spent in 2003. We currently plan to finance these improvements to our manufacturing facilities from cash resources and banking facilities.

Our LCD factory was leased since 1997 and has about 151,738 square feet of manufacturing space. The facility produces LCD panels to the specifications of our OEM customers and has an average monthly output of 12 to 14 million pieces. The lease of the facility will expire on August 31, 2004. In October 2003, Jetup Electronic (Shenzhen) Co. Ltd. entered into a tenancy agreement for new factory premises and plans to replace its existing factory premises in order to expand its manufacturing facilities to cope with future development. Also located in Baoan County, Shenzhen, China, the new factory premises, including dormitories, are about 600,000 square feet which are two times the size of the existing factory premises. Jetup Electronic (Shenzhen) Co. Ltd. plans to move into the new factory premises in the third quarter of 2004. The existing factory premises will then be returned to the landlord.

We currently lease three offices in which we conduct software development. Our Shekou, Shenzhen, China office has approximately 8,931 square feet, which we lease under two one-year leases expiring in August and September 2004, respectively. The monthly rental is approximately $6,017. Our Shanghai, China office, has approximately 4,754 square feet, which we lease under a three-year lease expiring in July 2005. The monthly rental is approximately $4,033. In July 2003, we opened an office in Tokyo, Japan to further expand our sales and marketing team in Japan for our software development business. The Tokyo office has approximately 904 square feet, which we lease under a two-year lease expiring in June 2005. The monthly rental is approximately $1,900.

Except for statements of historical facts, this section contains forward-looking statements involving risks and uncertainties. You can identify these statements by forward-looking words including “expect,” “anticipate,” “believe,” “seek,” “estimate,” “intends,” “should,” or “may.” Forward-looking statements are not guarantees of our future performance or results and our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the section of this Report entitled Item 3. Key Information — “Risk Factors.” This section should be read in conjunction with our Consolidated Financial Statements included as Item 18 of this Report.

We are an electronics manufacturing and design services provider to OEMs of telecommunications and consumer electronic products. Through our EMS operations, we manufacture electronic components and subassemblies, including LCD panels, LCD modules, RF modules, FPC subassemblies and image sensors. These components are used in numerous electronic products, including cellular phones, laptop computers, digital cameras, copiers, fax machines, electronic toys, handheld video game devices and microwave ovens. We also manufacture finished products, including cellular phones, palm-sized PCs, PDAs, electronic dictionaries, calculators and digital camera accessories for use with cellular phones.

We assist our OEM customers in the design and development of their products and furnish full turnkey manufacturing services that utilize advanced manufacturing processes and production technologies. Our services include hardware and software design, component purchasing, assembly into finished products, or electronic subassemblies and post-assembly testing. These services are value-added and assist us in obtaining new business but do not represent a material component of our revenue. We also provide ODM services, in which we design and develop proprietary products that are sold by our OEM customers using their brand name.

We derive our net sales principally from manufacturing services that we provide to OEMs of telecommunications and consumer electronic products. The market for the products we manufacture is generally characterized by declining unit prices and short product life cycles. Sales to our OEM customers are primarily based on purchase orders we receive from time to time rather than firm, long-term purchase commitments from our customers. We recognize sales, net of product returns and warranty costs, typically at the time of product shipment or, in some cases, as services are rendered.

A substantial percentage of our net sales are to a small number of customers. During the years ended December 31, 2001, 2002 and 2003, sales to our ten largest customers were 83.7%, 84.8% and 84.9% of our net sales, respectively. Furthermore, our customers accounting for 10% or more of our net sales aggregated approximately 44.1%, 60.2% and 46.7% of our total sales, respectively, for the same three-year period. The loss of any of our largest customers or a substantial reduction in orders from any of them would materially and adversely affect our business and operating results.

We plan to continue to leverage on our solid customer relationships and to expand our business. During 2003, we were able to expand our product line to higher margin products and we were able to benefit from the increase in production capacity from the commencement of operation of our new factory premises.

For LCD Consumer Products, we will continue to focus on educational products, cellular phone accessories and home entertainment products. In 2004, we will begin delivery of new products, like bluetooth headsets for cellular phones and new home entertainment products, in addition to the Eyetoy USB Cameras for Playstation 2.

For Telecom Component Assembly, we will continue to focus on high end color LCD modules and CMOS sensor modules. We shall seek opportunities to expand our product line and customer base for these products.

We plan to relocate our existing production facility for the LPT segment to new factory premises. It is expected that the relocation to the new factory premises will be completed in the third quarter of 2004. The new premises, which are about 600,000 square feet, are two times the size of the existing factory premises. This new factory will provide room for future expansion of production capacity. We intend to spend approximately $6.5 million for this relocation and finance this amount with a combination of internal resources and bank financing.

Our production is typically based on purchase orders received from OEM customers. However, for certain customers we will occasionally purchase raw materials based on such customers’ rolling forecasts. Purchase orders are often supported by letters of credit or written confirmation from our OEM customers. We generally do not obtain firm, long-term commitments from our customers. Uncertain economic conditions and our general lack of long-term purchase commitments with our customers make it difficult for us to accurately predict our revenue over the longer term. Even in those cases where customers are contractually obligated to purchase products from us or to repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

We did not suffer a material loss resulting from the cancellation of OEM customer orders in 2001 to 2003. In 2001 however, we wrote down our inventory for $3.8 million to cost of sales for slow-moving raw materials relating to cancelled, reduced or delayed orders. Subsequently, we were able to use some of these raw materials in production or we received compensation for the unused raw materials from certain of our customers, and the gain of $2.0 million was recorded in cost of sales during 2002.

Our gross margins and operating income generally improve during periods of high-volume and high-capacity utilization in our manufacturing facilities and decline during periods of low-volume and low-capacity utilization. Over the last several years our gross profit margins have declined substantially, from 17.2% in 1999 to 14.8% in 2000 and 12.8% in 2001 before increasing to 16.1% in 2002 and 16.3% in 2003. The $3.8 million inventory write-down in 2001 has reduced the gross margin by 1.7% in 2001 and our subsequent gain of $2.0 million recorded in cost of sales during 2002, as discussed above, increased our gross margin by 0.8% for 2002.

An increased mix of more complex products that generally have relatively high material costs as a percentage of total unit costs has historically been a factor that has adversely affected our gross margins. This is the primary reason for the decline in our gross margins between 1999 and 2001. During this period, we diversified our product mix from predominantly low complexity electronic products, including calculators and electronic dictionaries, to include more complex components and subassemblies, like LCD modules and RF modules. We believe our gross margin improved in 2002 and 2003 as a result of the experience we acquired in manufacturing these more complex products as we changed our strategic focus. Despite the lower gross margin on more complex products, we believe that the opportunity for growth in the demand for these complex products justifies the shift in our strategic focus. Furthermore, we believe that the experience in manufacturing processes and know-how that we have developed from producing more complex products are a competitive advantage for us relative to many of our competitors.

The increased costs associated with developing advanced manufacturing techniques to produce complex products on a mass scale and at a low cost have also negatively impacted our gross margins. For example, in our initial production runs of LCD modules and RF modules we experienced low production yields and other inefficiencies that caused our gross margin to decrease. Although we believe we have improved the efficiency and quality of our manufacturing processes relating to LCD modules and RF modules, we may not be able to improve or maintain our gross margin for these products. Furthermore, in January 2003, we began to produce color and TFT LCD modules, each a complex component used in a variety of devices. The increased costs associated with manufacturing these products and other new complex products could have a negative impact on our future gross margins. The complex manufacturing processes involved in the production of complex products is also capital intensive, thereby increasing our fixed overhead costs.

Under current BVI law, our income is not subject to taxation. Subsidiaries operating in Hong Kong and the PRC are subject to income taxes as described below, and our subsidiary operating in Macao is exempted from income taxes. This would be valid unless the Macao government changes its policy towards offshore companies.

Under current Cayman Islands law, Nam Tai Telecom (Cayman) Company Limited, Nam Tai Electronic & Electrical Products Limited and Namtek Software Development Company Limited are not subject to profit tax as they have no business operations.

The provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the current rate of taxation of 16% for 2001 and 2002 and 17.5% for 2003 to the estimated taxable income earned in or derived from Hong Kong during the applicable period.

The basic corporate tax rate for Foreign Investment Enterprises in China, such as our China subsidiaries, is currently 33% (30% state tax and 3% local tax). However, because all of our China subsidiaries are located in Shenzhen and are involved in production operations, they qualify for a special reduced state tax rate of 15%. In addition, the local tax authorities in the regions in which our subsidiaries operate in Shenzhen are not currently assessing any local tax. Moreover, several of our China subsidiaries are entitled to certain tax benefits and certain of our China subsidiaries have qualified for tax refunds as a result of reinvesting their profits earned in previous years in China for a minimum period of five years.

Efforts by the Chinese government to increase tax revenues could result in decisions or interpretations of the tax laws by the Chinese tax authorities that are unfavorable to us and which increase our future tax liabilities, or deny us expected refunds. Changes in Chinese tax laws or their interpretation or application may subject us to additional Chinese taxation in the future.

Our effective tax rates were 2%, 4% and 1% for 2001, 2002 and 2003, respectively. The significant factors that cause our effective tax rates to differ from the applicable statutory rates of 15% were as follows:

An important element of our strategy is to make investments in companies that provide the potential to complement our existing products and services, become new customers, augment our market coverage and sales ability, enhance our technological capabilities and expand our service offerings. We account for investments of less than 20% under the cost method and we account for investments between 20% and 50% under the equity method. Our material investments over the last five years include:

Stepmind. In December 2003, we placed approximately $5.3 million into an escrow account for an investment in Stepmind. The investment will be in two phases. For the first phase, approximately $2.64 million, representing 7.66% of the equity interest in Stepmind, was released to Stepmind in January 2004. The second phase amounting to $2.65 million will be released to Stepmind in August 2004 subject to fulfillment of certain conditions. Upon successful subscription of the shares in the second phase, our total investment will represent 11.33% of the equity interest in Stepmind. Stepmind was founded in July 2000 and is a fabless solutions and components supplier, developing applications which require high performance and secured data links.

Alpha Star/JCT Wireless. In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star Investments Ltd., the ultimate holding company of JCT. JCT is engaged in the design, development and marketing of wireless communication terminals and wireless application software and is using us to manufacture wireless communication terminals and their related modules.

TCL Group. Over the period from September 2000 through November 2002, we made three investments in the TCL Group of companies and disposed of some portions of the investment in 2002 and 2003, respectively. The TCL Group of companies is a leading OEM for numerous consumer electronic and telecommunications products in the domestic Chinese market.

•

In September 2000, we made a strategic investment of $2.0 million to acquire a 5% indirect equity interest (through a 25% direct equity interest in Mate Fair) in both TCL Mobile Communication (HK) Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together known as TCL Mobile. TCL Mobile is engaged in manufacturing, distributing and trading of digital mobile phones and accessories in China and overseas markets. In October 2002, we began to provide TCL Mobile with LCD modules used in its mobile phones.

	•		In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly known as TCL Holdings Corporation Ltd.), the parent of the TCL Group of companies, for approximately $12.0 million.

	•		In November 2002, Mate Fair sold a portion of its equity interest in Huizhou TCL Mobile Communication Co. Ltd. for which we received proceeds of approximately $10.4 million, reducing our direct equity interest (held through Mate Fair) in TCL Mobile to approximately 3%.

	•		In November 2002, we invested $5.1 million in 3% convertible notes of TCL International Holdings Limited that are due in November 2005. TCL International Holdings Limited is another company in the TCL Group and is publicly listed on the Hong Kong Stock Exchange. Those convertible notes of TCL International Holdings Limited were disposed in August 2003 for approximately $5.03 million.

Deswell Industries. In September 2000, we purchased 500,000 common shares in Deswell Industries Inc., a Nasdaq-listed company, representing approximately 9% of the outstanding shares of Deswell at the time of the purchase for an aggregate of $7.5 million. Deswell is a manufacturer of injection-molded plastic parts and components, electronic products and subassemblies and metallic molds and accessory parts for OEMs and contract manufacturers. During the first quarter of 2002, we sold our Deswell shares in the open market for aggregate proceeds of $10.1 million.

The following details the impact of our strategic investments on our income statements for each of the years ended 2001, 2002 and 2003:

In March 2000, we formed a joint venture with Toshiba Battery Company Ltd. called BPC (Shenzhen) Co., Ltd., or BPC, to manufacture rechargeable lithium ion battery packs at our manufacturing complex in Shenzhen, China. Toshiba Battery Company Ltd. owned a 13% interest in BPC and we owned the balance of BPC for a cash investment of $1.3 million. During 2000 and 2001 and from January 1 to April 30, 2002, we recognized net sales of $6.2 million, $21.1 million, and $7.8 million, respectively, from Toshiba and its related companies. In 2002, we sold our 87% joint venture interest in BPC and a related manufacturing license to a Toshiba related company for an aggregate of $2.9 million, resulting in a gain of $77,000.

Based on the 2001 full year results of BPC, we estimate that the sale of BPC will result in a reduction of annual revenues of approximately $21.1 million and a reduction in profits of $1.3 million. We further estimate that the BPC sale will result in a reduction of annual operating expenses of approximately $600,000. Future cash flows from operations will decline by approximately $1.7 million a year.

We acquired the J.I.C. Group in October 2000 for $32.8 million. We paid a portion of the purchase price to the seller by issuing approximately 3.48 million of our common shares and paid $11.0 million in cash. The J.I.C. Group is principally engaged in the manufacture and marketing of transformers and LCD panels, a key component for a variety of consumer electronic products. We accounted for the acquisition of the J.I.C. Group under the purchase method of accounting and the results of the J.I.C. Group’s operations have been consolidated with our results since the date of its acquisition.

In June 2002, through a reverse merger, we arranged for the listing of the J.I.C. Group on the Hong Kong Stock Exchange. To effect the listing, we entered into an agreement with the liquidators of Albatronics to effect the restructuring proposal of Albatronics and the listing of J.I.C. Technology Company Limited as this arrangement was more cost effective than using an initial public offering.

Due to the reverse merger, our effective interest in the J.I.C. Group was reduced from 100% to 92.9%. As a result of this reduction in interest during 2002, we has released unamortized goodwill of $1.5 million, representing 7.1% of the goodwill that had previously been recorded upon purchasing the J.I.C. Group in October 2000. The release of unamortized goodwill is included as part of the loss on the reverse merger of the J.I.C. Group.

In August 2002, we acquired an additional 7,984,000 ordinary shares of J.I.C. Technology Company Limited for a cash consideration of $437,000, resulting in additional goodwill of $253,000. As of December 31, 2002, we held 93.97% of effective interest in J.I.C. Group, which represented 74.78% of the existing ordinary shares and 93.97% of the outstanding ordinary shares upon full conversion of the 598,420,000 preference shares.

During the period from June to November 2003, we disposed of a total of 42,600,000 ordinary shares of J.I.C. Technology Company Limited for cash consideration of $4.0 million. The disposal resulted in a net gain on partial disposal of a subsidiary of $1.8 million and the releasing of unamortized goodwill of $1.2 million. The release of unamortized goodwill is netted off with the gain on the partial disposal of a subsidiary. In November 2003, we converted 175,100,000 preference shares into 170,000,000 ordinary shares of J.I.C. Technology Company Limited. As of December 31, 2003, we held 263,900,688 ordinary shares of J.I.C. Technology Company Limited, equivalent to 74.86% of issued ordinary shares, and 423,320,000 preference shares. Upon full conversion of preference shares owned, we will hold approximately 88.39% of J.I.C. Technology Company Limited.

In June 2003, in order to concentrate its effort on its LCD panels reporting unit, J.I.C. Technology Company Limited disposed its transformers reporting unit to a third party for a cash consideration of $2.4 million. Sales of the transformers reporting unit for the years ended December 31, 2001, 2002 and 2003 were $11.0 million, $11.3 million and $6.3 million, respectively, and were insignificant compared to the sales as a whole. The net income from this discontinued operation for the years ended December 31, 2001 and 2002 were also immaterial. In 2003, the net income from discontinued operation represented the gain of $2.0 million, being the proceeds from the disposal less the carrying value of the net assets of the transformers reporting unit, and minority interests. Excluding this gain, the basic and diluted earnings per share for the year ended December 31, 2003 would have been $1.04 and $1.02 respectively.

Our operations are generally organized in two segments, Consumer Electronics Products, or CEP, and LCD panels and transformers, or LPT. The activities of our LPT segment relate primarily to our J.I.C. subsidiary that we acquired in October 2000.

Consumer Electronics Products. Our CEP segment is primarily engaged in the manufacture and assembly of electronic components, subassemblies and finished products for OEMs of electronic and telecommunications products. The electronic components and subassemblies that our CEP segment produces are primarily LCD modules used in a wide variety of consumer electronic products including cellular phones, PDAs digital cameras, handheld video game devices and microwave ovens. In December 2002, our CEP segment also began producing RF modules, used in cellular phones and other electronic devices with wireless features. In September 2003, our CEP segment further started manufacturing of cellular phones in SKD form. The finished products that our CEP segment assembles include digital camera accessories for cellular phones and home entertainment products, like Playstation 2, handheld electronic calculators, dictionaries and linguistic products. Within our CEP segment, we also provide software development services to our OEM customers.

LCD Panels and Transformers. Our LPT segment manufactures LCD panels for use in numerous electronic products, including watches, clocks, calculators, pocket games, PDAs and cellular and wireless telephones. The transformers produced by our LPT segment are used in home appliances, telecommunications equipment, computers and computer peripherals. We sold our transformer operations in June 2003 for cash consideration of $2.4 million and realized a gain of $2.0 million, net of $0.1 million shared by minority interest.

The preparation of our financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

We recognize revenue from product sales in accordance with Staff Accounting Bulletin (SAB) No. 101 “Revenue Recognition in Financial Statements”. SAB No. 101 requires that revenue be recognized when all of the following conditions are met:

	•		persuasive evidence of an arrangement exists,

	•		delivery has occurred or services have been rendered,

	•		price to the customer is fixed or determinable, and

	•		collectibility is reasonably assured.

Generally, we do not provide our customers with the right of return (except for quality), price protection, rebates or discounts. There are no customer acceptance provisions associated with our products, other than for quality. All sales are based on firm customer orders with fixed terms and conditions, which generally cannot be modified. This requires us to assess at the point of delivery whether these criteria have been met. Upon making such assessment, revenue is recognized.

Our inventories are stated at the lower of cost or market value. We determine cost on the first-in, first-out basis. Our industry is characterized by rapid technological change, short-term customer commitments and rapid changes in demand, as well as many other market considerations. We write down inventory based on our regular reviews of inventory quantities on hand and the latest forecasts of product demand and production requirements from our customers. Generally, for our CEP reporting unit, we order inventory from our suppliers based on firm customer orders for product that is unique to each customer. The inventory is utilized in production as soon as all the necessary components are received.

The only reason that inventory would not be utilized within six months is if a specific customer deferred or cancelled an order. As the inventory is typically unique to each customer’s product it is unusual for us to be able to utilize the inventory for other customers’ products. Therefore, our policy is to negotiate with the customer for the disposal of such inventory that remains unused for six months. We do not generally write down as these customers are held to their purchase commitments. However, there are cases where customers are contractually obligated to purchase the unused inventory from us but we may elect not to immediately enforce such contractual right for business reasons. In this connection, we will consider writing down for these inventory items which remain unused for over six months at our own cost. We determine if the inventory can be utilized in other products before writing down the inventory.

For our LPT reporting unit, due to the nature of the business, LPT customers do not always place orders far enough in advance to enable us to order inventory from suppliers based on firm customer orders. Nonetheless, we review our inventory balance on a regular basis and wrote all inventory over six months old.

We derive information concerning our customers’ inventory levels through constant communications with our significant customers. Customers that see indications of high inventory levels will communicate this fact to us and we will attempt to delay our production if we are able to reduce our own order commitments. Our ability to reduce orders from suppliers depends on the terms, conditions and timing of the request.

In 2001, we wrote down our inventory for $3.8 million for slow-moving raw materials relating to cancelled, reduced or delayed orders. However, subsequently, we were able to use some of these raw materials in production in 2002 or we received compensation for the unused raw materials from certain of our customers, and the gain of $2.0 million was recorded in cost of sales during 2002.

The excess of the purchase price over the fair value of net assets acquired is recorded on our consolidated balance sheet as goodwill. Prior to January 1, 2002, we amortized goodwill to expense on a straight-line basis over various periods ranging from 4 to 15 years.

In June 2001, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. This statement provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment at the reporting unit level on an annual basis. A reporting unit is an operating segment or one level below an operating segment (i.e. a component) as defined in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. Through May 2002, we operated in two reporting units, which were the operating segments of “CEP” and “LPT”. Beginning in June 2002 we segregated our LPT segment into two reporting units: LCD panels and transformers. In June 2003, we sold our transformer operations.

We evaluate the goodwill for impairment in two steps: (1) we identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill and (2) we measure the amount of goodwill loss by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill and recognizing a loss by the excess of the latter over the former. We measure the fair value of a reporting unit based on the quoted market prices, if available, internal models based on present value of future cash flows or independent valuations. The estimation of fair value requires that we make judgments concerning future cash flows and appropriate discount rates. Our estimate of the fair value of goodwill could change over time based on a variety of factors, including the actual operating performance of the underlying reporting units.

SFAS No. 142 was effective for fiscal years beginning after December 15, 2001. We adopted SFAS No. 142 on January 1, 2002. Upon adoption of SFAS No. 142, we evaluated goodwill for impairment at the reporting unit level and determined that there was no impairment at January 1, 2002. Later in 2002, we determined that goodwill was impaired by $339,000 related to Micro Business Systems Industries Company Limited (“MBS”). All remaining and future acquired goodwill will be subject to an annual impairment test on December 31st of each year or earlier if indications of a potential impairment exist. As of December 31, 2003, we completed our annual impairment evaluation and determined that there was no impairment.

We provide for all taxes based on profits whether due at year end or estimated to become due in future periods but based on profits earned to date. However, under the current tax legislation in the PRC, we have reasonable grounds to believe that income taxes paid

by Namtai Electronic (Shenzhen) Co., Ltd., Zastron Electronic (Shenzhen) Co., Ltd (formerly known as Zastron Plastic & Metal Products (Shenzhen) Ltd), Shenzhen Namtek Co. Ltd. and Jetup Electronic (Shenzhen) Co., Ltd. in respect of any year would be refunded after the profits earned in that year are reinvested in the business by way of capital injection. PRC taxes paid by subsidiaries during the year are recorded as amounts recoverable at the balance sheet date when we intend to file an application for reinvestment of profits and a refund is expected unless there is an indication from the PRC tax authority that the refund will be refused.

We provide deferred income taxes using the asset and liability method. Under this method, we recognize deferred income taxes for all significant temporary differences and classified as current or non-current based upon the classification of the related asset or liability in the financial statements. We provide a valuation allowance to reduce the amount of deferred tax assets if it is considered more likely than not that some portion, or all, of the deferred tax asset will not be realized.

We apply the equity method of accounting for investments in affiliates when we have the ability to exercise a significant influence, which is normally indicated by a 20% to 50% interest in those entities. Under the equity method, original investments are recorded at cost and adjusted by our share of undistributed earnings or losses of these entities. Non-marketable investments in which we have a less than 20% interest and in which we do not have the ability to exercise significant influence over the investee are accounted for using the cost method and are initially recorded at cost and periodically reviewed for impairment. Income from these investments are recognized to the extent of dividends received and gains or losses are recognized upon disposition or impairment of the investments.

We make provisions for all loss contingencies when information available to us prior to the issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.

For provisions or accruals related to litigations, we make provisions based on information from legal counsels and the best estimation of management. As discussed in Note (19b) to our consolidated financial statements, we are involved in various legal proceedings and contingencies. We have recorded a liability for the Tele-Art matter in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“FAS 5”). FAS 5 requires a liability to be recorded based on our estimate of the probable cost of the resolution of a contingency. The actual resolution of this contingency may differ from our estimates. If the contingency were settled for an amount greater than our estimate, a future charge to income would result. Likewise, if the contingency were settled for an amount that is less than our estimate, a future credit to income would result.

The following table presents selected consolidated financial information stated as a percentage of net sales for the years ended December 31, 2001, 2002, and 2003 (certain amounts may not calculate due to rounding and amounts may not add due to rounding).

Net Sales. Our net sales increased significantly by 72.2% to $406.3 million for 2003 compared to $236.0 million for 2002. Sales in the CEP segment increased by 81.8% to $365.0 million for 2003 compared to $200.8 million for 2002. The increase was primarily attributable to sales of the component assembly products of approximately $236.8 million in 2003 compared to $103.6 million in 2002, an increase of $133.2 million.

This increase was mainly as a result of an increase in sales of telecom LCD and PCB modules and the launch of new products in 2003 like RF modules, SKD handset, Front Light Panel Assembly, and flash light for cellular phones. In addition, we also experienced increased sales in the LCD consumer products segment. Sales of LCD consumer products amounted to approximately $124.1 million in 2003 compared to $94.2 million in 2002, an increase of $29.9 million. This increase was mainly driven by the PC camera, which was first launched in 2003.

Sales in the LPT segment increased by 17.2% to $41.3 million for 2003 compared to $35.3 million for 2002. The primary reason for the increase in sales was the increase in the sales of LCD panels of approximately $35.0 million for 2003 compared to $23.9 million for 2002, which was partially offset by a decrease in the sales of transformers due to the disposal of the transformers operation in June 2003.

Gross Profit. Our gross profit increased by 74.2% to $66.3 million for 2003 compared to $38.1 million for 2002. Our gross profit margin also increased slightly in 2003 to 16.3% from 16.1% in 2002.

Gross profit in the CEP segment increased 78.8% to $59.6 million, or 16.3% of net sales, for 2003 compared to $33.3 million, or 16.6% of net sales, for 2002. The primary reason for this increase was the increase in sales as described above in explanation of fluctuation of “Net Sales”. We were also able to keep our product gross margin relatively stable in 2003. The increase in gross profit margin was offset by the gain of a $2.0 million due to recovery of inventory written down to cost of sales in 2002. In addition to these specific factors, our gross profit margin increased in 2003 due to our ability to negotiate advantageous price terms with certain of our suppliers and our focus on reducing overhead costs.

Gross profit in the LPT segment increased 41.9% to $6.7 million, or 16.3% of net sales, for 2003 compared to $4.8 million, or 13.5% of net sales, for 2003. This increase in gross profit in the LPT segment was as a result of increases in sales proportion of high margin products and the disposal of the transformers operation in June 2003. The impact of the discontinued operations of transformers on gross profit contribution was insignificant as the margin of transformers products was low.

Selling, general and administrative expenses. SG&A expenses for 2003 increased approximately $6.9 million to $24.9 million, or 6.1% of net sales, from $18.0 million, or 7.6% of net sales, in 2002.

SG&A expenses in the CEP segment increased 39.9% to $20.9 million, or 5.7% of net sales, for 2003 compared to $14.9 million, or 7.4% of net sales, for 2002. This increase was primarily due to an approximately $4.9 million increase in salaries and benefits expenses, due to an increase in headcount, an approximately 10% increase in salary for certain employees and $3.7 million incentive bonus due to the implementation of a new incentive bonus scheme in January 2003, which was calculated based on operating profit, as well as a $0.8 million increase in selling expenses, which was primarily due to more sales commission paid as sales increased.

SG&A expenses in our LPT segment also increased in 2003 to $4.0 million, or 9.5% of net sales, from $3.0 million, or 8.6% of net sales, in 2002. The increase in SG&A expenses in our LPT segment in 2003 was primarily related to salaries and benefits expenses as a result of the implementation of a new incentive bonus program scheme in January 2003 and hence $0.2 million in incentive bonuses incurred during 2003 and general expenses due to an increase in business activities.

Our SG&A expenses include provisions for bad debt expenses, which decreased from $138,000 in 2002 to $91,000 in 2003. On a segment basis, the provision for bad debt expenses decreased in the CEP segment from $89,000 in 2002 to zero in 2003 and increased in the LPT segment from $49,000 in 2002 to $91,000 in 2003. For the CEP segment, the decrease in allowance has been attributable to the implementation of tighter credit controls. For the LPT segment, the increase in the allowance was due to the increase in accounts receivable and a resulting increase in our general provision due to a delay in payment from some customers.

Research and development expenses. Research and development expenses for 2003 increased to $4.0 million, or 1.0% of net sales, from $2.7 million, or 1.1% of net sales, in 2002. On a segment basis, research and development expenses increased in the CEP segment by $1,385,000, or 64.1%, due to an increase in staff related to the expansion of our production capacity and the products we manufacture.

Goodwill impairment. In 2002, we determined that $339,000 of unamortized goodwill related to our 1999 acquisition of a telecommunications company was impaired as the technology of the acquired company had become obsolete.

Income from Operations. Income from operations increased by approximately $20.3 million to $37.4 million, or 9.2% of net sales, for 2003 compared to $17.1 million, or 7.2% of net sales, for 2002. On a segment basis, the operating income of our CEP segment increased $19.2 million to $35.1 million, or 9.6% of net sales, in 2003 compared to $15.9 million, or 7.9% of net sales, in 2002. The operating income of our LPT segment increased $1.1 million to $2.3 million, or 5.5% of net sales, for 2003 compared to $1.2 million, or 3.4% of net sales, in 2002. This increase in operating income is attributable to the increase in gross profit described above.

Equity in Income of Affiliated Companies. Equity in income of affiliated companies was $0.5 million in 2003 compared to $10.7 million in 2002. The income in 2003 represents our share of the net earnings of our proportional 25% investment in Alpha Star Investments Limited for the twelve months end December 31, 2003. The income in 2002 represents our proportional share of the net earnings of our 25% investment in Mate Fair.

Other Income/(Expense), net. Other income, net, during the year ended December 31, 2003 was $5.5 million. This amount included dividend income of $2.0 million from our indirect investment in Huizhou TCL Mobile Communication Co., Ltd, dividend income of $1.7 million from TCL Corporation, $1.8 million of gain on partial disposal of interest in our J.I.C. Group and income of $0.5 million related to the recovery of a non-trade receivable which had been written off previously. This income was partially offset by a $0.3 million bank charge during 2003.

Interest Expense. Interest expense decreased to $121,000 for 2003 compared to $790,000 for 2002. The decrease in interest expenses is the result of the early repayment of a $12.9 million bank loan in January 2003.

Income Taxes. Income tax expenses decreased to $399,000 for 2003 compared to $773,000 for the prior year. The decrease is primarily the result of our receipt of tax refunds for several of our PRC entities for taxes paid in previous years.

Minority Interest. Minority interest increased $903,000, or 550.6%, to $1,067,000 in 2003 from $164,000 in 2002. Minority interest in 2003 included $211,000 from the minority shareholders’ share of profits of J.I.C. Group for the year ended December 31, 2003, $560,000 from the minority shareholders’ share of profits of Mate Fair for the year ended December 31, 2003, and $296,000 from the minority shareholders’ share of profits of Namtek Software Development Company Ltd. for the year ended December 31, 2003.

Discontinued Operation. Discontinued operation in 2003 represents $2.0 million gain on disposal of our entire transformers operation, net of $0.1 million shared by minority interest.

Net Income. Net income increased by $23.8 million, or 118.8%, to $43.8 million or 10.8% of net sales, for 2003 compared to $20.0 million, or 8.5% of net sales, for 2002. Net income of $43.8 million for 2003 represents $41.8 million income from normal operation, and $2.0 million income from discontinued operation. Diluted earnings per share for 2003 of $1.07 ($1.09 basic) was contributed by $1.02 ($1.04 basic) from normal operations, and $0.05 ($0.05 basic) from discontinued operation. This resulted in diluted earnings per share for 2003 of $1.07 ($1.09 basic) compared to $0.57 ($0.57 basic) for 2002. Net income for the CEP segment increased 103.3% to $41.1 million for 2003 compared to $20.2 million for 2002. The increase in CEP’s net income is the result of higher sales, higher gross profit margin, and the increase in other income, which was offset by the decrease in equity in income from affiliated companies and increased general and administrative expenses described above. Net income for the LPT segment increased by $2.9 million, or 1513.6%, to a income of $2.7 million in 2003 compared to net loss of $191,000 for 2002. The increase in the LPT segment’s net income is the result of the $2.0 million gain from the disposal of the transformers operation, net of $0.1 million shared by minority interest, in June 2003, increase in sales and higher gross profit margin.

Net Sales. Our net sales remained flat, increasing by 0.9%, to $236.0 million for 2002 compared to $234.0 million for 2001. Sales in the CEP segment increased by 1.4% to $200.8 million for 2002 compared to $198.0 million for 2001. The primary reason for the increase was sales of digital camera accessories for cellular phones that we first produced in 2001 of approximately $39.8 million in 2002 compared to only $3.2 million in 2001, an increase of $36.6 million. This increase was partially offset by the sale of our joint venture interest in BPC (Shenzhen) Co., Ltd. to a Toshiba related company on April 30, 2002, resulting in a decrease in our sales of approximately $13.2 million in 2002 as compared to sales in 2001. We also experienced decreased sales in 2002 of calculators, personal digital assistants and linguistics products and LCD modules of $9.6 million, $6.7 million and $3.5 million, respectively, as compared to levels in 2001. We believe that these decreases resulted from pricing pressures and the completion of the lifecycle or obsolescence of certain of these products that were not replaced by comparable devices.

Sales in the LPT segment decreased by 1.9% to $35.3 million for 2002 compared to $36.0 million for 2001. The primary reason for the decrease in sales was the reduction in LCD panel selling prices caused by market competition, which was partially offset by an increase in the number of LCD panels sold.

Gross Profit. Our gross profit increased by 26.7%, to $38.1 million for 2002 from $30.0 million for 2001. Our gross profit margin also increased in 2002 to 16.1% from 12.8% in 2001. Before the inventory write-down of $3.8 million in 2001 for slow-moving raw materials relating to cancelled, returned or delayed orders and our gain of $2.0 million recorded in cost of sales during 2002 discussed below, our consolidated gross margin was 14.5% in 2001 and 15.3% in 2002.

Gross profit in the CEP segment increased by 43.7% to $33.3 million, or 16.6% of net sales, for 2002 compared to $23.2 million, or 11.7% of net sales, for 2001. The primary reason for this increase was our inventory write-down in 2001 of $3.8 million for slow-moving raw materials relating to cancelled, reduced or delayed orders within the CEP segment that was recorded in our cost of sales. In 2002, we were able to use some of these raw materials in production or we received compensation for the unused raw materials from certain of our customers, resulting in our gain of $2.0 million to cost of sales in 2002. For the inventory that we were able to use, we sold the related products to customers at our normal prices. Also contributing to the increase in gross profit in 2002 is a $300,000 charge to our cost of sales in 2001 related to employee severance charges for direct labor in the CEP segment. In addition to these specific factors, our gross profit increased in 2002 due to our ability to negotiate advantageous price terms with certain of our suppliers and our focus on reducing overhead costs.

Gross profit in the LPT segment decreased by 30.7% to $4.8 million, or 13.5% of net sales, for 2002 compared to $6.8 million, or 19.0% of net sales, for 2001 as a result of lower selling prices for LCD panels driven by increased competition as well as increased depreciation charges in relation to a new STN LCD panel line that commenced operations in June 2002.

Selling, general and administrative expenses. SG&A expenses for 2002 decreased approximately $4.0 million to $18.0 million, or 7.6% of net sales, from $22.0 million, or 9.4% of net sales, in 2001.

SG&A expenses in the CEP segment decreased by 9.6% to $14.9 million, or 7.4% of net sales, for 2002 compared to $16.5 million, or 8.3% of net sales, for 2001. This decrease was driven primarily by our cost realignment and tightened cost controls that reduced salaries and benefits to $6.0 million from $8.1 million in 2001. Our salaries and benefits expense in 2001 included $700,000 of restructuring expenses primarily related to severance for certain administrative positions that we eliminated. The decreases in our CEP segment were partially offset by increases in selling expenses of $600,000 due to implementation of a new commission incentive program in January 2002.

SG&A expenses in our LPT segment also decreased in 2002 to $3.0 million, or 8.6% of net sales, from $5.5 million, or 15.2% of net sales, in 2001. The decrease in SG&A expenses in our LPT segment in 2002 is primarily related to terminating the amortization of goodwill as a result of our adoption of the new accounting rule, SFAS No. 142, effective January 1, 2002. During the year ended December 31, 2001, our amortization of goodwill in the LPT segment was approximately $1.6 million. SG&A expenses in our LPT segment were also lower in 2002 due to a stock option compensation expense of $839,000 in 2001, but none in 2002.

Our SG&A expenses include provisions for bad debt expenses, which increased from $86,000 in 2001 to $138,000 in 2002. On a segment basis, the provision for bad debt expenses increased in the CEP segment from $55,000 in 2001 to $89,000 in 2002 and increased in the LPT segment from $31,000 in 2001 to $49,000 in 2002. Our policy for the allowance for doubtful amounts is to provide for all invoices that are 30 days overdue from their original credit terms and for which settlement is not assured. The increase in the allowance was due to the increase in accounts receivable and a resulting increase in our general provision and a delay in payment from some customers.

Research and development expenses. Research and development expenses for 2002 decreased to $2.7 million, or 1.1% of net sales, from $3.0 million, or 1.2% of net sales, in 2001. On a segment basis, research and development expenses decreased in the CEP segment by $584,000, or 21.3%, due to a reduction in related staff, which was partially offset by an increase in the LPT segment of $316,000 in relation to the addition of a new STN LCD line for the development of new products, including LCD panels for TCL Mobile.

Income from Operations. Income from operations increased by approximately $11.9 million to $17.1 million, or 7.2% of net sales, for 2002 compared to $5.1 million, or 2.2% of net sales, for 2001. On a segment basis, the operating income of our CEP segment increased $12.0 million to $15.9 million, or 7.9% of net sales, in 2002 compared to $3.9 million, or 2.0% of net sales, in 2001. This increase in operating income is attributable to the increase in gross profit and decrease in SG&A expenses and R&D expenses described above. The operating income of our LPT segment remained constant at $1.2 million in both 2002 and 2001.

Equity in Income of Affiliated Companies. Equity in income of affiliated companies was $10.7 million in 2002 compared to $1.9 million in 2001. The income in 2002 includes $8.6 million, which represents our share of the gain from the sale by Mate Fair of a portion of its interest in TCL Mobile, and $2.1 million for our proportional share of the net earnings of our 25% investment in Mate Fair for the five months ended May 31, 2002.

Other Income/(Expense), net. Other expense, net, during the year ended December 31, 2002 was $6.0 million. This amount included expenses of $5.2 million for our provision of legal contingencies related to the liquidation of Tele-Art Inc., $2.7 million of loss related to the creation of a minority interest in our J.I.C. Group subsidiary, including the release of unamortized goodwill, $1.4 million of legal and professional fees related to the J.I.C. minority interest transaction, $610,000 of finance charges related to the early repayment of a $12.9 million fixed term loan, $520,000 for release of unamortized goodwill of an affiliated company, Mate Fair, $307,000 of finance charges and $771,000 of miscellaneous expenses primarily related to non-operating legal fees. These expenses were partially offset by gains of $3.3 million related to the partial recovery of a judgment debt in the Tele-Art case, net of expenses, $917,000 of dividend income primarily from our indirect investment in TCL Corporation, $799,000 of interest income and $642,000 of realized gain from the disposal of marketable securities. The costs of defending the recently announced securities class action litigation could substantially increase our expenses in future periods and any adverse determination could be significant.

Interest Expense. Interest expenses increased to $790,000 for 2002 compared to $178,000 for 2001. The increase in interest expenses was the result of $15 million in long-term debt that we obtained in the fourth quarter of 2001 and $4.5 million obtained in the second quarter of 2002.

Income Taxes. Income tax expenses of $773,000 for 2002 compares to $227,000 for 2001. The increase was primarily the result of not receiving tax refunds for two of our PRC entities for taxes paid in previous years that we have normally been eligible to receive in the past.

Minority Interest. Minority interest decreased $66,000, or 28.7%, to $164,000 in 2002 from $230,000 in 2001. Minority interest in 2002 included $107,000 from the minority shareholders’ share of profits of BPC from January 1, 2002 through April 30, 2002, the date we sold BPC and $57,000 from the minority shareholders’ share of profits of J.I.C. Group from June 4, 2002, the date of listing on the Hong Kong Stock Exchange, through December 31, 2002. Minority interest in 2001 represented an entire year of the minority shareholder’s share of BPC’s profit.

Net Income. Net income increased by $11.0 million, or 121.4%, to $20.0 million or 8.5% of net sales, for 2002 compared to $9.0 million, or 3.9% of net sales, for 2001. This resulted in diluted earnings per share for 2002 of $0.57 ($0.57 basic) compared to $0.26 ($0.27 basic) for 2001. Net income for the CEP segment increased 230% to $20.2 million for 2002 compared to $6.1 million for 2001. The increase in CEP’s net income is the result of a higher gross profit margin, the increase in equity in income from affiliated companies, and decreased general and administrative expenses described above. Net income for the LPT segment decreased by $3.1 million or 106.6% to a loss of $191,000 compared to net income of $2.9 million for 2001. The net loss position in year 2002 for the LPT segment was the result of lower gross profit margin, and the release of unamortized goodwill as described above.

We have financed our growth and cash needs to date primarily from internally generated funds, proceeds from the sale of our strategic investments, sales of our stock and bank debt. We do not use off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities, as sources of liquidity. Our primary uses of cash have been to fund expansions and upgrades of our manufacturing facilities, to make strategic investments in potential customers and suppliers and to fund increases in inventory and accounts receivable resulting from increased sales.

We had positive net working capital of $96.8 million at December 31, 2003 compared to positive net working capital of $87.4 million at December 31, 2002. We believe that our cash flows from operations, our current cash balance and funds available under our working capital and credit facilities will be sufficient to meet our working capital needs and planned capital expenditures for the next 12 months.

Net cash provided by operating activities was $41.2 million in 2003. Cash provided by operating activities in 2003 was primarily attributable to net income of $43.8 million plus depreciation and amortization expense of $12.3 million, offset by the gain on disposal of a transformers operation, net of minority interests of $2.0 million and gain on the partial disposal of our JIC Group for $1.8 million. Our working capital related to operating activities net of the effect of the disposal of a subsidiary decreased, driven by an increase of $11.1 million in accounts receivables, $6.1 million in other receivables and prepaid expenses, $2.7 million in the amount due from a related party and $8.5 million in inventories, which was offset by increases in accounts payable of $18.0 million, and other payables and accrued expenses of $1.2 million.

Our inventories increased in 2003 as a result of our anticipation of increases in sales. Accounts receivable increased due to an increase in sales in the fourth quarter relative to sales in the prior year period. The increase in prepaid expenses and other receivables was mainly due to a $3.1 million increase in deposits for the acquisition of property, plant and equipment related to our business operation. Accounts payable increased due to increased inventory purchases. Accrued expenses increased due to the provision of an incentive bonus in this year.

Net cash provided by operating activities was $39.5 million in 2002. Cash provided by operating activities in 2002 was primarily attributable to net income of $20.0 million plus depreciation and amortization expense of $10.6 million, dividend income from affiliated companies of $10.5 million and the non-cash loss on the reverse merger transaction related to our JIC Group of $2.7 million, non-cash equity in income of affiliated companies of $10.7 million, release of unamortized goodwill of affiliated companies of $520,000, realized gain on marketable securities of $642,000 and non-cash shares redemption and dividend withheld in settlement of a receivable of $3.5 million. Our working capital related to operating activities net of the effect of the disposal of a subsidiary also decreased, driven by an increase of $17.0 million in accounts payable and accrued expenses and $10.1 million of proceeds from marketable securities, offset by increases in accounts receivable of $8.5 million and inventory of $7.6 million.

Our inventory increased in 2002 as a result of our anticipation of increases in sales. Accounts receivable increased due to increased sales in the fourth quarter relative to sales in the prior year period. The increase in accrued expenses was primarily related to a $5.2 million provision for legal contingencies. Accounts payable increased due to support for higher inventory levels. The proceeds from marketable securities relates to the disposal of our holdings in Deswell Industries, Inc. during 2002.

Net cash used in investing activities was $18.6 million in 2003. Cash used in investing activities primarily related to our $10.0 million and $0.4 million strategic investments in Alpha Star Investments Limited and iMagic Infomedia Technology Limited, respectively, and $5.3 million prepayment for long term investment in Stepmind, as well as capital expenditures of $17.1 million, offset by $2.6 million proceeds on disposal of property, plant and equipment, $2.4 million proceeds on disposal of transformers operation to a third party, $4.0 million proceeds on partial disposal of our J.I.C. Group, and $5.0 million proceeds on disposal of convertible notes of TCL International Holdings Ltd.

Net cash used in investing activities was $33.8 million in 2002. Cash used in investing activities primarily related to our $12.0 million strategic investment in TCL Corporation and $5.1 million in convertible notes of TCL International Holdings Ltd., as well as capital expenditures of $18.5 million, offset by proceeds of $1.7 million related to the disposal of our joint venture interest in BPC. Our capital expenditures in 2002 included a $12.3 million new STN LCD panel production line and $4.0 million for completion of the new factory expansion.

In the past three years, we have invested significant amounts of cash to expand our manufacturing capacity and to upgrade our equipment to produce increasingly complex products. We believe that we will continue to make significant cash investments in the future to broaden our manufacturing capabilities and increase our capacity. In this regard, we intend to spend approximately $40.0 million to construct and equip another factory consisting of approximately 250,000 square feet on land adjacent to our principal manufacturing facilities in Shenzhen, China, of which $1.2 million has already been spent in 2003.

Net cash used in financing activities was $43.3 million in 2003. Cash used in financing activities for 2003 primarily resulted from $37.8 million paid to shareholders as dividends and $14.0 million bank loans repayment offset by $8.5 million received from the exercise of options.

Net cash provided by financing activities was $18.1 million for 2002. Cash provided by financing activities for 2002 primarily resulted from net proceeds of $36.5 million received from the exercise of options and warrants and $4.5 million received from a four-year variable rate term loan, offset by $16.7 million paid to shareholders as dividends, $2.7 million for the repayment of bank loans and $3.5 million for the repurchase of our common shares pursuant to our share buy-back program.

Except as discussed above, there are no material transactions, arrangements and relationships with unconsolidated affiliated entities that are reasonably likely to affect liquidity.

For the years ended December 31, 2002 and 2003, the Company has made guarantees for debt, loans and credit facilities held by various wholly owned subsidiaries aggregating to a maximum guarantee of $62,616,000 and $49,756,000, respectively. The terms of the guarantees correspond with the terms of the underlying debt, loan and credit facility agreements.

In July 2003, we filed a registration statement on Form F-3 with the Securities and Exchange Commission relating to a proposed offering of 9,000,000 common shares, of which 6,000,000 common shares were to be offered by us and 3,000,000 common shares were to be offered by selling shareholders. We intended to use a portion of the net proceeds to construct and equip a new factory of approximately 250,000 square feet adjacent to our principal manufacturing facilities in Shenzhen, China. We intended to use the balance of the net proceeds for working capital and other general corporate purposes.

In September 2003, we withdrew the registration statement. Despite our capital expenditures proceeding as scheduled, we believe that our cash on hand, future cash generated from operation, together with other income and outstanding banking facilities, should be sufficient for both our long-term and short-term capital needs.

As of December 31, 2003, we had $61.8 million in cash and cash equivalents, consisting of cash and short-term deposits, compared to $82.5 million at December 31, 2002. Our short-term debt was $3.0 million and $15.0 million at December 31, 2003 and December 31, 2002, respectively.

At December 31, 2003, we had in place general banking facilities with two financial institutions aggregating $62.3 million. The maturity of these facilities is generally up to 90 days. These banking facilities are guaranteed by us and there is an undertaking not to pledge any assets to any other banks without the prior consent of our bankers. However, these covenants do not have any impact on our ability to undertake additional debt or equity financing. Interest rates are generally based on the banks’ reference lending rates. Our facilities permit us to obtain overdrafts, lines of credit for forward exchange contracts, letters of credit, import facilities, trust receipt financing, shipping guarantees and working capital. No significant commitment fees are required to be paid for the banking facilities. These facilities are subject to annual review and approval. As of December 31, 2003, we had utilized approximately $8.3 million under such general credit facilities and had available unused credit facilities of $54.0 million.

We had a seven-year term loan in October 2001 totaling $15.0 million at a fixed interest rate of 5.05% in the first four years and at a rate of 1% over the Singapore Interbank Money Market Offer Rate for the following three years. The loan was secured by a property with net book value of $11.4 million. At December 31, 2002, the bank loan had an outstanding balance of $12,860,000. On January 3, 2003, we repaid the entire outstanding balance due to the bank, resulting in a finance charge on early repayment of $610,000, which was expensed in 2002.

As of December 31, 2003, we had bank borrowing of $2.8 million, including the current portion of $1.1 million, compared to bank borrowing of $16.8 million, including the current portion of $14.0 million at December 31, 2002.

Our bank borrowing as of December 31, 2003 represents unsecured long-term bank borrowing of $4.5 million that we obtained in May 2002. This bank borrowing has a term of four years and bears interest of 1.5% over three-month LIBOR (with a cap at 7.5%), with principal repayments of $281,250 due on a quarterly basis.

A summary of our contractual obligations and commercial commitments as of December 31, 2003 is as follows:

There are no material restrictions (including foreign exchange controls) on the ability of our non-China subsidiaries to transfer funds to us in the form of cash dividends, loans, advances or product or material purchases. With respect to our China subsidiaries, with the exception of a requirement that 10% of profits be reserved for future developments, there are no restrictions on the payment of dividends and the removal of dividends from China once all taxes are paid and assessed and losses, if any, from previous years have been made good. In the event that dividends are paid by our China subsidiaries, such dividends will reduce the amount of reinvested profits and accordingly the refund of taxes paid will be reduced to the extent of tax applicable to profits not reinvested.

Inflation and deflation in China and Hong Kong has not had a material effect on our past business. During times of inflation, we have generally been able to increase the price of its products in order to keep pace with inflation.

There are no exchange control restrictions on payments of dividends, interest, or other payments to nonresident holders of our securities or on the conduct of our operations in Hong Kong and Macao, where the offices of some of our subsidiaries are located, or in the British Virgin Islands, where we are incorporated. Other jurisdictions in which we conduct operations may have various exchange controls. With respect to our China subsidiaries, with the exception of a requirement that 10% of profits be reserved for future developments, there are no restrictions on the payment of dividends and the removal of dividends from China once all taxes are paid and assessed and losses, if any, from previous years have been made good. We believe such restrictions will not have a material effect on our liquidity or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (Revised), “Consolidation of Variable Interest Entities”. FIN 46 requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities and results of the activities of the variable interest entity should be included in consolidated financial statements of the business enterprise. FIN 46 (Revised) applies immediately to variable interest entities created after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 (Revised) are effective beginning January 1, 2004. The adoption of FIN 46 (Revised) is not expected to have a material impact on the Company’s financial position, results of operation, or cash flows.

In April 2003, the FASB issued SFAS No. 149, “Amendments of Statement 133 on Derivative Instruments and Hedging Activities”, which establishes accounting and reporting standards for derivative instruments, including derivatives embedded in other contracts and hedging activities. SFAS No. 149 amends SFAS No. 133 for decisions made by the FASB as part of its Derivatives Implementation Group process. SFAS No. 149 also amends SFAS No. 133 to incorporate clarifications of the definition of a derivative. SFAS No. 149 is effective for contracts entered into or modified and hedging relationships designated after June 30, 2003. The provisions of SFAS No. 149 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for the third quarter of 2003. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

We sell a majority of our products in U.S. dollars and pay for our material components in Japanese yen, U.S. dollars, Hong Kong dollars, and Chinese renminbi. We pay labor costs and overhead expenses in Chinese renminbi, the currency of China (the basic unit of which is the yuan), Hong Kong dollars and Japanese yen. The exchange rate of the Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government since 1983 at approximately HK$7.80 to US$1.00, through the currency issuing banks in Hong Kong and accordingly has not in the past presented a currency exchange risk. This could change in the future if those in Hong Kong arguing for a floating currency system prevail in the ongoing debate over whether to continue to peg the Hong Kong dollar to the US dollar.

We believe our most significant foreign exchange risk results from material purchases made in Japanese yen. Approximately 16%, 8% and 16% of our material costs have been in Japanese yen during the years ended December 31, 2001, 2002, and 2003. Sales made in Japanese yen account for less than 11% of sales for the years ended December 31, 2001, 2002 and 2003. Our business and operating results could be materially and adversely affected in the event of a severe increase in the value of the Japanese yen to the US dollar at a time when our sales made in Japanese yen are insufficient to cover our material purchases in Japanese yen.

Beginning on December 1, 1996, the Chinese renminbi became fully convertible under the current accounts. There are no restrictions on trade-related foreign exchange receipts and disbursements in China. Capital account foreign exchange receipts and disbursements are subject to control, and organizations in China are restricted in foreign currency transactions that must take place through designated banks.

We may elect to hedge our currency exchange risk when we judge such action may be required. In an attempt to lower the costs of expenditures in foreign currencies, we will periodically enter into forward contracts or option contracts to buy or sell foreign currency(ies) against the U.S. dollar through one of our banks. As a result, we may suffer losses resulting from the fluctuation between the buy forward exchange rate and the sell forward exchange rate, or from the price of the option premium.

At December 31, 2003 we held no option or future contracts and during the year we did not purchase or sell any commodity or currency options. We are continuing to review our hedging strategy and there can be no assurance that we will not suffer losses in the future as a result of hedging activities.

As of December 31, 2003 we had no open forward contracts or option contracts to purchase or sell foreign currencies.

Cash on hand at December 31, 2003 of $61,827,000 was held in the following currencies.

Our interest expenses and income are sensitive to changes in interest rates. All of our cash reserves and short-term borrowings are subject to interest rate changes. Cash on hand of $61.8 million as of December 31, 2003 was invested in short-term interest bearing investments having a maturity of three months or less. As such, interest income will fluctuate with changes in short term interest rates. In 2003, we had $788,000 in interest income and $121,000 in interest expense.

As of December 31, 2003, we had utilized approximately $8.3 million of our credit facilities, including $1,879,000 in short-term notes payable resulting in minimal interest rate risk.

As of December 31, 2003, we had $2.8 million in long-term bank borrowing including the current portion of $1.1 million.

Our long term bank borrowing was obtained in May 2002, has a term of four years and bear interest at a rate of 1.5% over three months LIBOR repayable in 16 quarterly installments of $281,250 beginning August 2002. The initial amount of this term loan was $4.5 million and the outstanding balance as of December 31, 2003 was $2.8 million.

We obtained a seven-year $15.0 million term loan in the fourth quarter of 2001 with a fixed rate of interest of 5.05% for the first four years and 1% over the SIBOR rate for the last three years. The term loan had an outstanding balance of $12.9 million as of December 31, 2002. We repaid this term loan on January 3, 2003.

The potential effect of a hypothetical 1% increase in interest rates for 2003 indebtedness would be insignificant to our cash flows and net income.

Our current directors and senior management and their ages as of February 29, 2004 are as follows:

Tadao Murakami. Mr. Murakami has served Nam Tai in various executive capacities since 1984. He became our Secretary and a Director in December 1989. Since June 1989, he has been employed as the President of our Hong Kong subsidiary. In July 1994, Mr. Murakami succeeded Mr. Koo as President and, in June 1995, became our Chief Executive Officer until September 1998. Mr. Murakami assumed the position of Vice-Chairman in January 1996, and Chairman from September 1998 until March 1, 2001 and again starting February 1, 2002. He is in charge of our manufacturing and marketing operations. Mr. Murakami studied technology in Japan Electronic Technology College in 1964.

Joseph Li. Mr. Li, co-founder of the J.I.C. Group, has served in various senior executive positions since we acquired the J.I.C. Group in October 2000. Mr. Li assumed the position of Chief Executive Officer in May 2002. Mr. Li has directed J.I.C. Group’s business development since founding J.I.C. Group in 1980. Mr. Li resigned as a member of the Board of Directors in July 2003.

M.K. Koo. Mr. Koo has served as Chairman of the Board of Nam Tai and its predecessor companies from inception until September 1998. He then became our Senior Executive Officer, responsible for corporate strategy, finance and administration and also serves as the Company’s Chief Financial Officer. In addition to his current roles as Chief Financial Officer and a director, he remains responsible for mergers and acquisitions, and administrative matters. Mr. Koo received his Bachelor’s of Laws degree from National Taiwan University in 1970.

Guy Bindels. Mr. Bindels took up the post of Research and Development Director of Nam Tai Group in March 2003. He is responsible for the research and development activities of the group. He has worked with the research and development unit of Alcatel for 19 years before joining Nam Tai. He obtained a Master’s Degree in Electronics Engineering in June 1983 from the Government Department for National Education in France.

George Shih. Mr. Shih took up the post of Chief Operating Officer of Nam Tai Group in June 2003. He is responsible for ensuring the smooth operation of manufacturing services of the group. Before joining Nam Tai, he had 19 years of experience in electronics manufacturing services in various management roles with Solectron Corporation. Mr. Shih has obtained a Bachelor’s Degree in Materials Science and Engineering from National Tsing Hua University, Taiwan in 1978. In 1980, he also obtained a Master’s Degree in Industrial Engineering from University of Texas, USA. He further obtained a Master’s Degree in Electrical and Computer Engineering from University of Texas, USA in 1983.

Karene Wong. Ms. Wong joined us in March 1989 and was promoted to Managing Director of our subsidiary Nam Tai Electronic & Electrical Products Ltd. on January 1, 2001 and in September 2003, became the Chairman of the Board of Namtai Electronic (Shenzhen) Co. Ltd.. Before joining us, Ms. Wong was Assistant to the Sales Manager at Wright Joint & Co. Ltd. Ms. Wong is responsible for our sales and marketing operations and supporting employee recruitment and training.

Patinda Lei. Ms. Lei assumed the position of Managing Director of our subsidiary Nam Tai Telecom (Hong Kong) Company Limited since June 2002 and in September 2003, became the Chairman of the Board of Zastron Electronic (Shenzhen) Co. Ltd. Ms. Lei has worked with Nam Tai Group for eight years specializing in promoting, generating and monitoring sales revenues on various high-end electronics products. Ms. Lei graduated from the Science University of Tokyo in 1990, majoring in Industrial Engineering.

Lee Kwok Wai, Patrick. Mr. Lee took up the post of Managing Director of Zastron Electronic (Shenzhen) Co. Ltd. in February 2004. He is responsible for managing the overall operation of Zastron Electronic (Shenzhen) Co. Ltd. Before joining Zastron Electronic (Shenzhen) Co. Ltd., he has worked for Nokia for 10 years covering engineering, manufacturing operation and general management. His first career after graduation was of Technophone where he started his engineering career. He had worked with Technophone for four years before it was acquired by Nokia. He obtained his Bachelor’s Degree in Electrical and Electronic Engineering from University of Surrey, England in 1989 and a Master’s Degree in Advanced Manufacturing Systems from Brunel University, England in 1997.

L.P. Wang. Mr. Wang assumed the position of Managing Director of our subsidiary Zastron Electronic (Shenzhen) Co. Ltd. from August 2002 to February 2004. Mr. Wang has since resumed the position of Assistant Managing Director of Zastron Electronic (Shenzhen) Co. Ltd. He has more than 23 years of experience in the electronics industry. He joined Nam Tai in 1997 as production engineering manager and was promoted to vice managing director in 2002. He was further promoted to Managing Director of Zastron Electronics (Shenzhen) Co. Ltd. in August of the same year. Prior to joining Nam Tai, Mr. Wang held several management positions in various companies in Taiwan and China. Mr. Wang graduated from Chinese Military Academy in Taiwan.

Chen Yee, William. Mr. Chen assumed the post of Managing Director of Nam Tai Electronic (Shenzhen) Co. Ltd. in September 2003. Before joining Nam Tai, he had 15 years of experience in plant and production management with Jabil Circuits (China) Limited, Dongguan Nokia Mobile Phones Limited, China and Marine Engine Rebuilders, Inc., Philippines. He obtained a Bachelor’s Degree in Industrial Psychology from Far Eastern University in Philippines in 1982 and a Master’s Degree in Business Administration from University of Southern Queensland, Australia in 1999.

Kazuhiro Asano. Mr. Asano assumed the position of Managing Director of our subsidiary Namtek Software Development Co. Ltd. in June 2002. Mr. Asano joined Nam Tai in 1995 as a general manager and was promoted to Managing Director of Shenzhen Namtek Company Limited in 1997. In his current position, he is responsible for the overall corporate management and business development for our software business. Prior to joining Nam Tai, Mr. Asano was the general manager of Seiko Instruments Inc., a private Japanese consumer electronics company, and was responsible for its electronic dictionary division. Mr. Asano graduated from Tsuyama Government Industrial College, Japan with a degree in electrical engineering in 1972.

Seitaro Furukawa. Mr. Furukawa assumed the position of Chairman of the Board and Managing Director of our subsidiary J.I.C. Technology Company Limited in March 2002. He has extensive experience in international operational management. He held

management positions in the Japan offices of General Electric, Admiral International Company and Thompson CSF. After joining the J.I.C. Group in 1992 as a Managing Director, he assumed responsibility for production management and monitoring daily operations of the LCD plant in Shenzhen. Mr. Furukawa received his Bachelor’s of English Literature degree from Aoyama University in 1965 and his Bachelor’s of Technology and Metallurgy degree from Kogakuin University in 1967.

Ivan Chui. Mr. Chui is the co-founder and Managing Director of our subsidiary J.I.C. Enterprises (Hong Kong) Ltd. Mr. Chui has directed J.I.C. Group’s marketing activities since founding J.I.C. Group in 1980.

Charles Chu. Mr. Chu originally served as a Director from November 1987 to September 1989. He was reappointed a Director in November 1992. Since July 1988, Mr. Chu has been engaged in the private practice of law in Hong Kong. Mr. Chu serves on our audit committee. Mr. Chu received his Bachelor’s of Laws degree and Post-Graduate Certificate of Laws from the University of Hong Kong in 1980 and 1981, respectively.

Peter R. Kellogg. Mr. Kellogg was elected to our Board of Directors in June 2000. Mr. Kellogg was a Senior Managing Director of Spear, Leeds & Kellogg, a registered broker-dealer in the United States and a specialist firm on the New York Stock Exchange until the firm merged with Goldman Sachs in 2000 when Mr. Kellogg became a Senior Advisory Director. Mr. Kellogg served on our audit committee until July 8, 2003. Mr. Kellogg is also a member of the Board of the Ziegler Companies.

Stephen Seung. Mr. Seung was appointed a Director of Nam Tai in 1995. Mr. Seung is an attorney and a C.P.A. and has been engaged in the private practice of law in New York since 1981. Mr. Seung received a B.S. degree in Engineering from the University of Minnesota in 1969, an M.S. degree in Engineering from the University of California at Berkeley in 1971, an MBA degree from New York University in 1973 and a J.D. degree from New York Law School in 1979. Mr. Seung acts as our authorized agent in the United States and serves on our audit committee until October 2003. With effect from October 15, 2003, Mr. Seung also assumed the role of Secretary of the Company.

Dr. Wing Yan (William) Lo. Dr. Lo was elected to our Board of Directors at our annual meeting of shareholders on July 8, 2003. Dr. Lo is currently the Executive Director and Vice President of China Unicom Ltd., a telecommunications operator in China that is listed on both the Hong Kong and New York Stock Exchanges. Dr. Lo is currently also the non-executive Chairman of WPP Greater China, a division of WPP Group plc., a communications services group having its shares listed on both the London Stock Exchange and the Nasdaq National Market. From 1998 to 1999, Dr. Lo was the chief executive appointment at Citibank. Dr. Lo was the founding Managing Director of Hongkong Telecom IMS Ltd. Dr. Lo holds an M. Phil. degree in molecular pharmacology and a Ph.D. degree in genetic engineering, both from Cambridge University, England. He is also member of the Board of the Hong Kong Applied Science and Technology Research Institute and the Hong Kong Jockey Club Institute of Chinese Exchange. In 1998, Dr. Lo was appointed as a Justice of the Peace of Hong Kong. Dr. Lo serves on our audit committee.

Mark Waslen. Mr. Waslen was elected to our Board of Directors in July 2003 and currently serves on the audit committee acting as Chairman. Previously, Mr. Waslen was employed with Nam Tai during the periods 1990 to 1995 and June 1998 to October 1999 in various capacities including Financial Controller, Secretary and Treasurer. Mr. Waslen has been employed with various accounting firms including Peat Marwick Thorne, Deloitte Touche Tohmatsu and is currently employed with BME + Partners Chartered Accountants. Mr. Waslen is a C.F.A., C.A. and a C.P.A. and received a Bachelor’s of Commerce (Accounting Major) from the University of Saskatchewan in 1982.

No family relationship exists among any of the named directors, executive officers or key employees. No arrangement or understanding exists between any of our directors or executive officers and any other person pursuant to which any director or executive officer was elected as a director or executive officer of Nam Tai. Directors are elected each year at our annual meeting of shareholders and serve until their successors take office or until their death, resignation or removal. Executive officers serve at the pleasure of the Board of Directors.

The aggregate compensation we and our subsidiaries paid during the year ended December 31, 2003 to all directors and officers as a group for services in all capacities was approximately $2.74 million, including compensation in the form of housing in Hong Kong for our Chairman of the Board, our Chief Executive Officer and President, and our Chief Financial Officer.

Directors who are not employees of Nam Tai nor any of its subsidiaries are paid $3,000 per month for services as a director, $750 per meeting attended in person and $500 per meeting attended by telephone. In addition they are reimbursed for all reasonable expenses incurred in connection with their services as a director.

Members of our key staff are eligible for annual cash bonuses based on their performance and that of the division in which they are assigned for the relevant period. Key staff members of a division will be entitled to share up to 15% of the operating income from that division during the year. Our executive officers in charge of the business unit recommend the participating staff members and the amount, if any, to be allocated from the division’s profit pool to an eligible individual.

According to the relevant laws and regulations in the PRC, we are required to contribute 8% to 9% of the stipulated salary set by the local government of Shenzhen, the PRC, to the retirement benefit schemes to fund the retirement benefits of our employees. Our principal obligation with respect to these retirement benefit schemes is to make the required contributions under the scheme. No forfeited contributions may be used by us to reduce the existing level of contributions.

Prior to December 2000, we maintained staff contributory retirement plans (defined contribution pension plans), which covered certain of our employees in Hong Kong. From December 2000 onwards, we terminated our existing staff contributory retirement plans and enrolled all of our eligible employees in Hong Kong into a Mandatory Provident Fund, or MPF, program. In August 2003, we set up our PRC headquarters, Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited, in Macao, China. We enrolled all of our eligible employees in Macao into a retirement benefit scheme, or RBS. Both the MPF and RBS are available to all employees aged 18 to 64 and with at least 60 days of service under the employment of Nam Tai in Hong Kong and Macao. Contributions are made by us at 5% based on the staff’s relevant income. The maximum relevant income for contribution purpose per employee is $3 per month. Staff members are entitled to 100% of the Company’s contributions together with accrued returns irrespective of their length of service with us, but the benefits are required by law to be preserved until the retirement age of 65 for employees in Hong Kong while the benefit can be withdrawn by the employees in Macao at the end of employment contracts.

The cost of our contribution to the staff retirement plans in Hong Kong, Macao and PRC amounted to $561,000, $617,000 and $982,000 for the years ended December 31, 2001, 2002 and 2003, respectively.

In August 1990, we fixed compensation for loss of office at $500,000 for Mr. M.K. Koo and $300,000 for Mr. Tadao Murakami. We also fixed the age of retirement for directors, including Messrs. Koo and Murakami, at age 65 years. We have accrued the entire $800,000 on account of this compensation for loss of office.

All directors hold office until our next annual meeting of shareholders, which generally is in June of each calendar year, or until their respective successors are duly elected and qualified or their positions are earlier vacated by resignation or otherwise. All executive officers are appointed by the Board and serve at the pleasure of the Board. There are no director service contracts providing for benefits upon termination of employment. Our Board of Directors has determined, effective December 31, 2002, to grant future options under our stock option plans only to our outside, non-employee directors.

Nam Tai has established an audit committee whose primary duties consist of reviewing, acting on and reporting to the Board of Directors with respect to various auditing and accounting matters, including the selection of auditors, the scope of the annual audits and the fees to be paid to the auditors and the performance of the independent auditors and accounting practices. The audit committee currently consists of three independent non-executive directors, Messrs. Waslen, Chu and Lo. Mr. Waslen, who was elected by the full Board of Directors, currently acts as the Chairman of the Audit Committee

Meetings of the audit committee, as chaired by the Chairman of Audit Committee, shall be held at least once per quarter with external and internal auditors.

The audit committee shall assist the Board of Directors in fulfilling is “oversight and monitoring” responsibilities.

	•		review the financial reports and other financial information provided by the Company to any governmental body or the public;

	•		review the Company’s system of internal controls regarding financial, accounting, legal compliance and ethics that management and the Board have established;

	•		review the Company’s auditing, accounting and financial reporting processes generally;

	•		review and approve all related-party transactions on an on-going basis for the review of potential conflict of interest situations where appropriate;

	•		review the independence, qualification and performance of independent auditor and internal audit function;

	•		prepare an audit committee report as required by the SEC to be included in the company’s annual proxy statement;

	•		review and reassess the adequacy of the Audit Committee Charter on an annual basis;

	•		authorize investigations into any matters within the Committee’s scope of responsibilities; and

	•		perform such other functions as assigned by law or the Board.

The Compensation Committee of the Board of Directors determines the salaries and incentive compensation of the officers of Nam Tai (other than Messrs. Murakami and Koo, whose salaries are decided each year by our Board’s outside directors), provides recommendations for the salaries and incentive compensation of all employees and consultants and administers various compensation, stock and benefit plans of Nam Tai. The Compensation Committee consists of Messrs. Murakami and Koo.

The Investment Committee of the Board of Directors may make strategic investments in companies of amounts less than $5 million with approval of other members of the Board. The Investment Committee consists of Messrs. Murakami and Koo.

The following table provides information concerning options owned by our current Directors and Senior Management at March 1, 2004. All share numbers subject to options and exercise price per share have been adjusted to give effect to a three-for-one stock split effective on June 30, 2003 and a ten-for-one stock dividend effective on November 7, 2003.

Please refer to page 52 of this Report, which sets forth the shareholding information of each of the director and senior management of the Company.

Our 1993 and 2001 stock option plans provide for the grant of stock options to directors, employees, (including officers) and consultants. The terms and conditions of individual grants may vary subject to the following: (i) the exercise price of incentive stock options may not normally be less than market value on the date of grant; (ii) the term of incentive stock options may not exceed ten years from the date of grant; (iii) the exercise price of an option cannot be altered once granted; and (iv) every non-executive director who is not our employee shall, on an annual basis upon their election to the Board of Director at the Annual General Meeting, be automatically granted 16,500 options, with an exercise price equal to 100% of the fair market value of the common shares on the date of grant. At March 1, 2004, options to purchase 108,550 shares were outstanding under our Stock Options Plans and 1,904,869 shares were available for future grant under them.

Our Board of Directors has determined, effective December 31, 2002, to grant future options under our stock option plans only to our non-employee directors. Thereafter, incentive compensation paid to management and other key employees was in the form of either cash bonuses or stock options.

As of December 31, 2003, we employed 4,476 persons on a full-time basis, of which 4,385 were employed in China, 62 were employed in Hong Kong, 24 were employed in Macao, 4 were employed in Japan and 1 was employed in the British Virgin Islands. Of these employees, approximately 3,415 were engaged in manufacturing, approximately 1,061 were engaged in administrative, research and development, quality control, engineering and marketing positions, and the balance in supporting jobs such as security, janitorial, food and medical services.

As of December 31, 2002, we employed 4,246 persons on a full-time basis, of which 4,173 were employed in China and 73 were employed in Hong Kong. Of these employees, approximately 2,915 were engaged in manufacturing, approximately 1,331 were engaged in administrative, research and development, quality control, engineering and marketing positions, and the balance in supporting jobs such as security, janitorial, food and medical services.

As of December 31, 2001, we employed 3,947 persons on a full-time basis, of which 3,866 were employed in China and 81 were employed in Hong Kong. Of these employees, approximately 2,728 were engaged in manufacturing, approximately 1,096 were engaged in administrative, research and development, quality control, engineering and marketing positions, and the balance in supporting jobs such as security, janitorial, food and medical services.

We are not a party to any material labor contracts. The nature of our arrangement with our manufacturing employees is such that we can increase or reduce staffing levels without significant difficulty, cost or penalty. Although we have experienced no significant labor stoppages and believe relations with our employees are satisfactory, this situation may not continue in the future, and any labor difficulties could lead to increased costs and/or interruptions in our production.

It is the practice of one of our subsidiaries to enter into a collective agreement with its trade union. The collective agreement usually sets out the minimum standard for the wages, working hours and other benefits of the workers. The current collective agreement between our subsidiary and its trade union expires on April 17, 2004 and will be renewed.

The following table sets forth certain information known to us regarding the beneficial ownership of our common shares as of March 1, 2004, by:

•

each person (or group within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) known by us to own beneficially 5% or more of our common shares; and

We are not directly owned or controlled by another corporation or by any foreign government, natural or legal person.

All of the holders of our common shares have equal voting rights with respect to the number of common shares held. As of March 1, 2004, there were approximately 808 holders of record of our common shares. According to information supplied by our transfer agent, 774 holders of record with addresses in the United States held 30,822,026 of our outstanding common shares.

The following table reflects the percentage ownership of our common shares beneficially owned by our major shareholders during the past three years:

There are no arrangements that may, at a subsequent date, result in a change of control of the Company.

In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star Investments Ltd., the ultimate parent of JCT. JCT is engaged in the design, development and marketing of wireless communication terminals and wireless application software. In connection with our investment, Mr. Koo has been appointed as a director to Alpha Star Investment Ltd’s Board of Directors. We are manufacturing wireless communication terminals and related modules for JCT. As part of our investment, Alpha Star Investment Ltd agreed to have us manufacture the RF modules for at least 50 percent of the orders it, or any of its subsidiaries, receives for RF modules provided we perform such manufacturing services at a price comparable to the market. In March 2003, we agreed to support JCT in the production of 1 million cellular phones by providing assembling services and support for the manufacturing of LCD modules and RF modules. As of December 31, 2003, we were owed $2.7 million from JCT. For the year ended December 31, 2003, we recognized net sales of $20.8 million to JCT and purchased raw materials of approximately $5.5 million from JCT and its related companies.

On February 16, 2004, by unanimous consent following resolutions without meeting, the Board of Directors adopted a resolution for the sale of a residential property located in Hong Kong by a wholly owned subsidiary of the Company, Nam Tai Group Management Limited, to Mr. Tadao Murakami, Chairman of the Board of Directors, for consideration of approximately $1.8 million, which is similar to the original acquired cost and appraised market value of the property as of January 31, 2004. The agreement for the sale of the property was entered into between Nam Tai Group Management Limited and Mr. Tadao Murakami on March 10, 2004.

Our Consolidated Financial Statements are set forth under Item 18. Financial Statements. From year end dated December 31, 2003 to our reporting date of March 5, 2004 there has been no significant changes on our consolidated Financial Statements, except subsequent events as shown under the Financial Statement.

In May of 2002, upon consideration and to reduce our professional fees, our Board of Directors, including our Audit Committee, recommended that HLB Hodgson Impey Cheng replace Deloitte Touche Tohmatsu as our independent auditors. This change was included in our proxy statement and approved by our shareholders at our annual meeting on June 14, 2002. Deloitte Touche Tohmatsu did not resign or refuse to stand for re-election, and none of Deloitte Touche Tohmatsu’s reports on the financial statements for either of the two years prior to the change and included in this Report contained an adverse opinion, disclaimer, modification or qualification.

In November 2002, HLB advised us that they could not meet our audit requirements for the agreed fees and on a cost-effective basis because the increasingly complex regulatory guidelines for the auditing of public companies would require them to perform a significant portion of the final audit work with personnel from a U.S. affiliate. HLB submitted their resignation accordingly. There were no disagreements with HLB on any matter or accounting principle, practice, financial statement disclosure, or auditing scope or procedure.

In December 2002, in contemplation of our intention to list on the NYSE, we sought a replacement firm with a strong U.S. and Asian presence and an ability to handle our audit requirements. Accordingly, our Board of Directors appointed Grant Thornton as our independent public accountants based on Grant Thornton’s ranking among accounting firms in the U.S. and our Board’s belief that Grant Thornton would be acceptable to our shareholders. The appointment of Grant Thornton was accepted by our shareholders at our annual meeting held on July 8, 2003. Accordingly, Grant Thornton issued the audited account for 2002.

In August 2003, we set up the PRC’s headquarters in Macao, China, due to our continuous increase in investment in PRC. Since Grant Thornton does not have an office in Macao and does not have a licence to handle Macao statutory tax filings, Grant Thornton tendered its resignation as our auditors. Deloitte Touche Tohmatsu, who had been our auditors from 1998-2001, was hired to audit for both 2002 and 2003. Deloitte Touche Tohmatsu has been appointed as our auditors as of October 24, 2003. Grant Thornton will, however, continue to provide tax advisory services to us, other than with respect to Macao.

We are not a party to any legal proceedings other than routine litigation incidental to our business and there are no material legal proceedings pending with respect to our property, other than as described below.

In June 1997, we filed a petition in the British Virgin Islands for the winding up of Tele-Art, Inc. on account of an unpaid judgment debt owed to us. The High Court of Justice granted an order to wind up Tele-Art, Inc. in July 1998 and the Eastern Caribbean Court of Appeal upheld the decision on January 25, 1999. On January 22, 1999, pursuant to our Articles of Association, we redeemed and cancelled 415,500 (Note 1) shares of Nam Tai registered in the name of Tele-Art, Inc. at a price of $3.73 per share to offset substantially all of the judgment debt of $799,000 plus interest and legal costs totaling approximately $1.7 million, including dividends that we had withheld and credited against the judgment debt.

Following the completion of the redemption, we received notice that the liquidator had obtained an ex-parte injunction preventing us from redeeming Nam Tai shares beneficially owned by Tele-Art, Inc. On February 4, 1999, the liquidator of Tele-Art, Inc. filed a further summons in the British Virgin Islands on its behalf seeking, among other matters:

	•		A declaration as to the respective priorities of the debts of Tele-Art, Inc. to the Bank of China, us, and other creditors and their respective rights to have their debts discharged out of the proceeds of the Tele-Art, Inc.’s Nam Tai shares;

	•		An order setting aside the redemption of 415,500 (Note 1) shares, and ordering delivery of all shares in our possession or control of to the liquidator; and

	•		Payment of all dividends in respect of Tele-Art, Inc.’s Nam Tai shares.

On March 26, 2001, we filed a summons seeking to remove the liquidator for failing to act diligently in the performance of his duties and for knowingly misleading the court. On September 3, 2002, the liquidator submitted a letter of resignation prior to the scheduled removal hearing. A new liquidator was appointed by the BVI court on July 11, 2003.

On July 5, 2002, upon our application, the court ordered the removal of the liquidator’s ex-parte injunction and ordered an inquiry into damages. On August 9, 2002, the court delivered a decision awarding us a judgment against Tele-Art, Inc. for approximately $34.0 million. On August 12, 2002, we redeemed and cancelled, pursuant to its Articles of Association, the remaining 509,181 (Note 2) shares beneficially owned by Tele-Art, Inc. at a price of $6.14 per share. Including the dividends which we had withheld and credited against the judgment, this offset a further $3.5 million, approximately, in judgment debts owed to us by Tele-Art, Inc. We recorded the $3.3 million redemption net of expenses as other income in 2002.

On January 21, 2003, judgment was delivered on the liquidators’ February 4, 1999 summons declaring that the redemption and set off of dividends on the 415,500 (Note 1) shares be set aside and that all Tele-Art Inc. property withheld by us be delivered to Tele-Art, Inc. in liquidation. The orders granted in the judgment were substantially different from the relief sought in the February 4, 1999 application. On February 4, 2003, we filed an application for a stay of execution and leave to appeal the decision listing eight grounds of appeal, which was granted on June 23, 2003. The case was heard on January 12, 2004 and the judgment was reserved.

Our legal representatives have advised us that we have real prospects of success on appeal against the January 21, 2003 decision and we plan to vigorously fight for such an outcome. However, due to the uncertainty of the final outcome of the litigation as a result of the January 21, 2003 judgment and in accordance with SFAS No. 5, “Accounting for Contingencies”, we have recorded a provision for $5.2 million as a component of accrued expenses pending a final determination of this matter by the courts as of December 31, 2002, represented the then best estimate of the net monetary expense we would incur if our appeal is unsuccessful and the two judgment debts in the total amount of $38.0 million (including interest, costs, and related expenses) is determined as having the lowest priorities in recovering from the estate of Tele-Art Inc. As of November 7, 2003, apart from Nam Tai, a total of four other creditors of Tele-Art, Inc., including Bank of China, had submitted their proof of debt to the liquidator for the total claim amount of approximately $3.4 million. Together with the outstanding legal charge as of December 31, 2003, the total potential future obligation to us would only be approximately $3.9 million. The 2002 provision for $5.2 million had been reduced to $3.9 million in the fourth quarter of 2003. If our appeal is successful and all legal matters related to Tele Art, Inc. are finalized, including the final determination of other creditors’ position, then the remaining portion of $3.9 million provision consequently will also be reversed into income in the related period.

If our appeal is not successful, and the 1,017,149 (adjusted for ten-for-one stock dividend) share redemption is set aside, we believe that these shares would be sold by Tele-Art, Inc.’s liquidator in the open market at the market price prevailing at the time of sale. For example, if these shares had been sold at the March 1, 2004 closing price of $28.09 per share, the proceeds the liquidator would have realized before commissions, plus withheld dividends of $518,000, would have been approximately $29.1 million for the estate of Tele-Art, Inc. (in liquidation). Furthermore, according to the information provided by existing liquidator as of November 7, 2003, the estimated liabilities for all other unsecured creditors are approximately $353,000. The Bank of China is claiming to be a secured creditor in the amount of approximately $2.7 million, and the January 21, 2003 judgment found that the Bank of China is secured and we are unsecured. We dispute that finding, and among other matters, have argued that the proof of debt of Bank of China was incomplete and invalid. The former liquidator is claiming to have incurred approximately $383,000 in costs for work as the liquidator. Accordingly, if we are not successful on our appeal of the January 21, 2003 judgment, we will seek to recover our $38.0 million in judgment debts from the estate of Tele-Art, Inc. Accordingly, any amount recovered from the state of Tele-Art Inc. in settlement of the claimed judgment debt would be recognized as other income.

However, there is no assurance that we may realize the entire amount of our judgment debts as Tele-Art Inc. is in liquidation. The actual amount of the recovery, if any, is uncertain, and is dependent on a number of factors including the value of our shares when sold in the market, and the final determination of other creditors’ positions. We plan to continue to pursue vigorously all legal alternatives available to seek to recover the maximum amount of the outstanding debt from Tele-Art, Inc. (in liquidation) as well as to pursue other parties that may have assisted in any transfers of the assets from Tele-Art, Inc. We may incur substantial additional costs in pursuing our recovery and such costs may not be recoverable.

1.		Subsequent to November 7, 2003, the number of shares was adjusted to 457,050 to reflect the ten-for-one stock dividend.

2.		Subsequent to November 7, 2003, the number of shares was adjusted to 560,099 to reflect the ten-for-one stock dividend.

Approximate percentages of net sales to customers by geographic area based upon location of product delivery are set forth below for the periods indicated:

We have paid an annual dividend for the last ten consecutive years. On February 6, 2004, we announced that we were increasing our regular annual dividend to $0.48 per share to be declared and paid quarterly commencing with the first quarter 2004 dividend of $0.12 per share. The following table sets forth the total cash dividends and dividends per share we have declared for each of the five years in the period ended December 31, 2003, adjusted to give effect to a three-for-one stock split effective on June 30, 2003.

It is our general policy to determine the actual annual amount of future dividends, if any, based upon our growth during the preceding year. Future dividends, if any, will be in the form of cash or stock or a combination of both. We may not be able to pay dividends in the future or may decide not to declare them in any event. We will determine the amounts of the dividends when they are declared and even if dividends are declared in the future we may not continue them in any future period.

	•		In 2002, primarily as a result of a realized gain we made from our sale of approximately one-third of our direct investment in Huizhou TCL Mobile Communication Company Ltd.; and

	•		In 2003, in celebration of our fifteenth anniversary since our listing and IPO in 1988, our fifteenth consecutive year of profitability, and the transfer of our shares from the NASDAQ National Market to the NYSE in January 2003.

Our common shares are traded in the United States on the NYSE. On January 23, 2003, our common shares were listed on the NYSE under the symbol “NTE.” Prior to that, our common shares were quoted on the Nasdaq National Market under the symbol “NTAI.”

The following table sets forth the high and low closing sale prices for our common shares for the quarters in the three-year period ended December 31, 2003, adjusted to give effect to a three-for-one stock split effective on June 30, 2003:

The following table sets forth the high and low closing sale prices for each of the last five years ended December 31, adjusted to give effect to a three-for-one stock split effective on June 30, 2003:

The following table sets forth the high and low closing sale prices during each of the most recent six months:

On March 9, 2004, the last reported sale price of our common shares on the NYSE was $25.17 per share. As of March 1, 2004, there were 808 holders of record of our common shares.

Our authorized capital consists of 200,000,000 common shares, $0.01 par value per share. On June 20, 2003, we announced a three-for-one stock split effective on June 30, 2003 and a ten-for-one stock dividend effective November 7, 2003. As of March 1, 2004, 41,231,272 common shares were outstanding.

Holders of our common shares are entitled to one vote for each whole share on all matters to be voted upon by shareholders, including the election of directors. Holders of our common shares do not have cumulative voting rights in the election of directors. All of our common shares are equal to each other with respect to liquidation and dividend rights. Holders of our common shares are entitled to receive dividends if and when declared by our Board of Directors out of funds legally available under British Virgin Islands law. In the event of our liquidation, all assets available for distribution to the holders of our common shares are distributable among them according to their respective holdings. Holders of our common shares have no preemptive rights to purchase any additional, unissued common shares. All of our outstanding common shares are, and the newly issued common shares we are offering pursuant to this prospectus, will be when issued and paid for, duly authorized, validly issued and nonassessable. All of our outstanding common shares are, and the newly issued common shares we are offering pursuant to this prospectus, will be, registered rather than bearer shares.

Pursuant to our Memorandum and Articles of Association and pursuant to the laws of the British Virgin Islands, our Board of Directors without shareholder approval may amend our Memorandum and Articles of Association. This includes amendments to increase or reduce our authorized capital stock. Our ability to amend our Memorandum and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in control of Nam Tai, including a tender offer to purchase our common shares at a premium over the then current market price.

We have never had any class of stock outstanding other than our common shares nor have we ever changed the voting rights with respect to our common shares.

Our registered office is at 3rd floor 116 Main Street, Road Town, Tortola, British Virgin Islands and we have been assigned company number 3805. Our object or purpose is to engage in any act or activity that is not prohibited under British Virgin Islands law as set forth in Clause 4 of the Memorandum of Association. As an International Business Company, and as set forth in Clause 6, we are prohibited from doing business with persons resident in the British Virgin Islands, owning real estate in the British Virgin Islands, or accepting banking deposits or contracts of insurance. We do not believe these restrictions materially affect our operations.

Paragraph 60 of our Amended Articles of Association, or Articles, provides that a director may be counted as one of a quorum in respect of any contract or arrangement in which the director is materially interested or makes with the Company; however, if the agreement or transaction cannot be approved by a resolution of directors without counting the vote or consent of any interested director, the agreement or transaction may only be validated by approval or ratification by a resolution of the shareholders, who are referred under the law of the British Virgin Islands as “members.” Paragraph 53 of the Articles allows the directors to vote compensation to themselves in respect of services rendered to us. Paragraph 69 of the Articles provides that the directors may by resolution exercise all the powers on our behalf to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever we borrow money or as security for any of our debts, liabilities or obligations or those of any third party. These borrowing powers can be altered by an amendment to the Articles. There is no provision in our Articles for the mandatory retirement of directors; however, we have fixed 65 as the mandatory age of retirement for our directors. Directors are not required to own our shares in order to serve as directors.

Paragraph 85 of the Articles allows us to deduct from any shareholder’s dividends amounts owing to us by that shareholder. Paragraph 13.1 provides that we can redeem shares at fair market value from any shareholder against whom we have a judgment debt.

Paragraph 12 of the Articles provides that without prejudice to any special rights previously conferred on the holders of any existing shares, any of our shares may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividends, voting, return of capital or otherwise as the directors may from time to time determine.

Paragraph 14 of the Articles provides that if at any time the authorized share capital is divided into different classes or series of shares, the rights attached to any class or series may be varied with the consent in writing of the holders of not less than three fourths of the issued shares of any other class or series of shares which may be affected by such variation.

Provisions in respect of the holding of general meetings and extraordinary general meetings are set out in Paragraphs 27 to 46 of the Articles and under the International Business Companies Act. The directors may convene meetings of our shareholders at such times and in such manner and places as the directors consider necessary or desirable, and they shall convene such a meeting upon the written request of shareholders holding more than 30 percent of the votes of our outstanding voting shares. Other than providing, if

requested, reasonable proof of a holder’s status as a holder of our shares as of the applicable record date, there is no condition to the admission of a shareholder or his or her proxy holder to our meetings of shareholders.

British Virgin Islands law and our Memorandum and Articles of Association impose no limitations on the right of nonresident or foreign owners to hold or vote our securities.

There are no provisions in our Memorandum of Association or Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.

As a result of the issuance of additional common shares in 2003 pursuant to the three-for-one stock split and increase in the number of Common Shares reserved for issuance under the Company’s 1993 Stock Option Plan and 2001 Stock Option Plan, the authorized share capital of the Company was enlarged from $200,000 to $2,000,000 and number of shares was increased from 20,000,000 to 200,000,000. The full text of our Amended Articles and Memorandum, amended on June 26, 2003, we hereby file as Exhibit 1.1 with the Annual Report on Form 20-F for 2003.

Registrar and Transfer Agent Company, 10 Commerce Drive, Cranford, New Jersey 07016-3572, U.S.A., is the United States transfer agent and registrar for our common shares.

The following summarizes each material contract, other than contracts entered into in the ordinary course of business, to which Nam Tai or any subsidiary of Nam Tai is a party, for the two years immediately preceding the filing of this report:

	•		On January 14, 2002, we entered into an agreement with the joint liquidators of Albatronics. Under the agreement we injected our wholly-owned subsidiary J.I.C. Group into a new company for 92.9% ownership in the new company on a fully diluted basis after conversion of preference shares. Albatronics’ listing status on the Hong Kong Stock Exchange was withdrawn and the new company was listed on the Hong Kong Stock Exchange by way of introduction and free from the liabilities of Albatronics. Immediately following completion of this reverse merger, we, the creditors and the public beneficially owned approximately 70.4%, 24.1% and 5.5% of the enlarged issued ordinary share capital of the new company, respectively, and we also hold preference shares. Upon our full conversion of the preference shares, we, the creditors and the public will own approximately 92.9%, 5.8% and 1.3% of the enlarged issued ordinary share capital of the new company, respectively. No holder of preference shares is entitled to exercise its conversion right if such conversion would result in the minimum public float of 25% as required under the Hong Kong Stock Exchange Listing Rules not being met. Consummation of the agreement was subject to the fulfillment of a number of conditions including approval by Albatronics’ creditors and shareholders and the Listing Committee of the Stock Exchange of Hong Kong and the receipt of other regulatory and court approvals. The agreement was consummated in the second quarter of 2002.

	•		Share Transfer Agreement dated January 25, 2002 between Hui Zhou City Investment Holdings Co., Ltd., as seller, and Namtai Electronic (Shenzhen) Co., Ltd., as buyer, under which Hui Zhou City agreed to transfer a 6% equity interest in TCL Holdings Corporation Ltd. to Namtai Electronic for Chinese renminbi 98,520,000 (approximately $12.0 million).

	•		On March 20, 2002, an Agreement was entered between Sony Ericsson Mobile Communications AB and Nam Tai Electronic & Electrical Products Ltd. for the production of Camera August to Sony Ericsson Mobile Communication AB.

	•		J.I.C. Enterprises (Hong Kong) Ltd. signed a banking facility letter on March 27, 2002 with Shanghai Commercial Bank Ltd. for a four-year term loan with borrowings totaling $4,500,000. The loan is charged at an annual rate of 1.5% over the 3-month London Interbank Offered Rate and is repayable in 16 quarterly payments of US$281,250 plus interest accrued.

	•		On April 24, 2002, Nam Tai Electronic & Electrical Products Limited, or NTEE, entered into a Sale and Purchase Agreement with Toshiba Battery Co., Ltd., or Toshiba, and A&T Battery Corp., or ATB, under which NTEE agreed to transfer its 86.7% equity interest in BPC (Shenzhen) Co., Ltd. to ATB in exchange for $1,300,000 from ATB and $800,000 from Toshiba, which was related to the termination of a license.

	•		We entered into a Subscription Agreement with TCL International Holdings Ltd. on September 6, 2002 under which we agreed to purchase HK$40,000,000 (approximately $5.1 million) of 3% convertible notes of TCL International Holdings Ltd. that mature three years after issuance.

	•		We entered into a Subscription Agreement with Alpha Star Investments Ltd. on January 6, 2003 under which Nam Tai agreed to purchase 1,625,000 newly issued ordinary shares of Alpha Star Investments Ltd. (25% ownership) for $10,000,000. We agreed to sign a shareholders agreement and Alpha Star Investments Ltd. agreed to place with us or a party we nominate at least 50% of the orders for RF modules that it or its subsidiaries receive.

	•		On January 1, 2003, a Basic Agreement was entered into between Optrex Corporation and Nam Tai Telecom (Hong Kong) Company Limited for the manufacturing of LCD modules for cellular phones for Optrex Corporation.

	•		On January 8, 2003, we entered into a Shareholders Agreement with the other three shareholders of Alpha Star under which each shareholder is granted a right of first refusal and is generally prohibited from competing against Alpha Star.

	•		On January 8, 2003, a Basic Agreement was entered into between JCT Wireless Technology Ltd. and Nam Tai Telecom (Hong Kong) Company Limited for manufacturing and assembly of various products, including mother boards, LCD modules, FPC and RF modules, for JCT Wireless Technology Ltd.

	•		On January 10, 2003, an Agreement was entered into between Sony Ericsson Mobile Communications AB and Nam Tai Electronic & Electrical Products Ltd. for the production of Camera August C1 for Sony Ericsson Mobile Communications AB.

	•		On January 10, 2003, an Agreement was entered into between Sony Ericsson Mobile Communications AB and Nam Tai Electronic & Electrical Products Ltd. for the production of Camera Filip for Sony Ericsson Mobile Communications AB.

	•		On January 27, 2003, an Agreement was entered into among Toshiba Matsushita Display Technology Co. Ltd., Nam Tai Telecom (Hong Kong) Company Limited and Zastron Electronic (Shenzhen) Company Limited for the production of LCD modules for Toshiba Matsushita Display Technology Co. Ltd.

	•		A Sale and Purchase Agreement was entered into between Zastron Electronic (Shenzhen) Company Limited and J.I.C. Enterprises (Hong Kong) Limited on March 10, 2003 for selling LCD panels, ACFs and ICs to Zastron Electronic (Shenzhen) Company Limited.

	•		A Sale and Purchase Agreement was entered into between J.I.C. Enterprises (Hong Kong) Limited and Zastron Electronic (Shenzhen) Company Limited on March 10, 2003 for selling COG panels to J.I.C. Technology Company Limited.

	•		On June 26, 2003, an Agreement Amendment was entered into between Sony Ericsson Mobile Communications AB and Nam Tai Electronic & Electrical Products Ltd. for amending the agreements entered into on March 20, 2002 and January 10, 2003.

	•		An Agreement was entered into between J.I.C. Technology Company Limited and Glory Gate Enterprises Limited on June 28, 2003 for the disposal of transformers operation to Glory Gate Enterprises Limited.

	•		On July 15, 2003, an Agreement was entered into between Omnivision Technologies, Inc. and Namtai Electronic (Shenzhen) Company Limited for supplying CMOS sensor to Namtai Electronic (Shenzhen) Company Limited.

	•		On August 22, 2003, we entered into a Purchase Agreement with Citigroup Global Markets Limited for the sale of 3% convertible notes of TCL International Holdings Ltd. at an aggregate price of HK$39,555,068.49 (approximately $5.03 million).

	•		On September 8, 2003, a Basic Agreement and two memorandums were entered into between Wuxi Sharp Electronic Component Co. Ltd. and Zastron Electronic (Shenzhen) Company Limited for assembling of PCBs for Wuxi Sharp Electronic Component Co. Ltd.

	•		On September 9, 2003, an Agreement was entered into between Sony Ericsson Mobile Communications AB and Namtai Electronic (Shenzhen) Company for the production of flash for cellular phones for Sony Ericsson Mobile Communications AB.

	•		On September 15, 2003, an Agreement was entered into between Sony Computer Entertainment Europe Limited and Namtai Electronic (Shenzhen) Co. Ltd. for the production of CMOS sensor modules for Sony Computer Entertainment Europe and its nominated distributors.

	•		On September 19, 2003, a Specific Service Agreement was entered into between Sony Ericsson Mobile Communications AB and Namtai Electronic (Shenzhen) Company Ltd. for the manufacturing of bluetooth headset for Sony Ericsson Mobile Communication AB.

	•		On October 28, 2003, a Construction Agreement, with commencement date of September 23, 2003, was entered into between Namtai Electronic (Shenzhen) Co. Ltd. and Takasago Thermal Engineering (Hong Kong) Co. Ltd. for the construction of new factory premises. The construction is expected to be completed by the end of the fourth quarter in 2004.

	•		On December 9, 2003, an Investment Agreement and Shareholders Agreement was entered into among Mr. André Jolivet, Mr. Alain Jolivet, Remote Reward SAS, AGF Private Equity, Mighty Wealth Group Limited and Nam Tai Electronics, Inc. for acquiring an 11.33% equity interest in Stepmind with a consideration of approximately $5.3 million.

	•		On January 2, 2004, a Supplemental Agreement was entered into among Mr. André Jolivet, Mr. Alain Jolivet, Remote Reward SAS, AGF Private Equity, Mighty Wealth Group Limited and Nam Tai Electronics, Inc. for consenting to release the second phrase of payment and increase capital investment in Stepmind should Stepmind fulfill certain conditions.

	•		On March 10, 2004, an Agreement was entered into between Nam Tai Group Management Limited and Frontier Profit Inc. for selling Flat A, 22nd Floor, Tower 2 and Car Parking Space No. A86, The Leighton Hill, 2B Broadwood Road, Happy Valley, Hong Kong to Frontier Profit Inc. with a consideration of approximately $1.8 million.

There are no exchange control restrictions on payments of dividends, interest, or other payments to nonresident holders of Nam Tai’s securities or on the conduct of our operations in Hong Kong and PRC headquarters in Macao, China or where our principal executive offices are located in the British Virgin Islands, where Nam Tai is incorporated. Other jurisdictions in which we conduct operations may have various exchange controls. With respect to our China subsidiaries, with the exception of a requirement that 10% of profits be reserved for future developments, there are no restrictions on the payment of dividends and the removal of dividends from China once all taxes are paid and assessed and losses, if any, from previous years have been made good. We believe such restrictions will not have a material effect on our liquidity or cash flow.

The discussion below is for general information only and is not, and should not be interpreted to be, tax advice to any holder of our common shares. Each holder or a prospective holder of our common shares is urged to consult his, her or its own tax advisor.

This section is a general summary of the material United States federal income tax consequences to U.S. Holders, as defined below, of the ownership and disposition of our common shares as of the date of this report. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, the applicable Treasury regulations promulgated and proposed thereunder, judicial decisions and current administrative rulings and practice, all of which are subject to change, possibly on a retroactive basis. The summary applies to you only if you hold our common shares as a capital asset within the meaning of Section 1221 of the Code. The United States Internal Revenue Service, or the IRS, may challenge the tax consequences described below, and we have not requested, nor will we request, a ruling from the IRS or an opinion of counsel with respect to the United States federal income tax consequences of acquiring, holding or disposing of our common shares. This summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to the ownership of our common shares. In particular, the discussion below does not cover tax consequences that depend upon your particular tax circumstances nor does it cover any state, local or foreign law, or the possible application of United States federal estate or gift tax. You are urged to consult your own tax advisors regarding the application of the United States federal income tax laws to your particular situation as well as any state, local, foreign and the United States federal estate and gift tax consequences of the ownership and disposition of the common shares. In addition, this summary does not take into account any special United States federal income tax rules that apply to a particular holder of our common shares, including, without limitation, the following:

	•		a dealer in securities or currencies;

	•		a trader in securities that elects to use a market-to-market method of accounting for its securities holdings;

	•		a financial institution or a bank;

	•		an insurance company;

	•		a tax-exempt organization;

	•		a person that holds our common shares in a hedging transaction or as part of a straddle or a conversion transaction;

	•		a person whose functional currency for United States federal income tax purposes is not the U.S. dollar;

	•		a person liable for alternative minimum tax;

	•		a person that owns, or is treated as owning, 10% or more, by voting power or value, of our common shares; or

	•		a person who receives our shares pursuant to the exercise of employee stock options or otherwise as compensation.

For purposes of the discussion below, you are a “U.S. Holder” if you are a beneficial owner of our common shares who or which is:

	•		an individual United States citizen or resident alien of the United States (as specifically defined for United States federal income tax purposes);

	•		a corporation or, other entity treated as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States or any State or political subdivision thereof;

	•		an estate whose income is subject to United States federal income tax regardless of its source; or

	•		a trust (x) if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust or (y) if it was in existence on August 20, 1996, was treated as a United States person prior to that date and has a valid election in effect under applicable Treasury regulations to be treated as a United States person.

Subject to the passive foreign investment company, or PFIC, considerations discussed below, the gross amount of any cash distribution or the fair market value of any property distributed that you receive with respect to our common shares generally will be subject to tax as ordinary dividend income to the extent such distribution does not exceed our current or accumulated earnings and profits, or E&P, as calculated for United States federal income tax purposes. Such income will be includable in your gross income on the date of receipt. Subject to certain limitations, dividends paid to noncorporate U.S. Holders, including individuals, may be eligible for a reduced rate of taxation if we are a “qualified foreign corporation” for U.S. federal income tax purposes. A qualified foreign corporation includes (i) a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an exchange of information program, and (ii) a foreign corporation if its stock with respect to which a dividend is paid is readily tradable on an established securities market within the United States, but does not include an otherwise qualified corporation that is a PFIC. We believe that we will be a qualified foreign corporation for so long as we are not a PFIC and our common shares are considered to be readily tradable on an established securities market within the United States. No assurances can be made that our Company’s status as a qualified foreign corporation will not change. To the extent any distribution exceeds our E&P, such distribution will first be treated as a tax-free return of capital to the extent of your adjusted tax basis in our common shares and will be applied against and reduce such basis on a dollar-for-dollar basis (thereby increasing the amount of gain and decreasing the amount of loss recognized on a subsequent disposition of such shares). To the extent that such distribution exceeds your adjusted tax

basis in our common shares, the distribution will be treated as capital gain. Because we are not a United States corporation, no dividends-received deduction will be allowed to corporations with respect to dividends paid by us.

For United States foreign tax credit limitation purposes, dividends received on our common shares will be treated as foreign source income and generally will be “passive income,” or in the case of certain holders, “financial services income.” You may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of foreign withholding taxes, if any, imposed on dividends received on our common shares. The rules governing United States foreign tax credits are complex, and we recommend that you consult your tax advisor regarding the applicability of such rules to you.

Subject to the PFIC considerations discussed below, generally, in connection with the sale, exchange or other taxable disposition of our common shares:

•

you will recognize capital gain or loss equal to the difference (if any) between:

			—	the amount realized on such sale, exchange or other taxable disposition and

			—	your adjusted tax basis in such common shares (your adjusted tax basis in the shares you hold generally will equal your U.S. dollar cost of such shares);

	•		such gain or loss will be long-term capital gain or loss if your holding period for our common shares is more than one year at the time of such sale or other disposition;

	•		such gain or loss will generally be treated as United States source for United States foreign tax credit purposes; and

	•		your ability to deduct capital losses is subject to limitations.

A foreign corporation will be treated as a PFIC for United States federal income tax purposes if, after applying relevant look-through rules with respect to the income and assets of subsidiaries, 75% or more of its gross income consists of certain types of passive income or 50% or more of the gross value of its assets is attributable to assets that produce passive income or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties, rents (other that rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. We presently believe that we are not a PFIC and do not anticipate becoming a PFIC. This is, however, a factual determination made on an annual basis and is subject to change. If we were to be classified as a PFIC in any taxable year, (i) U.S. Holders would generally be required to treat any gain on sales of our shares held by them as ordinary income and to pay an interest charge on the value of the deferral of their United States federal income tax attributable to such gain and (ii) distributions paid by us to our U.S. Holders could also be subject to an interest charge. In addition, we would not provide information to our U.S. Holders that would enable them to make a “qualified electing fund” election under which, generally, in lieu of the foregoing treatment, our earnings would be currently included in their United States federal income.

Payments, including dividends and proceeds of sales, in respect of our common shares that are made in the United States or by a United States related financial intermediary will be subject to United States information reporting rules. In addition, such payments may be subject to United States federal backup withholding tax. You will not be subject to backup withholding provided that:

	•		you are a corporation or other exempt recipient, or

	•		you provide your correct United States federal taxpayer identification number and certify, under penalties of perjury, that you are not subject to backup withholding.

Amounts withheld under the backup withholding rules may be credited against your United States federal income tax, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS in a timely manner.

Under the International Business Companies Act of the British Virgin Islands as currently in effect, a holder of common equity, such as our common shares, who is not a resident of the British Virgin Islands is exempt from British Virgin Islands income tax on dividends paid with respect to the common equity and is not liable to the British Virgin Islands for income tax on gains realized on sale or disposal of such shares. Furthermore, there are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on persons who are not residents of the British Virgin Islands. The British Virgin Islands does not impose a withholding tax on dividends paid by a company incorporated under the International Business Companies Act.

Our common shares are not subject to transfer taxes, stamp duties or similar charges. There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands.

Nam Tai Electronics, Inc. is subject to the information requirements of the Securities and Exchange Act of 1934, and, in accordance with the Securities Exchange Act of 1934, Nam Tai Electronics, Inc. files annual reports on Form 20-F within six months of its fiscal year end, and submit other reports and information under cover of Form 6-K with the SEC. You may read and copy this information at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Recent filings and reports are also available free of charge though the EDGAR electronic filing system at www.sec.gov. You can also request copies of the documents, upon payment of a duplicating fee, by writing to the public reference section of the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room or accessing documents through EDGAR. As a foreign private issuer, Nam Tai Electronics, Inc. is exempt from the rules under the Securities Exchange Act of 1934 prescribing the furnishing and content of proxy statements to shareholders.

See Exchange Rate Fluctuation discussion in Item 3. Key Information — Risk Factors and Item 5. Operating and Financial Review and Prospects on pages 10 and 45, respectively.

See Foreign Currency Risk discussion in Item 5. Operating and Financial Review and Prospects on page 45.

See Interest Rate Risk discussion in Item 5. Operating and Financial Review and Prospects on page 45.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

As required by Rule 13a-14 under the Securities Exchange Act of 1934, as of December 31, 2003, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Company’s controls and procedures were designed and provided reasonable assurance of preventing errors and irregularities.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934 recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding disclosures.

The Company has confidence in its internal controls and procedures and has expanded its efforts to develop and improve its controls. Nevertheless, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure procedures and controls, or its internal controls, will necessarily prevent all error or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that the Company is subject to resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all internal control issues or instances of fraud, if any, within the Company be detected.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out this evaluation.

The Company’s Board of Directors has determined that one member of the Audit Committee, Mark Waslen, qualifies as “audit committee financial expert” as defined by Item 401(h) of Regulation S-Km adopted pursuant to the Securities Exchange Act of 1934. Mr. Waslen has a degree in Accounting and is a C.F.A., C.A. and a C.P.A. In addition to serving in various financial positions, including Nam Tai Group Financial Controller from 1990 to 1995 and Treasurer from 1998 to 1999, at Nam Tai, Mr. Waslen has worked at Peat Marwick Thorne, Deloitte Touche Tohmatsu and BME+ Partners Chartered Accountants.

All three members of the audit committee, Messrs. Waslen, Chu and Lo, are independent non-executive directors.

The Company has adopted a Code of Ethics for the Chief Executive Officer and Chief Financial Officer, which applies to the Company’s principal executive officer and to its principal financial and accounting officers. A copy of the Code of Ethics is attached as Exhibit 14.1 to this Annual Report on Form 20-F.

Deloitte Touche Tohmatsu has served as our independent public accountant for each of the fiscal years in the three-year period ended December 31, 2003, for which audited financial statements appear in this annual report on Form 20-F. The auditor is elected annually at the Annual General Meeting. The Audit Committee will propose to the Annual General Meeting convening on June 11, 2004 that Deloitte Touche Tohmatsu be elected as the auditor for 2004.

The following table presents the aggregate fees for professional services and other services rendered by Deloitte Touche Tohmatsu to us in 2003 and 2002.

(1) Audit Fees consist of fees billed for the annual audit of our consolidated financial statements and the statutory financial statements of our subsidiaries. They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include the provision of comfort letters and consents, and attestation services relating to the review of documents filed with the SEC. The fees for 2003 include US$40 of accrued audit fees for the 2003 year-end audit that were not billed until 2004; the fees for 2002 did not include any of accrued audit fees for the 2002 year-end audit that were not billed until 2003.

(2) Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor.

(3) Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from tax authorities; tax planning services; and expatriate tax compliance, consultation and planning services.

The Audit Committee of our Board of Directors is responsible, among other matters, for the oversight of the external auditor subject to the relevant regulations of the SEC and NYSE. The Audit Committee has adopted a policy, or the Policy, regarding pre-approval of audit and permissible non-audit services provided by our independent auditors..

Under the Policy, the Chairman of the Audit Committee is delegated the authority to grant pre-approvals in respect of all auditing services including non-audit service, but excluding those services stipulated in Section 201 “Service Outsider the Scope of Practice of Auditors”. Moreover, if the Audit Committee approves an audit service within the scope of the engagement of the audit service, such audit service shall be deemed to have been pre-approved. The decisions of the Chairman of the Audit Committee made under delegation authority to pre-approve an activity shall be presented to the Audit Committee at each of its scheduled meetings.

Requests or applications to provide services that require specific approval by the Audit Committee are submitted to the Audit Committee by both the external auditor and the Chief Financial Officer.

During 2003, services provided to us by Deloitte Touche Tohmatsu representing less than 8.2% of the total fees were approved by the Audit Committee pursuant to the de minima is exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

Item 16 D. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The information required within the schedules for which provisions are made in the applicable accounting regulations of the Securities and Exchange Commission is either not applicable or is included in the notes to the Consolidated Financial Statements.

We have audited the accompanying consolidated balance sheets of Nam Tai Electronics, Inc. and subsidiaries as of December 31, 2002 and 2003, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nam Tai Electronics, Inc. and subsidiaries at December 31, 2002 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

As discussed in note 2(f) to the consolidated financial statements, in 2002, the Company changed its method of accounting of goodwill and other intangibles.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US dollars, except per share data)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands of US dollars, except share and per share data)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data)

1.		Company Information

		Nam Tai Electronics, Inc. and subsidiaries (the “Company” or “Nam Tai”) is an electronics manufacturing and design services provider to a selected group of the world’s leading original equipment manufacturers, or OEMs, of telecommunication and consumer electronic products. The Company’s largest customers include Epson Precision (HK) Ltd., Sony Ericsson Mobile Communications AB and Toshiba Matsushita Display Technology Co. Ltd.. Through its electronics manufacturing services, or EMS, operations, the Company manufactures electronic components and subassemblies, including liquid crystal display, or LCD, panels, transformers, LCD modules, radio frequency, or RF, modules, flexible printed circuit assemblies and image sensors. These components are used in numerous electronic products, including cellular phones, laptop computers, digital cameras, copiers, fax machines, electronic toys, handheld video game devices and microwave ovens. The Company also manufactures finished products, including cellular phones, palm-sized PC’s, personal digital assistants, electronic dictionaries, calculators and digital camera accessories for use with cellular phones.

		The Company was founded in 1975 and moved its manufacturing facilities to the People’s Republic of China (the “PRC”) in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates available and subsequently relocated to Shenzhen, PRC in order to capitalize on opportunities offered in Southern China. The Company was reincorporated as a limited liability International Business Company under the laws of the British Virgin Islands (“BVI”) in August 1987. The Company’s principal manufacturing and design operations are based in Shenzhen, PRC, approximately 30 miles from the Hong Kong Special Administrative Region (“Hong Kong”). Its PRC headquarters are located in the Macao Special Administrative Region (“Macao”). Some of the subsidiaries’ offices are located in Hong Kong, which provides it access to Hong Kong’s infrastructure of communication and banking and facilitates management of its PRC operations and transportation of its products out of PRC through the port of Hong Kong.

		The Company operates in two segments: consumer electronic products (“CEP”) and LCD panels and transformers (“LPT”). Through the disposal of a subsidiary, the Company discontinued its transformers operations, details of which are set out in note 3(b)(iii). The Company’s principal manufacturing operations are conducted in the PRC. The PRC resumed sovereignty over Hong Kong and Macao effective July 1, 1997 and December 20, 1999, respectively, and politically Hong Kong and Macao are integral parts of China. However, for simplicity and as a matter of definition only, our references to PRC in these consolidated financial statements means the PRC and all of its territories excluding Hong Kong and Macao.

2.		Summary of Significant Accounting Policies

	(a)		Principles of consolidation

			The consolidated financial statements include the financial statements of the Company and all its subsidiaries. The Company consolidates companies in which it has controlling interest of over 50%. All significant intercompany accounts, transactions and cash flows have been eliminated on consolidation.

			The equity method of accounting is used when the Company has the ability to exercise a significant influence, which is normally indicated by a 20% to 50% interest in other entities. Under the equity method, original investments are recorded at cost and adjusted by the Company’s share of undistributed earnings or losses of these entities.

			Non-marketable investments in which the Company has less than 20% interest and in which does not have the ability to exercise significant influence over the investee are initially recorded at cost and periodically reviewed for impairment.

	(b)		Cash and cash equivalents

			Cash and cash equivalents include all cash balances and certificates of deposit having a maturity date of three months or less upon acquisition.

	(c)		Marketable securities

			All marketable securities are classified as trading securities and are stated at fair market value. Market value is determined by the most recently traded price of the security at the balance sheet date. Net realized and unrealized gains and losses on trading securities are included in other income. The cost of securities sold is based on the average cost method and income earned is included in other income.

	(d)		Inventories

			Inventories are stated at the lower of cost or market value. Cost is determined on the first-in, first-out basis. Write-down of potentially obsolete or slow-moving inventory are recorded based on management’s analysis of inventory levels.

			For the Company’s CEP reporting unit, the Company orders inventory from its suppliers based on firm customer orders for product that is unique to each customer. The inventory is utilized in production as soon as all the necessary components are received. The only reason that inventory would not be utilized within six months is if a specific customer deferred or cancelled an order. As the inventory is typically unique to each customer’s products, it is unusual for the Company to be able to utilize the inventory for other customers’ products. Therefore, the Company’s policy is to negotiate with the customer for the disposal of such inventory that remained unused for six months. The Company does not generally write down its inventories as usually, the customers are held to their purchase commitments. However, there are cases where customers are contractually obligated to purchase the unused inventory from the Company, but the Company may elect not to immediately enforce such contractual right for business reasons. In this connection, the Company will consider writing down these inventory items which remained unused for over six months at the Company’s own cost. Prior to writing down, management would determine if the inventory can be utilized in other products.

			For the Company’s LPT segment, due to the nature of the business, LPT customers do not always place orders advance enough to enable the Company to order inventory from suppliers based on firm customer orders. Nonetheless, management reviews its inventory balance on a regular basis and write down all inventory over six months old.

	(e)		Property, plant and equipment

			Property, plant and equipment are recorded at cost and include interest on funds borrowed to finance construction. No interest was capitalized for the years ended December 31, 2001, 2002 and 2003. The cost of major improvements and betterments is capitalized whereas the cost of maintenance and repairs is expensed in the year incurred. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Gains and losses for the disposal of leasehold land are included in other income (expenses) while gains and losses from the disposal of other property, plant and equipment are included in income from operations.

			The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based upon undiscounted cash flows expected to be generated by such assets over their expected useful lives. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

	(e)		Property, plant and equipment - continued

			The majority of the land in Hong Kong is owned by the government of Hong Kong which leases the land at public auction to non-governmental entities. All of the Company’s leasehold land in Hong Kong have leases of not more than 50 years from the respective balance sheet dates. The cost of such leasehold land is amortized on a straight-line basis over the respective terms of the leases.

			All land in other regions of the PRC is owned by the PRC government. The government in the PRC, according to PRC law, may sell the right to use the land for a specified period of time. Thus all of the Company’s land purchases in the PRC are considered to be leasehold land and are amortized on a straight-line basis over the respective term of the right to use the land.

			Depreciation rates computed using the straight-line method are as follows:

	(f)		Goodwill and licenses

			The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill. Prior to January 1, 2002, goodwill was amortized to expense on a straight-line basis over various periods ranging from 4 years to 15 years. Costs incurred in the acquisition of licenses are capitalized and amortized to expense on a straight-line basis over the shorter of the license period or 5 to 7 years.

			In June 2001, the Financial Accounting Standard Board (the “FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. This statement provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment at the reporting unit level on at least an annual basis. A reporting unit is an operating segment or one level below an operating segment (i.e. a component) as defined in SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information”. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. Through May 2002, the Company operated in two reporting units, which were its operating segments of CEP and LPT. Beginning in June 2002, the Company segregated its LPT segment into two reporting units: LCD panels and transformers. In June 2003, the Company disposed of its transformers operation through the disposal of a subsidiary, details of which are set out in note 3(b)(iii).

			The evaluation of goodwill for impairment involves two steps: (1) the identification of potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill and (2) the measurement of the amount of goodwill loss by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill and recognizing a loss by the excess of the latter over the former.

			SFAS No. 142 was effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 142 on January 1, 2002. Upon adoption of SFAS No. 142, the Company evaluated goodwill for impairment at the reporting unit level and determined that there was no impairment at January 1, 2002. Later in 2002, the Company determined that goodwill was impaired by $339 related to the business acquired from MBS (see note 6). All remaining and future acquired goodwill will be subject to an annual impairment test on December 31 of each year or earlier if indications of a potential impairment exist. For future impairment tests, the Company will measure fair value based either on internal models or independent valuations. As of December 31, 2003, the Company completed its annual impairment evaluation and determined that there was no impairment in goodwill.

	(f)		Goodwill and licenses - continued

			The following transitional disclosure represents the Company’s reported and adjusted net income, basic earnings per share, and fully diluted earnings per share adding back amortization of goodwill beginning January 1, 2001:

	(g)		Impairment or disposal of long-lived assets

			The Company reviews its long-lived assets for potential impairment based on a review of projected discounted cash flows associated with these assets. Long-lived assets are included in impairment evaluations when events and circumstances exist that indicate the carrying amount of these assets may not be recoverable. Measurement of impairment losses for long-lived assets that the Company expects to hold and use is based on the estimated fair value of the assets.

			Long-lived assets to be disposed of are stated at the lower of fair value or carrying amount. Expected future operating losses from discontinued operations are recorded in the periods in which the losses are incurred.

	(h)		Revenue recognition

			The Company recognizes revenue when all of the following conditions are met:

	•		Persuasive evidence of an arrangement exists,

	•		Delivery has occurred or services have been rendered,

	•		Price to the customer is fixed or determinable, and

	•		Collectibility is reasonably assured.

			Revenue from sales of products is recognized when the title is passed to customers upon shipment and when collectibility is assured. The Company does not provide its customers with the right of return (except for quality), price protection, rebates or discounts. There are no customer acceptance provisions associated with the Company’s products, except for quality. All sales are based on firm customer orders with fixed terms and conditions, which generally cannot be modified.

			The Company recognized revenue on its software development services in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”. The Company’s software sales include neither multiple elements nor post-contract customer support.

	(i)		Shipping and handling costs

			Shipping and handling costs are classified as to cost of sales for material purchased and selling expenses for the delivery of finished products. During the years ended December 31, 2001, 2002, and 2003, shipping and handling costs classified as costs of sales were $488, $536 and $466, respectively. During the years ended December 31, 2001, 2002 and 2003, shipping and handing costs classified as selling expenses were $954, $808 and $870, respectively.

	(j)		Research and development costs

			Research and development costs relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred.

	(k)		Advertising expenses

			The Company expenses advertising costs as incurred. Advertising expenses were $141, $528 and $261 for the years ended December 31, 2001, 2002 and 2003, respectively.

	(l)		Staff retirement plan costs

			The Company’s costs related to the staff retirement plans (see note 15) are charged to the consolidated statement of income as incurred.

	(m)		Income taxes

			PRC tax paid by subsidiaries operating in the PRC during the year is recorded as an amount recoverable at the balance sheet date when management has filed or has the intention to file an application for reinvestment of profits and a refund is expected unless there is an indication from the PRC tax authority that the refund will be refused.

			Deferred income taxes are provided using the asset and liability method. Under this method, deferred income taxes are recognized for all significant temporary differences and classified as current or non-current based upon the classification of the related asset or liability in the financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all, the deferred tax asset will not be realized.

	(n)		Foreign currency transactions and translations

			All transactions in currencies other than functional currencies during the year are translated at the exchange rates prevailing on the respective transaction dates. Monetary assets and liabilities existing at the balance sheet date denominated in currencies other than functional currencies are translated at the exchange rates existing on that date. Exchange differences are recorded in the consolidated statement of income.

			The Company and its subsidiaries have adopted the U.S. dollar, Hong Kong dollar or the Chinese Renminbi as their functional currencies. The financial statements of all subsidiaries with functional currencies other than the U.S. dollar are translated in accordance with SFAS No. 52, “Foreign Currency Translation”. All assets and liabilities are translated at the rates of exchange ruling at the balance sheet date and all income and expense items are translated at the average rates of exchange over the year. All exchange differences arising from the translation of subsidiaries’ financial statements are recorded as a component of comprehensive income.

			The exchange rate between the Hong Kong dollar and the U.S. dollar has been pegged (HK$7.80 to US$1.00) since October 1983. The exchange rate between the Chinese Renminbi and the U.S. dollar is based on the applicable rate of exchange quoted by the People’s Bank of China prevailing at the balance sheet date and were approximately 8.1500, 8.2773 and 8.2767 as of December 31, 2001, 2002 and 2003, respectively.

	(o)		Earnings per share

			On June 20, 2003, the Company’s board of directors declared a 3-for-1 stock split of its outstanding common shares. Each shareholder of record on June 30, 2003 received two additional shares for each common share held at that date. In addition, the Company retained the current par value of $0.01 per share. Accordingly, all references to numbers of common shares, per share data and stock option data in the accompanying financial statements have been restated to reflect the stock split on a retroactive basis.

			On October 24, 2003, the Company’s board of directors declared an issuance of stock dividend to shareholders at the ratio of one dividend share for every ten shares held by the shareholders of record on November 7, 2003. For the purposes of earnings per share calculation, all references to numbers of common shares and per share data have been restated to reflect this stock dividend.

			Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year.

			Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the year. The weighted average number of common shares outstanding is adjusted to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

	(p)		Stock options

			The Company does not recognize compensation expense for employee stock-based compensation if the strike-price is equal to or greater than the market price of the stock at the date of grant. The Company’s policy is to generally grant stock-based compensation to employees with a stock price equal to the market price of the stock on the date of grant. The Company continues to account for stock-based compensation arrangements under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and provides additional financial statement disclosure in accordance with FAS No. 123, “Accounting for Stock-Based Compensation”. The Company recognizes compensation expense for all stock-based compensation granted to non-employees by estimating the fair value of the stock-based compensation utilizing the Black-Scholes option-pricing model. See note 12.

			The Company has two stock-based employee compensation plans, as more fully described in note 12(b). Stock-based employee compensation costs are not reflected in net income when options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. During 2001, the Company recorded compensation cost of $839 as 316,200 options granted under the plan had an exercise price less than the market value of the underlying common stock on the date of grant.

			The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition.

	(q)		Use of estimates

			The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

	(r)		Comprehensive income

			Accumulated other comprehensive income (loss) represents foreign currency translation adjustments and is included in the consolidated statement of shareholders’ equity. The comprehensive income of the Company was $9,065, $20,006 and $43,802 for the years ended December 31, 2001, 2002 and 2003, respectively.

	(s)		Fair value disclosures

			The carrying amounts of cash and cash equivalents, accounts receivable, amount due from a related party, prepaid expenses and other receivables, income taxes recoverable, notes payable, accounts payable, accrued expenses and other payables, dividend payable and income tax payable approximate fair value due to the short term maturity of these instruments. The carrying amount of long term debt also approximates fair value due to the variable nature of the interest calculations. The fair value of the convertible notes is estimated based on the current rates offered to the Company for notes of similar terms and maturities.

	(t)		Recent changes in accounting standards

			In January 2003, the FASB issued Interpretation No. (“FIN”) 46 (revised), “Consolidation of Variable Interest Entities”. FIN 46 (revised) requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities and results of the activities of the variable interest entity should be included in consolidated financial statements of the business enterprise. FIN 46 (revised) applies immediately to variable interest entities created after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 (revised) are effective beginning January 1, 2004. The adoption of FIN 46 (revised) is not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.

			In April 2003, the FASB issued SFAS No. 149, “Amendments of Statement 133 on Derivative Instruments and Hedging Activities”, which establishes accounting and reporting standards for derivative instruments, including derivatives embedded in other contracts and hedging activities. SFAS No. 149 amends SFAS No. 133 for decisions made by the FASB as part of its Derivatives Implementation Group process. SFAS No. 149 also amends SFAS No. 133 to incorporate clarifications of the definition of a derivative. SFAS No. 149 is effective for contracts entered into or modified and hedging relationships designated after June 30, 2003. The provisions of SFAS No. 149 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

			In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for the third quarter of 2003. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

Upon full conversion of the preference shares held by the Company, the Company would have an effective interest of 93.97% and 88.39% in these subsidiaries as of December 31, 2002 and 2003, respectively (see note 3(b)(ii)).

	(i)		In March 2000, Nam Tai Electronic & Electrical Products Limited (“NTEE”), a wholly-owned subsidiary of the Company, together with Toshiba Battery Co., Ltd. (“TBCL”), established BPC, a wholly foreign owned enterprise in Shenzhen, PRC. NTEE had a 86.67% interest in BPC and the investment cost of $1,300 was contributed in cash. BPC was located within the Company’s manufacturing complex where it produced and sold high-end, environmentally friendly, rechargeable lithium ion battery packs. Effective April 30, 2002, the Company sold its 86.67% joint venture interest in BPC to a TBCL related company for $2,131 resulting in a gain of $17. For the year ended December 31, 2001 and during the period from January 1, 2002 through April 30, 2002, the Company recognized net sales of $21,072 and $7,849, respectively, from TBCL and its related companies.

	(ii)		In October 2000, the Company acquired all of the outstanding shares of J.I.C. Group (B.V.I.) Limited (“JIC”), a company incorporated in the BVI. The purchase price was the initial consideration of $32,776, less a purchase price adjustment based on earnings. The initial consideration was satisfied by a cash consideration of $10,981 and the issuance of 3,483,261 shares in the Company at $6.26 each, being the average market closing price as reported on the Nasdaq Stock Market (“Nasdaq”, the then stock market in which the Company’s stock was traded) for each day during the period from September 26, 2000 to October 24, 2000 (inclusive) on which Nasdaq was open for trading and on which at least 30,000 shares were traded. J.I.C Group are principally engaged in the manufacture and trading of LCD panels and transformers. Their production base is located at Shenzhen and Bao An, which are used by three subsidiaries of JIC namely, Jieda Electronics (Shenzhen) Co., Ltd. (“Jieda”), Jetup Electronic (Shenzhen) Co., Ltd. (“Jetup”) and Jieyao, all being wholly foreign owned enterprises in the PRC. During 2003, Jieda merged with Jieyao and in June 2003, J.I.C. Group disposed of its entire interest in Jieyao, which was principally engaged in the manufacturing and sale of transformers, as a result of concentration of its effort on its LCD panels business unit. A profit of approximately $1,979, net of minority interests, arose as a result of this disposition (see note 3 (b)(iii)).

			The purchase price adjustment based on earnings is the amount of shortfall, if any, between the net income of the J.I.C. Group for the year ended March 31, 2001 and the guaranteed profit amount of $3,846, multiplied by 8.5. As the net income of the J.I.C. Group for the year ended March 31, 2001 met this guaranteed profit requirement, no adjustment to the purchase price was made.

			The acquisition was accounted for as a purchase and the results of the J.I.C. Group have been included in the accompanying consolidated financial statements since the date of acquisition. The excess of the purchase consideration over the fair value of the net assets acquired of $10,002 was $22,774 and had been recorded as goodwill which was being amortized on a straight-line basis over 15 years. Upon the Company’s adoption of SFAS No. 142, the goodwill is no longer being amortized (see note 2(f)). During 2001, the Company incurred legal and professional fees of $85 to complete the acquisition of JIC which was adjusted to goodwill.

	(ii) - continued

			In June 2002, through a reverse merger, the Company arranged for the listing of the J.I.C. Group on The Stock Exchange of Hong Kong Limited. To effect the listing, the Company entered an agreement with the liquidators of Albatronics (Far East) Company Limited (“Albatronics”), whose shares had been listed on The Stock Exchange of Hong Kong Limited and which was placed into voluntary liquidation in August 1999. The Company owned slightly more than 50% of the outstanding capital stock of Albatronics. Under the agreement, the Company agreed to transfer the J.I.C. Group into JIC Technology, a new company, for a controlling interest in JIC Technology. Prior to it being placed into voluntary liquidation, Albatronics and its subsidiaries were engaged in the trading of electronic components and manufacturing of consumer electronics products. Due to the troubled financial condition of Albatronics at December 31, 1998, it was probable that the Company would never be in a position to exercise control over Albatronics as such control would rest with the creditors of Albatronics. Accordingly, the Company did not consolidate Albatronics’ financial statements at December 31, 1998, for the year then ended or for any subsequent period. As of December 31, 1999 the investment was written off. On February 1, 2000, the Company received an invitation soliciting offers for the rescue or restructuring of Albatronics from Albatronics’ liquidators. In June 2002, Albatronics’ listing status on The Stock Exchange of Hong Kong Limited was withdrawn and JIC Technology was listed on The Stock Exchange of Hong Kong Limited free from the liabilities of Albatronics. For the Company’s contribution to JIC Technology, the Company received a combination of ordinary and preference shares, which are analogous to common stock and convertible preferred stock, respectively, of companies organized under U.S. law. The Company, the creditors of Albatronics and the Hong Kong public who held shares of Albatronics received ordinary shares of JIC Technology equal to approximately 70.4%, 24.1% and 5.5%, respectively, of the outstanding ordinary shares of JIC Technology. The Company also received preference shares of JIC Technology, which upon their full conversion, would result in the Company, the creditors and the Hong Kong public owning approximately 92.9%, 5.8% and 1.3%, respectively, of the outstanding ordinary shares of JIC Technology. On June 4, 2002, the reverse merger was completed and all the shares of Albatronics were transferred to the liquidators for a nominal consideration. The preference shares are non-redeemable, non-voting shares that rank pari passu with ordinary shares of JIC Technology on the payment of dividends or other distribution other than on a winding-up. No holder of preference shares (including the Company) may convert them if such conversion would result in the minimum public float of 25% that is required under the Hong Kong Stock Exchange listing rules not being met.

			Due to the reverse merger, the Company’s effective interest in the J.I.C. Group reduced from 100% to 92.9%. As a result of this reduction in interest during 2002, the Company has released unamortized goodwill of $1,483, representing 7.1% of the goodwill that had previously been recorded upon purchasing the J.I.C. Group in October 2000. The release of unamortized goodwill is included as part of the loss on reverse merger of the J.I.C. Group.

			In August 2002, the Company acquired an additional 7,984,000 ordinary shares of JIC Technology for a cash consideration of $437, resulting in additional goodwill of $253. As of December 31, 2002, the Company held 93.97% effective interest in J.I.C. Group, which represented 74.78% of the existing ordinary shares and 93.97% of the outstanding ordinary shares upon full conversion of the preference shares.

			During the period from June to November 2003, the Company disposed of totally 42,600,000 ordinary shares of JIC Technology for cash considerations of $4,005. The disposal resulted in a net gain on partial disposal of a subsidiary of $1,838 and the releasing of unamortized goodwill of $1,171. The release of unamortized goodwill is netted off with the gain on the partial disposal of a subsidiary. In November 2003, the Company converted 175,100,000 preference shares into 170,000,000 ordinary shares of JIC Technology. As of December 31, 2003, the Company held 263,900,688 ordinary shares of JIC Technology, equivalent to 74.86% of issued ordinary shares, and 423,320,000 preference shares. Upon full conversion of the preference shares owned, the Company would have held approximately 88.39% of JIC Technology.

	(iii)		In order to concentrate its effort on its LCD panels reporting unit, in June 2003, JIC Technology disposed its transformers reporting unit to a third party for a cash consideration of $2,426. Sales of the transformers reporting unit for the years ended December 31, 2001, 2002 and 2003 were $10,981, $11,324 and $6,284, respectively, and were insignificant comparing to the sales of the Company as a whole. The income from operations of the transformers reporting unit was less than 5%, 3% and 1% of the Company’s income from operations for the years ended December 31, 2001, 2002 and 2003, respectively. The transformers reporting unit had no non-operating income or expenses for the years ended December 31, 2001, 2002 and 2003. The proceeds from the disposal exceeded the carrying value of the net assets of the transformers reporting unit, resulting in a gain from discontinued operation, net of minority interests, in 2003 of $1,979. The carrying amounts of the assets and liabilities of the transformers business unit at the date of disposal are as follows:

			Net assets disposed of:

	(iv)		In January 2003, the Company disposed of 20% of its equity interest in Namtek Software to a company which is owned by the management of Namtek Software for a cash consideration of $160. As of the date of disposal, Namtek Software was fair valued at $3,347. Accordingly, a charge to compensation expense of $509 and a credit to additional paid-in capital of $264 (being the difference between the net asset value and fair value of Namtek Software disposed) resulted.

	(v)		In September 2000, the Company acquired a 5% indirect shareholding in both Huizhou TCL Mobile Communication Co., Ltd. (“Huizhou TCL”) and TCL Mobile Communication (HK) Co., Ltd. (collectively “TCL Mobile”) through the acquisition of 25% of the outstanding shares of Mate Fair, a privately held investment holding company incorporated in the BVI with a 20% shareholding interest in TCL Mobile. TCL Mobile is engaged in manufacturing, distributing and trading of digital mobile phones and accessories in the PRC as well as overseas markets. The acquisition in Mate Fair was satisfied by cash consideration of approximately $2,036. The 25% share of the net book value of Mate Fair on that date was approximately $511. Goodwill of approximately $1,525 was recorded by the Company and was being amortized on a straight line basis over 10 years from September 2000 to August 2010. The amortization expense for the year ended December 31, 2001 was $153.

			In May 2002, due to the increase of capital in Huizhou TCL, Mate Fair’s direct interest in Huizhou TCL was diluted from 20% to 18% and accordingly, the Company’s 5% indirect interest in Huizhou TCL was diluted to 4.5%. As a result of the dilution, the Company recognized the release of unamortized goodwill of approximately $132 and the share of Mate Fair’s loss on deemed disposal of Huizhou TCL of approximately $336 as part of the equity in income of affiliated companies. Mate Fair ceased the equity method of accounting for Huizhou TCL since it no longer held at least a 20% interest in Huizhou TCL. In late 2002, TCL Mobile Communications (HK) Co., Ltd. was acquired by Huizhou TCL.

			On November 11, 2002, through a series of linked transactions, the Company effectively exchanged its 4.5% indirect interest in Huizhou TCL for a 3.033% direct interest plus cash consideration. This was accomplished by Mate Fair selling a 13.8% equity interest in Huizhou TCL for $10,424, which resulted in a gain of $9,022 that was included in equity in income of affiliated companies. Also, as part of these linked transactions, the Company increased its shareholding in Mate Fair from 25% to 72.22% for $3 by the subscription of additional 3,028 shares in Mate Fair, and recognized an additional release of unamortized goodwill of approximately $388. The Company invested $5,128 of the proceeds in TCL International Holdings Limited 3% convertible notes (see note 9(a)).

	(i)		In May 2002, the Company established Namtek Software, a wholly-owned subsidiary incorporated in the Cayman Islands, at an investment cost of $800. It is an investment holding company of Shenzhen Namtek Company Limited (“Shenzhen Namtek”).

	(ii)		In June 2003, Namtek Software established Namtek Japan Company Limited, a subsidiary incorporated in Japan, at an investment cost of $85. Its principal activity is sales co-ordination and marketing of software.

	(iii)		In June 2003, the Company established two wholly-owned subsidiaries, namely Nam Tai Telecom (Cayman) Company Limited and Nam Tai Electronic & Electrical Products Limited, incorporated in the Cayman Islands. Their principal activity is to act as investment holding companies.

	(iv)		In August 2003, the Company established Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited, a wholly-owned subsidiary incorporated in Macao, at an investment cost of $13. Its principal activity is provision of consultancy services to other group companies, and as the Company’s PRC headquarters due to the continuous increase in investment in China.

	(d)		Retained earnings

			Retained earnings are not restricted as to the payment of dividends except to the extent dictated by prudent business practices. The Company believes that there are no material restrictions, including foreign exchange controls, on the ability of its non-PRC subsidiaries to transfer surplus funds to the Company in the form of cash dividends, loans, advances or purchases. With respect to the Company’s PRC subsidiaries, there are restrictions on the purchase of materials by these companies, the payment of dividends and the removal of dividends from the PRC. In the event that dividends are paid by the Company’s PRC subsidiaries, such dividends will reduce the amount of reinvested profits and accordingly, the refund of taxes paid will be reduced to the extent of tax applicable to profits not reinvested. However, the Company believes that such restrictions will not have a material effect on the Company’s liquidity or cash flows.

5.		Property, Plant and Equipment

		Property, plant and equipment consist of the following:

As of December 31, 2003, the Company has entered into commitments for capital expenditure for property, plant and equipment of approximately $34,161, which are expected to be disbursed during the year ending December 31, 2004.

		No goodwill has been assigned to the “transformer” reporting unit as the Company’s purchase of the J.I.C. Group was exclusively for the “LCD panel” reporting unit.

		The Company acquired certain net assets from MBS, a telecommunication business including the design, research and development, and marketing of telecommunication products. The excess of the purchase consideration over the fair value of the assets acquired was $776 and was recorded as goodwill which was being amortized on a straight-line basis over 4 years. In 2002, the Company determined that the previously acquired technology had become obsolete. Therefore, the Company recorded an impairment for the remaining goodwill of $339 and accelerated the amortization of the license fees (included in intangible assets) by $173.

7.		Intangible Assets

		Amortized intangible assets consist of the following:

Amortization expense charged to income from operations for the year ended December 31, 2001, 2002 and 2003 was $209, $222 and $92, respectively. Amortization expense on intangible assets for each of the next five years is as follows:

8.		Investment in Affiliated Companies, Equity Method

		The Company’s investments accounted for under the equity method are disclosed below. The Company has not made any loans or guarantees or has any contingent liabilities with these companies.

		Mate Fair

		Mate Fair was accounted as an affiliated company upto November 11, 2002. Details of the investment in Mate Fair are set out in note 3(b)(v).

		Alpha Star

		In January 2003, the Company further expanded its business to include wireless communication technology and related products. The Company made a strategic investment of $10,000 by subscribing for a 25% shareholding in Alpha Star, a BVI company, which is the ultimate holding company of the JCT Wireless Technology Company Limited (“JCT”), a company engaged in the design, development and marketing of wireless communication terminals and wireless application software. The Company also manufactures wireless communication terminals and related modules for JCT. As part of the agreement, Alpha Star agreed to purchase from the Company at least 50 percent of the orders it, or any of its subsidiaries, receives for RF modules provided the Company performs such manufacturing services at a price comparable to the market. The fair value of this arrangement was estimated to be $643 and is included in the consolidated balance sheet as an intangible asset (note 7). The Company has one representative on Alpha Star’s board of directors.

		The Company has recorded goodwill of approximately $5,596 as a result of the acquisition of Alpha Star. For the year ended December 31, 2003, the Company recorded $498 in equity in earning of Alpha Star.

		As of December 31, 2003, JCT owed the Company $2,707. For the year ended December 31, 2003, the Company recognized net sales of $20,782 to JCT and purchased raw materials of $5,456 from JCT and its related companies.

9.		Investments in TCL

		The Company had three investments in TCL Group of companies in the form of convertible notes and investments at cost. During the year ended December 31, 2003, the Company disposed of the convertible notes. The Company has not incurred any material operating revenue or expenses from the TCL Group of companies, for the years ended December 31, 2001, 2002 and 2003.

	(a)		Convertible Notes

			On November 11, 2002, in connection with its disposal of 1.467% indirect interest in Huizhou TCL (see note 3(b)(v)) for approximately $10,424, the Company purchased $5,128 in 3% convertible notes (“CB Note”) due in November 2005 of TCL International Holdings Limited, a publicly listed company on The Stock Exchange of Hong Kong Limited. In August 2003, the CB Note was disposed of by the Company for a consideration of $5,026, resulting in a loss of $102.

	(b)		Investments, at cost

	(i)		TCL Corporation

			In January 2002, the Company acquired a 6% equity interest in TCL Holdings Corporation Ltd, now known as TCL Corporation, for a consideration of $11,968. TCL Corporation, an enterprise established in the PRC, is the parent company of the TCL Group of companies. TCL Corporation’s scope of business includes the import and export of raw materials, the design, manufacturing and sales and marketing of telephones, VCD players, color television sets, mobile phones and other consumer electronic products. TCL Corporation changed from a limited liability company to a company limited by shares in April 2002 (the “Establishment Date”).

			In January 2004, TCL Corporation listed its A-shares on the Shenzhen Stock Exchange at RMB4.26 (equivalent to US$0.52) per A-share. The Company’s interest in TCL Corporation has then been diluted to 3.69% and represents 95.52 million promoter’s shares of TCL Corporation after its initial public offering. According to Article 147 of the Company Law of the PRC, the Company is restricted to transfer its promoter’s shares within three years from the Establishment Date. The Company is, however, entitled to dividend and other rights similar to the holders of A-shares.

			The Company may re-consider its investment strategy in these promotor’s shares after the end of restriction period in April 2005.

	(ii)		Huizhou TCL

			The Company has a 3.033% direct interest in Huizhou TCL through the Company’s subsidiary, Mate Fair (see note 3(b)(v)). This investment at cost is $4,014 at December 31, 2003.

10.		Investment in iMagic

		On January 20, 2003, one of the Company’s subsidiaries, JIC Technology, entered into a subscription agreement with iMagic Infomedia Technology Limited (“iMagic”) pursuant to which JIC Technology agreed to subscribe for 60 shares of par value of HK$1 each in iMagic, representing 5.36% of the total issued capital of iMagic, for cash consideration of $384. On the same date, JIC Technology also entered into a deed of put option with a director of iMagic under which the director of iMagic granted JIC Technology an option to require the director to purchase the shares from JIC Technology at the original consideration of $384. The put option shall be exercisable on December 31, 2004 and expire on January 30, 2005. iMagic, a privately held company, is the parent company of PowerPhone Network Limited, a company that has deployed interactive multimedia voice and data terminals in Asia and the United States.

11.		Bank Loans and Banking Facilities

		The Company has credit facilities with various banks representing notes payable, trade acceptances, import facilities and overdrafts. At December 31, 2002 and 2003, these facilities totaled $58,244 and $62,256, of which $8,889 and $8,309 were utilized at December 31, 2002 and 2003, respectively. The maturity of these facilities is generally up to 90 days. Interest rates are generally based on the banks’ usual lending rates in Hong Kong and the credit lines are normally subject to annual review. The banking facilities are secured by guarantees given by Nam Tai and certain subsidiaries and restrict the pledge of assets to any other banks without the prior consent of the Company’s bankers.

		The notes payable, which include trust receipts and shipping guarantees, may not agree to utilized banking facilities due to a timing difference between the Company receiving the goods and the bank issuing the trust receipt to cover financing of the purchase. The Company recognizes the outstanding letter of credit as a note payable when the goods are received, even though the bank may not have issued the trust receipt. However, this will not affect the total bank facility utilization, as an addition to the trust receipts will be offset by a reduction in the same amount of outstanding letters of credit.

		A subsidiary of the Company has an unsecured four-year term loan with borrowings in May 2002 totaling $4,500 at a rate of 1.5% over three months London Interbank Offered Rate, repayable in 16 quarterly instalments of approximately $281 beginning August 31, 2002. At December 31, 2003, the loan had an outstanding balance of $2,813. There is no restrictive financial covenants associated with this term loan.

		The long term debt is repayable as follows for the years ending December 31

The Company had a seven-year term loan with borrowings in October 2001 totaling $15,000 at a fixed interest rate of 5.05% in the first four years and at a rate of 1% over Singapore Interbank Money Market Offer Rate for the following three years. The loan was secured by a property with net book value of $11,400. At December 31, 2002, the bank loan had an outstanding balance of $12,860. On January 3, 2003, Company repaid the entire outstanding balance due to the bank, resulting in a finance charge on early repayment of $610, which was expensed in 2002.

	(a)		The Company has only one class of common shares authorized, issued and outstanding.

	(b)		Stock options

			In August 1993, the Board of Directors approved a stock option plan which authorized the issuance of 900,000 vested options to key employees, consultants or advisors of the Company or any of its subsidiaries. In December 1993, January 1996 and April 1999, the option plan was amended and the maximum number of shares to be issued pursuant to the exercise of options granted was increased to 1,950,000 and 3,000,000 and 4,275,000, respectively. The options granted under this plan vest immediately and generally have a term of three years, but cannot exceed ten years. The options are granted to employees based on past performance and/or expected contribution to the Company.

			In May 2001, the Board of Directors approved another stock option plan which would grant 15,000 options to each independent director of the Company elected at each annual general meeting of shareholders, and might grant options to key employees, consultants or advisors of the Company or any of its subsidiaries to subscribe for its shares in accordance with the terms of this stock option plan. The maximum number of shares to be issued pursuant to the exercise of options granted was 3,000,000 shares. The options granted under this plan vest immediately and generally have a term of three years, but cannot exceed ten years. The options are granted to independent directors based on past performance and/or expected contributions to the Company.

			Effective January 1, 2003, the Company has suspended issuing options to management and employees except for the independent directors. Rather, the Board of Directors approved an incentive bonus program to reward management and employees with a cash bonus in lieu of stock options.

			A summary of stock option activity during the three years ended December 31, 2003 is as follows:


		Number of			Option price per share with the weighted
		options			average option price in parenthesis

Outstanding at January 1, 2001			1,308,000		$3.50, $4.63, $4.94, $5.25 and $5.46 ($4.37)
	Granted		1,314,759		$4.65, $4.83 and $2.33 ($4.11)
	Exercised		(348,000	)	$3.50, $4.63 and $5.25 ($3.54)
	Cancelled		(152,559	)	$4.63, $4.65 and $4.94 ($4.67)

Outstanding at December 31, 2001			2,122,200		$2.33, $4.63, $4.65, $4.83 and $5.46 ($4.32)
	Granted		900,000		$6.62
	Exercised		(1,573,200	)	$2.33, $4.63, $4.65 and $6.62 ($4.24)

Outstanding at December 31, 2002			1,449,000		$4.63, $4.65, $4.83, $5.46 and $6.62 ($5.84)
	Granted		75,000		$18.50
	Exercised prior to 10 for 1 stock dividend		(1,422,500	)	$4.63, $4.65, $4.83, $5.46, and $18.50 ($5.97)
	Effect of 10 for 1 stock dividend on stock option		10,150
	Exercised after 10 for 1 stock dividend		(3,100	)	$6.02 ($6.02)

Outstanding at December 31, 2003			108,550		$4.39, $6.02 and $16.82 ($12.34)

During 2002, 6,000 advisors’ options with an exercise price of $6.62 exercisable from April 30, 2002 and expiring on April 30, 2005 were granted to an advisor and all were exercised during 2003. The Company recorded compensation expense of $10 for the 2002 advisors’ options based on the Black-Scholes option-pricing model. No advisors’ options were granted during 2001 and 2003.

	(b)		Stock options - continued

			Details of the options granted by the Company in 2001, 2002 and 2003 are as follows:

			Stock option costs of $839 charged to the selling, general and administrative expenses in 2001 represented the difference between the market price and exercisable price of $2.33 for the 316,200 options granted during 2001.

			The following summarizes information about stock options outstanding at December 31, 2003. All stock options are exercisable as of December 31, 2003.

The weighted average remaining contractual life of the stock options outstanding at December 31, 2001, 2002 and 2003 was 18, 22 and 23 months, respectively. The weighted average fair value of options granted during 2001, 2002 and 2003 was $1.71, $1.66 and $7.76, respectively, using the Black-Scholes option-pricing model based on the following assumptions:

	(c)		Advisors’ warrants

			On December 2, 1997, the Company issued 390,000 units to its advisors. The holder of each unit is entitled to purchase from the Company at the purchase price of $6.80 per unit one common share and one warrant exercisable to purchase one common share at $6.80 per share for the period from November 30, 1998 to November 24, 2000. In 2000, 174,090 advisors’ warrants were exercised, 185,910 advisors’ warrants had expired and the expiry date of exercisable period for the remaining 30,000 advisors’ warrants was extended to November 24, 2002. As a result, 174,090 common shares and 174,090 warrants were issued during the year ended December 31, 2000. The compensation expense for the extention of the expiry date of the 30,000 advisors’ warrants, using the Black-Scholes option-pricing model, was $43 and has been charged to the consolidated statement of income in 2000. The remaining 30,000 of these advisors’ warrants expired on November 24, 2002.

	(c)		Advisors’ warrants - continued

			On October 5, 1998, the Company issued 900,000 warrants to an advisor as consideration of advisory services under a service contract for a period of 3 years. The holder of each warrant is entitled to purchase from the Company one common share at $3.42 per share for the period from October 5, 1999 to October 4, 2001. These warrants have been accounted for using variable accounting and the related compensation expense of $263 has been charged to the consolidated statement of income for the year ended December 31, 2001. In 2001, all these warrants were exercised.

			The fair values of the advisors’ warrants were calculated using the Black-Scholes option-pricing model based on the following assumptions:

	(d)		Public warrants

			On October 10, 1997, the Company distributed to each holder of its common shares nontransferable rights (the “Rights”) to subscribe for one unit for every three common shares owned at that date (referred to as the “Rights Offering”). The subscription price was $5.67 per unit. Each unit consisted of one common share and one redeemable common share purchase warrant. Each warrant is exercisable to purchase one common share at a price of $6.80 per share at any time from the date of their issuance until November 24, 2000. The common shares and the warrants included in the units will be separately transferable immediately on issuance of the common shares. The warrants are redeemable by the Company at any time at $0.02 per warrant if the average closing sale price of the common shares for 20 consecutive trading days within the 30-day period preceding the date the notice is given equals or exceeds $8.50 per share. The terms of the Rights Offering include an over subscription privilege available to shareholders subject to certain conditions and a Standby Purchase Commitment made by the Standby Underwriters to the Rights Offering, subject to the terms and conditions of a Standby Underwriting Agreement made between the Company and the Standby Underwriters, and which includes purchase by the Standby Underwriters of units not subscribed for by shareholders of the Company. Pursuant to the Rights Offering, 9,000,000 units were offered with a subscription expiry date of November 24, 1997.

			During the period of the Rights Offering, shareholders of the Company exercised Rights to purchase a total of 6,803,751 units at $5.67 per unit and the Standby Underwriters purchased a total of 2,187,636 units at a price of $5.58, being the lower of the subscription price per unit and the closing bid price per common share as reported on the Nasdaq on the subscription expiry date, as provided for under the Standby Underwriting Agreement. The gross proceeds raised amounted to $50,769 and the net proceeds raised after deduction of expenses associated with the Rights Offering amounted to $47,700.

			On April 1, 2000, the Company amended the terms of the warrant by extending the expiry date of the warrants from November 24, 2000 to November 24, 2002. The extending of the expiry date of the warrants created a new measurement date for the warrants, however, the resulting amount was immaterial. During 2002, 4,381,965 warrants were exercised. On November 24, 2002, all of the remaining warrants expired.

			The 174,090 warrants issued pursuant to the exercise of advisors’ warrants above bear the same rights as public warrants.

	(e)		Share buy - back program

			The Company repurchased shares under its buy-back program as follows. All shares were purchased at the prevailing market price at the date of the buy back and were settled out of the Company's retained earnings.

	(f)		Share redemptions

			On January 22, 1999, pursuant to its Articles of Association, the Company redeemed and cancelled 415,500 shares of the Company registered in the name of Tele-Art at a price of 3.73 per share for $1,549 (see note 19(b)).

			On August 12, 2002, pursuant to its Articles of Association, the Company redeemed and cancelled an additional 509,181, shares of the Company beneficially owned by Tele-Art at a price of $6.14 per share for $3,125 (see note 19(b)).

13.		Earnings Per Share

		The calculations of basic earnings per share and diluted earnings per share are computed as follows:

Stock options to purchase 45,000 shares of common shares at $5.46, warrants to purchase 9,165,477 shares of common shares at $6.80 and 30,000 advisors’ warrants were outstanding at December 31, 2001 but were not included in the computation of diluted earnings per share because the exercise price of the stock options and warrants was greater than the average market price of the common shares during the relevant period. The holder of each advisors’ warrant is entitled to purchase from the Company at the purchase price of $6.80 per unit one common share and one warrant exercisable to purchase one common share at $6.80 per share.

All options and warrants to purchase shares of common stock were included in the computation of 2002 diluted earnings per share as the exercise prices were less than the average market price of the common stock.

		All options to purchase shares of common stock were included in the computation of 2003 diluted earnings per share as the exercise prices were less than the average market price of the common stock.

		* Adjusted for 3 for 1 stock split and 10 for 1 stock dividend.

14.		Other Income (Expenses) - Net

		Other income (expenses) - net consists of:

15.		Staff Retirement Plans

		The Company operates a Mandatory Provident Fund (“MPF”) scheme for all qualifying employees in Hong Kong and a retirement benefit scheme (“RBS”) for all qualifying employees in Macao. The MPF and RBS are defined contribution schemes and the assets of the schemes are managed by the trustees independent to the Company.

		Both the MPF and RBS are available to all employees aged 18 to 64 and with at least 60 days of service under the employment of the Company in Hong Kong and Macao. Contributions are made by the Company at 5% based on the staff’s relevant income. The maximum relevant income for contribution purpose per employee is $3 per month. Staff members are entitled to 100% of the Company’s contributions together with accrued returns irrespective of their length of service with the Company, but the benefits are required by law to be preserved until the retirement age of 65 for employees in Hong Kong while the benefit can be withdrawn by the employees in Macao at the end of employment contracts.

		According to the relevant laws and regulations in the PRC, the Company is required to contribute 8% to 9% of the stipulated salary set by the local government of Shenzhen, the PRC, to the retirement benefit schemes to fund the retirement benefits of their employees. The principal obligation of the Company with respect to these retirement benefit schemes is to make the required contributions under the scheme. No forfeited contributions may be used by the employer to reduce the existing level of contributions.

		The cost of the Company’s contribution to the staff retirement plans in Hong Kong, Macao and PRC amounted to $561, $617 and $982 for the years ended December 31, 2001, 2002 and 2003, respectively.

16.		Income Taxes Expense, Net

		The components of income before income taxes and minority interest are as follows:

		Under the current BVI law, the Company’s income is not subject to taxation. Subsidiaries operating in Hong Kong and the PRC are subject to income taxes as described below, and subsidiary operating in Macao is exempted from income taxes. Under the current Cayman law, Nam Tai Telecom (Cayman) Company Limited, Nam Tai Electronic & Electrical Products Limited and Namtek Software are not subject to profit tax as they have no business operation.

		The provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the current rate of taxation of 16% for 2001 and 2002 and 17.5% for 2003 to the estimated taxable income earned in or derived from Hong Kong during the period.

		Deferred tax, where applicable, is provided under the liability method at the rate of 16% for 2001 and 2002 and 17.5% for 2003, being the effective Hong Kong statutory income tax rate applicable to the ensuing financial year, on the difference between the financial statement and income tax bases of measuring assets and liabilities.

		The basic corporate tax rate for Foreign Investment Enterprises (“FIEs”) in the PRC, such as Namtai Electronic (Shenzhen) Co., Ltd. (“NTSZ”), Zastron Electronics (Shenzhen) Co., Ltd. (“Zastron”), Shenzhen Namtek and Jetup (the “PRC Subsidiaries”) is currently 33% (30% state tax and 3% local tax). However, because all the PRC subsidiaries are located in Shenzhen and are involved in production operations, they qualify for a special reduced state tax rate of 15%. In addition, the local tax authorities in Shenzhen are not currently assessing any local tax.

		Since the PRC subsidiaries have agreed to operate for a minimum of 10 years in the PRC, a two-year tax holiday from the first profit making year is available, following which in the third through fifth years there is a 50% reduction to 7.5%. In any event, for FIEs such as NTSZ, Zastron and Namtek which export 70% or more of the production value of their products, a reduction in the tax rate is available; in all cases apart from the years in which a tax holiday or tax incentive is available, there is an overall minimum tax rate of 10%. The following details the tax concessions received for the Company’s PRC subsidiaries:

	•		On January 8, 1999, NTSZ received the recognition of “High and New Technology Enterprise” which entitles it to various tax benefits including a lower income tax rate of 7.5% until 2003. In July 2002, the Shenzhen local tax authority issued a notice to shorten the tax incentive period from 5 years to 3 years expiring in 2001. Nevertheless NTSZ was advised by the Shenzhen local tax authority that it would continue to provide a rebate of corporate tax paid for 2 years for 2002 and 2003. During 2003, NTSZ received $110 rebate of corporate tax paid for 2002. In addition, NTSZ received a tax refund of $122 from reinvestment of profits for 1999 to 2001 and a refund of $441 for being a export-oriented enterprise in 2002.

	•		Income tax of Zastron was payable at the rate of 10% on the assessable profits of Zastron for the years ended December 31, 1999 to 2000. In 2003 Zastron received a refund of $56 from reinvestment of profits for 1999 and a refund of $124 for being an export-oriented enterprise in 2002.

	•		For the years ended December 31, 2001 and 2002, the income tax of Jieda was payable at the rate of 15% on the assessable profit. During 2003, Jieda merged with Jetup.

	•		In February 2001, Namtek received the recognition of “Advanced Technology Enterprise” which entitles it to various tax benefits including a lower income tax rate of 7.5% until 2003. In 2003, Shenzhen Namtek claimed a refund of $27 from the reinvestment of profits for 1998 to 2000.

	•		Income tax of Jetup was payable at the rate of 7.5% on its assessable profit for the years ended December 31, 1999 to 2001. The Shenzhen local tax authority has granted Jetup the status of “High and New Technology Enterprise” and allowed it to enjoy a 50% reduction in corporate tax rate to 7.5% for 3 years from 2002 to 2004. During 2003, Jetup received a refund of $175 from reinvestment of profit for 2002.

	•		Income tax of Jieyao was payable at the rate of 7.5% on the assessable profit for the years ended December 31, 2001 to 2003. During 2003, Jieyao was disposed of to a third party (see note 3(b)(iii)).

	•		For the years ended December 31, 2001 and 2002, BPC qualified for a tax holiday. During 2002, BPC was disposed of to TBCL (see note 3(b)(i)).

	An FIE whose foreign investor directly reinvests by way of capital injection its share of profits obtained from that FIE or another FIE owned by the same foreign investor in establishing or expanding an export-oriented or technologically advanced enterprise in the PRC for a minimum period of five years may obtain a refund of the taxes already paid on those profits. NTSZ, Zastron, Shenzhen Namtek and Jetup qualified for such refunds of taxes as a result of reinvesting their profit earned in previous years by their respective holding companies. As a result, the Company recorded tax expense net of the benefit related to the refunds. At December 31, 2002 and 2003, taxes recoverable under such arrangements were $789 and $4,889, respectively, which are included in income taxes recoverable and expected to be received during 2004. However, during 2003 the Shenzhen government did not refund approximately $13 in taxes the Company paid in 1998 to 2000. Therefore, the Company reversed the related receivable into current tax expense in 2003.

	In accordance with its normal practice, the Hong Kong tax authorities selected the Company and one of its wholly owned subsidiaries for a tax audit. In March 2003, in relation to fiscal year 1996, the Hong Kong tax authorities have made certain estimated assessments for public revenue protection purposes to prevent the assessments, if any, from becoming time barred. The Hong Kong tax authorities have not provided concrete grounds for the assessments. The Company and the subsidiary concerned have objected to these estimated assessments. The outcome of the objection is uncertain at this stage as the Hong Kong tax authorities are still reviewing the Company’s and its subsidiary’s Hong Kong tax position. At the time, it is not possible to estimate the outcome of the tax audit, the amount that may have to be paid, if any, or the impact that the results of the 1996 tax audit will have to subsequent tax years. However, management is of the view that there will be no material tax adjustment as a result of the tax audit.

	The current and deferred components of the income tax expense appearing in the consolidated statements of income are as follows:

		Deferred tax liabilities consist of tax allowances over depreciation and are $112 and $78 at December 31, 2002 and 2003, respectively.

		At December 31, 2001, 2002 and 2003, the Company does not have any tax loss carryforwards.

16.		Income Taxes Expense, Net - continued

		A reconciliation of the income tax expense to the amount computed by applying the current tax rate to the income before income taxes in the consolidated statements of income is as follows:

		No income tax arose in the United States of America in any of the periods presented.

		Tax that would otherwise have been payable without tax holidays and tax concessions amounts to approximately $1,350, $2,695 and $5,557 in the years ended December 31, 2001, 2002 and 2003, respectively (representing a decrease in the basic earnings and diluted earnings per share of $0.04, $0.08 and $0.14 in the years ended December 31, 2001, 2002 and 2003, respectively).

17.		Related Party Balance and Transactions

		Since the establishment of BPC in 2000, the Company recognized net sales of $21,072 and $7,849, purchased raw materials of $23,065 and $7,751, acquired property, plant and equipment of $50 and $Nil, from TBCL, a minority shareholder of BPC, and its related companies for the year ended December 31, 2001 and for the period from January 1, 2002 though April 2002, respectively. In addition, the Company had paid $1,000 to TBCL for acquisition of a license during the year ended December 31, 1999, which was disposed of during 2002 for a consideration of $800 together with the disposal of interest in BPC, plus the foreign exchange gain of $9, resulting in a gain of $60.

		As of December 31, 2003, the balance due from a related party represented the balance due from JCT, a subsidiary of Alpha Star. For the year ended December 31, 2003, the Company recognized net sales of $20,782 and purchased raw materials of $5,456 from JCT and its related companies.

18.		Financial Instruments

		The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of its cash equivalents and trade receivables.

		The Company’s cash and cash equivalents are high-quality deposits placed with banking institutions with high credit ratings. This investment policy limits the Company’s exposure to concentrations of credit risk.

		The trade receivable balances largely represent amounts due from the Company’s principal customers who are generally international organizations with high credit ratings. Letters of credit are the principal security obtained to support lines of credit or negotiated contracts from a customer. As a consequence, concentrations of credit risk are limited. Allowance for doubtful debts was $122 and $119 in 2002 and 2003, respectively. There were no other movements in the provision for doubtful accounts.

		All of the Company’s significant financial instruments at December 31, 2002 and 2003 are reported in current assets or current liabilities in the consolidated balance sheet at carrying amounts which approximate their fair value due to the short maturity of these instruments.

		The Company’s fair value of convertible notes, including the embedded option, was not significantly different from the carrying value at December 31, 2002 and it was disposed of during 2003.

19.		Commitments and Contingencies

	(a)		Lease commitments

			The Company leases premises under various operating leases, certain of which contain escalation clauses. Rental expense under operating leases was $1,501, $909 and $617 in the years ended December 2001, 2002 and 2003, respectively.

			At December 31, 2003, the Company was obligated under operating leases, which relate to land and buildings, requiring minimum rentals as follows:

	(b)		Significant legal proceedings

			In June 1997, the Company filed a petition in BVI for the winding up of Tele-Art on account of an unpaid judgment debt owing to the Company. The High Court of Justice granted an order to wind up Tele-Art in July 1998 and the Eastern Caribbean Court of Appeal upheld the decision on January 25, 1999. On January 22, 1999, pursuant to its Articles of Association, the Company redeemed and cancelled 415,500 shares (*) of the Company registered in the name of Tele-Art at a price of $3.73 per share to offset substantially all of the judgment debt of $799, plus interest and legal costs totalling $1,673, including dividends that the Company had withheld and credited against the judgment debt.

			(*: Subsequent to November 7, 2003, the number of shares has been adjusted to 457,050 to reflect the 10 for 1 stock dividend effect.)

	(b)		Significant legal proceedings - continued

			Following the completion of the redemption, the Company received notice that the liquidator had obtained an ex-parte injunction preventing the Company from redeeming Nam Tai shares beneficially owned by Tele-Art. On February 4, 1999, the liquidator of Tele-Art filed a further summons in the BVI on its behalf seeking, among other matters:

	•		A declaration as to the respective priorities of the debts of Tele-Art to the Bank of China, Nam Tai, and other creditors and their respective rights to have their debts discharged out of the proceeds of the Tele-Art’s Nam Tai shares;

	•		An order setting aside the redemption of 415,500 shares, and ordering delivery of all shares in possession or control of Nam Tai to the liquidator; and

	•		Payment of all dividends in respect of Tele-Art’s Nam Tai shares.

			On March 26, 2001, the Company filed a summons seeking to remove the liquidator for failing to act diligently in the performance of his duties and for knowingly misleading the court. On September 3, 2002, the liquidator submitted a letter of resignation prior to the scheduled removal hearing. A new liquidator was subsequently appointed in July 2003.

			On July 5, 2002, upon application by the Company, the court ordered the removal of the liquidator’s ex-parte injunction and ordered an inquiry into damages. On August 9, 2002, the court delivered a decision awarding a judgment against Tele-Art for approximately $34,000. On August 12, 2002, the Company redeemed and cancelled, pursuant to its Articles of Association, the remaining 509,181 (**) shares beneficially owned by Tele-Art at a price of $6.14 per share. Including the dividends which the Company had withheld and credited against the judgment, this offset a further $3,519 in judgment debts owed to the Company by Tele-Art. The Company recorded the $3,333 redemption, net of expenses, as other income in 2002.

			On January 21, 2003, judgment was delivered on the liquidators’ February 4, 1999 summons declaring that the redemption and set off of dividends on the 415,500 shares be set aside and that all Tele-Art property withheld by Nam Tai be delivered to Tele-Art in liquidation. The orders granted in the judgment were substantially different from the relief sought in the February 4, 1999 application. On February 4, 2003, the Company filed an application for a stay of execution and leave to appeal the decision listing eight grounds of appeal, which was granted on June 23, 2003. The case was heard on January 12, 2004 and the judgment was reserved.

			The Company has been advised by its legal representatives that it has real prospects of success on appeal against the January 21, 2003 decision and plans to vigorously fight for such an outcome. However, due to the uncertainty of the final outcome of the litigation as a result of the January 21, 2003 judgment and in accordance with SFAS No. 5, “Accounting for Contingencies”, the Company recorded a provision for $5,192 as a component of accrued expenses as of December 31, 2002, pending a final determination of this matter by the courts, represented the then best estimate of the net monetary expense the Company would have if its appeal was unsuccessful and its two judgment debts in the total amount of $38,000 (including interest, costs, and related expenses) was determined as having the lowest priorities in recovering from the estate of Tele-Art. According to the latest information provided by the liquidator on November 7, 2003, apart from Nam Tai, a total of 4 other creditors of Tele-Art, including the Bank of China, submitted their proof of debt to the liquidator for a total claim of approximately $3,390. Together with the outstanding legal charge as of December 31, 2003, the total potential obligation to the Company was estimated to be approximately $3,890, and accordingly, the 2002 provision for $5,192 had been reduced to $3,890 in the fourth quarter of 2003. If the appeal is successful and all legal matters related to Tele-Art, Inc. are finalized, including the final determination of other creditors’ position, then any remaining portion of the $3,890 provision will be reversed into income in the related period.

			(**: Subsequent to November 7, 2003, the number of shares has been adjusted to 560,099 to reflect the 10 for 1 stock dividend effect.)

	(b)		Significant legal proceedings - continued

			If the appeal is not successful, and the 1,017,149 (adjusted for 10 for 1 stock dividend effect) share redemption is set aside, the Company believe that these shares would be sold by Tele-Art’s liquidator in the open market at the market price prevailing at the time of sale. For example, if these shares had been sold at the March 1, 2004 closing price of $28.09 per share, the proceeds the liquidator would have realized before commissions, plus withheld dividends of $518, would have been approximately $29,090 for the estate of Tele-Art. Accordingly, if the Company is not successful on its appeal of the January 21, 2003 judgment, Nam Tai will seek to recover its $38,000 in judgment debts from the estate of Tele-Art and any amounts recovered therein would be recognized as other income.

			However, there is no assurance that the Company may realize the entire amount of its judgment debts as Tele-Art is in liquidation. The actual amount of the recovery, if any, is uncertain, and is dependent on a number of factors including the value of Nam Tai’s shares when sold in the market, and the final determination of other creditors’ positions. The Company plans to continue to pursue vigorously all legal alternatives available to recover the maximum amount of the outstanding debt from Tele-Art as well as pursue other parties that may have assisted in any transfers of the assets from Tele-Art. The Company may incur substantial additional costs in pursuing the recovery and such costs may not be recoverable.

			Class Actions

			On March 11, 2003, the Company were served with a complaint in an action captioned Michael Rocco v. Nam Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain directors are named as defendants. On or about April 9, 2003, a second complaint was filed in an action captioned A.J. & Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco Action, the Actions. The Actions have been consolidated since July 2003 and purports to represent a putative class of persons who purchased the common stock of Nam Tai from July 29, 2002 through February 18, 2003. Plaintiffs in the Actions assert claims under Section 10(b) of the Securities Exchange Act of 1934 and allege that misrepresentations and/or omissions were made during the alleged class periods concerning the recovery of an inventory write-down and a charge to goodwill related to Nam Tai’s LPT segment. The Company has filed a motion to dismiss the lawsuit and the putative class action has not been certified as a class action by the court. In any event, the Company’s motion to dismiss was heard in November 2003 and are awaiting the judgment of the court thereof. Nam Tai believes it has meritorious defenses and intends to defend the case vigorously.

	The Company operates in two segments: CEP and LPT, principally relating to the operation of J.I.C. Group. The Company operates and manages these segments as strategic business units. The chief operating decision maker evaluates the net income of each segment in assessing performance and allocating resources between segments.

	The following table provides operating financial information for the two reportable segments.

		There were no material inter-segment sales for the years ended December 31, 2001, 2002 and 2003. Property, plant and equipment with a net book value of $312 was transferred from the CEP segment to the LPT segment during 2002. The Company charges 100% of its corporate level related expenses to its reportable segments as management fees.

		A summary sets forth the percentage of net sales of each of the Company’s product lines of each segment for the years ended December 31, 2001, 2002 and 2003, is as follows:

20.		Segment Information - continued

		A summary of net sales, net income and long-lived assets by geographic areas is as follows:

		By geographical area:

Intercompany sales arise from the transfer of finished goods between subsidiaries operating in different areas. These sales are generally at estimated market price.

20.		Segment Information - continued

		The Company’s sales to customers which accounted for 10% or more of its sales are as follows:

21.		Subsequent Events

		In December 2003, the Company paid approximately $5,277 (Euros 4,250) into an escrow account for an investment in Stepmind, which was included in prepayment and other receivables at December 31, 2003. Approximately $2,642 (Euros 2,122) has been released from the escrow amount in January 2004 for the Company’s first phase of investment. The second phase of investment amounting to $2,646 (Euros 2,132) will be released by the Company to Stepmind in August 2004, subject to fulfillment of certain conditions. Upon successful subscription of the shares in the second phase, the Company’s total investment will represent 11.33% equity interest in Stepmind.

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.

73 EX-1.1 3 u98916exv1w1.txt MEMORANDUM & ARTICLES OF ASSOCIATION JUNE 26, 2003 NUMBER: 3805 EXHIBIT 1.1 TERRITORY OF THE BRITISH VIRGIN ISLANDS The International Business Companies Act (Cap. 291) AMENDED MEMORANDUM and ARTICLES OF ASSOCIATION of NAM TAI ELECTRONICS, INC. Incorporated the 12th day of August, 1987 Amended the 22nd day of December, 1998 Amended the 26th day of June, 2003 McNAMARA CORPORATE SERVICES LIMITED Registered Agents 2nd Floor 116 Main Street P.O. Box 3342 Road Town, Tortola British Virgin Islands [SEAL OF REGISTRAR OF INTERNATIONAL BUSINESS COMPANIES] TERRITORY OF THE BRITISH VIRGIN ISLANDS INTERNATIONAL BUSINESS COMPANIES ACT, 1984 AMENDED MEMORANDUM OF ASSOCIATION OF NAM TAI ELECTRONICS, INC. 1. The name of the Company is Nam Tai Electronics, Inc. 2. The Registered Office of the Company is McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands or at such other place within the British Virgin Islands as the Directors may from time to time determine. 3. The Registered Agent of the Company in the British Virgin Islands is McNamara Corporate Services Limited, whose address is P.O. Box 3342, Road Town, Tortola, British Virgin Islands. 4. The object or purpose for which the Company is established is to engage in any act or activity that is not prohibited under any law for the time being in force in the British Virgin Islands. 5. Without prejudice to the generality of clause 4 hereof and subject thereof, the Company has power to do any and all acts to carry on any business or businesses whatsoever and to engage in any activities which may conveniently be carried on with or be conducive to the attainment of the Company's objects or purposes, including the power to enter into any contract or undertaking whether directly or indirectly for the benefit or profit of the Company and to settle the Company's assets or property or any part thereof in trust or transfer the same to any other Company whether for the protection of its assets or not, and with respect to the transfer, the Directors may provide that the Company, its creditors, its members or any person having a direct or indirect interest in the Company or any of them may be the beneficiaries, creditors, members, certificate holders, partners or holders of any other similar interest. 6. The Company has no power to - (i) carry on business with persons resident in the British Virgin Islands except as provided by the Act, [SEAL OF REGISTRAR OF INTERNATIONAL BUSINESS COMPANIES] (ii) own an interest in real property situate in the British Virgin islands, or other than a lease of property for use as an office from which to communicate with members or where books and records of the Company are prepared or maintained, (iii) accept banking deposits, (iv) accept contracts of insurance. 7. Shares in the Company shall be issued in the currency of the United States dollar. 8. The Company shall have an authorized capital of US$2,000,000.00 divided into 200,000,000 shares with a par value of US$0.01 per share. 9. The Company shall have one class of one series comprising ordinary common shares of US$0.01 par value. 10. In as much as more than one class or more than one series of shares are authorized to be issued, the Directors shall have the authority and the power to fix by a resolution of directors the designations, powers, preferences, rights, qualifications, imitations and restrictions if any appertenant to that class or series of shares. 11. The number of shares into which the share capital is divided may be issued as registered nominative shares or as shares issued to bearer. 12. Registered nominative shares may be exchanged and converted into shares issued to bearer and shares issued to bearer may be exchanged and converted into registered nominative shares. 13. Any notice or other information required by the Act to be given to the holder of shares issued to bearer shall be given by publishing the same in a newspaper of general circulation in the British Virgin Islands or in such other newspaper if any as the Company may from time to time by resolution of directors determine. 14. The Memorandum and Articles of Association of the Company may be amended by a resolution of members or a resolution of directors. [SEAL OF REGISTRAR OF INTERNATIONAL BUSINESS COMPANIES] 2 We, Tortola Corporation Company Limited of P.O. Box 662, Citco Building, Wickhams Cay, Road Town, Tortola for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to this Memorandum of Association this 12th day of August, 1987 in the presence of: Witness (Sgd.) J. Caminada Tortola Corporation Company Limited Daphne Wattley Road Town, Tortola British Virgin Islands Secretary (Sgd.) D. Wattley [SEAL OF REGISTRAR OF INTERNATIONAL BUSINESS COMPANIES] 3 TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT 1984 AMENDED ARTICLES OF ASSOCIATION OF NAM TAI ELECTRONICS, INC. 1. The following Regulations constitute the Regulations of the Company. In these Articles words and expressions defined in the Intentional Business Companies Act ("the Act") shall have the same meaning and, unless otherwise required by the context, the singular shall include the plural and vice-versa, the masculine shall include the feminine and neuter and references to persons shall include corporations and all legal entities capable of having a legal existence. SHARES 2. Subject to the provisions of these Articles the unissued shares of the Company (whether forming part of the original or any increased authorized capital) shall be at the disposal of the Directors who may offer, allot, grant options over or otherwise dispose of them to such persons at such times and for such consideration and upon such terms and conditions as the directors may determine. 3. No shares hall be issued except as fully paid up. 4. The name and address for every person being the holder of registered nominative shares, their class or series and the date when they became or ceased to become a member shall be entered as a member in the share register. 5. Every person whose name is entered as a member in the share register being the holder of registered nominative shares, shall, without payment, be entitled to a certificate specifying the share or shares held and the par value thereof, provided that in respect of a registered nominative share, or shares, held jointly be several persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all. 6. In the case of shares issued to bearer, the share register shall contain the total number of each class and series of shares so issued and with respect to each certificate therefor, the identifying number, the number of each class or series of shares issued to bearer specified therein and the date of issue of the certificate. 7. Every person to whom shares to bearer must hold a certificate specifying the share or shares and the par value thereof. 8. Registered nominative shares may pursuant to a resolution of directors be exchanged and converted into shares issued to bearer. 9. Shares issued to bearer may pursuant to a resolution of directors and on the giving of such indemnity as the Company be resolution of directors may reasonably require be exchanged and converted into registered nominative shares. 10. The bearer of a certificate representing shares issued to bearer shall for all purposes be deemed to be the owner of the shares comprised in such certificate. 11. If a certificate is worn out or lost it may be renewed on production of the worn out certificate, or on satisfactory proof of its loss together with such indemnity as the directors may reasonably require. Any member receiving a share certificate shall indemnify and hold the Company and its officers harmless from any loss or liability which it or they may incur by reason of wrongful or fraudulent use or representation may by any person by virtue of the possession such certificate. SHARE CAPITAL AND VARIATION OF RIGHTS 12. Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share in the Company may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the directors may from time to time determine. 13. Subject to the provisions of the Act, any shares may be purchased, redeemed or acquired by the Company on such terms and in such manner as the directors may determine. 13.1 (a) For the purposes of Regulation 13.1 of these Articles the following defined terms have the meanings indicated: "Beneficial owner," "beneficial ownership" or "beneficially owned," in the context of a Person whose shares may be redeemed shall be ascertained in accordance with Rule 13d-3 of Regulation 13D promulgated by the U.S. Securities and Exchange Commission pursuant to the U.S. Securities Exchange Act of 1934, as amended, or any successor to that Rule. "Date Fixed for Redemption" shall have the meaning specified in Regulation 13.1(b) of these Regulations. 2 "Fair Market Value" of the shares to be redeemed means the product of the number of shares redeemed multiplied by the Redemption Price. "judgment" means a judgment (i) for a liquidated amount in a civil matter; (ii) that is final and conclusive and has not been stayed or satisfied in full; (iii) that is not directly or indirectly for the payment of taxes, penalties, fines or charges of a like nature; (iv) that is not obtained by actual or constructive fraud or duress; (v) in which the rendering court has taken jurisdiction on grounds that are recognized by the common law rules of the British Virgin Islands; (vi) in which proceedings it was obtained were not contrary to natural justice or the public policy of the British Virgin Islands; (vii) in which the Person against whom the judgment is given is subject to the jurisdiction of the court rendering the judgment; and (viii) is not on a claim for contribution in respect of damages awarded by a judgment which does not satisfy the foregoing. "Judgment Amount" means the sum of (i) the liquidated amount of the Judgement, (ii) interest thereon at the legal rate of the jurisdiction in which it was entered from the date of such entry through the Date Fixed for Redemption, and (iii) reasonable expenses of the Company (including its reasonable attorney fees, court costs, administration and overhead costs, and any other related expenses) of enforcing the Judgment and/or redeeming its shares to satisfy the same, less the sum of any amounts thereto fore paid on, or credited against, the Judgment. "Notice" shall have the meaning specified in Regulation 13.1(b) of these Regulations. "Person" means any natural person, corporation, company incorporated under the International Business Companies Act of the British Virgin Islands, limited liability company, general partnership, limited partnership, proprietorship, other business organization, trust, union, association or other "person" defined in the International Business Companies Act of the British Virgin Islands. 3 "Redemption Price" means (i) if the class of shares to be redeemed is traded in the over-the-counter market in the U.S. and not in The Nasdaq National Market nor on any national securities exchange in the U.S., the average of the per share closing bid prices of the shares on the 20 consecutive trading days immediately preceding the Date Fixed for Redemption, as reported by The Nasdaq Small Cap Market (or an equivalent generally accepted reporting service if quotations are not reported on The Nasdaq Small Cap Market), or (ii) if the class of shares to be redeemed is traded in The Nasdaq National Market or on a national securities exchange in the U.S., the average for the 20 consecutive trading days immediately preceding the Date Fixed for Redemption of the daily per share closing prices of the shares in The Nasdaq National Market or on the principal stock exchange in the U.S. on which they are listed, as the case may be. For purposes of clause (i) above, if trading in the shares is not reported by The Nasdaq Small Cap Market, the bid price referred to in said clause shall be the lowest bid price as reported in the Nasdaq Electronic Bulletin Board or, if not reported thereon, as reported in the "pink sheets" published in the U.S. by National Quotation Bureau, Incorporated, and, if such shares are not so reported shall be the price of a share determined by the directors in good faith. The closing price referred to in clause (ii) above shall be the last reported sale price or, in the case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case in The Nasdaq National Market or on the national securities exchange in the U.S. on which the class of shares is then listed. "U.S." shall mean the United States of America. (b) Without limiting the generality of Regulation 13 of these Articles, in the furtherance thereof and in addition to any other rights or remedies available to the Company at law or in equity, the Company may at any time and from time to time redeem, at the Redemption Price per share, all or any of its outstanding shares beneficially owned by any Person, or registered in the name of any Person whose name is entered as a member in the share register, against whom the Company has a Judgment. At least 30 calendar days before the date fixed for redemption as determined by resolution of the directors (the "Date Fixed for Redemption"), a written redemption notice (the "Notice") shall be sent to each beneficial owner and registered holder (if different, from the beneficial owner) whose shares are to be redeemed by first-class mail, postage prepaid, at the address of the beneficial owner and registered holder (if different, from the beneficial owner) as shown on the records of the Company, stating: (i) the class(es) of shares 4 and the number of shares in each such class to be redeemed from the beneficial owner, (ii) the Date Fixed for Redemption, (iii) information on the method to be used to determine Redemption Price in accordance with Regulation 13.1 (a) of these Articles, (iv) the Judgment Amount and (v) the address of the place where the certificates for the shares to be redeemed shall be surrendered for redemption. On or before the Date Fixed for Redemption, each beneficial owner and registered holder (if different, from the beneficial owner) of the shares to be redeemed shall surrender the certificates representing these shares to the Company at the place so designated therefor in the Notice unless the Judgment Amount has theretofore been satisfied in full. On the Date Fixed for Redemption the Company shall pay the Redemption Price for the shares redeemed by offsetting the Fair Market Value of the shares redeemed against the Judgment Amount. If the Fair Market Value of the shares redeemed exceeds the Judgment Amount, then new certificates representing the number of shares determined by dividing such excess by the Redemption Price (and rounding the quotient down to the nearest whole share) shall be issued to the Person whose shares were redeemed. In lieu any fractional shares otherwise issuable, the Company shall pay an amount equal to the Redemption Price multiplied by the fraction. If the Fair Market Value of the shares redeemed is insufficient to fully satisfy the Judgment Amount, the Company shall retain the right to pursue all of its rights and remedies otherwise available to satisfy the deficiency. If the Notice is given in the manner provided in this Regulation, whether or not the certificates covering these shares are surrendered, all rights with respect to the redeemed shares shall terminate except for the right of the Person whose shares are so redeemed to receive credit by offset against the Judgment Amount as herein provided. Unless the certificates covering these shares are received by the company at the place so designated the Judgment Amount will not be deemed to have been satisfied in full. 14. If at any time the authorised share capital is divided into different classes or series of shares, the rights attached to any class or series (unless otherwise provided by the terms of issue of the shares of that class or series) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of not less than three fourths of the issued shares of any other class or series of shares which may be affected by such variation. 15. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, 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 pan passu therewith. 5 16. No notice of a trust, whether expressed, implied or constructive, shall be entered on the share register. TRANSFER OF SHARES 17. Subject to any limitations in the Memorandum, registered share sin the Company may be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee, in the absence of such written instrument of transferor the directors may accept such evidence of a transfer of shares as they consider appropriate. 18. Shares issued to bearer may be transferred by deliver y of the certificate representing such shares. 19. The directors shall have power to close the Share Register for such period as they shall think fit, but not exceeding 90 days in any one year. TRANSMISSION OF SHARES 20. (i) The personal representatives, guardian or trustee as the case may be deceased, incompetent or bankrupt sole holder of a registered nominative share shall be the only persons recognised by the Company as having any title to the share. In the case of a share registered in the names of two or more holders, the survivor or survivors, and the personal representative, guardian or trustee as the case may be of the deceased, incompetent or bankrupt, shall be the only persons recognised by the company as having any title to the share but they shall not be entitled to exercise any rights as a member of the Company until they have proceeded as set forth in the following Regulations. (ii) Any person becoming entitled by operation of law or otherwise to a share or shares in consequence of the death, incompetence or bankruptcy of any member may be registered as a member upon such evidence being produced as may reasonably be required by the directors. An application by any such person to be registered as a member for all purposes shall be deemed to be a transfer of shares of the deceased, incompetent or bankrupt member and the directors shall treat it a such. 21. Any person who has become entitled to a share or shares in consequence of the death, incompetence or bankruptcy of any member may, instead of being registered himself, request in writing that some person to be named by him be registered as a transferee of such share or shares and such request shall likewise be treated as it were a transfer. 6 ACQUISITION OF OWN SHARES 22. Subject to the provisions of the Act, the Company may purchase, redeem or otherwise acquire any of its own shares for such consideration as the Company by resolution of directors considers fit, and either cancel or hold such shares as treasury shares. The Company may dispose of any shares held as treasury shares on such terms and conditions as the Company by a resolution of directors may from time to time determine. Shares may be purchased or otherwise acquired by the Company in exchange for newly issued shares in the Company. 23. Subject to the provisions of the Act as to reduction of capital the Company may be resolution of directors amend its Memorandum of Association to increase or reduce its authorised capital. 24. Any capital raised by the creation of new shares shall be considered as part of the original capital, and shall be subject to the same provisions as if it had been part of the original capital. 25. The Company may amend its Memorandum of Association to (a) consolidate all or any of its share capital into shares of larger amount than its existing shares; (b) cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its authorised share capital by the amount of the shares so cancelled; (c) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association and so that subject to the provisions of Regulation 14 the resolution whereby any share is sub-divided may determine that as between the holders of the shares resulting from such sub-division one or more of the shares may have such preferred or other special rights over or may have such qualified or deferred rights or be subject to any such restrictions as compared with the other or others as the Company has power to attach to unissued or new shares; (d) subject to the provisions of the Act, reduce its issued share capital or any capital represented by the capital redemption reserve fund or by the share premium account in any manner. 26. Where any difficulty arises in regard to any consolidation and division under Regulation 25, the Company by a resolution of directors may settle the same as it thinks expedient. 7 MEETINGS OF MEMBERS 27. The directors may convene meetings of the members of the Company at such times and in such manner and places as the directors consider necessary or desirable, and they shall convene such a meeting upon the written request of members holding more than 30 percent of the votes of the outstanding voting shares in the Company. 28. At least seven days notice specifying the place, the day and the hour of the meeting and the general nature of the business to be conducted shall be given to such persons whose names on the date the notice is given appear as members in the share register of the Company. 29. In the case of shares issued to bearer, the directors shall at least 14 days prior to the date of the meeting cause notice of the same, specifying the place, the day and the hour of the meeting and the general nature of the business to be conducted, to be published in the manner prescribed by the Memorandum of Association. 30. A meeting of the members shall be deemed to have been validly called, notwithstanding that is called in contravention of the requirement to give notice in Regulations 28 and 29 if shorter notice of the meeting is agreed by members holding not less than 90 percent of the total number of shares having a right to attend and vote at the meeting, or if all such members have waived notice of the meeting. Presence at the meeting shall be deemed to constitute waiver. 31. The inadvertent failure of the directors to give notice of a meeting to a member or to the agent or attorney as the case may be, or the fact that a member or such agent or attorney has not received the notice, does not invalidate the meeting. 32. A member may be represented at a meeting of members by proxy. The instrument appointing a proxy shall be in such form as the Chairman of the meeting shall accept and shall be produced at the place appointed for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. 33. In the case of shares issued to bear, the holder of such shares may vote: in person, by producing the Certificate representing such shares to the Chairman of the meeting at which the holder proposes to vote; by proxy, by depositing the certificate with a law firm appointed in writing by the Company or with a recognised bank or trust company which shall give a certificate of deposit and voting instructions in the form below:- 8 CERTIFICATE OF DEPOSIT AND VOTING INSTRUCTIONS The Undersigned hereby declares and certifies that bearer-share certificate(s), representing shares of the share capital of (the "Company"), an International Business Company organised under the laws of the British Virgin Islands, is/are being held by the Undersigned on behalf of the owner(s) of the said shares, who have authorised the Undersigned to represent the said share with full power of substitution at a shareholder's meeting to be held with the following agenda: ( ) In the transaction of such other business as may properly come before meeting. To cast their votes on each of the above mentioned agenda matters at the meeting, and to designate any third party to act in and on its behalf as the representatives of the said shareholders and these shares at the meeting; and the Undersigned with continue to keep the said shares in safekeeping until the date indicated above. In accordance with this power authority, the Undersigned hereby designates and appoints Messrs ________________________________________ and each of them with full power of substitution to represent the Undersigned and said shareholders and to so vote the said shares at the meeting of shareholders of the Company to be held at IN WITNESS WHEREOF, the Undersigned has caused this certificate to be duly executed this day of , 19 ________________________________ NAME OF BANK OR TRUST COMPANY NAME OF LAW FIRM PROCEEDINGS AT MEETINGS OF MEMBERS 34. No business shall be transacted at any meeting of members unless a quorum of members is present at the time when the meeting proceeds to business. A quorum shall consist of one or more members present in person or by proxy representing at least one half of the votes of the shares of each class or series of share entitled to vote as a class or series and the same proportion of the votes of the remaining shares entitled to vote. 9 35. If within one hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitled to vote on the resolutions to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved. 36. The Chairman, if any, of the board of directors shall preside as Chairman at every genera] meeting of the Company. 37. If there is no such Chairman, or if at any meeting he is not present within fifteen minutes after the time appointed for holding the meeting, the members present shall choose someone of their number to be chairman. 38. The Chairman may, with the consent of the meeting, adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. 39. All shares vote as one class and each whole share has one vote. If two or more persons are jointly entitled to a registered nominative share and if more than one of such persons is desirous of voting at the meetings whether in person or by proxy, the vote of that person whose name appears first among such voting joint holders in the share register alone shall be counted. 40. A member may be present at a meeting if he participates by telephone or other electronic means and all members participating at the meeting are able to hear each other. 41. At any meeting of the members the Chairman shall be responsible for deciding in such manner as he shall consider appropriate whether a resolution has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes thereof. If the Chairman shall have any doubt as to the outcome of any resolution put to the vote, he shall cause a poll to be taken of all votes cast upon such resolution, but if the Chairman shall fail to take a poll then any member present in person or by proxy who disputes the announcement by the Chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the Chairman shall thereupon cause a poll to be taken. If a poll is taken at any meeting, the result thereof shall be duly recorded in the minutes of that meeting by the Chairman. 10 42. Unless a poll be so demanded, a declaration by the Chairman that a resolution has, on a show of hands, been carried, and an entry to that effect in the book containing the minutes of the proceedings of the Company, shall be sufficient evidence of the fact, without proof of the number or proportion of the votes recorded in favour of or against such resolution. 43. If a poll demanded it shall be taken in such manner as the Chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The demand for a poll may be withdrawn. 44. A resolution which has been notified to all members for the time being entitled to vote and which has been approved by a majority of the votes of those members in the form of one or more documents in writing by telex, telegram, cable or other written electronic communication shall without the need for any notice, become effectual as at the dates thereof as a resolution of the members. 45. Any person other than an individual shall be regarded as one member and subject to Regulation 46 the right of any individual to speak for or represent such member shall be determined by the law of the jurisdiction where, and by the documents by which, the person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any member. 46. Any person other than an individual which is a member of the Company may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative at any 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 person which he represents as that person could exercise if it were an individual member of the Company. DIRECTORS 47. The first director or directors shall be elected by the subscriber to the Memorandum of Association. Thereafter, the directors, other than in the case of a vacancy, shall be elected by the members for such term as the members may determine and may be removed by them. 48. The number of the directors shall be not less than one nor more than eight. 49. Each director holds office according to the terms of his appointment until his successor takes office or until his earlier death, resignation or removal. 50. A vacancy in the board of directors may be filled by the appointment of a new director pursuant to a resolution of members or of a majority of the remaining directors. 11 51. A director shall not require a share qualification, but nevertheless shall be entitled to attend and speak at any meeting of the members and at any separate meeting of the holders of any class of shares in the Company. 52. A director by writing under his and deposited at the Registered Office of the Company may from time to time appoint another director or any other person to be his alternate. Every such alternate shall be entitled to be given notice of meetings of the directors and to attend and vote as a director at any such meeting at which the director appointing him is not personally present and generally at such meeting to have and exercise all the powers, rights, duties and authorities of the director appointing him. Every such alternate shall be deemed to be an officer of the Company and shall not be deemed to be an agent of the director appointing him. If undue delay or difficulty would be occasioned by giving notice to a director of a resolution of which his approval is sought in accordance with Regulation 80 his alternate (if any) shall be entitled to signify approval of the same on behalf of that director. A director by writing under his hand deposited at the Registered Office of the company may at any time revoke the appointment of an alternate appointed by him. If a director shall die or cease to hold the office of director, the appointment of his alternate shall thereupon cease and terminate. 53. The directors may, by resolution of directors, fix the emoluments of directors in respect of services rendered or to be rendered in any capacity to the company. The directors may also be paid such travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors, or any committee of the directors or meetings of the members, or in connection with the business of the Company as shall be approved by resolution of directors. 54. Any director who, by request, goes or resides abroad for any purposes of the Company or who performs services which in the opinion of the Board go beyond the ordinary duties of a director, may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as shall be approved by resolution of directors. 55. The Company may pay to a director who at the request of the Company holds any office (including a directorship) in, or renders services to any company in which the Company may be interested, such remuneration (whether by way of salary, commission, participation in profits or otherwise) in respect of such office or services as shall be approved by resolution of directors. 56. The office of director shall be vacated if the director:- (a) is removed from office by resolution of members or (b) becomes bankrupt or makes any arrangement or composition with his creditors generally, or 12 (c) becomes of unsound mind, or of such infirm health as to be incapable of managing his affairs, or (d) resigns his office by notice in writing to the Company. 57. A director may hold any other office or position of profit under the Company (except that of auditor) in conjunction with his office of director, and may act in a professional capacity to the Company on such terms as to remuneration and otherwise as the directors shall arrange. 58. A director may be or become a director other officer of, or otherwise interested in any company promoted by the Company, or in which the Company may be interested, as a member or otherwise, and no director shall be accountable for any remuneration or other benefits received by him as director or officer or from his interest in such other company. The directors may also exercise the voting powers conferred by the shares in any other company held or owned by the Company in such manner in all respects as they think fit, including the exercise thereof in favour of any resolutions appointing them, or any of their number, directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company. A director may vote in favour of the exercise of such voting rights in manner aforesaid, notwithstanding that he may be, or be about to become, a director or officer of such other company, and as such in any other manner is, or may be, interested in the exercise of such voting rights in manner aforesaid. 59. No director shall be disqualified by reason of his office from contracting with the Company, either as vendor, purchase or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any director shall be in any way interested by avoided, nor shall nay director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement, by reason of such director holding that office or of the fiduciary relationship thereby established. The nature of a director's interest must be declared by him at the meeting of the directors at which the question of entering into the contract or arrangement is first taken into consideration, and if the director was not at the date of that meeting interested in the proposed contract or arrangement, or shall become interested in a contract or arrangement after it is made, he shall forthwith after becoming so interested advise the Company in writing of the fact and nature of his interest. A general notice to the directors by a director that he is a member of a specified firm or company, and is to be regarded as interested in any contract or transaction which may, after the date of notice, be made with such firm or company shall (if such director shall give the same at a meeting of the directors, or shall take reasonable steps to secure that the same is brought up and read at the next meeting of directors after it is given) be a sufficient declaration of interest in relation to such contract or transaction with such firm or company. 13 60. A director may be counted as one of a quorum upon a motion in respect of any contract or arrangement which he shall make with the Company, or in which he is so interested as aforesaid, and may vote upon such motion. However, if the agreement or transaction cannot be approve by a resolution of directors without counting the vote or consent of any interested director the agreement or transaction may only be validated by approval or ratification by a resolution of members. OFFICERS 61. (i) The Company may, by a resolution of directors, appoint officers of the Company at such times as shall be considered necessary or expedient, and such officers may consist of a President one or more Vice-Presidents, a Secretary and a Treasurer and such other officers as may from time to time be deemed desirable. The officers shall perform such duties as shall be prescribed at the time of their appointment subject to any modification in such duties as may be prescribed by the directors thereafter, but in the absence of any specific allocation of duties it shall be the responsibility of the President to manage the day to day affairs of the Company, the Vice-Presidents to act in order of seniority in the absence of the President but otherwise to perform such duties as may be delegated to them by the President, the Secretary to maintain the registers, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the Treasurer to be responsible for the financial affairs of the Company. (ii) Any person may hold more than one office and officer need be a director or member of the Company. The officers shall remain in office until removed from office by the directors whether or not a successor is appointed. 62. Any officer who is a body corporate may appoint any person its duly authorised representative for the purpose of representing it and transacting any of the business of the officers. 63. The Registered Agent may certify to whom it may concern the names and addresses of the directors and officers of the Company and the terms of their encumbency. 14 POWERS OF DIRECTORS 64. The business and affairs of the Company shall be managed by the directors who may pay all expenses incurred preliminary to and in connection with the formation and registration of the Company, and may exercise all such powers of the Company as are not by the Act or by these Regulations required to be exercised by the members subject to any delegation of such powers as may be authorised by these Regulations and to such requirements as may be prescribed by resolution of the members; but no requirement made by resolution of the members shall invalidate any prior act of the directors which would have been valid if such requirement had not been made. Notwithstanding the generality of the foregoing the Company may by resolution of directors exercise the several powers granted to it by Section 9 of the Act and by the Memorandum of Association to inter alia transfer any of its assets in trust. 65. The Board may entrust to and confer upon any director or officer any of the powers exercisable by it upon such terms and conditions and with such restrictions as it thinks fit, and either collaterally with, or to the exclusion of, its own powers, and may from time to time revoke, withdraw, alter or vary all or any of such powers. The directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the directors. 66. The Company may from time to time and at any time by resolution of directors appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities any discretions (not exceeding those vested in or exercisable by the directors under these Regulations) and for such period and subject to such conditions as they may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the directors may think fit and may also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested in him. 67. Any director who is a body corporate may appoint any person its duly authorised representative for the purpose of representing it at Board Meetings and of transacting any of the business of the directors. 68. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as the Company shall from time to time by resolution of directors determine. 15 69. The directors may by resolution of directors exercise all the powers of the Company to borrow money and to mortgage or charge its undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party. 70. Subject to Regulation 48 the continuing directors may act notwithstanding any vacancy in their body. PROCEEDINGS OF DIRECTORS 71. The directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be decided by a majority of votes; in case of an equality of votes the Chairman shall have a second or casting vote. A director may at any time summon a meeting of directors. 72. Provided that there shall be more than one director the quorum for directors' meetings shall be one third of the total number of directors and a minimum of 7 days notice (exclusive of the day of the meeting) shall be given to all directors and alternate directors of any meeting of the board unless all the directors or their alternates on their behalf shall waive such notice for any particular meeting or any director shall waive his right to receive notice. Presence at the meeting shall be deemed to constitute waiver. 73. A sole director shall have full power to represent the Company notwithstanding the reference in these Regulations to a Board of Directors consisting of more than one person. 74. The directors may elect a chairman of their meeting and determine the period for which he is to hold office, but if no such chairman is present at the time appointed for holding the same, the directors present shall choose one of their number to be the chairman of such meeting. 75. The directors may, subject to the Act, delegate any of their powers to committees consisting of such of their body as they think fit; any committee so formed shall, in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the directors. 76. A committee may elect a chairman of its meeting; if no such chairman is elected, or if he is not present at the time appointed for holding the meeting the members of the committee present shall choose one of their number to be chairman of such meeting. 16 77. A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of its members present, and in case of an equality of votes, the chairman shall have a second casting vote. 78. All acts done by any meeting of the directors or of a committee of directors, or by any person acting as a director, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such directors or persons acting as aforesaid, or that they or any of them were disqualified are hereby ratified and shall be as valid as if every such person had been duly appointed and was qualified to be a director. 79. The directors shall cause the following books to be kept: (a) minutes of all meetings of directors, members and committees appointed by them; (b) copies of all resolutions consented to by directors, members and committees appointed by them; (c) such other books and records as may be necessary or desirable in their opinion to reflect the financial position of the Company. 80. A resolution approved by all the directors or members of a committee for the time being entitled to receive notice of a meeting of the directors or of a committee of the directors and taking the form of one or more documents in writing or messages transmitted by teleprinter from a duly authenticated source shall be as valid and effectual as if it had been passed at a meeting of the directors of such committee duly convened and held. Any one or more members of the board of directors or any committee thereof may participation a meeting of such board or committee by means of a conference telephone or similar communication equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. INDEMNITY 81. Subject to the provisions of the Act every director or other officer of the Company shall be entitled to be indemnified out of the assets of the Company against all losses or liabilities which he may sustain or incur in or about the execution of the duties of his office or otherwise in relation thereto, and no director or other officer shall be liable for any loss, damage or misfortune which may happen to, or be incurred by the Company in the execution of the duties of his office, or in relation thereto provided he acted honestly and in good faith with a view to the best interest of the Company and except for his own willful mis-conduct or negligence. 17 SEAL 82. The directors shall provide for the safe custody of the seal, and every instrument to which the seal shall be affixed shall be signed by one or more persons so authorised from time to time by the directors. If so authorised by resolution of directors, a facsimile of the seal and of the signatures of any authorised signatory as is herein provided may be reproduced by printing or other means on any instrument and shall have the same force and validity as if the seal had been affixed to such instrument and the same had been signed as hereinbefore described. DIVIDEND AND RESERVES 83. The directors may from time to time declare and pay a dividend whether interim or final and whether in money or in specie, but no dividend shall be declared and paid:- (1) except out of surplus; (2) unless the directors determine that immediately after payment of the dividend; (a) the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and (b) the realisable value of the assets of the Company will not be less than the sum of its total liabilities (other than deferred taxes) as shown in the books of account and of its capital. 84. The directors may, before declaring any dividend, set aside out of the profits of the Company such sum as they think proper as a reserve fund for whatever purpose, and may invest the sum so set apart as a reserve fund upon such securities as they may select. 85. The directors may deduct from the dividends payable to any shareholder all such sums of money as may be due from him to the Company. 86. Notice of any dividend that may have been declared shall be given to each shareholder in manner hereinafter mentioned and all dividends unclaimed for three years after having been declared may be forfeited by the directors for the benefit of the Company. 87. No dividends shall bear interest as against the Company. 88. Any one of the joint holders of a share may give a valid receipt to the Company, for dividends paid thereon. 18 ACCOUNTS 89. The books of account shall be kept at the registered office of the Company, or at such other place or places as the directors think fit. 90. The directors may be required by a resolution of members to cause to be made out and lay before the Company in a meeting of members at some date not later than eighteen months after incorporation of the Company and subsequently once at least every calendar year a profit and loss account for a period in the case of the first account since incorporation of the Company and in any other case, since the preceding account, made to a date not earlier than the date of the meeting by more than twelve months, and a balance sheet as at the date to which the profit or loss of the Company for that financial period, and a true and fair view of the state of the affairs of the Company as at the end of that fiscal period. 91. If so required by the members, a copy of such profit and loss account and balance sheet shall be served on every member in the manner to that prescribed herein for calling a meeting. AUDIT 92. The directors may call for the accounts to be examined by an auditor or auditors and shall do so if required by a resolution of members. 93. The auditors shall be appointed by the directors, unless otherwise appointed by a resolution of members. 94. The auditors may be shareholders of the Company but no director or other officer shall be eligible to be an auditor of the Company during his continuance in office. 95. The remuneration of the auditors of the Company:- (a) in the case of auditors appointed by the directors, may be fixed by the directors, (b) subject to the foregoing, shall be fixed by the company by a resolution of members. 96. The auditors shall examine each profit and loss account and balance sheet required to be laid before the Company in accordance with Regulation 90 and shall state in a written report whether or not:- (a) in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the state of affairs of the Company at the end of that period; 19 (b) all the information and explanations required by the auditors have been obtained. 97. The report of the auditors shall be annexed to the accounts and shall be read at the meeting, if any, at which the accounts are laid before the Company. 98. Every auditor of the company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors. 99. The auditors of the Company shall be entitled to receive notice of, and to attend any meeting of members of the Company at which the Company's profit and loss account and balance sheet are to be presented in accordance with Regulation 90. CAPITALISATION OF PROFITS AND BONUS SHARES 100. The directors may resolve that it is desirable to capitalise any part of the amount for the time being standing to the credit of the Company's surplus account or otherwise available for distribution as a dividend 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 applied either in or towards paying up in full unissued shares or debentures of the Company to be allotted and distributed credited as fully paid to and amongst such members. 101. A share allotted in accordance with Regulation 100 hereof shall be treated for all purposes as having been issued for money equal to the surplus that is transferred to capital upon the issue of the share. 102. In the case of an allotment of authorised but unissued shares with par value, an amount equal to the aggregate par value of the shares shall be transferred from surplus to capital at the time of the allotment. 103. In the case of an allotment of authorised but unissued shares without par value, the amount designated by the directors shall be transferred from surplus to capital at the time of the allotment, except that the Company by resolution of directors must designate as capital an amount that is at least equal to the amount that the shares are entitled to as preference if any in the assets of the Company upon liquidation of the Company. 104. The allotment of bonus shares shall for the purposes of the Act be treated as a dividend of shares. 20 105. The directors shall make all appropriations and applications of the surplus thereby resolved to be capitalised and all allotments and issues of fully-paid shares or debentures if any, and generally shall do all acts and thinks required to give effect thereto, with full power to the directors to ignore fractions altogether or to determine that payment be made in cash or otherwise as they think fit in the case of shares or debentures becoming distributable in fractions, and also to authorise 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, of any further shares or debentures to which they may be entitled upon such capitalisation, and any agreement made under such authority shall be effective and binding on all such shareholders. The directors may appoint any person to sign on behalf of the person entitled to participate in the distribution any contract necessary or desirable for giving effect thereto and such appointment shall be effective and binding upon the shareholders. NOTICES 106. A notice may be served by the Company upon any registered nominative shareholder either personally or by posting it by airmail service in a prepaid letter addressed to him at his address as shown in the share register or by cable or by telex should the directors think it appropriate and in the case of the holders of shares issued to bearer notice may be served by the Company in the manner prescribed by the Memorandum. 107. All notices directed to be given to the shareholders shall, with respect to any share to which persons are jointly entitled, be given to whichever of such persons is named first in the Register of Shareholders, and notice so given shall be sufficient notice to all the holders of such share. 108. Any notice, if served post, shall be deemed to have been served within ten days of posting and in proving such service, it shall be sufficient to prove that the letter containing the notice was properly addressed and put into the Post Office. Notices by cable or by telex shall be deemed to have been served 24 hours after despatch. 109. Notice may be served on the Company by posting it by prepaid service addressed to the Company at its Registered Office or to its Registered Agent. 21 PENSION AND SUPERANNUATION FUNDS 110. The directors may establish and maintain or procure the establishment and maintenance of any non-contributory or contributory pension or superannuation funds for the benefit of, and give or procure the giving of donations, gratuities pensions, allowances or emoluments to any persons who are or were at any time in the employment or service of the Company or any Company which is a subsidiary of the Company or is allied to or associated with the Company or with any such subsidiary or who are or were at any time directors or officers of the Company or of any such other Company as aforesaid or who hold or held any salaried employment or office in the Company or such other Company, or any persons in whose welfare the Company or any such other company as aforesaid is or has been at any time interested, and to the wives, widows, families and dependants of any such person, and may make payments for or towards the insurance of any such persons as aforesaid, and may do any of the matters aforesaid either alone or in conjunction with any such other company as aforesaid. Subject always if the Act shall so require to particulars with respect thereto being disclosed to the shareholders, and to the proposals being approved by the company by resolution of members, a director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension, allowance or emolument. WINDING UP 111. The Company may commence winding up and dissolve by resolution of members save that if the Company has never issued shares, by resolution of directors. The Company and its liquidator shall wind up the affairs of the Company pursuant to the provisions of the Act. ARBITRATION 112. Whenever any differences arise between the Company on the one hand and any of the shareholders, their executors, administrators or assigns on the other hand touching the true intent and construction or the incidence or consequences of these presents or of the Act, touching anything then or thereafter done or executed, omitted or suffered in pursuance of the Act or touching any breach or alleged breach or otherwise relating to the premises or to these presents or to any Act affecting the Company or to any of the affairs of the Company, such difference shall unless the parties agree to refer the same to a single arbitrator be referred to two arbitrators shall before entering on the reference appoint an umpire. 22 113. If either party to the reference makes default in appointing an arbitrator either originally or by way of substitution (in the event that an appointed arbitrator shall dies, be incapable of acting or refuse to act) for ten days after the other party has given him notice to appoint the same, such other party may appoint an arbitrator to act in the place of the arbitrator of the defaulting party. AMENDMENT TO ARTICLES 114. The Company may by resolution of directors or by resolution of members alter or modify these Regulations as originally drafted or as amended from time to time. UNDER FOREIGN LAW 115. The Company may by a resolution of directors or a resolution of members continue as a company incorporated under the laws of another jurisdiction which may permit such continuation and in the manner provided by those laws and may by a resolution of directors or of members amend its Memorandum and Articles to be consistent therewith. 23 EX-4.5 4 u98916exv4w5.txt AGMT BETWEEN SONY ERICSSON & NAM TAI MARCH 20, '02 EXHIBIT 4.5 Page 1 of 7 20th March 2002 SPECIFIC SERVICE AGREEMENT BETWEEN SONY ERICSSON MOBILE COMMUNICATIONS AB (HEREINAFTER REFERRED TO AS "SONY ERICSSON") AND NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LTD. (HEREINAFTER REFERRED TO AS THE "SUPPLIER") REGARDING PROJECT AUGUST Page 2 of 7 20th March 2002 TABLE OF CONTENTS 1. TERMINOLOGY, INTEGRATED PART................... 1 2. SCOPE OF THE SSA............................... 2 3. FORECASTS AND ROADMAPS......................... 2 4. COMMUNICATION AND CONTACTPERSONS............... 2 5. INDUSTRIALISATION SERVICES..................... 2 6. PROTOTYPES...............,..................... 3 7. SPECIFICATION.................................. 3 8. DOCUMENTATION.................................. 3 9. PRICING AND TERMS OF PAYMENT................... 3 10. TERMS OF DELIVERY.............................. 4 11. PACKING AND LABELLING.......................... 4 12. WARRANTY....................................... 4 13. QUALITY........................................ 4 14. PURCHASE OF COMPONENTS......................... 5 15. TERM OF AGREEMENT AND TERMINATION.............. 5

ENCLOSURES: Enclosure 2.1 SPA Enclosure 2.3 Project Plan Enclosure 16.1 Purchase of components Page 1 of 7 20th March 2002 SPECIFIC SERVICE AGREEMENT made as of 20th March 2002, by and between Sony Ericsson Mobile Communications AB, Org no 556615-6658, a limited liability Company duly incorporated and existing under the laws of Sweden, with its legal address at Nya Vattentornet, S-221 88 Lund, Sweden, hereinafter referred to as "Sony Ericsson", and NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd, with organisation number 129666, a corporation duly incorporated and existing under the laws of Hong Kong and having its registered office at 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong (hereinafter referred to as the "Supplier"). (hereinafter referred to as the "Supplier"). WHEREAS: 1. Ericsson and Supplier have entered into the General Service and Purchase Agreement, GSPA, dated 15th February 2001 among other agreements, 2. The GSPA contains the general terms and conditions for the performance of Product Supply to Ericsson, Mobile Phone Accessories, from Supplier, 3. It is intended that the GSPA will be supplemented by one (1) or more SSA's setting out the specific provisions relating to the performance of Product Supply, and 4. The Supplier has explained that it is willing and fully able to perform the Product Supply on behalf of Sony Ericsson for delivery of high quality Products, under the terms and conditions set out in this SSA and the GSPA. NOW THEREFORE, in consideration of the mutual obligations herein contained, the Parties agree as follows: 1. TERMINOLOGY, INTEGRATED PART The GSPA shall be an integrated part of this SSA and, accordingly, all terms and conditions in the GSPA shall also apply to this SSA. Capitalised terms contained herein shall have the meanings assigned to them below or as ascribed to them in the GSPA unless otherwise defined in the context or document where it is used. "AGREEMENT", means this Specific Service Agreement. "GSPA", means the General Service and Purchase Agreement referred to in the "Whereas"-section above entered into between the Parties. "PRODUCT", means the Camera August, developed by C Technologies AB on behalf of Sony Ericsson and further specified in this Agreement. "SPA", means the Specific Purchase Agreement enclosed hereto. Page 2 of 7 20th March 2002 "SSA", means this Specific Service Agreement. 2. SCOPE OF THE SSA 2.1 Under the terms and conditions set forth in the Agreement Documents (i) Supplier shall - exclusively for Sony Ericsson - perform Product Supply regarding the Product, and (ii) Sony Ericsson shall be entitled to purchase the Products from Supplier under the SPA included hereto as Enclosure 2.1. 2.2 In the event of an inconsistency in the Agreement Document, the inconsistency shall be resolved by giving documents precedence in the following order: (i) The Purchase Order, excluding Sony Ericsson's general purchasing conditions if such have been enclosed with the Purchase Order, (ii) The SPA, including enclosures in the order provided, (iii) This Agreement excluding the Enclosures, (iv) Enclosure 2.3 Project Plan (v) Enclosure 16.1 Purchase of components, and (vi) The GSPA. 2.3 Included in the Product Supply shall be repair and maintenance services as set out in Enclosure 2.3. 3. FORECASTS AND ROADMAPS 3.1 A forecast of RTL and production volumes is included in Enclosure 2.3.These volume is only for production and capacity planning purposes. Sony Ericsson is not committed to buy according to the forecasted volumes. Sony Ericsson liability of the risk order volumes and forecasted volumes as per Article 14. 4. COMMUNICATION AND CONTACT PERSONS 4.1 In accordance with Subsection 5.5 of the GSPA the Parties hereby appoint the contact persons set out in Enclosure 2.3 to receive and to communicate information. 5. INDUSTRIALISATION SERVICES 5.1 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.1 of the GSPA, lead and be responsible for the industrialisation of Product. 5.2 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.4 of the GSPA, provide information for the design work and furthermore manufacture the test applications. 5.3 The requirements for traceability as provided in Subsection 6.7 in the GSPA shall be as set out in Enclosure 2.3. Page 3 of 7 20th March 2002 6. PROTOTYPES 6.1 Supplier shall (i) provide Sony Ericsson with the Prototype (ii) perform the testing of the Prototype, and (iii) provide Sony Ericsson with written reports of the analysis of the Prototypes. 7. SPECIFICATION 7.1 Supplier shall not deliver any Products unless they meet the requirements set out in the Specification as set out in Enclosure 2.3 and amended from time to time in and as further described in Section 14 in the GSPA. 8. DOCUMENTATION 8.1 Project Documentation The Supplier shall submit written reports to Sony Ericsson on the activities and the progress of the Product Supply. Such reports shall include the reports and plans specified in Enclosure 2.3. 8.2 Product Documentation Supplier shall produce and deliver to Sony Ericsson Product Documentation fulfilling the requirements set out in templates included in Enclosure 2.3. 9. PRICING AND TERMS OF PAYMENT 9.1 Current price The current price of the Product shall be as set out in Enclosure 2.1, the SPA. 9.2 Currency All invoices sent by Supplier shall be in the currency that has the greatest impact, as agreed by the Parties, on the final price of the Product. Should the Parties not be able to reach such an agreement then the invoices sent by Supplier shall be in SEK. 9.3 Price review The price of the Products shall be reviewed and agreed quarterly before the ending of every quarter in order for the prices to be firm for deliveries during the following quarter. The basis for the price review shall be: (i) significant changes in volumes, and/or; (ii) fluctuations in the exchange rate as defined below, and/or; (iii) changes to the Specification, and/or; Page 4 of 7 20th March 2002 (iv) increased production efficiency including but not limited to"The learning curve advantage", and/or; (v) changes in the price of the components. (vi) delivery performance in the last quarter before against agreed and acknowledge order, call of lead time Changes in the Specification and/or changes of a specific component price during a quarter, which causes a different price shall immediately or with a reasonable delay - due to material in stock - apply to all ordered Products. Such reasonable delays shall however only relate to reasonable explainable normal stock levels or situations with higher stock levels attributable to Sony Ericsson. At the quarterly price review meetings Supplier will describe and specify the changes made during the quarter. The different price shall be passed on to Sony Ericsson at the aforementioned fixed exchange rate as defined in GSPA. 10. TERMS OF DELIVERY 10.1 Delivery time The Supplier shall perform the Product Supply, in accordance with the time-schedule set out in Enclosure 2.3 Dates of delivery of volume produced Products shall be as stated in the relevant P.O. 10.2 Delivery terms Applicable terms of delivery shall be FCA Hong Kong International Airport, INCOTERMS 2000, unless otherwise agreed in P.O. 11. PACKING AND LABELLING 11.1 The Products shall be packed and marked separately as set out in the Specifications and the applicable Purchase Order. The Purchase Order and product numbers shall be set out in the shipping documents. 12. WARRANTY 12.1 The replacement or repair the Products shall be made by Supplier as soon as possible from the return of the Products to Supplier by Sony Ericsson, but Sony Ericsson shall receive the replaced or repaired Product in no event later than within ten business days from the receipt of the Product by the Supplier. 13. QUALITY 13.1 Product related Standards and Requirements 13.1.1 All Product Supply shall be handled in accordance with the standards/requirements set out in the Specification and in Enclosure 2.3 13.1.2 The defect intensity of the Products must not exceed the values set out the Specification. A defect intensity below these limits does not limit Sony Page 5 of 7 20th March 2002 Ericsson's right to exercise its applicable remedies due to non-conforming Products. 14. PURCHASE OF COMPONENTS 14.1 The Supplier shall purchase materials at contracted prices under existing Sony Ericsson Agreements for supply of materials as set out in Enclosure 16.1. 14.2 Liability for risk order material as set out in Enclosure 16.1 14.3 The Supplier is responsible for the purchase and supply of all components. 15. TERM OF AGREEMENT AND TERMINATION 15.1 This Agreement shall come into force upon its execution by duly authorised representatives of both Parties and shall remain in effect until three (3) months have passed following written notice of termination by either Party, unless terminated on an earlier date as set out in Section 29 "TERM OF AGREEMENT AND TERMINATION" in the GSPA. 15.2 The Supplier is aware of that the development of the new Product will be continuously reviewed to assess whether the Product will reach the market on time, at an appropriate end user price and fit into the Sony Ericsson's market strategy at the time, etc. The Parties agree that Sony Ericsson shall be entitled at any time to terminate this Agreement, any Purchase Order, by giving the Supplier twenty (20) Business Days written notice. 15.3 In the event of Sony Ericsson's termination under 15.2, Sony Ericsson shall pay to the Supplier the actual direct costs accrued under the Agreement at the time of termination. The Supplier shall not be entitled to any other compensation IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed, in duplicate, each party taking one copy. Date: 20th March 2002 Date: 20th March 2002 Place: Hong Kong Place: Lund NAM TAI ELECTRONIC & SONY ERICSSON MOBILE ELECTRICAL PRODUCTS Ltd COMMUNICATIONS AB /s/ Karene Wong /s/ Bill Lichtensteiger - ----------------------- -------------------------------- Karene Wong Bill Lichtensteiger Managing Director Enclosure 2.3 [SONY ERICSSON LOGO] 1 (5) Internal Limited. PROJECT PLAN AUGUST Prepared (also subject responsible it other) No. NDU/P Ola Lonhage NDU/P-02:1617 Checked Date Rev Reference Approved 2002-03-27 B File NDU/PC Gunilla Wejfeldt PROJECT PLAN AUGUST CONFIDENTIAL The content of this document is the property of Sony Ericsson Mobile Communication AB and may not be communicated to any other party in any form without the prior written consent of Sony Ericsson Mobile Communication AB. Project Manager: NDU/ P Ola Lonhage Product Manager: NM Carina Rietz Sony Ericsson Cost Center: 32640 Project Account Number: 10003418 TABLE OF CONTENTS 1 Revision history 2 2 Project Summary 2 3 Activities 2 4 Time Schedule 2 5 Prototypes 3 6 Type Approval 3 7 Volume Estimates 3 8 Project Responsibilities 4 9 Contractors 4 10 Project Control 5 11 Cross Project Links 5 12 References 5

[SONY ERICSSON LOGO] 2 (5) Internal Limited PROJECT PLAN AUGUST No. Prepared (also subject responsible it other) NDU/P ola Lonhage NDU/P-02:1617 Checked Date Rev Reference Approved 2002-03-27 B File NDU/PC Gunilla Wejfeldt 1. REVISION HISTORY Rev ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ 2. PROJECT SUMMARY August is the successor of the Gustav camera. August are cost "improved. Added features/ functions are optical viewfinder and Effect, former FunLayers described in PRS NM 02:1507. 3. ACTIVITIES According to August Project Meeting NDU/ P 01:1615 and August Project Organization NDU/ P 02:1642. 3.1 HARDWARE Responsible developer C-Tech: PM Ola Hakanson 3.2 MECHANICS Responsible developer Namtai: PM Ivan Shui 3.3 SOFTWARE Same as 3.1 3.4 MISC. N/A [SONY ERICSSON LOGO] 3 (5) Internal Limited PROJECT PLAN AUGUST No. Prepared (also subject responsible if other) NDU/P Ola Lonhage NDU/P-02:1617 Checked Date Rev Reference Approved NDU/PC Gunilla Wejfeldt 2002-03-27 B File 4. TIME SCHEDULE More detailed time schedule is found in the Time Plan (Microsoft Project Gantt Chart) Document No.: NDU/P02:1617
ACTIVITY PLANNED ESTIMATED ACTUAL Milestone 2 W 208 W W Tollgate 2 W 209 W W PA W TBD W W Milestone 3 W 225 W W Tollgate 3 W TBD W W Milestone 4 W 232 W W Tollgate 4 W TBD W W LL W 233 W W RTL W 239 W W Milestone 5 W 241 W W Tollgate 5 W TBD W W Milestone 6 W 249 W W Tollgate 6 W TBD W W
5. PROTOTYPES
PROTOTYPES PLANNED ESTIMATED ACTUAL UNITS ~~EP1 W18 W W 50 PCS FP1 W20 W W 250 PCS FP2 W24 W W 580 PCS~~
6. TYPE APPROVAL 6.1 RADIO APPROVAL PLANNED ESTIMATED ACTUAL W 24 W W 6.2 EMC APPROVAL PLANNED ESTIMATED ACTUAL W 24 W W [SONY ERICSSON LOGO] 4 (5) Internal Limited PROJECT PLAN AUGUST No. Prepared (also subject responsible if other) NDU/P OIa Lonhage NDU/P-02:1617 Checked Date Rev Reference Approved NDU/PC Gunilla Wejfeldt 2002-03-27 B File 6.3 SAFETY
APPROVAL PLANNED ESTIMATED ACTUAL ~~W 24 W W~~
7. VOLUME ESTIMATES
PLANNED ESTIMATED ACTUAL UNITS Pre-Series* W 28 W W 2.5 kpcs Series Start ** W 32 W W RTL volume W 39 W W 20 kpcs Capacity per month 25 kpcs Amortization volume 50 kpcs Total volume 150 kpcs Estimated lifetime 9 month
* "Limited Production" ** "Volume Production" 8. PROJECT RESPONSIBILITIES SONY ERICSSON MOBILE COMMUNICATIONS AB +46 46 19 40 00 According to NDU/ P 01: 1623 and NDU/ P 01: 1615 9. CONTRACTORS 9.1 DESIGN (Development) According to NDU/ P 01: 1623 and NDU/ P 01: 1615 Agreement no. CTECH: AUGUST: 20020319 9.2 PRODUCTION (Manufacturing) According to NDU/ P 01: 1623 and NDU/ P 01: 1615 Agreement no. NAMTAI: AUGUST: 20020320 [SONY ERICSSON LOGO] 5 (5) Internal Limited PROJECT PLAN AUGUST No. Prepared (also subject responsible if other) NDU/P OIa Lonhage NDU/P-02:1617 Checked Date Rev Reference Approved NDU/PC Gunilla Wejfeldt 2002-03-27 B File 10 PROJECT CONTROL TTM Work Model NDU/P 02:1617 11 CROSS PROJECT LINKS Mira 12 REFERENCES NDU/ P 02:1604 NDD 01:1201 According to C-Tech Quote According to C-Tech Quote According to C-Tech Quote According to KIDQ 01:11029 According to August-0301 (Namtai) FRW 02:5031 NDD 01:1208 NDV 02:1101 According to August-0301 (Namtai) 109 42- DPY 901334 latest rev. Enclosure 16.1 PURCHASE OF MATERIAL Sourcing of components Supplier may source components from any agreed third party fulfilling the agreed specification of each component. Supplier is responsible to secure supply of component to enable the delivery of the Product as per the latest advised forecast. Liability of risk order material. Sony Ericsson will assume liability for long lead items as defined below, included in the BOM for the volumes as estimated in the forecast provided by Sony Ericsson, Such liability is limited to maximum 14.000 units per month for a three month period. (i.e. Maximum 42.000 unit of each item) The price for such long lead items as defined below. Supplier undertakes to make his best efforts to cancel any outstanding purchase order of components or to resell or reuse any excess component prior to making any claim to Sony Ericsson. Supplier undertakes to keep such material in stock free of charge for the first three months after the latest production lot. From month four to nine after such event Sony Ericsson will cover the interest cost of the listed items based upon an reasonable interest rate and reasonable warehousing cost for the items listed herein. After this nine months period Supplier may claim that this liability undertaking by Sony Ericsson shall be executed. Supplier shall not keep more material in stock than necessary considering lead times among others. The maximum liability under any circumstance is limited to 435.120 USD
Part number Description Leadtime, Weeks Price, USD - ----------- ----------- --------------- ---------- Sensor 12 3,30 Flash memory 12 1,30 RAM memory 12 1,80 Lens 12 2,75 ESD Protector IC 9 0,27 Regulator 9 0,13 Regulator 9 0,14 Tan Cap 9 0,25 Tact Switch 8 0,12 Crystal 8 0,3
For the Argus circuit special conditions will apply as below, (as agreed with C-Tech) Namtai to place such Frame Order at C-Tech as outlined below PRICE OF ARGUS ASIC CT100A1-BG BGA160: 0-50 000 units: USD 6.45 51 000 to 100 000 units: USD 5,95 > 100 000 units: USD 5,85 The price is firm for deliveries during 2002 and 2003. Sony Ericsson and C-Tech will re negotiate such price in December 2002. SPECIAL CONDITIONS REGARDING PURCHASE OF ARGUS: Enclosure 16.1 NamTai shall place a frame purchase order at C-Tech (hereinafter the "Frame Order") for fifty-thousand (50,000) units of "Argus" no later than three (3) months prior to production ramp-up currently planned for during June 2002, The said Frame Order shall include a delivery schedule indicating volumes on a monthly basis for at least the remainder of 2002 starting from June 2002 (the entire above referenced 50 000 units shall be scheduled for delivery prior to the end of November 2002) to be called off by NamTai. Sony Ericsson will provide Supplier with sufficient information to enable such forecast to C-Tech. NamTai may cancel or decrease the number of units scheduled for delivery for a specific month under the delivery schedule contained in the Frame Order subject to Nam Tai being liable to pay C-Tech the following fees:
CANCELLATION PERIOD LIABILITY Over 120 days prior to delivery No liability 91-120 days prior to delivery 30% of purchase price 61-90 days prior to delivery 50% of purchase price 31-60 days prior to delivery 70% of purchase price 0-30 days prior to delivery 100% of purchase price
Sony Ericsson will assume liability for the above cancellation fee provided Nam Tai has made their best effort to cancel in due time an to reduce any such fee to a minimum. Must act without undue delay if Sony Ericsson advices about any change in forecasted volumes. This liability for the Argus ASIC is in excess of the liability for other components as stated above. Sony Ericsson Mobile Communications AB Confidential Nam Tai cost template for August 1 MATERIAL COST USD: ---- Bill of material Material scrap 1% Material burden 1.5% -------- TOTAL MATERIAL COST ======== 2 LABOUR COST PROCESS RATE (USD) LABOUR TIME SMT 0.003/chip Final assy. 4.24/hour Testing 4.24/hour Packaging 4.24/hour -------- TOTAL LABOUR COST ======== 3 FREIGHT + INSURANCE COST FCA Hong Kong 0.07 ======== 4 FINANCIAL COST 1.5% of bill of material for 60 days credit 0.75% of bill of material for 30 days sea shipment. IF APPLICABLE 0,375% of bill of material for 15 days sea shipment. IF APPLICABLE 5 PROFIT 4.8% of bill of material -------- 6 TOTAL UNIT PRICE ======== 7 TOOLING, PRODUCT UNIQUE EQUIPMENT 8 TOTAL UNIT PRICE FIRST 50K

Note! This line includes the total amount on line 7 divided with the first 50K units. Amendment to Specific Service Agreement signed 20th March 2002 Sony Ericsson Mobile Communications AB, Nya Vattentornet, SE-22188 Lund, Sweden hereinafter SEMC and NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd, 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong, hereinafter called Namtai, are in agreement to use below outlined fore cast and liability model, for the running production of the August Camera, MCA-25. This liability model will apply for this date forward and replaces in full any previous "Conditional Risk Order" or similar document issued by SEMC. This document will be an amendment to the SSPA signed 20th March 2002 between the parties and replaces Enclosure 16 in said agreement. The components covered by this agreement shall solely be used for the manufacturing of the Camera August, MCA-25, (Product). See Specific Service and Purchase Agreement, SSPA, dated 20th March 2002 for further product information. See enclosure A and B, Excel sheet for liability model. Enclosure A shows the undertaking per 15th October 2002 as an example of how the model works. Volume figures, component lead-time and cost to be updated every month The model will be applicable for any forecast issued by SEMC or Flextronics as agreed between the parties. SEMC will issue a revised forecast the last business day in each month. During the ramp up period (October to January 2003) Namtai shall) review the proposed volume to confirm if the necessary capacity is available. This volume proposal to be communicated in due time before formal fore cast is issued at the end of each month. The present model includes four weeks extra time period allowing for internal logistical processes and stock at Namtai. (This period is shown as the first four weeks period in the model. See Enclosure B) The parties are in agreement that the objective is to reduce this period to a maximum of two weeks before 31st December 2002. (Topic to be further discussed at Anna Greens and Lars Jarmanders visit to Namtai coming fortnight period) If a revised forecast or the actual call off volume will be lower for a certain month than the previously agreed, which will result in excess components and such components is not possible to reschedule to following applies; - - Namtai undertakes to keep such material in stock free of charge for the first three months after the concerned month. From month four to nine after such event SEMC will cover the interest cost of the listed items based upon an reasonable interest rate and reasonable warehousing cost for the items listed herein. After this nine months period Supplier may claim that this liability undertaking by SEM shall be executed. - - In an event of excess material Namtai undertakes to make their best effort to cancel any outstanding purchase order of components and to Amendment to Specific Service Agreement signed 20th March 2002 resell or reuse any excess component prior to making any claim to SEMC - - SEMC will assume liability for scrap of the above material provided cause of scrap is solely at SEM and prior written approval to scrap. SEMCs maximum liability is limited to direct material and the maximum liability figure is defined by the liability model using the applicable forecast volume, component lead-time and prices. - - SEMC shall have the option to have the material manufactured to finished Products at agreed price instead of scrapping the material. If no notice is given to SEMC within one week after the receipt of revised forecast or actual monthly call off volume it is deemed that the revised forecast is accepted (i.e. No claim is to be made later nor any objection that the increased volume is not possible to meet) Any delay in delivery of the Products, caused by Supplier will in full release Sony Ericsson from its liability under this amendment. Any undertaking of SEMC and Namtai as defined herein shall be limited in time to 30th June 2003. Lund 15th October 2002 Sony Ericsson Mobile Communications AB /s/ Anna Green --------------------------------------------------- Anna Green Senior Manager Sony Ericsson Mobile Communications AB Project Sourcing, Accessories Nam Tai Electronic and Electrical Products Ltd /s/ Karene Wong --------------------------------------------------- Karene Wong Nam Tai Electronic and Electrical Products Ltd Enclosure A CALCULATION OF FORECAST LIABILITY 2002-09-30 PRODUCT INFORMATION Part no: MCA25 Description Camera Project August Forcast dated 2002-10-15 Leadtime, Call off. Days 10 Lead time, Prod. Weeks 16 Liability per month 30th September -------------- Product Price 24,33 --------------
Leadtime Months 1 2 3 4 5 6 - ---------------------------------------------------------------------------------------------------------------------------------- Accumulated BOM cost per month, (USD) 21,18 21,18 19,69 14,84 5,85 0 % liability per month over leadtime 100% 100% 70% 40% 30% 0% Forecast month October November December January February March - -------------- ------- -------- -------- ------- -------- ----- Average forecast per month 208 000 250 000 300 000 450 000 600 000 600 000 Liability per month, (USD) 4 405 440 5 295 000 4 134 900 2 671 200 1 053 000 0 Total liability, (USD) 17 559 540
Namtai August Forecast model Enclosure 1.xls Forecast model 2002-10-16 1 Enclosure B CALCULATION OF FORECAST LIABILITY 9-30-02 [CALCULATION OF FORECAST LIABILITY GRAPH] Internal time Namtai for logistical processes Component lead time Namtai August Forecast model Enclosure 1.xls Internal Leadtime, Principle 1 Enclosure 2.1 1(3) Agreement #: Date: March 22, 2002 SPECIFIC PURCHASE AGREEMENT (SPA) entered into by and between NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LTD, HONG-KONG, and SONY ERICSSON MOBILE COMMUNICATIONS AB, LUND, SWEDEN TERM OF AGREEMENT FROM: 2002-03-20 TO: 2002-12-31. The term of agreement relates to: Order placements ENCLOSURE(s): Price and Product definitions. GENERAL CONDITIONS: The general terms and conditions of Agreement: READ:2001 -48098, COMMERCIAL CONDITIONS Sony Ericsson Companies not listed below might also buy goods from the Seller. Such purchases shall not affect Seller's ability to deliver goods according to this SPA. The prices contained in this SPA are based on the basic conditions set forth below. Deviations therefrom are indicated.
Valid for Terms of Terms of Price deviation (area) Currency payment delivery (%) - ------------------------------------------------------------------------------------------------------------ BASE CONDITIONS - VALID UNLESS USD 30 days FCA Hong Kong N/A OTHERWISE STATED BELOW net - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
Initials 2(3) Agreement #: Date: March 22, 2002 The Sony Ericsson companies listed below may call off volumes under this SPA incorporating the general conditions stated above.
SONY ERICSSON COMPANY COUNTRY LOCATION - -------------------------------------------------------------------------------------------------------------- Sony Ericsson Mobile Communications AB Sweden Lund - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
The subcontractors fisted below are authorized to call off volumes under this SPA incorporating the general conditions stated above. Such authorization is limited to products purchased for Sony Ericsson.
SUBCONTRACTOR COUNTRY LOCATION - -------------------------------------------------------------------------------------------------------------- Flextronics International Sweden AB Sweden Linkoping - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
PRODUCT CERTIFICATES If applicable and upon request, the Seller shall provide to Sony Ericsson product certificates regarding country of origin, preferential origin or export classification etc. CONTACT PERSONS - commercial issues: Wong Ivan Shiu Maths Gylling__________________________ Phone +852 22631051 Phone +46-46-192879____________________ CONTACT PERSONS - technical issues : SP-Zhang _______________________________________ Phone +86 755 7495818 Ext.3210 Phone _________________________________ SIGNATURES Hong Kong, 2001-12-20 Lund, 2001-12-20 NamTai Electronic & Electrical Sony Ericsson Mobile Communications AB Products Ltd /s/ Karene Wong /s/ Bill Lichtensteiger - ------------------------------------- --------------------------------------- Karene Wong Managing Director Bill Lichtensteiger Director, Project Sourcing M2M & Accessories Initials 3(3) Agreement #: Date: March 22, 2002 Enclosure: Price and Product definitions. Product. Specification of the Product, (Camera "August") Part number DPY 901 334 Bill of Material as per 13132-DPY 901 334 latest revisions. Product Specification as per document list: 1095-DPY 901 334 latest edition. Prices. Price model to be applied for calculating the purchase price as per Enclosure A The final prices to be agreed prior to 30th June 2002. Delivery. Actual dates of delivery will be defined in each call-off order. Delivery leadtime for call off orders is 10 days for generic products and 20 days for customised version if applicable. Call off orders will among other items define actual quantity. Flextronics International Sweden AB. Flextronics will perform the call-off and orderhandling. All invoices shall be addressed to Flextronics. Flextronics shall not have access to pricemodels or any other commercial information, only total price. Initials 1(3) [SONY ERICSSON LOGO] Confidential AGREEMENT Prepared (also subject responsible if other) No. LD/SEMC/INYD Ola Pantzar Approved Checked Date Rev Reference LD/SEMC/INY Anna Green 2002-06-12 C NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd. 15th Floor China Merchant Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong CONDITIONAL RISK ORDER. We hereby authorise NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd, 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong, hereinafter called Supplier, to initiate and perform the procurement of the August camera. This risk order replaces all previous undertakings regarding liability of purchased components issued by us, including the one stated in Enclosure 16.1 of the SSA dated 20th March 2002. This risk order will be replaced with a new fore cast model including liability prior to August 2002.
Part number Description Leadtime, Weeks Price, USD - -------------------------------------------------------------------------- Sensor 12 3,30 - -------------------------------------------------------------------------- Flash memory 12 1,30 - -------------------------------------------------------------------------- RAM memory 12 1,80 - -------------------------------------------------------------------------- Lens 12 2,75 - -------------------------------------------------------------------------- Regulator 9 0,13 - -------------------------------------------------------------------------- Regulator 9 0,14 - -------------------------------------------------------------------------- Tan Cap 9 0,25 - -------------------------------------------------------------------------- Tact Switch 8 0,12 - -------------------------------------------------------------------------- Crystal 8 0,3 - -------------------------------------------------------------------------- Total 10,09 USD
In addition to these components this risk order also includes the procurement of 310.000 units of the ASIC, CT100A1-BG BGA160 called "ARGUS" from C-Tech (6,45 USD for the first 50.000,5,95 USD per unit for subsequent 50.000 units and 5.85 USD for subsequent units) The riskorder/authorization is limited to 4.976.400 USD. (10.09 310.000+6,45*50.000+5,95*50.000+5,85*210.000) 2(3) [SONY ERICSSON LOGO] Confidential AGREEMENT Prepared (also subject responsible if other) No. LD/SEMC/INYD Ola Pantzar Approved Checked Date Rev Reference LD/SEMC/INY Anna Green 2002-06-12 C The material is solely intended to be used for the manufacturing of 310,000 units of the Camera August, part number: DRY 901334, (Product). See Specific Service and Purchase Agreement, SSPA, dated 20th March 2002 for further product information. The purchase and delivery of the Product manufactured with this material will be in accordance with the same agreement. The delivery schedule of the Product will be; 40.000 pcs August 2002, 60.000 pcs mid September 2002 and 30.000 pcs end of September 2002, 180.000 pcs end October 2002. Formal P.O will be issued as soon as the Product has been fully qualified and approved by Sony Ericsson as defined in the SSA above. (Delivery of Products for qualification is scheduled to June 2002) Supplier will (i) be responsible for the performance of all activities related to this authorization, (ii) be liable for all cost related hereto except as explicitly stated below, (iii) store and maintain the material of the Product at own cost. The material shall be kept separate from other identical parts or material at supplier. Supplier undertakes to make his best efforts to cancel any outstanding purchase order of components or to resell or reuse any excess component prior to making any claim to Sony Ericsson. Supplier undertakes to keep such material in stock free of charge for the first three months after the latest production lot. From month four to nine after such event Sony Ericsson will cover the interest cost of the listed items based upon an reasonable interest rate and reasonable warehousing cost for the items listed herein. After this nine months period Supplier may claim that this liability undertaking by Sony Ericsson shall be executed. Sony Ericsson Mobile Communications AB, SEM, will assume liability for scrap of the above material provided cause of scrap is solely at SEM and prior written approval to scrap. SEMs maximum liability is limited to direct material and the above defined total sum plus 1.5 % as material burden adder. (The material burden adder is unique for this risk order; it may not form a precedent for future orders.) Sony Ericsson shall have the option to have the material manufactured to finished Products at agreed price instead of scrapping the material. Any delay in delivery of the Products, caused by Supplier will in full release Sony Ericsson from its liability under this risk order. Any liability of Sony-Ericsson as defined herein is limited in time to 30th June 2003. After said date or when formal purchase order is issued, which ever is first, this risk order is no longer in effect. 3(3) [SONY ERICSSON LOGO] Confidential AGREEMENT Prepared (also subject responsible if other) No. LD/SEMC/INYD Ola Pantzar Approved Checked Date Rev Reference LD/SEMC/INY Anna Green 2002-06-12 C Supplier is requested to confirm this risk order within 10 days. If not confirmed in due time this risk order is nil and void. Kind Regards /s/ Anna Green Anna Green Senior Manager Sony Ericsson Mobile Communications AB Project Sourcing Accessories 1(3) [SONY ERICSSON LOGO] Confidential AGREEMENT Prepared (also subject responsible if other) No. LD/SEMC/INYD Ola Pantzar Approved Checked Date Rev Reference LD/SEMC/INY Anna Green 2002-06-17 D NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd. 15th Floor China Merchant Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong CONDITIONAL RISK ORDER. We hereby authorise NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd, 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong, hereinafter called Supplier, to initiate and perform the procurement of material required for delivery of 310.000 units of the August camera. This risk order replaces all previous undertakings regarding liability of purchased components issued by us, including the one stated in Enclosure 16.1 of the SSA dated 20th March 2002 and the conditional risk order dated 12th June 2002, issue C, This risk order will be replaced with a new fore cast model including liability prior to August 2002.
Part number Description Leadtime, Weeks Price, USD - -------------------------------------------------------------------------- Sensor 12 3,30 - -------------------------------------------------------------------------- Flash memory 12 1,30 - -------------------------------------------------------------------------- RAM memory 12 1,80 - -------------------------------------------------------------------------- Lens 12 2,75 - -------------------------------------------------------------------------- Regulator 9 0,13 - -------------------------------------------------------------------------- Regulator 9 0,14 - -------------------------------------------------------------------------- Tan Cap 9 0,25 - -------------------------------------------------------------------------- Tact Switch 8 0,12 - -------------------------------------------------------------------------- Crystal 8 0,3 - -------------------------------------------------------------------------- Total 10,09 USD
In addition to these components this risk order also includes the procurement of 310.000 units of the ASIC, CT100A1-BG BGA160 called "ARGUS" from C-Tech (6,45 USD for the first 50.000, 5,95 USD per unit for subsequent 50.000 units and 5.85 USD for subsequent units) The riskorder/authorization is limited to 5.295.200 USD. (10.09 330.000+6,45*50.000+5,95*50.000+5,85*230.000) 2(3) [SONY ERICSSON LOGO] Confidential AGREEMENT Prepared (also subject responsible if other) No. LD/SEMC/INYD Ola Pantzar Approved Checked Date Rev Reference LD/SEMC/INY Anna Green 2002-06-17 D The material is solely intended to be used for the manufacturing of 330.000 units of the Camera August, part number: DPY 901334, (Product). See Specific Service and Purchase Agreement, SSPA, dated 20th March 2002 for further product information. The purchase and delivery of the Product manufactured with this material will be in accordance with the same agreement. The delivery schedule of the Product will be; 40.000 pcs August 2002,60,000 pcs mid September 2002 and 30.000 pcs end of September 2002,200.000 pcs end October 2002. Formal P.O will be issued as soon as the Product has been fully qualified and approved by Sony Ericsson as defined in the SSA above. (Delivery of Products for qualification is scheduled to June 2002) Supplier will (i) be responsible for the performance of all activities related to this authorization, (ii) be liable for all cost related hereto except as explicitly stated below, (iii) store and maintain the material of the Product at own cost. The material shall be kept separate from other identical parts or material at supplier. Supplier undertakes to make his best efforts to cancel any outstanding purchase order of components or to resell or reuse any excess component prior to making any claim to Sony Ericsson. Supplier undertakes to keep such material in stock free of charge for the first three months after the latest production lot. From month four to nine after such event Sony Ericsson will cover the interest cost of the listed items based upon an reasonable interest rate and reasonable warehousing cost for the items listed herein. After this nine months period Supplier may claim that this liability undertaking by Sony Ericsson shall be executed. Sony Ericsson Mobile Communications AB, SEM, will assume liability for scrap of the above material provided cause of scrap is solely at SEM and prior written approval to scrap. SEMs maximum liability is limited to direct material and the above defined total sum plus 1,5 % as material burden adder. (The material burden adder is unique for this risk order; it may not form a precedent for future orders.) Sony Ericsson shall have the option to have the material manufactured to finished Products at agreed price instead of scrapping the material. Any delay in delivery of the Products, caused by Supplier will in full release Sony Ericsson from its liability under this risk order. Any liability of Sony-Ericsson as defined herein is limited in time to 30th June 2003. After said date or when formal purchase order is issued, which ever is first, this risk order is no longer in effect. 3(3) [SONY ERICSSON LOGO] Confidential AGREEMENT Prepared (also subject responsible it other) No. LD/SEMC/INYD Ola Pantzar Approved Checked Date Rev Reference LD/SEMC/INY Anna Green 2002-06-17 D Supplier is requested to confirm this risk order within 10 days. If not confirmed in due time this risk order is nil and void. Kind Regards /s/ Anna Green Anna Green Senior Manager Sony Ericsson Mobile Communications AB Project Sourcing, Accessories EX-4.7 5 u98916exv4w7.txt AGMT BETWEEN NAM TAI(SHENZHEN) & SONY SEPT 15, '03 EXHIBIT 4.7 PLAYSTATION(R)2 PERIPHERAL PRODUCTS SUPPLY AGREEMENT THIS AGREEMENT is entered into the 15th day of September 2003 by and between SONY COMPUTER ENTERTAINMENT EUROPE LIMITED of 30 Golden Square, London, WIF 9LD (hereinafter referred to as "SCEE") -and- NAMTAI ELECTRONIC (SHENZHEN) CO., LTD of Gusu Industrial Estate, Xixiang, Baoan, Shenzhen,PRC, Postal Code :518126 (hereinafter referred to as "Nam Tai") WHEREAS (A) SCEE, Sony Corporation, and/or certain of their affiliates and companies within the group of companies of which any of them form part (hereinafter jointly and severally referred to as "Sony") have developed a 128- bit CD and DVD based home entertainment system (hereinafter referred to as "the PlayStation 2" which is a registered trademark of Sony Computer Entertainment Inc.) and are the owners of certain proprietary information and intellectual property rights pertaining to the PlayStation 2. (B) SCEE has commissioned Nam Tai to supply digital camera peripheral devices based on SCEI's registered design and including certain third party proprietary technology and being compatible with SCEE's EyeToy software. (C) Nam Tai wishes to supply and SCEE wishes to purchase the peripheral products for resale in the Territory on the terms and subject to the conditions of this Agreement. 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement unless the context otherwise requires the following words and expressions shall have the following meanings:- "Acceptance Tests" means the acceptance tests referred to in Schedule 2. "Affiliate of SCEE" means, as applicable, Sony Computer Entertainment Inc in Japan, Sony Computer Entertainment of America, Inc. or any member of the Sony Computer Entertainment group of companies. "Agreement" means this supply agreement including the Schedules hereto. "Chipset" means integrated circuit devices designed and intended for incorporation into a digital camera based peripheral device capable of interfacing with the Software. "Commencement Date" means 15th January 2003. "Confidential Information" means in relation to either party, information belonging or relating to that party, its business, business plans, affairs or activities, which information is confidential and proprietary to that party. "Contract" means a contract for supply of the Peripheral Products between the parties formed by Nam Tai's acceptance or deemed acceptance of SCEE's Purchase Order in accordance with Clause 5.2. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 1 "Control" means, in relation, to either party, the right of a person or persons acting together, whether in law or in fact, to secure whether by means of the holding of shares bearing 50% or more of the voting rights attaching to all of the shares in that party or by having the power to control the composition of the Board of Directors of that party, that all or substantial part of the affairs of that party are conducted in accordance with the wishes of that person or persons, and "Controlled" shall be construed accordingly; "Delivery" means, in relation to any Contract, transfer of physical possession of the Peripheral Products to SCEE or SCEE's agent at the place specified in Clause 7.2. "Design" means the design of the Peripheral Product based upon SCEI's registered design numbers 3012081, 3012082, 3012083 and 3012084 ("the Registered Design"). "Documentation" means documentation relating to the operation, support and maintenance of the Peripheral Products. "Intellectual Property Rights" means any patent, registered design, copyright, design right, topography right, trade mark, business name, application to register any of the aforementioned rights, trade secret, unpatented know-how and right of confidence, and any other intellectual property right of any nature whatsoever in any part of the world. "Peripheral Product(s)" means SCEE's commissioned digital camera based peripheral product based upon the Design, incorporating one or more Chipsets and bearing the Trademarks, and being more fully described in Schedule 1. "Product Failure" means a recognised component, design or technical defect in the Peripheral Product(s). "Purchase Order" means an order placed by SCEE for the supply of the Peripheral Products on the terms and conditions of this Agreement, stating SCEE's order number, the Peripheral Products ordered and the price(s) thereof, and the required Delivery date(s) and Delivery address(es). "Quarter" means one of subsequent periods of three calendar months, the first commencing on the Commencement Date. "Returns" means Peripheral Products which are rejected by SCEE or returned to SCEE by its resellers/ customers as non-conforming, damaged including due to Product Failure. "Software" means software developed by SCEE or parties authorized by SCEE to enable the connection and functioning of a digital camera based peripheral device to a video game console or any software derived from the same. "Specifications" means the Peripheral Product specifications and any other specifications, and any amendments thereto, agreed in writing between Nam Tai and SCEE from time to time. "Term" means the term of this Agreement being two years from the Commencement Date in accordance with Clause 3.1. "Territory" means the world. "Tools" means the tools purchased by Nam Tai to manufacture the Peripheral Products. "Trademarks" means the PlayStation Family logo, a registered trademark of SCEI and EyeToy, a registered trademark of SCEE. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 2 1.2 The headings in this Agreement are for convenience only and shall not affect its interpretation or construction. 1.3 The Schedules referred to form part of this Agreement. 1.4 References to Clauses and Schedules are, unless otherwise stated, to clauses in and schedules to this Agreement. 2. BASIS OF SUPPLY 2.1 Nam Tai agrees to supply the Peripheral Products to SCEE or its nominated distributors. 2.2 Nam Tai agrees upon receiving payment from SCEE for the value of the remaining life of the tools from SCEE to render up the Tools on the expiration of this Agreement. 2.3 Nam Tai agrees that during the Term and throughout the Territory, without SCEE's consent, it will not, and will procure that its affiliates do not, manufacture, distribute, sell nor supply to any third party, other than SCEE or its nominated distributors, for sale the Peripheral Products or any digital camera based peripheral products intended for use with any video game console, but such consent shall not be unreasonably withheld. For the purpose of this clause 2.3 Nam Tai's affiliates shall mean Nam Tai Electronics Inc and its subsidiaries. 2.4 Nam Tai agrees to purchase the Chipsets for incorporation in the Peripheral Products only from Omnivision Technologies Inc. 3. TERM 3.1 This Agreement shall commence on the Commencement Date and shall continue for a period of two years. 4. SCEE'S UNDERTAKINGS 4.1 SCEE agrees to prepare written sales forecasts in accordance with Clause 6 with a view to assisting Nam Tai in preparing its production schedule. 5. ORDERING PERIPHERAL PRODUCTS 5.1 During the continuance of this Agreement Nam Tai shall sell and SCEE shall purchase such quantities of the Peripheral Products as may be ordered by SCEE from time to time under Clause 5.2, subject to the terms and conditions of this Agreement. 5.2 The placing by SCEE of a Purchase Order for Peripheral Products from time to time and written acceptance thereof by Nam Tai shall create a Contract subject to the terms of this Agreement. No Contract shall be deemed concluded unless and until Nam Tai has accepted the Purchase Order by issuing a written order acceptance. Nam Tai shall be deemed to have accepted any Purchase Order placed in accordance with the terms of this Agreement if it has not issued a written order acceptance or rejection within five working days of receipt of such Purchase Order. 5.3 SCEE may vary the terms of, or reschedule the Delivery date under, any Contract subject to prior written agreement of Nam Tai. 5.4 SCEE shall be entitled to cancel any Purchase Order, in whole or in part, by giving reasonable notice to Nam Tai provided that SCEE shall be responsible for all direct material costs in terms of finished goods, Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 3 work in progress, parts and labour costs already incurred by Nam Tai in relation to the relevant Purchase Order. 5.5 SCEE shall be under no obligation to place Purchase Orders under this agreement and shall have the right during the Term hereof to acquire products or services from any third party. 6. SUPPLY OF PRODUCTS AND SALES FORECASTS 6.1 Nam Tai shall maintain sufficient manufacturing and storage facilities, resources, materials, parts and components to meet SCEE's Purchase Orders placed from time to time hereunder. To this end, SCEE has given Nam Tai prior to signing this Agreement a written forecast for its anticipated requirements for the Peripheral Products for the 4-month period commencing on the Commencement Date. 6.2 SCEE agrees to give Nam Tai, not later than 30 days before the beginning of each subsequent month, SCEE's written forecast of its anticipated requirements for the Peripheral Products for the following month. Such forecasts shall be for information only and shall not be binding upon either party. 6.3 If SCEE's orders for the Peripheral Products exceed (or it appears from any of SCEE's forecasts given pursuant to Clause 6.2 that they will exceed) the output capacity or available stocks of Nam Tai, Nam Tai shall as soon as practicable notify SCEE. 7. DELIVERY OF PERIPHERAL PRODUCTS AND PACKING 7.1 Nam Tai shall perform and complete, prior to Delivery, all factory and other tests agreed between the parties and set out in writing in the Specifications or as otherwise reasonably agreed between the parties in writing from time to time. SCEE shall be entitled to have present at such testing such authorised representatives as it reasonably considers necessary. 7.2 Nam Tai shall deliver the Peripheral Products to SCEE or SCEE's carrier FOB China address to be advised or such other address as may be agreed by the parties in writing by the Delivery date(s) specified in the Contract (which shall be not more than 4 weeks from the date of the Purchase Order), or such other date as may be agreed between the parties. Where Delivery of any Peripheral Products is likely to be delayed Nam Tai shall notify SCEE of the relevant facts and circumstances as soon as possible. 7.3 Should the delivery of the Peripheral Products be delayed for more than 2 weeks, the following shall be applicable 7.3.1. Nam Tai shall send to SCEE a letter describing the occurred situation and explaining the reasons why Nam Tai was not successful in dealing with the matter. In addition, the letter shall state what actions Nam Tai will take in order to ensure that a similar situation will not occur again and also describe how the actions will be implemented. 7.3.2. SCEE shall, unless the delay is due to force majeure as set out in Clause 20 below or by an act of SCEE, then be entitled to a reduction of the price payable. Such reduction shall equal one (1) percent of the total sum payable under the relevant purchase order. 7.4 SCEE acknowledges that any liability of Nam Tai to pay liquidated damages under Clause 7.3 shall represent SCEE's sole financial remedy in respect of any delay by Nam Tai in Delivery of the Peripheral Products, but shall be without prejudice to any other rights and remedies available to SCEE. For the avoidance of doubt unless the delay is due to force majeure as set out in Clause 20 below or by an act of SCEE, if any specified Delivery date is not met within 30 (whether in whole or in part), then Narn Tai shall be deemed to be in material breach of this Agreement. 7.5 Nam Tai shall deliver the Peripheral product properly packed to ensure against risks in transit to the Territory. Nam Tai shall include for all shipments a packing list that contains SCEE's Purchase Order number, quantity shipped and number of cartons comprised in the shipment. Nam Tai's packing list is to Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 4 be enclosed in an envelope and is to be adhered to an exposed side of a shipping container to allow easy access. In addition a copy of such packing list is to be enclosed in a prominent position inside each container. 7.6 SCEE shall arrange inspection of the shipments in China on Delivery for conformity with shipping documents only. SCEE shall have the right to inspect the Peripheral Products at any time prior to or after Delivery and SCEE shall have the right to reject non-conforming or defective Peripheral Products which shall be replaced by Nam Tai at its cost FOB China within 30 days of notification by SCEE. SCEE shall invoice Nam Tai for the actual costs of shipping, insuring and importing such replacement Products into the Territory. 8. DOCUMENTATION 8.1 Nam Tai shall supply adequate sets of the Documentation in advance of Delivery, in hard copy and, if requested by SCEE, in electronic form (in such format as may be reasonably requested by SCEE). The Documentation shall include sufficient drawings and instructions to allow SCEE to operate and maintain the Peripheral Products, including details of any special environmental controls required to ensure that the Peripheral Products meet the Specifications. 8.2 Nam Tai shall supply at SCEE's request, free of charge for each Peripheral Product supplied, extra sets of Documentation. 9. RISK AND TITLE 9.1 The Peripheral Products shall be at the risk of Nam Tai during transit to China and Delivery and Nam Tai undertakes to insure the Peripheral Products against loss or damage during transit and Delivery. 9.2 Nam Tai warrants that the Peripheral Products passed in required product qualification shall be supplied with full title guarantee. 9.3 Title, risk of loss or damage and responsibility to insure the Peripheral Products shall pass from Nam Tai to SCEE at the FOB point following Delivery. 10. QUALITY ASSURANCE AND FACTORY INSPECTION 10.1 Nam Tai shall test and inspect the Peripheral Products in conformity with ISO 9000 and 9001 Quality Standards prior to shipment and shall retain and make available a copy of all factory acceptance test reports to SCEE on request. SCEE reserves the right to periodically audit Nam Tai's product quality assurance and test procedures in any reasonable manner including observation by SCEE of tests being conducted on the Peripheral Products, subject to SCEE giving Nam Tai at least one week's written notice of the requested observation date. SCEE shall arrange for pre-shipment inspection from time to time at its cost at Nam Tai's manufacturing facility. Nam Tai agrees to notify SCEE as soon as reasonably practicable (and in any event by not more than 14 days before the proposed shipment date) of the date the Peripheral Products will be loaded for shipment to China with a view to SCEE arranging for inspection of loading at its option. 10.2 SCEE may provide materials on loan to enable Nam Tai to test to the Specifications. SCEE shall retain title in and control over any materials made available to Nam Tai and may require the return of the same on demand. 10.3 SCEE shall provide 10 PAL debugging stations for production testing only and SCEE shall retain title in and control over these debugging stations which are for factory use only. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 5 10.4 Nam Tai's factory address is: Gusu Industrial Estate, Xixiang, Baoan, Shenzhen, PRC Postal Code: 518126 11. ACCEPTANCE 11.1 Unless otherwise agreed between the parties in writing, acceptance by SCEE of each Peripheral Product shall occur on successful completion of the Acceptance Tests in respect of that Peripheral Product in accordance with Schedule 1. 11.2 Acceptance Tests shall be carried out in accordance with the terms of Schedule 2. 11.3 Acceptance Tests shall commence as soon as reasonably practicable after Delivery (and in any event within 14 days thereafter, unless otherwise agreed between the parties in writing). 11.4 Nam Tai shall, without charge, make available staff, materials and facilities reasonably necessary for performance of the Acceptance Tests. 11.5 Nam Tai shall be entitled to have present at the Acceptance Tests such authorised representatives as it reasonably considers necessary. 11.6 If any of the Peripheral Products fail to pass the Acceptance Tests, Nam Tai shall promptly investigate and rectify all faults to enable the Acceptance Tests to be repeated. If, following that investigation and repetition of the Acceptance Tests, the Peripheral Products still fail to pass the Acceptance Tests, then SCEE will be entitled to reject the Peripheral Products or treat the failure as a material breach for the purposes of Clause 15.1.1. 12. RETURNS 12.1 SCEE shall notify Nam Tai in writing on a monthly basis of numbers of Returns which verified as manufacturing defects and Nam Tai shall ship replacement units at its cost to SCEE within 60 days of such notification. Shipment shall be FOB China provided that Nam Tai shall be liable for costs actually incurred by SCEE in shipping the replacements to the Territory including freight, insurance, tax and duties and shall be invoiced by SCEE on a monthly basis in respect of any such costs. 12.2 Nam Tai agrees that in the event of Product Failure should the failure rate exceed 1% of sold quantity of the Peripheral Products manufactured by Nam Tai then Nam Tai shall either replace or reimburse the full cost of the defective Peripheral Products as agreed between the parties. 12.3 SCEE shall at its cost co-ordinate return of Returns to its authorised Returns facilities. SCEE agrees that it shall at its cost audit and dispose of Returns, provided that Nam Tai shall bear the costs of auditing and disposal of Returns exceeding 2% ("Excessive Returns") of the quantity under a purchase order together with the cost of returning such Excessive Returns to SCEE's authorised Returns facilities. At Nam Tai's request and cost SCEE shall arrange for all Returns to be despatched to Nam Tai's nominated address. SCEE shall invoice Nam Tai on a monthly basis for costs of auditing and disposal of Excessive Returns or the despatch of Returns to Nam Tai at Nam Tai's request pursuant to this Clause 12.3. 12.4 SCEE shall maintain audit and disposal records in respect of Returns which Nam Tai may inspect from time to time during office hours subject to Nam Tai giving SCEE at least one week's prior written notice. Nam Tai shall be entitled to inspect Returns which have not been disposed of during office hours on similar notice. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 6 12.5 SCEE will provide Nam Tai with a monthly Returns/Product Failure report for the Territory showing units of Peripheral Products purchased in the Territory which are returned to SCEE's authorised Return facilities during the relevant month by country, by number of units and by reason for the return. 13. TECHNICAL SUPPORT AND PROMOTIONAL ASSISTANCE 13.1 Subject to Clause 13.2, SCEE agrees that it shall at its cost during the Term provide an after sales service and technical support for customers in the Territory in relation to the Peripheral Products by providing access to SCEE's Customer Service Helpline during normal business hours Monday to Friday. 13.2 In the event Excessive Returns result in SCEE's Customer Service Helpline receiving calls 20% or more in excess of the average number of calls in relation to Peripheral Products per month SCEE reserves the right to invoice Nam Tai on a monthly basis for the costs of providing its Customer Service Helpline to Peripheral Products customers if the said increase of number calls is caused solely by the Peripheral Products manufactured by Nam Tai. 13.3 Nam Tai will provide 100 samples of the Peripheral Products to SCEE free of all charges, duties, taxes and levies for the purposes technical support training and promotional purposes. Nam Tai shall assist with training of SCEE's technical support staff to the extent reasonably required by SCEE. SCEE undertakes not to sell such promotional samples but use them only to procure orders. 14. PRICE AND PAYMENT 14.1 The price payable for the Peripheral Products is set out in Schedule 3, inclusive of packaging costs. All unit pricing is FOB China. Accordingly (i) Nam Tai shall be responsible for arranging and the cost of insurance and shipping to Delivery, compliance with any applicable export controls and regulations, and all applicable export licences, duties, taxes and other charges payable on export; and (ii) SCEE shall be responsible for arranging and the cost of insurance and shipping from Delivery, and all applicable import duties, levies and sales taxes and other charges payable on import. 14.2 Unless otherwise agreed in writing, payment of all amounts due by SCEE under this Agreement shall be paid within 30 days from the date of invoice, subject to receipt of Nam Tai's valid and correct invoice, by BAGS transfer to Nam Tai's nominated account. 14.3 Any sums payable by Nam Tai pursuant to this Agreement whether in respect of Returns pursuant to Clause 12.2, Product Failure pursuant to Clause 123, technical support pursuant to Clause 13.2, liquidated damages pursuant to Clause 7.3, sump SCEE may lawfully claim from Nam Tai pursuant to Clause 14.4 or otherwise, shall be paid in Euros by telegraphic transfer to SCEE's nominated bank account within 30 days of the date of SCEE's invoice. In the event Nam Tai fails to make any payment by the due date Nam Tai shall be liable to pay interest on the overdue amount at the rate of 3% per annum above the base rate from time to time of Barclays Bank which interest shall accrue on a daily basis from the date when payment becomes overdue until full payment is made (whether before or after judgment). 14.4 SCEE shall be entitled to invoice Nam Tai for any sums it may lawfully claim from Nam Tai including any duties, charges or liabilities that ought to have been paid by Nam Tai but which SCEE pays or is held liable. 15. TERMINATION 15.1 Either party shall have the right at any time by giving notice in writing to the other party to terminate this Agreement or any Contract immediately on the occurrence of any of the following events: 15.1.1 the other party commits a material breach of any of the terms of this Agreement which is incapable of remedy or which it fails to remedy within thirty days of receiving written notice from the other party to do so; or Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 7 15.1.2 the other party becomes or is deemed to be insolvent as defined in the Insolvency Act 1986 or equivalent legislation or unable to pay its debts or a petition is presented or order made or meeting convened or resolution passed for the purpose of winding up, or enter into liquidation whether compulsorily or voluntarily or compounds with its creditors generally or has a receiver, administrator or administrative receiver appointed over all or any part of its assets or any proposal is made for a company voluntary arrangement in respect of that party, or that party threatens to take or takes or suffers any similar action in consequence of debt or insolvency in any jurisdiction; or 15.1.3 the other party challenges or takes any step which is inconsistent with the Intellectual Property rights of the terminating party. 15.1.4 the other party undergoes a change of Control, it being obliged to notify the terminating party in writing within thirty (30) days after such change. 15.2 At such time SCEE is required by it's parent company to deal only with "Green Partners" SCEE reserves the right to give Nam Tai 3 months notice of termination. 15.3 Termination of this Agreement shall be without prejudice to any subsisting right or remedy of either party in respect of any matter which arose before such termination nor shall it affect the obligations of either party in respect of any subsisting obligation remaining to be performed thereafter or the right of SCEE to continue to receive and resell any stock and Peripheral Products which it has already ordered or received from Nam Tai or for which it has accepted orders from third parties during the Term. 16. ENHANCEMENTS AND MODIFICATIONS AND NEW VERSIONS 16.1 Nam Tai will not make any change to the specification of the Peripheral Products manufactured by Nam Tai without prior approval by SCEE. 17. WARRANTIES AND UNDERTAKINGS BY NAM TAI 17.1 Nam Tai warrants and undertakes that it will at all times during the continuance of this Agreement and where applicable, following termination of this Agreement observe and perform the terms and conditions set out in this Agreement and in particular:- 17.1.1 that it has the right, power and authority to enter into, and fully to perform its obligations under this Agreement and each Contract, and that its entry into and performance under the terms of this Agreement will not infringe the rights of any third party or cause it to be in breach of any obligations to a third party. Without limitation, Nam Tai warrants that it is and shall be entitled to supply the Peripheral Products to SCEE without recourse to any third party. Nam Tai undertakes that it shall not, during the Term of this Agreement, enter into any contract or accept any obligation I inconsistent or incompatible with Nam Tai's obligations under this Agreement; 17.1.2 that it shall efficiently procure manufacture and assembly of the Peripheral Products to promptly meet orders from SCEE as soon as possible. 17.1.3 that the Peripheral Products delivered under this Agreement shall be free from defects in materials and workmanship and shall perform substantially in conformance with the Specifications for a period of twelve (12) months from the date of purchase by the consumer ("the Warranty Period"). This warranty shall include parts and labour and shall apply to all Returns that are or become defective during the applicable Warranty Period and are returned to SCEE or are found by SCEE to be defective. Within the Warranty Period Nam Tai will replace, without charge to SCEE, all Returns. 17.1.4 that it shall ensure that the Peripheral Products, including its packaging are of merchantable and satisfactory quality, fit for purpose, are subject to a high standard of quality control, conform with Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 8 sample and all applicable laws and regulations in the EU including for the avoidance of doubt Sony's pan-national technical standards and are at all times covered by product liability and errors and omissions insurance, a copy of the policy for which shall be provided to SCEE on demand and SCEE shall be noted when the relevant insurance policy expires during the Term of this Agreement. 17.1.5 that any Peripheral Products supplied under this agreement comply with EC Directive 76/769/EEC (as amended) and the Dutch Cadmium Decree WMS 1999. Specifically the test proving compliance to EC Directive 76/769/EEC must conform to standard EN1122 and any certificates submitted must reflect this. Nam Tai shall with respect to cadmium provide a certificate from an independent testing house (acceptable to SCEE) confirming that the Products do not exceed the level of cadmium set out in such Directive or Decree. 17.1.6 that it shall promptly replace any Peripheral Products which SCEE notifies to Nam Tai are Returns which SCEE or its customers believe to have a defect in materials or workmanship; in the event SCEE incurs any reasonable costs or losses or claims as a result of breach of the above warranties, Nam Tai shall indemnify and reimburse SCEE such costs or losses (including legal costs) on demand. 18. INTELLECTUAL PROPERTY AND INDEMNITY 18.1 Nam Tai warrants and confirms to SCEE that (i) Nam Tai owns or has the right to license to SCEE all the Intellectual Property Rights in the Peripheral Product other than those rights already owned by either SCEE or Omnivision Technologies Inc. or their respective affiliates and (ii) the sale, use, distribution, marketing, promotion, and any other dealings with the Peripheral Products by SCEE, its agents, distributors, licensees and customers under this Agreement will not in any way violate or infringe any Intellectual Property Rights, moral rights, or privacy rights of any third party. 18.2 Nam Tai hereby grants SCEE all such rights and licences in relation to the Peripheral Products and all its elements including its name and packaging as SCEE requires in order for SCEE and its agents, distributors and licensees to freely and exclusively market, distribute, promote, sell and authorise use of the Peripheral Products during the Term and thereafter throughout the Territory. 18.3 SCEE warrants and confirms to Nam Tai that SCEE owns or has the right to license the Registered Design and the Trademarks. For the avoidance of doubt, any Intellectual Property Rights arising out of modifications, variations or alterations made to the Design of the Peripheral Product shall remain vested in SCEE. 18.4 SCEE hereby grants Nam Tai a non-exclusive licence to use the Trademarks and any other Intellectual Property Rights of SCEE necessary in order to manufacture the Peripheral Products during the Term throughout the Territory for supply to SCEE and its nominated distributors. Nam Tai shall have no other rights in respect of the Trademarks or any other Intellectual Property Rights of SCEE and shall not use the Trademarks or such Intellectual Property Rights for any purpose other than as provided for expressly in this Agreement. 18.5 Nam Tai now indemnifies SCEE and any Affiliate of SCEE, its sublicensees and assigns from and against any and all actions, proceedings, damages, awards, losses, demands and expenses (including legal costs on an indemnity basis) arising from or which result from any breach of the warranties set out in this Clause 18 if the same is not the responsibility of SCEE. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 9 19. CONFIDENTIALITY Without prejudice to the Non Disclosure Agreement signed by Nam Tai, each of the parties agrees that it will not at any time after the date of this Agreement make use of or disclose to any person (other than to those of its officers, employees and advisors in whose province it is to know the same) any Confidential Information (other than information properly available to the public or disclosed pursuant to an order of a court of competent jurisdiction) relating to the other party or its business including the identity of its customers, its products, finances, contractual arrangements or methods or doing business and, without limitation, any books and records which, by law, may be required to be disclosed by either party to the other, and each party shall use its respective reasonable endeavours to prevent the publication or disclosure of any such Confidential Information. 20. FORCE MAJEURE Neither party shall be liable for any loss or damage incurred or suffered by the other party arising from the first party's delay or failure to fulfil any of its obligations under this Agreement to the extent that such delay or failure is caused by any cause or circumstance beyond that party's reasonable control and not due to its negligence. Subject to the party delaying promptly notifying the other party promptly in writing of the reason for the delay, the likely duration of the delay and using its best endeavours to cure the breach, the delaying party's obligations (to the extent affected by the delay), shall be suspended during the period that the cause persists provided that if performance is not resumed within 30 days of that notice the non-delaying party may forthwith by notice in writing terminate this Agreement or any Contract (or part thereof) affected. 21. VARIATION This Agreement may only be varied by agreement in writing signed by the authorised representatives of both parties. 22. WAIVER No failure or delay by any party in exercising any right power or remedy under this Agreement shall operate as a waiver of that right power or remedy. No waiver of any provision of this Agreement shall be effective unless given in writing. Any waiver of any provision of this Agreement shall not be construed as a waiver of any other provision or such provision in relation to any future or continuing event or circumstance. 23. NOTICES Any notices or communications given under this Agreement shall be validly given if delivered by courier to the recipient's address set out at the head of this Agreement, or if by facsimile to SCEE at facsimile number +44 (020) 7859 5030 attn Director of Legal and Business Affairs and to Nam Tai at facsimile number 86-755-2749-4013, attn Ms. Margie Lee. Proof of delivery if sent by courier and confirmation of transmission if sent by facsimile shall be sufficient evidence of service. 24. ASSIGNMENT AND SUBCONTRACTING Except that SCEE may assign its rights and obligations hereunder to another company within the Sony Corporation or Sony Computer Entertainment Inc group of companies, the rights and obligations under this Agreement shall not be assigned by either party without the prior written consent of the other. Nam Tai may subcontract its manufacturing obligations under this Agreement provided for the avoidance of doubt that Nam Tai remains liable for the acts and omissions of its subcontractor and has advised SCEE in writing prior to manufacturing. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 10 25. SEVERABILITY The invalidity or unenforceability of any term of or any right arising pursuant to the Agreement shall not in any way affect the remaining terms or rights. 26. ENTIRE AGREEMENT This Agreement constitutes the entire agreement and understanding between the parties with respect to its subject matter and supersedes any prior agreement, understanding or arrangement between the parties whether oral or in writing. No representation, undertaking or promise shall be taken to have been given or be implied from anything said or written in communications between the parties prior to the date this Agreement was executed except as set out in this Agreement. Neither party shall have any remedy in respect of any untrue statement made to it upon which it has relied in entering into this Agreement (unless such untrue statement was made fraudulently) and that party's only remedies shall be for breach of contract as provided in this Agreement. For the avoidance of doubt, any SCEE's existing or future standard terms and conditions in relation to any Purchase Order shall not form part of this Agreement and/or the Purchase Order. 27. LIMITATION OF LIABILITY 27.1 Neither party shall be liable for any consequential, incidental, indirect, economic or punitive damages whatsoever (including but not limited to damages for loss of business or personal profits, business interruption, loss of business, or personal or confidential information, or any other pecuniary loss, damages for loss of privacy, or for failure to meet any duty, including any duty of good faith, or to exercise commercially reasonable care or for negligence) arising out of or in any way related to this Agreement even if the parties have been advised of the possibility of such damages. This limitation shall be effective even if any remedy fails of its essential purpose. 27.2 Nam Tai's maximum aggregate liability to SCEE in respect of any Contract, whether arising under any indemnity, for any breach of its obligations under this Agreement, shall in no circumstances exceed 150% of the price payable pursuant to such Contract. 27.3 Nothing in this Agreement or in any contract shall exclude or in any way limit either party's liability for fraud or for death or personal injury caused by its negligence, or any other liability to the extent that such liability may not be excluded or limited as a matter of law. 27.4 For the avoidance of doubt, all factory and any other tests mentioned in this Agreement are only applicable to the Peripheral Product and are not applicable to any other products, software, packing materials or whatever which may be packed and/or sold together with the Peripheral Product. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 11 28. GOVERNING LAW AND JURISDICTION This Agreement shall be governed by and construed in accordance with English law and the parties submit to the jurisdiction of exclusive jurisdiction of the English courts for the purposes of enforcing any claim arising under this Agreement without prejudice to SCEE's right to bring proceedings in any other court having jurisdiction where Nam Tai is resident from time to time. Nam Tai irrevocably agrees to appoint an agent for service of process in the United Kingdom for the purposes of this Clause 27 with 30 days of the date of this Agreement and shall notify SCEE of the name and address of such agent within 5 working days of such appointment If for any reason such agent ceases to act as such or ceases to have an address in England. Nam Tai irrevocably agrees to appoint a substitute process agent acceptable to SCEE and to deliver to SCEE a copy of the new process agent's acceptance of that appointment within 30 days of such cessation. Signed by the authorized representatives of the parties on the date set out above SONY COMPUTER ENTERTAINMENT NAMTAI ELECTRONIC(SHENZHEN) EUROPE LIMITED CO., LTD /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] - --------------------------- ----------------------------- Signature Signature Christopher Deering Karene Wong - --------------------------- ----------------------------- Name Name President Director - --------------------------- ----------------------------- Title Title Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 12 SCHEDULE 1 PRODUCT DESCRIPTION Pls refer to the attached specification. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 13 SCHEDULE 2 ACCEPTANCE TESTS Test Marks of CE, FCC and C-Tick applied for by Nam Tai. SCEE will perform the following test at the factory: When the camera's Blue LED is lit and Red LED flashes, a live image displays on the TV screen. The software reads the camera's VIDs and PIDs and displays these two codes on the TV screen. If there is a live image display and VIDs and PIDs code on the TV screen, then the test is successful. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 14 SCHEDULE 3 PRICE Unless otherwise agreed in writing by the parties, the price payable by SCEE for the Peripheral Products pursuant to Clause 14 is set out below. For the avoidance of doubt, the net price is the actual price paid by SCEE to Nam Tai pursuant to the payment method referred to in Clause 14.2 of this Agreement. Net price/unit -------------- $15 Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 15 EX-4.8 6 u98916exv4w8.txt AGMT BETWEEN SONY ERICSSON & NAM TAI (SHENZHEN) EXHIBIT 4.8 Page 1 of 7 9 September 2003 SPECIFIC SERVICE AGREEMENT BETWEEN SONY ERICSSON MOBILE COMMUNICATIONS AB (HEREINAFTER REFERRED TO AS "SONY ERICSSON") AND NAMTAI ELECTRONIC (SHENZHEN) COMPANY LTD. (HEREINAFTER REFERRED TO AS THE "SUPPLIER") REGARDING PROJECT "ALEX" Page 2 of 7 9 September 2003 TABLE OF CONTENTS 1. TERMINOLOGY, INTEGRATED PART............................................... 1 2. SCOPE OF THE SSA........................................................... 2 3. FORECASTS AND ROADMAPS..................................................... 2 4. COMMUNICATION AND CONTACT PERSONS.......................................... 2 5. INDUSTRIALISATION SERVICES................................................. 2 6. INDUSTRIALISATION-TEST APPLICATIONS........................................ 3 7. PROTOTYPES................................................................. 3 8. SPECIFICATION.............................................................. 3 9. DOCUMENTATION.............................................................. 3 10. PRICING AND TERMS OF PAYMENT............................................ 3 11. TERMS OF DELIVERY....................................................... 4 12. PACKING AND LABELLING................................................... 4 13. QUALITY................................................................. 4 14. PURCHASE OF COMPONENTS.................................................. 5 15. TERM OF AGREEMENT AND TERMINATION....................................... 5

ENCLOSURES: Enclosure 2.3 Project Plan, 1/10053-FCP1012478 Latest Edition Enclosure 10.1 Prices and Price model Enclosure 14.1 Purchase of components Enclosure 14.2 Forecast Flexibility & Liability model Page 1 of 7 9 September 2003 SPECIFIC SERVICE AGREEMENT made as of 9th September 2003, by and between Sony Ericsson Mobile Communications AB, Org no 556615-6658, a limited liability company duly incorporated and existing under the laws of Sweden, with its principal office at Nya Vattentornet, S-221 88 Lund, Sweden, hereinafter referred to as "Sony Ericsson", and NAMTAI ELECTRONIC (SHENZHEN) COMPANY LTD., a corporation duly incorporated and existing under the laws of The Peoples' Republic of China ("PRC") and having its registered officer at Gu Su Industrial Estate, Xinan, Baoan, Shenzhen, PRC (hereinafter referred to as the "Supplier"). (hereinafter referred to as the "Supplier"). WHEREAS: 1. Ericsson and Namtai Electronic & Electrical Products Ltd have entered into the General Service and Purchase Agreement, GSPA, dated 15th February 2001 among other agreements, The GSPA has been duly assigned to Sony Ericsson Mobile Communications AB during 2002. 2. The GSPA contains the general terms and conditions for the performance of Product Supply to Sony Ericsson, from Supplier, 3. It is intended that the GSPA will be supplemented by one (1) or more SSA's setting out the specific provisions relating to the performance of Product Supply, and 4. The Supplier has explained that it is willing and fully able to perform the Product Supply on behalf of Sony Ericsson for delivery of high quality Products, under the terms and conditions set out in this SSA and the GSPA. NOW THEREFORE, in consideration of the mutual obligations herein contained, the Parties agree as follows: 1. TERMINOLOGY, INTEGRATED PART The GSPA shall be an integrated part of this SSA and, accordingly, all terms and conditions in the GSPA shall also apply to this SSA. Capitalised terms contained herein shall have the meanings assigned to them below or as ascribed to them in the GSPA unless otherwise defined in the context or document where it is used. "AGREEMENT", means this Specific Service Agreement. "GSPA", means the General Service and Purchase Agreement referred to in the "Whereas"-section above entered into between the Parties. Page 2 of 7 9 September 2003 "PRODUCT", means the Flash Alex, developed by C Technologies AB on behalf of Sony Ericsson and as further specified in this Agreement. "PA", means the Purchase Agreement separately signed covering the Product. The PA will be the new name of the SPA mentioned in the GSPA. "SSA", means this Specific Service Agreement. 2. SCOPE OF THE SSA 2.1 Under the terms and conditions set forth in the Agreement Documents (i) Supplier shall - exclusively for Sony Ericsson ~ perform Product Supply regarding the Product, and (ii) Sony Ericsson shall be entitled to purchase the Products from Supplier under the PA. 2.2 In the event of an inconsistency in the Agreement Document, the inconsistency shall be resolved by giving documents precedence in the following order: (i) The Purchase Order, excluding Sony Ericsson's general purchasing conditions if such have been enclosed with the Purchase Order, (ii) The PA, (iii) The GSPA. (iv) This Agreement excluding the Enclosures, (v) Enclosure 2.3 Project Plan (vi) Enclosure 10.1 Prices and Price model (vii) Enclosure 14.1 Purchase of components, (viii) Enclosure 14.2 Forecast, Flexibility & Liability model 2.3 Included in the Product Supply shall be repair and maintenance services as set out in Enclosure 2.3. 3. FORECASTS AND ROADMAPS 3.1 A forecast of RTL and production volumes may be included in Enclosure 2.3. These volume are only for production and capacity planning purposes, Sony Ericsson is not committed to buy according to the forecasted volumes. Sony Ericsson is liability for forecasted volumes as per Article 14. 4. COMMUNICATION AND CONTACT PERSONS 4.1 In accordance with Subsection 5.5 of the GSPA the Parties hereby appoint the contact persons set out in Enclosure 2.3 to receive and to communicate information. 5. INDUSTRIALISATION SERVICES Page 3 of 7 9 September 2003 5.1 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.1 of the GSPA, lead and be responsible for the industrialisation of Product. 5.2 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.4 of the GSPA, provide information for the design work and furthermore manufacture the test applications. 5.3 The requirements for traceability as provided in Subsection 6.7 in the GSPA shall be as set out in Enclosure 2.3. 6. INDUSTRIALISATION-TEST APPLICATIONS, 6.1 Supplier shall develop and deliver Manufacturing Test Applications as set out in Section 7 of the GSPA and as the case may be in Enclosure 2.3 7. PROTOTYPES 7.1 Supplier shall (i) provide Sony Ericsson with Prototypes (ii) review the Prototypes for manufacturability, (iii) perform the testing of the Prototype, as defined in Enclosure 2.3 and (iv) provide Sony Ericsson with written reports of the analysis of the Prototypes. 8. SPECIFICATION 8.1 Supplier shall not deliver any Products unless they meet the requirements set out in the Specification as set out in Enclosure 2.3 and amended from time to time in and as further described in Section 14 in the GSPA, 9. DOCUMENTATION 9.1 Project Documentation The Supplier shall submit written reports to Sony Ericsson on the activities and the progress of the Product Supply. Such reports shall include the reports and plans specified in Enclosure 2.3. 9.2 Product Documentation Supplier shall produce and deliver to Sony Ericsson Product Documentation fulfilling the requirements set out in templates included in Enclosure 2.3. 10. PRICING AND TERMS OF PAYMENT 10.1 The current price and the price model of the Product shall be as set out in Enclosure 10.1 All invoices sent by Supplier shall be in USD or Euro as agreed in the PA Page 4 of 7 9 September 2003 10.2 Price review The price of the Products shall be reviewed and agreed quarterly before the ending of every quarter in order for the prices to be firm for deliveries during the following quarter. The basis for the price review shall be: (i) significant changes in volumes, and/or; (ii) fluctuations in the exchange rate as defined below, and/or; (iii) changes to the Specification, and/or; (iv) increased production efficiency including but not limited to "The learning curve advantage", and/or; (v) changes in the price of the components. (vi) delivery performance in the last quarter before against agreed and acknowledge order, call of lead time Changes in the Specification and/or changes of a specific component price during a quarter, which causes a different price shall immediately or with a reasonable delay - due to material in stock - apply to all ordered Products. Such reasonable delays shall however only relate to reasonable explainable normal stock levels or situations with higher stock levels attributable to Sony Ericsson. At the quarterly price review meetings Supplier will describe and specify the changes made during the quarter. The different price shall be passed on to Sony Ericsson at the aforementioned fixed exchange rate as defined in GSPA. 11. TERMS OF DELIVERY 11.1 Delivery time The Supplier shall perform the Product Supply, in accordance with the time-schedule set out in Enclosure 2.3 Dates of delivery of volume produced Products shall be as stated in the relevant P.O. 11.2 Delivery terms Applicable terms of delivery shall be FCA Hong Kong International Airport, INCOTERMS 2000, unless otherwise agreed in P.O. 12. PACKING AND LABELLING 12.1 The Products shall be packed and marked separately as set out in the Specifications and the applicable Purchase Order. The Purchase Order and product numbers shall be set out in the shipping documents. 13. QUALITY 13.1 All Product Supply shall be handled in accordance with the standards/requirements set out in the Specification and in Enclosure 2.3 Page 5 of 7 9 September 2003 14. PURCHASE OF COMPONENTS 14.1 The Supplier shall purchase materials at contracted prices under existing Sony Ericsson Agreements for supply of materials as set out in Enclosure 14.1. 14.2 Sony Ericsson liability for components as related to volume forecast as set out in Enclosure 14.2 14.3 The Supplier is responsible for the purchase and supply of all components. 15. TERM OF AGREEMENT AND TERMINATION 15.1 This Agreement shall come into force upon its execution by duly authorised representatives of both Parties and shall remain in effect until three (3) months have passed following written notice of termination by either Party, unless terminated on an earlier date as set out in Section 29 "TERM OF AGREEMENT AND TERMINATION" in the GSPA. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed, in duplicate, each party taking one copy. Date:9th September 2003 Date; 9th September 2003 Place: Hong Kong Place: Lund NAM TAI ELECTRONIC SONY ERICSSON MOBILE (SHENZEN) COMPANY Ltd COMMUNICATIONS AB /s/ Karene wong /s/ Mats Led - ------------------------ ----------------- KARENE WONG MATS LED Enclosure 10.1 Prices and Price model. PRICE MODEL. See enclosed Excel sheet, (Enclosure 10.1 A) to be applied as price model. PRICE. The following price of the Product is agreed. All prices in USD. Price of 7,37 Prices shall be updated during the development work. NRE cost: 20000 USD, travel expenses. Tooling cost: 35000 USD for a production capacity of 150k units per month (P0# 70148596 received) Test equipment: 30000 USD. Test equipment cost and NRE shall be amortized over a fixed amount of units of 20k, to be defined and added onto the product price. Enclosure 10.1A Price model 1 MATERIAL COST Bill of material --------------- Material scrap 1 % --------------- Material burden 1 .5 % --------------- TOTAL MATERIAL COST =============== 2 LABOUR COST PROCESS RATE (USD) LABOUR TIME SMT 0.003/chip --------------- Final assy. 4.24/hour --------------- Testing 4.24/hour --------------- Packaging 4.24/hour --------------- TOTAL LABOUR COST =============== 3 FREIGHT COST According to enclosure 4 FINANCIAL COST 1.5% of bill of material for 60 days credit =============== 0.75% of bill of material for 30 days sea shipment. IF APPLICABLE =============== 0.375% of bill of material for 15 days sea shipment. IF APPLICABLE =============== 5 PROFIT 4.3% of bill of material =============== TOTAL UNIT PRICE =============== TOOLING COST (FOR INFORMATION ONLY) ===============

Enclosure 14.1 Purchase of components. COMPONENTS BOUGHT UNDER SONY ERICSSON AGREEMENTS. Supplier may call off volumes of below listed components from applicable Sony Ericsson agreements. Any such components shall only be used for manufacturing of the Product. Supplier may issue a forecast of the estimated volume to the selected component supplier to secure delivery. Supplier is solely responsible for the supply chain 1. Icon, 2. System connector, Sony Ericsson will advise about agreements with component supplier and valid prices during the project. Enclosure 14.2, Forecast, Flexibility & Liability model Sony Ericsson's forecast and production planning process, named Seihan Process is based upon constraint planning, i.e. the planning process takes all constraints regarding the product, components, manufacturing capacity, and other thereto related matters of Sony Ericsson entire supply chain. The Seihan Process operates with a six months planning period. This Forecast, Flexibility & Liability model, the Model, defines the responsibilities and undertaking of both Parties with regard to forecasts, flexibility and lead-times. The components covered by this Model shall solely be used for the manufacturing of the Product. See enclosed Excel sheet, Enclosure 14.2a, defining the Model. Components included in the Model shall have a significant impact upon the Product price and the applicable delivery lead-time. All such components shall be listed in the Model. Volume figures, component lead-times and prices snail be updated on a monthly base by Sony Ericsson, (Seller to provide input for Prices and lead-times) Sony Ericsson shall issue a new Model the last business day of each month, with updated forecast volumes, prices and lead-times. Prices and lead times shall be agreed with Supplier prior to such update. If the forecast proposal during the ramp-up period, (normally three months from the RTL-date) is higher than the latest agreed flexibility limits or production capacity Sony Ericsson may issue a forecast proposal to Supplier in order for Supplier to confirm if the availability of the necessary production capacity. This forecast proposal shall be communicated in due time before the Model shall be issued at the end of each month. Supplier undertakes that for all components listed in the Model actively work for to reduce the lead-time for each component in order to increase the flexibility of production process and to reduce its own financial exposure. The agreed objective, which is a non binding commitment of the Supplier, shall be to reduce lead-time by 20% annually. Purchase orders for component shall be placed at component suppliers on weekly bases to enable high flexibility. If Supplier does not receive the purchase orders in the quantity amount as stated in the forecast or any part thereof for any week before the agreed lead-time of that week, the Supplier shall withhold purchase of components for that week and for subsequent weeks in excess of the purchase orders received. Supplier shall always have an obligation to reallocate any components in stock and on order which becomes in excess due to changes in forecasted volumes. The Supplier shall within three days from receipt of a new Model review and confirm the acceptance of the same. If the new Model is not acceptable to the Supplier, the Supplier may reject the new Model and the following shall apply; Enclosure 14.2, Forecast, Flexibility & Liability model - Supplier shall use its best commercial effort to reallocate, divest and cancel any excess component in order to follow the new forecast provided by Sony Ericsson. Sony Ericsson shall assume liability for any components covered by the latest agreed Model and the component price is calculated on the agreed unit price for the components, as listed in the Model. Enclosure 14.2b is an illustration of the application of the model. - In the event the new forecast issued by Sony Ericsson may not use up the components on hand and on order, Supplier undertakes to use his best commercial effort to reallocate, divest and cancel any excess component. Any remaining components which are covered by the last agreed Model shall be kept in stock free of charge for the first three months following the rejection of the new Model. After this three months period Supplier may agree to the liability undertaking by Sony Ericsson as set out in the last agreed Model and invoice and deliver any such remaining excess components as agreed with Sony Ericsson. - Sony Ericsson shall assume liability for the scrapping of excess components covered by the Model provided that Sony Ericsson has given the Supplier a written approval to scrap. Sony Ericsson maximum liability shall always be limited to the direct cost for the components; taking into consideration the applicable lead-times and the fore cast volume below the flexibility limit all as defined in the Model. - Sony Ericsson shall always have the option to have any excess components assembled into finished Products at agreed price instead of scrapping the components. Any significant delay in delivery of the Products, caused by Supplier shall fully relieve Sony Ericsson from its liability under this Enclosure 14.2. Any undertaking by Sony Ericsson and/or Supplier as defined herein shall be valid until for 30th June 2004. Supplier may invoice Sony Ericsson for any components left.and covered by the last agreed Model at 30th June 2004 within 30 days thereafter and Sony Ericsson shall settle any such invoice within 30days from the date of invoice. The Supplier shall deliver the concerned components as advised by Sony Ericsson, FCA "HK/SZ" acc. to INCO-terms 2000. Enclosure 14.2A Forecast, Flexibility and Liability Model DEFINITION OF FORECAST FLEXIBILITY & LIABILITY, THE MODEL. FORE CAST & LIABILITY Fill out yellow and Blue fields Part no: DPY 901 410 Yellow fields to be updated monthly Description Flash Brown fields calculated by formula Project Alex Date of "The Model" 19th August 2003 Week Six month rolling F/C for information only Forecast dated 19th August 2003 34 Month Sept Oct Nov Dec Jan Feb Leadtime, Call off. Weeks 6 Week 36-39 40-44 45-48 49-52 1-4 5-8 Leadtime, w/o f.c. Weeks 10 Volume 128500 147500 104000 62000 62000 77000 Product Price 7,37

Week 1 2 3 4 5 6 7 8 9 10 11 12 13 Accumulated BOM cost per week, (USD) 0 0 0 0 0 0 1,583 1,473 1,322 1,322 0 0 0 % liability per Week 0% 0% 0% 0% 0% 0% 100% 90% 40% 0% 0% 0% 0% Week 35 36 37 38 39 40 41 42 43 44 45 46 47 Average forecast per week 37 500 32 125 32 125 32 125 32 125 29 500 29 500 (?) (?) 29 500 26 000 26 000 26 000 Maximum liability per week, (USD) 0 0 0 0 0 0 (?) 39 108 15 600 0 0 0 0 Total liability, (USD) 101 406 Week 14 15 16 Accumulated BOM cost per week, (USD) 0 0 0 % liability per Week 0% 0% 0% Week 48 1 2 Average forecast per week 26 000 26 000 26 000 Maximum liability per week, (USD) 0 0 0 Total liability, (USD)

FLEXIBILITY Presently agreed/Installed max. production capacity 37 500 per week Leadtime to Increase capacity with 50% 12 Weeks Leadtime to Increase capacity with 100% 12 Weeks Maximum flexibility within Installed capacity to increase production per month, upward flexibility. 25 (?) volume month 1
PRICES AND LEADTIME OF SELECTED COMPONENTS.
Delta price. Leadtime Weeks 8, 6- Component Part no Weeks Price. USD 8, 5-8 - --------- ------- ----- ---------- ------ Motorola 8 Bit CPU MC68HC908QT4CDW 0107- SOIC8 T4CDWNVO 8 0.8 WHITE LED DRIVER MAX1561ETA-T QFN-8 0107- MAXIM 61ETAOV1 8 0.47 SCHOTTKY DIODE 0108- CUSO2 TOSHIBA CUS02041 8 0.052 1,322 INDUCTOR 0401- LOH32CN220K23 22325191 6 0.044 PCB FR4 DOUBLE-SIDES 0610- 28.4X13.7X1MMX20 gold RA2GF201 plating Halogen free XO 6 0.069 PCB FR4 single-SIDES 0601- 20X11X0.5MM Gold RA1DF202 Plating Halogen free XO 6 0.038 1,473 TACH SW SOH-113HST 1804- 5 0.11 1,583
Model based upon two weeks production leaqdtime in addition to each component leadtime Scenario description Enclosure 1 4.2B Forecast, Flexibility and Liability Model DEFINITION OF FORECAST FLEXIBILITY & LIABILITY, THE MODEL. FORE CAST & LIABILITY Fill out yellow and Blue fields Part no: DPY 901 410 Yellow fields to be updated monthly Description Flash Brown fields calculated by formula Project Alex Date of "The Model" 19th Sep 2003 Week Six month rolling F/C for information only Forecast dated 19th Sep 2003 38 Month Sept Oct Nov Dec Jan Feb Leadtime, Call off. Weeks 6 Week 36-39 40-44 45-48 49-52 1-4 5-8 Leadtime, w/o f.c. Weeks 10 Volume 128500 147500 104000 62000 62000 62000 Product Price 7,37

Week 1 2 3 4 5 6 7 8 9 10 11 12 13 Accumulated BOM cost per week, (USD) 0 0 0 0 0 0 1,583 1,473 1,322 1,322 0 0 0 % liability per Week 0% 0% 0% 0% 0% 0% 100% 90% 40% 0% 0% 0% 0% Week 39 40 41 42 43 44 45 46 47 48 49 50 51 Average forecast per week 32 125 29 500 29 500 29 500 29 500 29 500 26 000 26 000 26 000 26 000 15 500 15 500 15 500 Maximum liability per week, (USD) 0 0 0 0 0 0 41 158 34 468 13 749 0 0 0 0 Total liability, (USD) 69 375 Week 14 15 16 Accumulated BOM cost per week, (USD) 0 0 0 % liability per Week 0% 0% 0% Week 52 1 2 Average forecast per week 15 500 15 500 15 500 Maximum liability per week, (USD) 0 0 0 Total liability, (USD)

FLEXIBILITY Presently agreed/Installed max. production capacity 37 500 per week Leadtime to Increase capacity with 50% 12 Weeks Leadtime to Increase capacity with 100% 12 Weeks Maximum flexibility within Installed capacity to increase production per month, upward flexibility. 25 % of volume month 1
PRICES AND LEADTIME OF SELECTED COMPONENTS.
Delta price. Leadtime Weeks 8, 6- Component Part no Weeks Price, USD 8, 5-8 - --------- ------- ----- ---------- ------ Motorola 8 Bit CPU MC68HC908QT4CDW 0107- SOIC8 T4CDWNVO 8 0.8 WHITE LED DRIVER MAX1561ETA-T QFN-8 0107- MAXIM 61ETAOV1 8 0.47 SCHOTTKY DIODE 0108- CUSO2 TOSHIBA CUS02041 8 0.052 1,322 INDUCTOR 0401- LOH32CN220K23 22325191 6 0.044 PCB FR4 DOUBLE-SIDES 0610- 28.4X13.7X1MMX20 gold RA2GF201 plating Halogen free XO 6 0.069 PCB FR4 single-SIDES 0601- 20X11X0.5MM Gold RA1DF202 Plating Halogen free XO 6 0.038 1,473 TACH SW SOH-113HST 1804- 5 0.11 1,583
Model based upon two weeks production leaqdtime in addition to each component leadtime REMARKS : THIS NEW MODEL IS ACCEPTABLE TO NAMTAI SINCE THIS LATEST FORECAST GO IN-LINE WITH THE PREVIOUS AGREED MODEL. Scenario description Enclosure 14.2 B Forecast, Flexibility and Liability Model DEFINITION OF FORECAST FLEXIBILITY & LIABILITY, THE MODEL. FORE CAST & LIABILITY Fill out yellow and Blue fields Part no: DPY 901 410 Yellow fields to be updated monthly Description Flash Brown fields calculated by formula Project Alex Date of "The Model" 19th Sep 2003 Week Six month rolling F/CV for information only Forecast dated 19th Sep 2003 38 Month Sept Oct Nov Dec Jan Feb Leadtime, Call off. Weeks 6 Week 36-39 40-44 45-48 49-52 1-4 5-8 Leadtime, w/o f.c. Weeks 10 Volume 128500 147500 62000 62000 62000 62000 Product Price 7,37

Week 1 2 3 4 5 6 7 8 9 10 11 Accumulated BOM cost per week, (USD) 0 0 0 0 0 0 1,583 1,583 1,473 1,473 1,473 1,322 1,322 % liability per Week 0% 0% 0% 0% 0% 0% 100% 100% 90% 90% 90% 40% 40 % Week 39 40 41 42 43 44 45 46 47 48 49 Average forecast per week 32 125 29 500 29 500 29 500 29 500 29 500 15 500 10 500 5 500 15 500 5 500 10 500 15 500 Maximum liability per week, (USD) 0 0 0 0 0 0 24 537 16 622 6 629 20 548 7 291 5 552 8 196 Total liability, (USD) 89 375 Week 12 13 14 15 16 Accumulated BOM cost per week, (USD) 0 0 0 0 0 % liability per Week 0% 0% 0% 0% 0% Week 50 51 52 1 2 Average forecast per week 15 500 15 500 15 500 15 500 15 500 Maximum liability per week, (USD) 0 0 0 0 0 Total liability, (USD)

FLEXIBILITY Presently agreed/Installed max. production capacity 37 500 per week Leadtime to Increase capacity with 50% 12 Weeks Leadtime to Increase capacity with 100% 12 Weeks Maximum flexibility within Installed capacity to increase production per month, upward flexibility. 25 % of volume month 1
PRICES AND LEADTIME OF SELECTED COMPONENTS.
Delta price. Leadtime Week 8, 6- Component Part no Weeks Price. USD 8, 5-8 - --------- ------- ----- ---------- ------ Motorola 8 Bit CPU MC68HC908OT4CDW 0107- SOIC8 T4CDWNVO 8 0.8 WHITE LED DRIVER MAX1561ETA-T OFN-8 0107- MAXIM 61ETAOV1 8 0.47 SCHOTTKY DIODE 0108- CUSO2 TOSHIBA CUS02041 8 0.052 1,322 INDUCTOR 0401- LOH32CN220K23 22325191 6 0.044 PCB FR4 DOUBLE-SIDES 0610- 28.4X13.7X1MMX20 gold RA2GF201 plating Halogen free xo 6 0.069 PCB FR4 single-SIDES 0601- 20X11X0.5MM Gold RA1DF202 Plating Halogen free xo 6 0.038 1,473 TACH SW SOH-113HST 1804- 5 0.11 1,583
Model based upon two weeks production leaqdtime in addition to each component leadtime REMARKS : 1. THE NEW MODEL IS NOT ACCEPTABLE TO NAMTAI WITH THE ASSUMPTION THAT THE WEEKLY OUTPUT IS DROPPED FROM 26K TO 15.5K. 2. NAMTAI SHALL USE ITS BEST COMMERCIAL EFFORT TO REALLOCATE, DIVEST AND CANCEL ANY EXCESS COMPONENTS IN ORDER TO FOLLOW THE NEW FORECAST PROVIDED BY SONY ERICSSON. 3. SONY ERICSSON SHALL ASSUME LIABILITY FOR ANY COMPONENTS COVERED BY THE LATEST AGREED MODEL AND THE COMPONENT PRICE IS CALCULATED ON THE AGREED UNIT PRICE AS LISTED IN THE LAST AGREED MODEL. EX-4.9 7 u98916exv4w9.txt PURCHASE AGMT BETWEEN CITIGROUP & NAM TAI EXHIBIT 4.9 CITIGROUP GLOBAL MARKETS LIMITED CITIGROUP CENTRE, CANADA SQUARE, CANARY WHARF, LONDON E14 5LB August 22, 2003 NAM TAI ELECTRONICS, INC. P.O. Box 3342, Road Town Tortola, British Virgin Islands Ladies and Gentlemen: Nam Tai Electronics, Inc., a company incorporated under the laws of the British Virgin Islands (the "SELLER") proposes, subject to the terms and conditions stated herein, to sell the Hong Kong dollar denominated 3% convertible Notes due 2005 ("NOTES") with interest payable semi-annually issued by and with rights, subject to the terms and conditions of the Notes to, and convertible into ordinary shares of TCL International Holdings Limited (the "COMPANY"), a company incorporated under the laws of the Cayman Islands and whose shares are listed on The Stock Exchange of Hong Kong, to Citigroup Global Markets Limited, a company incorporated under the laws of England (the "PURCHASER"). The Seller has entered into an Amendment to the Subscription Agreement with the Company dated as of the date hereof to permit global clearing and settlement of the Notes through Clearstream (as defined herein) and Euroclear (as defined herein). Notes in the principal amount of 40,000,000 (the "Securities") are to be sold hereunder to the Purchaser by Nam Tai Electronics, Inc. The Securities will be purchased by the Purchaser in the form of a Global Note in accordance with Regulation S ("Regulation S") under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and subject to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited in relation to such trades, subject, however, to the additional matters set out below. The Seller understands that the Securities may be resold by the Purchaser outside the United States pursuant to Regulation S. Terms not otherwise defined herein shall have the meaning ascribed to them in the terms and conditions of the Notes. SELLER'S REPRESENTATIONS AND WARRANTIES l. The Seller represents and warrants to, and agrees with, the Purchaser, as of the date hereof and as of the Closing Date (as defined in Section 4 below), that: (a) Corporate power and authority. It has full power under its constitutive documents and applicable law, and all authorizations, approvals, consents and licenses required by it or its affiliates, including those prescribed by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, if applicable, have been unconditionally obtained and are in full force and effect, to permit it to enter into and perform this Agreement; and this Agreement has been duly authorized, executed and delivered by it and is a valid and binding Agreement of it enforceable in accordance with its terms; (b) No conflicts, etc. The sale and delivery of the Securities and the compliance by it with all of the provisions of this Agreement, as well as the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provision of, or constitute a material default under any agreement or instrument to which it is a party or by which it is bound or to which any of its property or assets is subject, or any statute or any order, rule (including the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited), or regulation of any court or governmental agency or body having jurisdiction over it or its property or assets; (c) Title to the Securities. No person has any conflicting right, contingent or otherwise, to purchase or to be offered any of the Securities; the Seller has valid title to, and the legal right and the power to sell and transfer full beneficial and legal interest in, the Securities, and transfer of the Securities to the Purchaser will pass title to such Securities, free and clear of all Security Interests, liens, encumbrances, equities or other claims together with all rights and advantages now and hereafter attaching to such Securities; the ordinary shares to be issued upon the exercise of the conversion right under the Notes will rank pari passu in all respects with other ordinary shares of the Company; (d) No stamp taxes. No VAT or stamp or other issuance or transfer taxes or duties are payable in connection with the sale and delivery of the Securities in the manner contemplated hereunder or the consummation of any other transaction contemplated herein in connection with the sale of such Securities; (e) No manipulation. None of the Seller, any of its affiliates or any person acting on its or their behalf has or will make bids or purchases for the purpose of creating actual or apparent active trading in, or of raising the price of, any Securities or any right to purchase Securities or securities convertible into or exchangeable or exercisable for Securities that is designed to or that has constituted, or that might reasonably be expected to cause or result in, manipulation of the price of any security of the Company; (f) No inside information. The Seller is not aware of any information (including without limitation any information regarding any material adverse change or prospective material adverse change in the condition of, or any actual, pending or threatened litigation, arbitration or similar proceeding involving, the Company) that is not described in the Company's most recent annual report or subsequent public information releases (collectively, the "Publicly Available Information") that is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Company and its subsidiaries: to the best of its knowledge, the Publicly Available Information is accurate and complete in all material respects; and the sale of the Securities will not constitute an insider dealing under the Division 4 of the Securities and Futures Ordinance (Cap. 571) or other applicable law or regulations prohibiting "insider dealing" in securities; 2 (g) No directed selling efforts. None of the Seller, any of its affiliates or any person acting in or its or their behalf has engaged or will engage in any directed selling efforts with respect to the securities as defined in Regulation S. (h) Neither the Seller, nor any of its affiliates (as defined in Rule 501(b) of Regulation D), or my person acting on its or their behalf (i) has made or will make offers or sales of any security or solicited or will solicit offers to buy, or otherwise negotiated or will negotiate in respect of, any security, under circumstances that would require the registration of the Securities under the Securities Act; or (ii) has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of the Securities in the United States; the Securities are not of the same class (within the meaning of Rule 144A) as securities listed on a national securities exchange registered under Section 6 of the U.S. Exchange Act of 1934 or quoted in a U.S. automated inter-dealer quotation system. SALE AND PURCHASE 2. Subject to the terms and conditions set forth in this Agreement, the Seller agrees to sell the Securities to the Purchaser at an aggregate price of HK $39,555,068.49 (the "PURCHASE PRICE). The Purchaser agrees to purchase the Securities at the Purchase Price. The Purchaser and the Seller agree that the Purchase Price is inclusive of interest accrued on the Notes from May 9, 2003 up to August 25, 2003. PURCHASER'S REPRESENTATIONS AND WARRANTIES 3. The Purchaser represents and warrants to, and agrees with, the Seller that neither it nor any affiliate has engaged or will engage in directed selling efforts with respect to the Securities, as defined in Regulation S under the Securities Act. SETTLEMENT 4. Unless otherwise agreed by the parties, completion of the sale and purchase of the Securities will take place on August 22, 2003 (the "CLOSING DATE"). The Securities to be purchased by the Purchaser hereunder will be presented by a definitive global Security in book-entry form that will be deposited by or on behalf of the Company with a common depositary for Clearstream Banking, societe anonyme ("CLEARSTREAM ) and Euroclear Bank, SA/N.V., as operator of the Euroclear System ("EUROCLEAR"). On the Closing Date, the Seller will (i) cause the Issuer to transfer the Securities to the account of the Purchaser at Euroclear and Clearstream, respectively by issuing transfer instructions thereof; (ii) deliver the original definitive Certificate representing the Securities to the Issuer; and (iii) deliver to the Purchaser an officers' certificate in substantially the form attached hereto as Exhibit 1. Upon receiving confirmation on August 25, 2003 that the Securities have been credited to Citigroup Global Markets Limited's Euroclear account No. 90895, the Purchaser shall forthwith pay the Purchase Price by wire transfer in immediately available Federal funds to the following account: 3 Bank: Hong Kong Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong Account name: Nam Tai Group Management Limited Account number 500-815287-001 Upon confirmation of receipt of (i) the Purchase Price by the Seller and (ii) the Securities by the Purchaser, the Purchaser and the Seller shall execute and deliver the cross-receipts for the payment and delivery of Securities. All transactions, deliveries and payments at the closing are deemed to take place simultaneously, and no transaction, delivery or payment is deemed to be completed until all transactions, deliveries and payments at the closing have been completed. SELLER'S COVENANTS 5. The Seller covenants and agrees with the Purchaser that: (a) Prompt Payment, It will promptly pay or transfer to or to the order of the Purchaser, on behalf of the purchasers of the Securities, as the case may be, upon receipt, any dividend or distribution declared or other rights declared or distributed by the Company in respect of the Securities for which a record date occurs on or after the date hereof; (b) Further Assurances. It undertakes, at its own expense, to execute all such documents and do all such acts and things as the Purchaser may reasonably require in order to give effect to the terms of this Agreement and to enable the sale and purchase of the Securities to be carried out and given full force and effect; (c) Notice. It will notify the Purchaser forthwith if on or prior to the Closing Date it comes to the Seller's knowledge that any of the representations, warranties, undertakings or agreements set out in Section 1 above ceases to be true and accurate or becomes misleading in any respect or that there has been any breach of any of such representations, warranties, undertakings or agreements. EXPENSES 6. Except as may otherwise be provided in this Agreement, each party shall bear its own fees disbursements, costs and expenses incident to the performance of its obligations hereunder; except that the Seller shall bear all of the costs of VAT, stamp duties, depositary fees, transfer taxes and duties incident to the sale and delivery of the Securities to the Purchaser. The agreements and covenants of the Seller in this Section 6 shall survive termination of this Agreement. CLOSING CONDITIONS 7. The obligations of the Purchaser hereunder shall be subject to the following conditions: (a) Representations and Warranties. All representations and warranties and other statements herein by the Seller are, at and as of the Closing Date, true and correct; 4 (b) No Adverse Change. Prior to the Closing Date, there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Company's most recent annual report or subsequent information releases issued prior to the Closing Date that, in the reasonable judgment of the Purchaser, is material and adverse and that makes it, in the reasonable judgment of the Purchaser, impracticable to conduct the placement of the Securities in the manner contemplated herein; (c) Global Note. On or prior to the Closing Date, the Securities to be purchased by the Purchaser hereunder will be presented by a definitive global Security in book-entry from that will be deposited by or on behalf of the Company with a common depositary for Clearstream and Euroclear. (d) Securities Certificates. The Seller shall have on or prior to the Closing Date delivered to the Issuer the definitive Certificates issued on November 8, 2002 representing the Securities. (e) The closing of the purchase of the relevant Notes pursuant to (i) a purchase agreement between the Purchaser and United Asset Investments Limited dated the date hereof in relation to principal amount HK$210,000,000 of the Notes and (ii) a purchase agreement between the purchase and Go-Win Limited dated the date hereof in relation to principal amount HK$ 100,000,000 of the Notes, shall occur concurrently with the closing of the sale and purchase of the Securities described herein. The purchaser, in its sole discretion, may waive any of the foregoing conditions. If any condition to the Purchaser's obligations has not been satisfied prior to delivery of, and payment for, the Securities on the Closing Date, the Purchaser may elect, in its sole discretion, to terminate this Agreement. Sections 6, 8, 11, 12 and 13 shall survive any such termination. INDEMNITY 8. (a) Indemnity. The Seller will indemnify and hold harmless the Purchaser against any losses, claims, damages or liabilities to which the Purchaser may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereof) relate to or arise out of any breach or alleged breach of the representations and warranties, covenants or other undertakings of the Seller in this Agreement or the Purchaser's participation in the transaction contemplated by this Agreement, other than any losses, claims, damages or liabilities that result from the Purchaser's bad faith or gross negligence; and the Seller agrees to reimburse the Purchaser for any legal or other expenses reasonably incurred by the Purchaser in connection with investigating or defending any such action or claim as such expenses are incurred. (b) Scope. The obligations of the Seller under this Section 8 shall be in addition to any liability that the Seller may otherwise have and shall extend, upon the same terms and conditions, to the directors, officers, employees and controlling persons within the meaning of the Securities Act, as the case may be, of the Purchaser and each of its affiliates within the meaning of the Securities Act (and shall include the partners of any such affiliate). The obligations of the Seller set forth in this section 8 shall survive termination of this Agreement. 5 DISCLOSURE 9. Prior to the Closing Date, except as may be required by applicable law or regulation, the transactions contemplated by this Agreement may not be publicly disclosed to any third party (other than to the Company and professional advisors to the Seller) or otherwise publicly referred to by the Seller without the prior written consent of the Purchaser. SURVIVAL OF REPRESENTATIONS 10. The indemnities, agreements, representations, warranties and other statements of the Seller, as set forth in this Agreement or made by or on behalf of it, shall remain in full force and effect and shall survive delivery of and payment for the Securities. 11. All statements, requests, notices and agreements hereunder shall be in writing, and shall be delivered or sent by mail and facsimile transmission, if to the Purchaser to Citigroup Global Markets Limited, Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, England fax: (44) 207-986-1929; and, if to the Seller to Nam Tai Group Management Limited, 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong, fax: 4852 2263 1223, Attention: Li Shi Yuen, Joseph. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. SUCCESSORS, ASSIGNS, ETC. 12. This Agreement shall be binding upon, and inure solely to the benefit of, the Purchaser and the Seller and, to the extent provided herein, any directors, officers, employees, controlling persons or affiliates of the Purchaser, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. Time shall be of the essence in this Agreement. GOVERNING LAW 13. This Agreement shall be governed by and construed in accordance with the laws of Hong Kong for the time being in force and the Parties hereby irrevocable submit to the non-exclusive Jurisdiction of the Hong Kong courts. COUNTERPARTS 14. This Agreement may be executed by any one or both of the parties hereto in any number of counterparts and via facsimile, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 6 If the foregoing is in accordance with your understanding, please sign and return to us an original counterpart hereof, and upon the acceptance hereof by you, this letter and such acceptance hereof shall constitute a binding agreement among the Seller and the Purchaser. Very truly yours, CITIGROUP GLOBAL MARKETS LIMITED By: /s/ --------------------------------- Name: Title: Accepted as of the date hereof: NAM TAI ELECTRONICS, INC. By: /s/ Li Shi Yuen, Joseph --------------------------------- Name: Li Shi Yuen, Joseph Title: President and Chief Executive Officer For and on behalf of NAM TAI ELECTRONICS, INC. By: /s/ Li Shi Yuen, Joseph --------------------------------- Authorized Signature 23HA 7 EXHIBIT 1 FORM OF OFFICERS' CERTIFICATE 2 EX-4.10 8 u98916exv4w10.txt AGMT BETWEEN OMNIVISION & NAMTAI JULY 15 '03 EXHIBIT 4.10 OMNIVISION PREFERRED PARTNER AGREEMENT This OmniVision Preferred Partner Agreement ("Agreement") is entered into as of July 15, 2003 ("Effective Date"), between OmniVision Technologies, Inc. ("OmniVision"), a Delaware corporation whose principal office is located at 930 Thompson Place, Sunnyvale, California 94058, U.S.A., and Namtai Electronic (Shenzhen) Company Limited ("Company"), whose principal office is located at Gusu Industrial Estate, Xixiang, Baoan, Shenzhen, PRC RECITALS WHEREAS, OmniVision develops and markets various image-sensing semiconductor products; WHEREAS, Company develops and markets modules that incorporate image-sensing semiconductor products; WHEREAS, OmniVision and Company recognize the needs to improve time to market for their respective products and to further invest in the innovation of products in order to be competitive in the market place; and WHEREAS, OmniVision and Company believe the competitiveness of the respective party can be enhanced by Company participating in OmniVision's Preferred Partner Program (the "Program"), as further described below; NOW, THEREFORE, in consideration of the mutual premises and covenants contained herein below, the parties hereby agree as follows: 1. OmniVision Obligations. Except as otherwise provided herein, OmniVision shall use its commercially reasonable efforts to provide Company with the following: 1.1 Advance roadmap for OmniVision products (approximately 4 months ahead of non-Program members); 1.2 Advance preliminary product datasheets (at least 2 months ahead of non-Program members, or when first made available key customers, whichever is earlier); 1.3 Additional technology or product information requested by key customers will be provided directly by Omnivision. Omnivision will copy Company if key customer also requested such information from Company; 1.4 Preliminary budgetary pricing (approximately 4 months ahead of non-Program members); 1.5 Optics and lens and module design guidance and feedback, if available; 1.6 Assistance with lens sourcing, where available; 1.7 Program-level support; 1.8 Program pricing on all OmniVision products and 1.9 Inclusion of Company in OmniVision's alphabetical listing of Program members given to customers that inquire about module vendors. 2. Company Obligations. Except as otherwise provided herein, Company shall use its commercially reasonable efforts to provide OmniVision with the following: 2.1 Company will make best efforts at providing module samples to Omnivision of new sensor products from Omnivision within 4 weeks of Omnivision first providing samples of new sensor products; 2.2 Advance information on OmniVision-sensor-based Company module specifications and information on module pricing of which must: (a) be provided to OmniVision as soon as available, and no later than when provided to any customer; (b) be updated and provided to OmniVision on a quarterly basis; and (c) be identical to the information provided to any customer, including without limitation sensor pricing in module breakdown pricing information; 2.3 Quarterly updates regarding monthly capacity for manufacturing and test; 2.4 Quarterly updates regarding lead-time to increase capacity for manufacturing and test; 2.5 Company's corporate background information for OmniVision to provide to its customers that inquire about Program members; 2.6 Invitation of OmniVision in first meetings with customers (pre-sales, on a per program basis); and 2.7 Updates on the progress of Program-related sales and marketing efforts at all stages (from pre-sale to design-in). 2.8 Omnivision and Company will make best efforts to review all programs in which there is collaboration on a monthly basis. 3. Co-Marketing and Co-Promotion Obligations. 3.1 When Company has a lead on a potential customer ("Customer") for modules using OmniVision's image sensor products, Company shall notify OmniVision in writing identifying the Customer. Within 3 business days of receipt of Company's notice, OmniVision shall notify Company in writing of whether it was previously in contact with the Customer and, if it was not previously in contact with the Customer, its acceptance or rejection of the Customer for the Program co-marketing and co-promotion efforts described in this Agreement. (a) If OmniVision was previously in contact with the Customer, or if OmniVision was not previously in contact with the Customer and rejects the Customer, then neither party will have any obligation with respect to such Customer. (b) If OmniVision accepts the Customer, then: (i) Company will officially introduce OmniVision to the Customer through an email and a joint phone conference call. 2 (ii) Omni Vision will keep Company up to date of all progress of the Customer's project at all stages (from pre-sale to design-in). (iii) OmniVision will not work with an alternate module partner for the Customer's project, unless the Customer requests otherwise. If the Customer requests otherwise, OmniVision will notify within Partner within 3 business days. If the Customer requests multiple sourcing for supply of modules, OmniVision shall notify Company of this within 3 business days. OmniVision will remain completely neutral in the Customer's decision. (iv) When the Customer wants to engage specifically in a module program discussion, OmniVision will invite the Company to a joint meeting with the Customer. 3.2 When OmniVision has a lead on a potential customer ("Customer") for modules using OmniVision's image sensor products, OmniVision shall notify Company in writing identifying the Customer. Within 3 calendar days of receipt of OmniVision's notice, Company shall notify OmniVision in writing of whether Company was previously in contact with the Customer regarding module sales and, if it was not previously in contact with the Customer, its acceptance or rejection of the Customer for the Program co-marketing and co-promotion efforts described in this Agreement. (a) If Company was previously in contact with the Customer, or if Company was not previously in contact with the Customer and rejects the Customer, then: (i) Company shall place OmniVision at the top of Company's list of image sensor suppliers in all presentations and discussions. (ii) Company may demonstrate modules using other sensors to the Customer, but Company shall always demonstrate OmniVision-based-modules first. (iii) If the Customer selects another sensor vendor or requests multiple sourcing for sensors, Company must notify OmniVision of this within 3 business days. (b) If Company accepts the Customer, then: (i) OmniVision will officially introduce Company to the Customer through an email and a joint phone conference call. (ii) Company shall promote OmniVision-based-modules to the Customer and shall not mention, discuss, promote, demonstrate or in any way communicate availability of any module solutions with sensors other than OmniVision sensors. (iii) If the Customer expresses interest in another sensor vendor or requests multiple sourcing for sensors, then Company shall notify OmniVision of this within 3 business days. (iv) When the Customer wants to engage specifically in a module program discussion, OmniVision will invite Company to a joint meeting with the Customer. 3 4. New Module Designs 4.1 If OmniVision decides to introduce a new module design to Company (the "Design"), then Company shall either reject or accept the Design in writing within 3 business days of OmniVision's notice thereof. 4.2 If Company accepts the Design, then Company shall not use the Design with any sensor other than those provided by OmniVision for a period of 6 months from the date of first commercial quantity shipment of a product based on this design. 5. Intellectual Property. Each party remains the owner of its intellectual property, and nothing in this Agreement constitutes a transfer of any rights in either party's intellectual property to the other party. 6. Term and Termination 6.1 This Agreement commences on the Effective Date and will remain in full force and effect until terminated as provided herein. 6.2 In the event of the insolvency, bankruptcy or voluntary dissolution of Company, OmniVision may terminate this Agreement immediately on written notice to Company. 6.3 Either party-may terminate this Agreement for convenience upon 30 days written notice. 6.4 If either party defaults in the performance of any provision hereunder and if such default continues and is not cured within 30 days after written notice thereof by the non-defaulting party, then the non-defaulting party may terminate this Agreement. 6.5 The following Sections shall survive termination of this Agreement: 4.2, 5, 6.5, 7,8, 9 and 10. 7. No Warranty. ALL INFORMATION EXCHANGED PURSUANT TO THIS AGREEMENT IS PROVIDED "AS-IS" WITHOUT WARRANTY OF ANY KIND. WITHOUT LIMITATION, EACH PARTY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. 8. Confidentiality. Company acknowledges that by reason of its relationship to OmniVision hereunder it may have access to certain information and materials concerning OmniVision's business plans, suppliers, customers and products (including but not limited to information and materials contained in technical data provided by OmniVision) which is confidential and of substantial value to OmniVision, which value would be impaired if such information were disclosed to third parties. Company agrees that it shall not use in any way for its own account or the account of any third party, nor disclose to any third party, any such confidential information which is revealed to it by OmniVision. Company will take every reasonable precaution to protect the confidentiality of such information consistent with the efforts exercised by it with respect to its own confidential business information. OmniVision shall advise if it considers any particular information or materials to be confidential. Company will not publish any technical description of the Products beyond the description published by OmniVision. In the event of termination of this 4 Agreement, there shall be no use or disclosure by Company of any confidential information of OmniVision, 9. Limitation of Liability. IN NO EVENT SHALL OMNIVISION BE LIABLE FOR COSTS OF PROCUREMENT, SUBSTITUTE GOODS, LOSS OF PROFITS OR FOR ANY SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER, CAUSED, WHETHER FOR BREACH OR WARRANTY, NEGLIGENCE OR OTHERWISE. THE LIMITATIONS OF LIABILITY AND LIMITED REMEDIES HEREIN SHALL APPLY REGARDLESS OF ANY FAILURE OF ESSENTIAL PURPOSE. 10. General 10.1 This Agreement shall be governed by and interpreted under the laws of the State of California, United States of America without reference to conflicts of laws provisions. 10.2 No modification, change or amendment to this Agreement, nor any waiver of any rights in respect hereto, shall be effective unless in writing signed by the party to be charged, The waiver of any breach or default hereunder shall not constitute the waiver of any subsequent breach or default. 10.3 Any notice or report required or permitted by this Agreement shall be deemed given if delivered personally or if sent by either party to the other by first class mail, postage prepaid, addressed to the other party at its principal business address or at such other address as to which such party shall give notice hereunder. If by mail, delivery shall be deemed effective 3 days after deposit with postal authorities. 10.4 This Agreement and each and every covenant, term and condition hereof is binding upon and will inure to the benefit of the parties hereto and their respective successors and assigns. 10.5 The prevailing party in any legal action brought by one party against the other shall be entitled, in addition to any other rights and remedies it may have, to reimbursement for its expenses incurred thereby, including court costs and reasonable attorney's fees. 10.6 This Agreement and any attachments and exhibits attached hereto represent the entire agreement between Company and OmniVision with respect to the subject matter hereof and supersede all prior negotiations, understandings, representations and agreements, oral or written. AGREED: COMPANY OMNIVISION /s/ Karene Wong /s/ John Lynch - --------------------------- ------------------------------ name: Karene Wong name John Lynch - --------------------------- VP Marketing Sales title: Director -------------------------------- title VP Marketing Sales 5 EX-4.11 9 u98916exv4w11.txt AGMT BETWEEN JIC TECHNOLOGY & GLORY GATE JUNE'03 EXHIBIT 4.11 DATED: 28 JUNE 2003 J.I.C TECHNOLOGY COMPANY LIMITED the Vendor in favour of GLORY GATE ENTERPRISES LIMITED the Purchaser DEED OF INDEMNITY PRESTON | GATES | ELLIS SOLICITORS [Chinese Character] 10th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong. Tel: (852) 2230 3500 Fax: (852) 2899 2996 Website: www.prestongates.com Our Ref: 49079-00001/NKA/MHCW CONTENTS
CLAUSE HEADING PAGE 1. INTERPRETATION................................ 1 2. INDEMNITY..................................... 2 3. EXEMPTIONS.................................... 3 4. SET OFF....................................... 3 5. NOTICE........................................ 3 6. GOVERNING LAW AND JURISDICTION................ 3 EXECUTION.............................................. 5
THIS DEED is made the 28th day of June 2003. BY: J.I.C. TECHNOLOGY COMPANY LIMITED, a company incorporated in the Cayman Islands and having its registered office at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681GT, George Town, Grand Cayman, the Cayman Islands and having its principle office in Hong Kong at 15th Floor, China Merchants Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Hong Kong (the "VENDOR") IN FAVOUR OF: GLORY GATE ENTERPRISES LIMITED, a company incorporated in the British Virgin Islands having its registered office at Offshore Incorporation Centre, P.O. Box 957, Road Town, Tortola, the British Virgin Islands (for itself and as trustee for CHINA AMPLE TECHNOLOGY LIMITED (the "COMPANY") and Jieyao Electronics (Shenzhen) Company Limited ("JIEYAO ELECTRONICS")) (the "PURCHASER") WHEREAS This Deed is entered into accordance with an agreement between the Vendor and the Purchaser dated 28th June 2003 relating to the sale and purchase of shares in the Company (the "AGREEMENT"). NOW THIS DEED WITNESSES as follows: 1. INTERPRETATION In this Deed: 1.1 Words and expressions defined in the Agreement shall, except as otherwise provided or expressly defined, have the same meaning; 1.2 "CLAIM" includes any assessment notice demand or other document issued or action taken by or on behalf of any authority or body whatsoever and of whatever country, from which it appears that the Company or Jieyao Electronics is liable or is sought to be made liable to make any payment or is deprived or is sought to be deprived of any relief or allowance or credit or right to repayment of taxation; 1.3 "TAXATION" means all forms of taxation levied in Hong Kong, PRC or elsewhere and includes, but without limitation, all forms of profits tax, property tax, first registration tax, estate duty and stamp duty whatsoever charged or imposed by the Government' of Hong Kong, Government of the PRC or any other government wherever located; 1.4 "EVENT" includes (without limitation) any omission or transaction whether or not the Company is a party thereto and includes completion of the sale of shares of the 1 Company to the Purchaser and references to the result of events on or before the date hereof shall include the combined result of two or more events one or more of which shall have taken place before the date hereof; 1.5 Reference to income or profits or gains earned accrued or received shall include income or profits or gains deemed to have been or treated as or regarded as earned accrued or received for the purposes of any legislation; 1.6 Reference to any claim for taxation shall include any claim whether made before or after the date hereof and whether satisfied or unsatisfied at the date hereof and shall include: (a) the loss of any relief grant allowances subsidy credit or other preferential terms granted by or pursuant to any legislation or otherwise for taxation purposes which would (were it not for the claim in question) have been available to the Company or Jieyao Electronics whether or not the said loss results in any taxation being payable at the time of such loss; and (b) the nullifying or cancellation of a right to repayment of taxation which would have been so available or is at the date hereof assumed by the Vendor or the Purchaser to be available; and in such case the amount of the relief grant allowance subsidy credit or other preferential terms so lost or the amount of repayment which would otherwise have been obtained shall be treated as an amount of taxation for which a liability has arisen; 1.7 Reference to the result of events on or before the date hereof shall include the combined result of two or more events the first of which shall have taken place on or before the date hereof. 2. INDEMNITY Subject as hereinafter provided, the Vendor hereby as separate undertakings undertakes and covenants to the Purchaser, (for itself and as trustee for the Company and Jieyao Electronics) to indemnify the Company and Jieyao Electronics and keep it and each of them indemnified against any claim for any taxation made against the Company or Jieyao Electronics either on or before or in respect of any period before the Jieyao Completion Date or in respect of any event on or before the Jieyao Completion Date whether alone or in conjunction with other circumstances and whether or not such taxation is also or alternatively chargeable against or attributable to any other person firm or company (and so that this indemnity shall cover all reasonable costs and expenses properly payable by the Company and Jieyao Electronics in connection with and for the purpose of contesting, negotiating, resisting, quantifying or disputing any claim). 2 3. EXEMPTIONS The indemnity given by Clause 2 of this Deed does not cover any claim for taxation : (a) to the extent that provision or "reserve in respect thereof was made in the Accounts; or (b) for which the Company or Jieyao Electronics is primarily liable arising as a result of transactions in the routine course of its business since the Accounts Date; or (c) to the extent that such claim arises as a result only of any provision or reserve in respect thereof being insufficient by reason of any increase in rates of taxation made after the date hereof with retrospective effect; or (d) which would not have arisen except wholly as a result of a voluntary act or transaction or series of transactions carried out by the Purchaser (or persons deriving title from it) or the Company or Jieyao Electronics concerned after the date hereof otherwise than in the routine course of its business. 4. SET OFF If any provision for taxation contained in the Accounts shall prove to be an over provision the amount of such over provision shall be set off against the liability (if any) of the Vendor under this Deed. 5. NOTICE If the Purchaser shall become aware of a claim relevant for the purposes of this Deed it shall forthwith give written notice thereof to the Vendor at the address in Hong Kong given above (or such other address or addresses as they may from time to time notify in writing for the purposes of this Deed) and shall (if the Vendor shall indemnify and secure and keep indemnified and secured the Purchaser and the Company and Jieyao Electronics to the Purchaser reasonable satisfaction against any liability costs damages or expenses which may be incurred thereby) take such action and procure that the Company and Jieyao Electronics take such action as the Vendor may reasonably request it to avoid resist or comprise such claim. 6. GOVERNING LAW AND JURISDICTION This Deed shall be governed and construed in accordance with the law for the time being in force in Hong Kong and the parties hereby submit to the non-exclusive jurisdiction of Courts of Hong Kong. 3 IN WITNESS whereof the parties have caused this Deed to be executed the day and year first above written and in the Macau Special Administrative Region of the People's Republic of China. 4 [COMPANY SEAL] EXECUTION The Common Seal of ) J.I.C TECHNOLOGY COMPANY LIMITED ) was hereto affixed in the presence of: ) /s/ Li Shi Yuen, Joseph /s/ Keo Ming Kown 5 EX-4.12 10 u98916exv4w12.txt AGMT AMEND. BETWEEN SONY ERICSSON & NAM TAI JAN'03 EXHIBIT 4.12 Page 1 of 5 26th June 2003 AGREEMENT AMENDMENT BETWEEN SONY ERICSSON MOBILE COMMUNICATIONS AB (HEREINAFTER REFERRED TO AS "SONY ERICSSON") AND NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd. (HEREINAFTER REFERRED TO AS THE "SUPPLIER") REGARDING PROJECT "FILIP 2" Page 2 of 5 26th June 2003 TABLE OF CONTENTS 1. TERMINOLOGY, INTEGRATED PART.................................. 1 2. SCOPE OF THE AGREMENT AMENDMENT .............................. 1 3. PROJECT PLAN ................................................. 2 4. PRICES AND PRICE MODEL ....................................... 2 5. FORECAST FLEXIBILITY & LIABILITY ............................. 2 6. TERM OF AGREEMENT AND TERMINATION ............................ 2

ENCLOSURES; Enclosure 3.1 Project Plan, 2/1202-FCP 101 2260 Rev C Enclosure 4.1 Prices and Commercial Terms Page 1 of 5 26th June 2003 AGREEMENT AMENDMENT made as of 10th May 2003, by and between Sony Ericsson Mobile Communications AB, Org no 556615-6658, a limited liability company duly incorporated and existing under the laws of Sweden, with its legal address at Nya Vattentornet, S-221 88 Lund, Sweden, hereinafter referred to as "Sony Ericsson", and NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd, with organisation number 129666, a corporation duly incorporated and existing under the laws of Hong Kong and having its registered office at 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong (hereinafter referred to as the "Supplier") (hereinafter referred to as the "Supplier"). WHEREAS: 1 Sony Ericsson and Supplier have entered into a Specific Service Agreement dated 20th March 2002, "SSA August CI" regarding the August CI Camera and a Specific Service Agreement, SSA Filip, dated 10th January 2003 regarding the Filip Camera. 2. Sony Ericsson has issued a Letter of Confirmation dated 8th April 2003 regarding the excessive components and WIP of the August CI Camera due the change in market conditions. 3. Due to changes in the market conditions and reallocation of components and resources the Parties agree to change and amend the SSA Filip as stated herein in order to make use of excessive material from the August Camera 4. The Supplier has explained that it is willing and fully able to perform the Product Supply on behalf of Sony Ericsson for delivery of high quality Products, under the terms and conditions set out in this Agreement Amendment and the GSPA NOW THEREFORE, in consideration of the mutual obligations herein contained, the Parties agree as follows: 1. TERMINOLOGY, INTEGRATED PART This Agreement Amendment shall be an integrated part of the SSA Filip and, accordingly, all terms and conditions in the SSA Filip shall also apply to this Agreement Amendment. Capitalised terms contained herein shall have the meanings assigned to them below or as ascribed to them in the SSA unless otherwise defined in the context or document where it is used. "AGREEMENT AMENDMENT", means this agreement amendment. 2. SCOPE OF THE AGREMENT AMENDMENT. Page 2 of 5 26th June 2003 2.1 This Agreement Amendment comprises all changes and amendments agreed in relation to SSA Filip, i.e. the Camera Filip and the reuse of excess components from the August Camera, (this new modified Filip is called Filip 2) as stated below 3. PROJECT PLAN 3.1 Enclosure 2.3 of SSA Filip shall be replaced by a new Project plan, 2/1202-FCP 101 2260 Rev C or later, as enclosed. 4. PRICES AND PRICE MODEL 4.1 Enclosure 10.1 of SSA Filip shall be replaced by a new Enclosure Prices and Commercial Terms as enclosed. 5. FORECAST FLEXIBILITY & LIABILITY 5.1 Enclosure 14.2 and 14.2a of SSA Filip shall be deleted. 5.2 No separate liability model is deemed necessary since almost all material is on stock or available within the agreed lead-times. If any long lead-time items will occur theses shall be handled on a case by case approach and subjected individual approval from SEMC 5.3 Both parties agree that the excessive material as defined in our letter of confirmation dated 24th April 2003 shall be reused in the production of Filip 2 cameras and delivered as agreed in separate material authorizations including any additional components required. Such material authorizations to be agreed prior to 30 November 2003 and any delivery schedule must end prior 28th February 2003. Purchase orders for such quantities shall be placed no later than 30th November 2003. Save for the aforesaid, the liabilities & obligation of Sony Ericsson under the Letter of Confirmation shall not be affected. 5.4 5.5 TERM OF AGREEMENT AND TERMINATION 5.6 This Agreement Amendment shall come into force upon its execution by duly authorised representatives of both Parties and shall remain in effect until three (3) months have passed following written notice of termination by either Party, unless terminated on an earlier date as set out in Section 29 "TERM OF AGREEMENT AND TERMINATION" in the GSPA. Page 3 of 5 26th June 2003 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed, in duplicate, each party taking one copy. Date: 26th June 2003 Date: 26th June 2003 Place: Lund Place: Lund NAM TAI ELECTRONIC & SONY ERICSSON MOBILE ELECTRICAL PRODUCTS Ltd COMMUNICATIONS AB /s/ KARENE WONG /s/ MATHS GYLLING - --------------- ----------------- KARENE WONG MATHS GYLLING Company Internal 1(1) [SONY ERICSSON LOGO] AGREEMENT Document number Revision Uae PA1 Prepared by Date Responsible Buyer 2003-04-28 Contents responsible if other than preparer Remarks Approved by Authorized Sourcing Manager PRICES AND COMMERCIAL TERMS. ABSTRACT This document includes prices and additional commercial terms agreed between Sony Ericsson and supplier with regard to the study/development work to be performed by supplier. The assignment is detailed in below listed document. Project: Filip Project Plan: 2/1202-FCP 101 2260 Rev C Supplier: NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd. TABLE OF CONTENTS TABLE OF CONTENTS .................................... 1 1 REVISION HISTORY ............................ 1 2 TERMS OF PAYMENT ................. .......... 2 3 TERMS OF DELIVERY ................. ......... 2 4 NON RECURRING ENGINEERING ................... 2 5 SONY ERICSSON TOOLS ......................... 2 6 PROTOTYPES .................................. 2 7 PRODUCTS .................................... 3

1 REVISION HISTORY
REV. DATE NOTE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Company Internal 2(2) [SONY ERICSSON LOGO] AGREEMENT Document number Revision Uae PA1 2 TERMS OF PAYMENT Payment terms is 30 days after performed delivery and receipt of invoice. 3 TERMS OF DELIVERY Term of delivery is FCA Hong Kong in accordance with INCO-terms 2000. 4 NON RECURRING ENGINEERING 4.1 NRE CHARGES NRE/Travelling 20.000 USD 4.2 PAYMENT PLAN NRE may be invoiced upon release of project for mass production. 5 SONY ERICSSON TOOLS Tooling 88 000,00 USD - ------------------------------------------------------------- Testing Jig & Fixture for production 10 000,00 USD - ------------------------------------------------------------- Equipment for Verification Test 20 000,00 USD - -------------------------------------------------------------

5.1 PAYMENT PLAN Tooling may be invoiced upon release of project for mass production. 6 PROTOTYPES 6.1 PROTOTYPE PRICE
Pcs Price/pcs Total price - ------------------------------------------------------------- Soft-Tool Sample 15 85,00 1275,00 USD - ------------------------------------------------------------- FP1 320 23,00 7360,00 USD - ------------------------------------------------------------- FP1 500 23,00 11500,00 USD - -------------------------------------------------------------
6.2 PAYMENT PLAN Prototypes may be invoiced upon delivery. 7 LEADTIME Lead time for MCA-30 is 6 weeks. Any components that have longer lead time than 4 weeks will need a Material Authorization to secure material in time. Supplier is responsible for a due date for such Material Authorization in order to keep 6 weeks lead time. Company Internal 3(3) [SONY ERICSSON LOGO] AGREEMENT Document number Revision Uae PA1 8 PRODUCTS 8.1 PRODUCT PRICES Price for Product in different variant as below SXK 1041043 (Camera Neck loop Manual, Warranty leaflet): 18,023 USD KRY 105191, Camera: 17,734 USD SXA 1093048, Neck loop: 0,12 USD (Camera, Neck loop): 17,854 USD EX-4.13 11 u98916exv4w13.txt SALE & PURCHASE AGMT JIC & ZASTRON MARCH 10 '03 EXHIBIT 4.13 AGREEMENT THIS AGREEMENT is made and entered into this 10th day of March 2003 by and between:- 1. J.I.C. Enterprises (Hong Kong) Limited, a corporation duly organized and existing under the laws of Hong Kong, with its registered office at 15th Floor, China Merchants Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Central, Hong Kong (hereinafter called "the Customer"); and 2. Zastron Electronic (Shenzhen) Company Limited, a corporation duly organized and existing under the laws of PRC with its principal place of business at Gu Su Industrial Estate, Xinan, Baoan, Shenzhen, PRC. (hereinafter called "Zastron") The parties agree as follows:- ARTICLE 1. DEFINITIONS In this Agreement, the following terms shall have the following meanings:- (a) "Products" shall mean COG panels and such products, articles or goods to be agreed upon between the parties from time to time which are manufactured by Zastron according to the purchase orders placed by the Customer from time to time and the Specification (as provided in the next paragraph) for the purpose of exclusive supply to the Customer. (b) "Specification" shall mean the specification of the Products determined and confirmed in writing between the parties hereto from time to time. (c) "purchase order" shall mean a purchase order of the Products given pursuant to this Agreement. (d) "Hong Kong" shall mean The Hong Kong Special Administrative Region of The People's Republic of China. (e) "PRC" shall mean The People's Republic of China. ARTICLE 2. SALE OF PRODUCTS The Customer hereby agrees to purchase from Zastron and Zastron hereby agrees to sell exclusively to the Customer the Products subject to and upon the terms and conditions set forth herein. Zastron shall use its best endeavours to supply to the 1 Customer all the quantity of Products described in the purchase order(s) issued by the Customer according to Article 3 hereof. ARTICLE 3. PURCHASE ORDERS 3.1 The Customer shall, not less than 90 days before the commencement of any month (the "Relevant Month"), place purchase orders and forecasts with Zastron in respect of the Relevant Month and the terms and conditions of this Agreement shall apply to such purchase orders (if accepted) and any contracts for the sale and purchase of the Products concluded pursuant thereto. 3.2 Upon receipt of a purchase orders and if Zastron accepts it at its discretion, Zastron shall promptly dispatch the duplicate of the purchase order duly signed by Zastron in confirmation of the purchase order placed by the Customer. An accepted purchase order shall not be allocated, changed or cancelled without the prior mutual agreement of both parties. ARTICLE 4. PRICE AND PAYMENT The price and terms of payment of the Products shall be agreed by the parties hereto from time to time in relation to the related purchase order. The prices are F.O.B. Hong Kong and payable in HKD dollar and shall include all and any sales, use, or other taxes in relation to the sale of the Products. The payment of such prices shall be made in such manner as agreed by the parties from time to time. ARTICLE 5. DELIVERY Zastron shall, after the inspection provided in Article 6.1 hereof, ship the Products at its own cost and responsibility to the Customer's designated place on or prior to the date described in the purchase order, provided, however, that without prejudice to Article 16, Zastron shall not be liable for any delay in delivery caused by the Customer or by reason out of the control of Zastron. ARTICLE 6. INSPECTION 6.1 Zastron shall, prior to the shipment of the Products, inspect the Products whether or not they meet with the Specification and other quality standard agreed between the parties hereto from time to time and deliver the Products which pass such inspection. 2 6.2 The Customer shall, within seven (7) working days after the delivery of the Products according to Article 5 hereof, inspect the quality, quantity and function of such Products to verify that the Products comply with the Specification and the terms of the contract of sale and purchase concluded pursuant to the purchase order. The Customer shall be deemed to have accepted the Products after the Customer has inspected such Products to the Customer's satisfaction within such 7 working days. In case any defect is found in the Products, Zastron shall, at the discretion of the Customer and upon notice being given by the Customer, repair such defect(s) or re-deliver the replacement Products to the Customer at its own costs and expenses. Rejected Products shall be returned by the Customer to Zastron and the costs and expenses incurred therefrom shall be, in case the Customer returns such Products by means of transportation specified by Zastron, borne by Zastron. Any and all the Products shall be deemed to have passed the Customer's inspection unless any notification of failure to the inspection is made by the Customer within such seven (7) working days. Only such Products which pass such inspection or which are not inspected by the Customer within such 7 working days shall be the subject of the supply contemplated herein and the Customer shall make the payment to Zastron with respect to such Products. 6.3 The Customer or its representative shall have during the term of this Agreement the right to enter and inspect Zastron's office, plants, factory and other facilities at any reasonable time by prior appointment with Zastron and give Zastron any instruction, if necessary, for the purpose of quality control and smooth operation of the manufacture of Products. ARTICLE 7. TITLE AND RISK OF LOSS Title to any Products and risk of loss or damage thereto shall pass to the Customer when the Products pass the inspection by the Customer or is deemed to have been accepted by the Customer respectively provided in Article 6.2 hereof. Zastron shall thereafter be relieved from all liabilities for damage to or claims from any third parties caused by any defects in the Products. ARTICLE 8. WARRANTY 8.1 Zastron warrants that the Products conform to the Specification and other requirements with respect to the function and quality requested by the Customer and accepted by Zastron and that the materials and workmanship of the Products shall be free from defects for a period of one (1) year from the date the title to such Products passes to the Customer. During said one (1) year period, 3 Zastron shall repair the defected Products and return them to the Customer at its own cost and responsibility. 8.2 Notwithstanding anything contained in this Agreement or any of the purchase orders, in no circumstances shall Zastron be liable, in contract, tort (including negligence or breach of statutory duty) or otherwise howsoever, and whatever, the cause thereof (a) for any loss of profit, business, contracts, revenues, or anticipated savings, or (b) for any special indirect or consequential damage of any nature whatsoever. 8.3 Without affecting the generality of Article 8.2, and notwithstanding anything contained in this Agreement or any of the purchase orders, Zastron's liability to the Customer, if any, in respect of any purchase order, in contract, tort (including negligence or breach of statutory duty) or howsoever otherwise arising, shall be limited to the price of the Products specified in the relevant purchase order. ARTICLE 9. RESTRICTION ON MANUFACTURE AND SALE Zastron shall not sell the Products to any third party without the prior written consent of the Customer. ARTICLE 10. CONFIDENTIALITY Each of the parties hereto agrees to maintain in confidence and not to disclose to any third party all the information disclosed by the other party to it hereunder (except to the extent (i) reasonably necessary for such party to carry out the terms and conditions of this Agreement and any matters ancillary thereto or (ii) ordered to be disclosed pursuant to any order, decree or judgment made or issued by any court of competent jurisdiction. Such information and the confidentiality obligation imposed on the parties hereto shall not include or extend to the information which: (a) is already known to the other party at the time of the disclosure; or (b) is generally available to public at the time of the disclosure. ARTICLE 11. TERM 11.1 This Agreement shall be effective from the date first written above and shall continue in force for a period of one (1) year and shall be renewed automatically thereafter on a year to year basis, unless either of the parties hereto gives the other a written notice of termination at least ninety (90) days 4 prior to the expiration of the original one (1) year period or any extension thereof. 11.2 Notwithstanding the provision of Article 11.1 and Article 12, the provisions of Article 8, Article 9 and Article 10 shall survive the termination or cancellation of this Agreement. ARTICLE 12. CANCELLATION AND TERMINATION 12.1 In case either party breaches or defaults any of the provisions hereof, the other party may give to such breaching or defaulting party written notice of such breach or default, and if such breaching or defaulting party does not effect an adequate remedy thereof within thirty (30) days after the date of dispatch of said notice, this Agreement shall be terminated at the option of the complaining party by the dispatch of written notice to that effect to such party within seven (7) days from the expiration of the said thirty (30) days period. 12.2 Upon the occurrence of any of the following events or circumstances, either party may terminate this Agreement by written notice to the other party:- (a) in case the other party attempts to assign or transfer the rights or obligations hereunder without the prior written consent of such party; (b) if any distress or execution shall be levied upon any of the other party's goods and remain unsatisfied for a period of 5 days; (c) if the other party offers to make any arrangement with its creditors; (d) if the other party is unable to pay its debts as they fall due; (e) if any resolution or petition to wind up the other party (other than for the purpose of amalgamation or reconstruction without insolvency) shall be passed or presented; (f) if a receiver or manager shall be appointed over the whole or any part of the other party's business or assets; (g) if the other party shall suffer any proceedings analogous to those proceedings described in sub-paragraphs (b), (e) or (f) above under any foreign law. 5 ARTICLE 13. FORCE MAJEURE No party shall be liable to the other party for inability, default or failure of performance hereunder due to force majeure events, which shall include, but not limited to, acts of God, storms, shipwreck, war, riots, strike, lockout, industrial action, fire, flood, earthquake or other such unforeseeable calamity, any law, rule, regulation or governmental action or other like events beyond the reasonable control of the parties; provided that such party shall make every reasonable effort to remove the obstacle and to resume performance at the earliest practicable time. ARTICLE 14. SETTLEMENT The parties will endeavor to settle amicably any and all disputes which may arise under this Agreement. ARTICLE 15. NON-WAIVER Failure by either party to enforce any provision of this Agreement will not be deemed a waiver of future enforcement of that or any other provisions. ARTICLE 16. SEVERABILITY In the event that any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, the parties hereto agree that such holding shall not invalidate or render unenforceable any other provision hereof. ARTICLE 17. ASSIGNMENT Neither party shall assign, transfer or otherwise dispose of this Agreement or any rights or obligations hereunder to any third party without the prior written consent of the other party. ARTICLE 18. NOTICES All notices, certificates or other communications hereunder shall be deemed given when delivered by hand, sent by overnight courier, or sent by certified or registered mail, postage prepaid, return receipt requested addressed to the address first above mentioned. 6 Each party hereto may by fax notice or by such other notice described hereunder, designate any further or different address to which subsequent notices, or other communications shall be sent without any requirement of execution of any amendment to this Agreement. ARTICLE 19. COUNTERPARTS This Agreement may be executed in counterparts by the parties hereto, and each such counterpart shall be considered an original and all such counterparts shall constitute one and the same instrument. ARTICLE 20. GOVERNING LAW This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of Hong Kong. Each of the parties hereto hereby submits to the non-exclusive jurisdiction of the courts of Hong Kong. ARTICLE 21. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersede and replace all prior or contemporaneous understandings or agreements, written or oral, regarding such subject matter. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to execute this Agreement as of the date first above written. Signed by ) For and on behalf of ) J.I.C. ENTERPRISES (HONG KONG) LIMITED For and on behalf of ) J.I.C. Enterprises (Hong Kong) Limited ) /s/ Ivan Chui ) -------------------------------------- in the presence of:- [ILLEGIBLE] ) Authorized Signature 23HA Signed by ) ) For and on behalf of ) Zastron Electronic (Shenzhen) Company ) /s/ Joseph Li [COMPANY STAMP] Limited ) ) in the presence of:- [ILLEGIBLE] ) 7 EX-4.14 12 u98916exv4w14.txt SALE & PURCHASE AGMT BETWEEN ZASTRON & JIC MARCH03 EXHIBIT 4.14 AGREEMENT THIS AGREEMENT is made and entered into this 10th day of March 2003 by and between :- 1. Zastron Electronic (Shenzhen) Company Limited, a corporation duly organized and existing under the laws of PRC with its principal place of business at Gu Su Industrial Estate, Xinan, Baoan, Shenzhen, PRC (hereinafter called "the Customer"); and 2. J.I.C. Enterprises (Hong Kong) Limited, a corporation duly organized and existing under the laws of Hong Kong, with its registered office at 15th Floor, China Merchants Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Central, Hong Kong (hereinafter called "the Supplier"). The parties agree as follows:- ARTICLE 1. DEFINITIONS In this Agreement, the following terms shall have the following meanings:- (a) "Materials" shall mean raw materials such as anisotropic conductive films, integrated circuits and liquid crystal display panels and any other components to be agreed upon between the parties from time to time according to the purchase orders placed by the Customer with the Supplier from time to time. (b) "purchase order" shall mean a purchase order of the Materials given pursuant to this Agreement. (c) "Hong Kong" shall mean The Hong Kong Special Administrative Region of The People's Republic of China. (d) "PRC" shall mean The People's Republic of China. ARTICLE 2. SUPPLY OF MATERIALS The Customer hereby agrees to purchase from the Supplier and the Supplier hereby agrees to sell to the Customer the Materials subject to and upon the terms and conditions set forth herein. The Supplier shall use its best endeavours to supply to the Customer all the quantity of Materials described in the purchase order(s) issued by the Customer according to Article 3 hereof. 1 ARTICLE 3. PURCHASE ORDERS 3.1 The Customer shall, not less than 90 days before the commencement of any month (the "Relevant Month"), place purchase orders and forecasts with the Supplier in respect of the Relevant Month and the terms and conditions of this Agreement shall apply to such purchase orders (if accepted) and any contracts for the sale and purchase of the Materials concluded pursuant thereto. 3.2 Upon receipt of a purchase orders and if the Supplier accepts it at its discretion, the Supplier shall promptly dispatch the duplicate of the purchase order duly signed by the Supplier in confirmation of the purchase order placed by the Customer. An accepted purchase order shall not be allocated, changed or cancelled without the prior mutual agreement of both parties. ARTICLE 4. PRICE AND PAYMENT The price and terms of payment of the Materials shall be agreed by the parties hereto from time to time in relation to the related purchase order. The prices are F.O.B. Hong Kong and payable in HKD dollar and shall include all and any sales, use, or other taxes in relation to the sale of the Materials. The payment of such prices shall be made in such manner as agreed by the parties from time to time. ARTICLE 5. DELIVERY The Supplier shall, after the inspection provided in Article 6.1 hereof, ship the Materials at its own cost and responsibility to the Customer's designated place on or prior to the date described in the purchase order, provided, however, that without prejudice to Article 12, the Supplier shall not be liable for any delay in delivery caused by the Customer or by reason out of the control of the Supplier. ARTICLE 6. INSPECTION 6.1 The Supplier shall, prior to the shipment of the Materials, inspect the Materials whether or not they meet the quality standard agreed between the parties hereto from time to time and deliver the Materials which pass such inspection. 6.2 The Customer shall, within seven (7) working days after the delivery of the Materials according to Article 5 hereof, inspect the quality, quantity and function of such Materials to verify that the Materials comply with the terms 2 of the contract of sale and purchase concluded pursuant to the purchase order. The Customer shall be deemed to have accepted the Materials after the Customer has inspected such Materials to the Customer's satisfaction within such 7 working days. In case any defect is found in the Materials, the Supplier shall, at the discretion of the Customer and upon notice being given by the Customer, repair such defect(s) or re-deliver the replacement Materials to the Customer at its own costs and expenses. Rejected Materials shall be returned by the Customer to the Supplier and the costs and expenses incurred therefrom shall be, in case the Customer returns such Materials by means of transportation specified by the Supplier, borne by the Supplier. Any and all the Materials shall be deemed to have passed the Customer's inspection unless any notification of failure to the inspection is made by the Customer within such seven (7) working days. Only such Materials which pass such inspection or which are not inspected by the Customer within such 7 working days shall be the subject of the supply contemplated herein and the Customer shall make the payment to the Supplier with respect to such Materials. ARTICLE 7. TITLE AND RISK OF LOSS Title to any Materials and risk of loss or damage thereto shall pass to the Customer when the Materials pass the inspection by the Customer or is deemed to have been accepted by the Customer respectively provided in Article 6.2 hereof. The Supplier shall thereafter be relieved from all liabilities for damage to or claims from any third parties caused by any defects in the Materials. ARTICLE 8. WARRANTY 8.1 The Supplier warrants that the Materials conform to the requirements with respect to the function and quality requested by the Customer and accepted by the Supplier. 8.2 Notwithstanding anything contained in this Agreement or any of the purchase orders, in no circumstances shall the Supplier be liable, in contract, tort (including negligence or breach of statutory duty) or otherwise howsoever, and whatever, the cause thereof (a) for any loss of profit, business, contracts, revenues, or anticipated savings, or (b) for any special indirect or consequential damage of any nature whatsoever. 8.3 Without affecting the generality of Article 8.2, and notwithstanding anything contained in this Agreement or any of the purchase orders, the Supplier's liability to the Customer, if any, in respect of any purchase order, in contract, 3 tort (including negligence or breach of statutory duty) or howsoever otherwise arising, shall be limited to the price of the Materials specified in the relevant purchase order. ARTICLE 9. CONFIDENTIALITY Each of the parties hereto agrees to maintain in confidence and not to disclose to any third party all the information disclosed by the other party to it hereunder (except to the extent (i) reasonably necessary for such party to carry out the terms and conditions of this Agreement and any matters ancillary thereto or (ii) ordered to be disclosed pursuant to any order, decree or judgment made or issued by any court of competent jurisdiction. Such information and the confidentiality obligation imposed on the parties hereto shall not include or extend to the information which: (a) is already known to the other party at the time of the disclosure; or (b) is generally available to public at the time of the disclosure. ARTICLE 10. TERM 10.1 This Agreement shall be effective from the date first written above and shall continue in force for a period of one (1) year and shall be renewed automatically thereafter on a year to year basis, unless either of the parties hereto gives the other a written notice of termination at least ninety (90) days prior to the expiration of the original one (1) year period or any extension thereof. 10.2 Notwithstanding the provision of Article 11.1 and Article 12, the provisions of Article 8 and Article 9 shall survive the termination or cancellation of this Agreement. ARTICLE 11. CANCELLATION AND TERMINATION 11.1 In case either party breaches or defaults any of the provisions hereof, the other party may give to such breaching or defaulting party written notice of such breach or default, and if such breaching or defaulting party does not effect an adequate remedy thereof within thirty (30) days after the date of dispatch of said notice, this Agreement shall be terminated at the option of the complaining party by the dispatch of written notice to that effect to such party within seven (7) days from the expiration of the said thirty (30) days period. 4 11.2 Upon the occurrence of any of the following events or circumstances, either party may terminate this Agreement by written notice to the other party:- (a) in case the other party attempts to assign or transfer the rights or obligations hereunder without the prior written consent of such party; (b) if any distress or execution shall be levied upon any of the other party's goods and remain unsatisfied for a period of 5 days; (c) if the other party offers to make any arrangement with its creditors; (d) if the other party is unable to pay its debts as they fall due; (e) if any resolution or petition to wind up the other party (other than for the purpose of amalgamation or reconstruction without insolvency) shall be passed or presented; (f) if a receiver or manager shall be appointed over the whole or any part of the other party's business or assets; (g) if the other party shall suffer any proceedings analogous to those proceedings described in sub-paragraphs (b), (e) or (f) above under any foreign law. ARTICLE 12. FORCE MAJEURE No party shall be liable to the other party for inability, default or failure of performance hereunder due to force majeure events, which shall include, but not limited to, acts of God, storms, shipwreck, war, riots, strike, lockout, industrial action, fire, flood, earthquake or other such unforeseeable calamity, any law, rule, regulation or governmental action or other like events beyond the reasonable control of the parties; provided that such party shall make every reasonable effort to remove the obstacle and to resume performance at the earliest practicable time. ARTICLE 13. SETTLEMENT The parties will endeavor to settle amicably any and all disputes which may arise under this Agreement. 5 ARTICLE 14. NON-WAIVER Failure by either party to enforce any provision of this Agreement will not be deemed a waiver of future enforcement of that or any other provisions. ARTICLE 15. SEVERABILITY In the event that any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, the parties hereto agree that such holding shall not invalidate or render unenforceable any other provision hereof. ARTICLE 16. ASSIGNMENT Neither party shall assign, transfer or otherwise dispose of this Agreement or any rights or obligations hereunder to any third party without the prior written consent of the other party. ARTICLE 17. NOTICES All notices, certificates or other communications hereunder shall be deemed given when delivered by hand, sent by overnight courier, or sent by certified or registered mail, postage prepaid, return receipt requested addressed to the address first above mentioned. Each party hereto may by fax notice or by such other notice described hereunder, designate any further or different address to which subsequent notices, or other communications shall be sent without any requirement of execution of any amendment to this Agreement. ARTICLE 18. COUNTERPARTS This Agreement may be executed in counterparts by the parties hereto, and each such counterpart shall be considered an original and all such counterparts shall constitute one and the same instrument. 6 ARTICLE 19. GOVERNING LAW This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of Hong Kong. Each of the parties hereto hereby submits to the non-exclusive jurisdiction of the courts of Hong Kong. ARTICLE 20. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersede and replace all prior or contemporaneous understandings or agreements, written or oral, regarding such subject matter. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to execute this Agreement as of the date first above written. Signed by ) ) For and on behalf of ) Zastron Electronic (Shenzhen) Company ) /s/ Joseph Li [COMPANY STAMP] Limited ) ) in the presence of:- ) Signed by ) ) For and on behalf of For and on behalf of ) J.I.C. ENTERPRISES (HONG KONG) LIMITED J.I.C. Enterprises (Hong Kong) Limited ) ) /s/ Ivan Chui ) -------------------------------------- in the presence of :- ) Authorized Signature 23HA 7 EX-4.15 13 u98916exv4w15.txt AGMT AMONG TOSHIBA, NAM TAI, AND ZASTRON, JAN 27 Exhibit 4.15 [JAPANESE TEXT] EX-4.16 14 u98916exv4w16.txt AGMT BETWEEN SONY ERICSSON & NAM TAI JAN 10 2003 EXHIBIT 4.16 Page 1 of 7 10th January 2003 SPECIFIC SERVICE AGREEMENT BETWEEN SONY ERICSSON MOBILE COMMUNICATIONS AB (HEREINAFTER REFERRED TO AS "SONY ERICSSON") AND NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd. (HEREINAFTER REFERRED TO AS THE "SUPPLIER") REGARDING PROJECT "FILIP" Page 2 of 7 10th January 2003 TABLE OF CONTENTS 1. TERMINOLOGY INTEGRATED PART........................................ 1 2. SCOPE OF THE SSA................................................... 2 3. FORECASTS AND ROADMAPS............................................. 2 4. COMMUNICATION AND CONTACT PERSONS.................................. 2 5. INDUSTRIALISATION SERVICES......................................... 2 6. INDUSTRIALISATION-TEST APPLICATIONS................................ 3 7. PROTOTYPES......................................................... 3 8. SPECIFICATION...................................................... 3 9. DOCUMENTATION...................................................... 3 10. PRICING AND TERMS OF PAYMENT..................................... 3 11. TERMS OF DELIVERY................................................ 4 12. PACKING AND LABELLING............................................ 4 13. QUALITY.......................................................... 4 14. PURCHASE OF COMPONENTS........................................... 4 15. TERM OF AGREEMENT AND TERMINATION................................ 5

ENCLOSURES: Enclosure 2.3 Project Plan, NDU/P-02:1321 Enclosure 10.1 Prices and Price model Enclosure 14.1 Purchase of components Enclosure 14.2 Liability and Forecast model Page 1 of 7 10th January 2003 SPECIFIC SERVICE AGREEMENT made as of 10th January 2003, by and between Sony Ericsson Mobile Communications AB, Org no 556615-6658, a limited liability company duly incorporated and existing under the laws of Sweden, with its legal address at Nya Vattentornet, S-221 88 Lund, Sweden, hereinafter referred to as "Sony Ericsson", and NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd, with organisation number 129666, a corporation duly incorporated and existing under the laws of Hong Kong and having its registered office at 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong (hereinafter referred to as the "Supplier"). (hereinafter referred to as the "Supplier"). WHEREAS: 1. Ericsson and Supplier have entered into the General Service and Purchase Agreement, GSPA, dated 15th February 2001 among other agreements, The GSPA has been duly assigned to Sony Ericsson Mobile Communications AB during 2002. 2. The GSPA contains the general terms and conditions for the performance of Product Supply to Sony Ericsson, from Supplier, 3. It is intended that the GSPA will be supplemented by one (1) or more SSA's setting out the specific provisions relating to the performance of Product Supply, and 4. The Supplier has explained that it is willing and fully able to perform the Product Supply on behalf of Sony Ericsson for delivery of high quality Products, under the terms and conditions set out in this SSA and the GSPA. NOW THEREFORE, in consideration of the mutual obligations herein contained, the Parties agree as follows: 1. TERMINOLOGY, INTEGRATED PART The GSPA shall be an integrated part of this SSA and, accordingly, all terms and conditions in the GSPA shall also apply to this SSA. Capitalised terms contained herein shall have the meanings assigned to them below or as ascribed to them in the GSPA unless otherwise defined in the context or document where it is used. "AGREEMENT", means this Specific Service Agreement. "GSPA", means the General Service and Purchase Agreement referred to in the "Whereas"-section above entered into between the Parties. "PRODUCT", means the Camera Filip, developed by C Technologies AB on behalf of Sony Ericsson and as further specified in this Agreement. Page 2 of 7 10th January 2003 "PA", means the Purchase Agreement separately signed covering the Product. The PA will be the new name of the SPA mentioned in the GSPA. "SSA", means this Specific Service Agreement. 2. SCOPE OF THE SSA 2.1 Under the terms and conditions set forth in the Agreement Documents (i) Supplier shall - exclusively for Sony Ericsson - perform Product Supply regarding the Product, and (ii) Sony Ericsson shall be entitled to purchase the Products from Supplier under the PA. 2.2 In the event of an inconsistency in the Agreement Document, the inconsistency shall be resolved by giving documents precedence in the following order: (i) The Purchase Order, excluding Sony Ericsson's general purchasing conditions if such have been enclosed with the Purchase Order, (ii) The PA, (iii) The GSPA. (iv) This Agreement excluding the Enclosures, (v) Enclosure 2.3 Project Plan (vi) Enclosure 10.1 Prices and Price model (vii) Enclosure 14.1 Purchase of components, (viii) Enclosure 14.2 Liability and Forecast model 2.3 Included in the Product Supply shall be repair and maintenance services as set out in Enclosure 2.3. 3. FORECASTS AND ROADMAPS 3.1 A forecast of RTL and production volumes may be included in Enclosure 2.3.These volume are only for production and capacity planning purposes. Sony Ericsson is not committed to buy according to the forecasted volumes. Sony Ericsson liability of the forecasted volumes as per Article 14. 4. COMMUNICATION AND CONTACT PERSONS 4.1 In accordance with Subsection 5.5 of the GSPA the Parties hereby appoint the contact persons set out in Enclosure 2.3 to receive and to communicate information. 5. INDUSTRIALISATION SERVICES 5.1 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.1 of the GSPA, lead and be responsible for the industrialisation of Product. Page 3 of 7 10th January 2003 5.2 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.4 of the GSPA, provide information for the design work and furthermore manufacture the test applications. 5.3 The requirements for traceability as provided in Subsection 6.7 in the GSPA shall be as set out in Enclosure 2.3. 6. INDUSTRIALISATION-TEST APPLICATIONS. 6.1 Supplier shall develop and deliver Manufacturing Test Applications as set out in Section 7 of the GSPA and as the case may be in Enclosure 2.3 7. PROTOTYPES 7.1 Supplier shall (i) provide Sony Ericsson with Prototypes (ii) review the Prototypes for manufacturability, (iii) perform the testing of the Prototype, as defined in Enclosure 2.3 and (iv) provide Sony Ericsson with written reports of the analysis of the Prototypes. 8. SPECIFICATION 8.1 Supplier shall not deliver any Products unless they meet the requirements set out in the Specification as set out in Enclosure 2.3 and amended from time to time in and as further described in Section 14 in the GSPA. 9. DOCUMENTATION 9.1 Project Documentation The Supplier shall submit written reports to Sony Ericsson on the activities and the progress of the Product Supply. Such reports shall include the reports and plans specified in Enclosure 2.3. 9.2 Product Documentation Supplier shall produce and deliver to Sony Ericsson Product Documentation fulfilling the requirements set out in templates included in Enclosure 2.3. 10. PRICING AND TERMS OF PAYMENT 10.1 The current price and the price model of the Product shall be as set out in Enclosure 10.1. All invoices sent by Supplier shall be in USD or Euro as agreed in the PA 10.2 Price review Page 4 of 7 10th January 2003 The price of the Products shall be reviewed and agreed quarterly before the ending of every quarter in order for the prices to be firm for deliveries during the following quarter. The basis for the price review shall be: (i) significant changes in volumes, and/or; (ii) fluctuations in the exchange rate as defined below, and/or; (iii) changes to the Specification, and/or; (iv) increased production efficiency including but not limited to "The learning curve advantage", and/or; (v) changes in the price of the components. (vi) delivery performance in the last quarter before against agreed and acknowledge order, call of lead time Changes in the Specification and/or changes of a specific component price during a quarter, which causes a different price shall immediately or with a reasonable delay - due to material in stock - apply to all ordered Products. Such reasonable delays shall however only relate to reasonable explainable normal stock levels or situations with higher stock levels attributable to Sony Ericsson. At the quarterly price review meetings Supplier will describe and specify the changes made during the quarter. The different price shall be passed on to Sony Ericsson at the aforementioned fixed exchange rate as defined in GSPA. 11. TERMS OF DELIVERY 11.1 Delivery time The Supplier shall perform the Product Supply, in accordance with the time-schedule set out in Enclosure 2.3 Dates of delivery of volume produced Products shall be as stated in the relevant P.O. 11.2 Delivery terms Applicable terms of delivery shall be FCA Hong Kong International Airport, INCOTERMS 2000, unless otherwise agreed in P.O. 12. PACKING AND LABELLING 12.1 The Products shall be packed and marked separately as set out in the Specifications and the applicable Purchase Order. The Purchase Order and product numbers shall be set out in the shipping documents. 13. QUALITY 13.1 All Product Supply shall be handled in accordance with the standards/requirements set out in the Specification and in Enclosure 2.3 14. PURCHASE OF COMPONENTS Page 5 of 7 10th January 2003 14.1 The Supplier shall purchase materials at contracted prices under existing Sony Ericsson Agreements for supply of materials as set out in Enclosure 14.1. 14.2 Sony Ericsson liability for components as related to volume forecast as set out in Enclosure 14.2 14.3 The Supplier is responsible for the purchase and supply of all components. 15. TERM OF AGREEMENT AND TERMINATION 15.1 This Agreement shall come into force upon its execution by duly authorised representatives of both Parties and shall remain in effect until three (3) months have passed following written notice of termination by either Party, unless terminated on an earlier date as set out in Section 29 "TERM OF AGREEMENT AND TERMINATION" in the GSPA. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed, in duplicate, each party taking one copy. Date: 10th January 2003 Date: 10th January 2003 Place: Lund Place: Lund NAM TAI ELECTRONIC & SONY ERICSSON MOBILE ELECTRICAL PRODUCTS Ltd COMMUNICATIONS AB /s/ Karene Wong /s/ KAZUAKI TAKANOSE - -------------------------- ------------------------------ KARENE WONG KAZUAKI TAKANOSE [SONY ERICSSON LOGO] 1 (7) Internal Limited PROJECT PLAN Filip Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1321 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-18 B File PROJECT PLAN FILIP CONFIDENTIAL The content of this document is the property of Sony Ericsson Mobile Communication AB and may not be communicated to any other party in any form without the prior written consent of Sony Ericsson Mobile Communication AB. Project Manager: NDU/ P Jeanette Bengtsson Product Manager: NM Magnus Hultberg Sony Ericsson Cost Center: 32001 Project Account Number: 10004069 TABLE OF CONTENTS 1 Revision history 2 2 Project Summary 2 3 Activities 2 4 Time Schedule 4 5 Prototypes 4 6 Type Approval 5 7 Volume Estimates 5 8 Project Responsibilities 6 9 Contractors 6 10 Project Control 6 11 Cross Project Links 6 12 Additional Agreements Document 7

[SONY ERICSSON LOGO] 2 (7) Internal Limited PROJECT PLAN Filip Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1321 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-18 B File 1 REVISION HISTORY
REV DATE - -------------------------------------------------------------------------- B Jeanette Bengtsson 2002-12-18 Activities updated with ALP - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- - --------------------------------------------------------------------------
2 PROJECT SUMMARY Filip is a low cost Camera. TBD 3 ACTIVITIES According to document Reporting and Meeting NDU/P - 02:1323 A 3.1 HARDWARE/OPTICS Responsible developer C-Tech: PM TBD 3.2 MECHANICS/TOOLING Responsible developer Namtai: PM TBD 3.3 SOFTWARE Responsible developer C-Tech: PM TBD 3.4 ID Responsible SEMC 3.5 PACKAGING AND ACCESSORIES Responsible SEMC 3.6 SYSTEM VERIFICATION - Functional C-Tech Responsible C-Tech: PM TBD - Environmental Namati Responsible Namtai: PM TBD - Image Quality C-Tech [SONY ERICSSON LOGO] 3 (7) Internal Limited PROJECT PLAN Filip Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1321 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-18 B File Responsible C-Tech: PM TBD 3.7 SYSTEM VALIDATION - FSV Responsible C-Tech: PM TBD - GFT SEMC - CRT SEMC 3.8 SOURCING - Sourcing Namati Responsible Namtai: PM TBD - Pricing and negotiation Namtai Responsible Namtai: PM TBD - Volume Support Namtai Responsible Namtai: PM TBD - Logistics Namtai Responsible Namtai: PM TBD 3.9 TECHNICAL APPROVAL - HW/Optics and SW C-Tech Responsible C-Tech: PM TBD - Mechanics Namtai Responsible Namtai: PM TBD 3.10 INDUSTRALISATION - Test Strategy Namtai Responsible Namtai: PM TBD - Test SW Dev. C-Tech Responsible C-Tech: PM TBD - Prod. Tech. Namtai Responsible Namtai: PM TBD [SONY ERICSSON LOGO] 4 (7) Internal Limited PROJECT PLAN Filip Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1321 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-18 B File - PSA Namtai Responsible Namtai: PM TBD - SPVR Namtai Responsible Namtai: PM TBD 3.11 SUPPORT SERVICES - TBD 3.12 ALP - Total Implementation Responsible C-Tech 2. TIME SCHEDULE More detailed time schedule is found in the Time Plan (Microsoft Project Gantt Chart) Document No.: TBD
ACTIVITY PLANNED ESTIMATED ACTUAL Milestone 2 W TBD W W Tollgate 2 W TBD W W PA W TBD W W Milestone 3 W TBD W W Tollgate 3 W TBD W W Milestone 4 W TBD W W Tollgate 4 W TBD W W LL W TBD W W RTL W 30 W W Milestone 5 W TBD W W Tollgate 5 W TBD W W Milestone 6 W TBD W W Tollgate 6 W TBD W W
3. PROTOTYPES
PROTOTYPES PLANNED ESTIMATED ACTUAL UNITS ~~EP1 W TBD W W (25?) pcs FP1 W TBD W W 300? pcs~~
[SONY ERICSSON LOGO] 5 (7) Internal Limited PROJECT PLAN Filip Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1321 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-18 B File ~~FP2 W TBD W W 750? pcs FP3/RTL W TBD 300? pcs~~

4. TYPE APPROVAL - - RADIO APPROVAL PLANNED ESTIMATED ACTUAL W TBD W W - - EMC APPROVAL PLANNED ESTIMATED ACTUAL W TBD W W - - SAFETY APPROVAL PLANNED ESTIMATED ACTUAL W TBD W W 5. VOLUME ESTIMATES
PLANNED ESTIMATED ACTUAL UNITS Pre-Series * W TBD W W kpcs Series Start ** W TBD W W RTL volume W TBD W W kpcs Capacity per month Min 100? kpcs Amortization volume TBD kpcs Total volume 1000? kpcs Estimated lifetime TBD month
* "Limited Production" ** "Volume Production" Above listed volume is only for planning purposes and do not constitute a commitment for SEMC to purchase [SONY ERICSSON LOGO] 6 (7) Internal Limited PROJECT PLAN Filip Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1321 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-18 B File 6. PROJECT RESPONSIBILITIES Sony Ericsson Mobile Communications AB +46 46 19 40 00 According to Reporting and Meeting NDU/P 02:1323 7. CONTRACTORS - - DESIGN (Development) According to Reporting and Meeting NDU/ P 02:1323 Agreement no. CTECH: FILIP: TBD 9.2 PRODUCTION (Manufacturing) According to Reporting and Meeting NDU/ P 02:1323 Agreement no. NAMTAI: FILIP: TBD 10 PROJECT CONTROL Main TTM Work Model NDU/ P-02:1324 TTM Work Model External (Abstract out of Main TTM Work Model) NDU/P-02:1325 The TTM work Model will be updated after TG1 and TG2. This means that "TBD" will be updated and additional documents will be required. Depending on achieved results, adjustments will be done on existing requirements. The Project Plan and therein listed documents will be subject to further updates and amendments. 11 CROSS PROJECT LINKS [SONY ERICSSON LOGO] 7 (7) Internal Limited PROJECT PLAN Filip Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1321 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-18 B File 12 ADDITIONAL AGREEMENTS DOCUMENT < Specifications > NDD-02:1223 PA2 < Main TTM Work Model > NDU/ P-02: 1321 < TTM Work Model External > NDU/ P-02: 1322 < Reporting and Meeting > NDU/ P 02: 1323 < Document structure spec. > 109 42-TBD < Verification plans > TBD < Industrial design > TBD < Repair processes > TBD < Validation plans > TBD < Pre-study report > TBD < Pre-study spec. > TBD < Capacity build plans > TBD < TBD > [SONY ERICSSON LOGO] 1 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1325 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-03 PB File TTM WORK MODEL EXTERNAL
BOX NO ACTIVITY NAME OUTPUT RESPONSIBLE COMPLETED DATE EXECUTION PHASE TG 0 - TG 1 1.6 Technical Concepts - Pre-Study - Suppliers Finalized - Pre-Study Report Emma 2 compatible SW 1.8 Industrial Design - Industrial Design - SEMC - Product Models (CAD files) - ID Report Mechanical support is needed - Suppliers from the supplier 1.10 IPR Analysis - IPR Disclosures - Suppliers Tracked 1.14 Pre-Risk Analysis - Pre-Risk Analysis - Suppliers Generated 1.15 Lessons Learned - Lessons Learned - Suppliers Generated 2.9 Prototype - Prototype - Suppliers
[SONY ERICSSON LOGO] 2 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1325 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-03 PB File EP 0 Working samples TOLLGATE 1 - Decision to start a SEMC Feasibility-Study

[SONY ERICSSON LOGO] 3 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1325 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-03 PB File
BOX NO ACTIVITY NAME OUTPUT RESPONSIBLE COMPLETED DATE EXECUTION PHASE TG 1 - TG 2 2.2 Long Lead Time Parts - Key Elements Report - Suppliers and Processes Supplier responsible to contact SEMC Identified If they need support 2.15 Objects and Sub- - Project Plan, Verification - Suppliers Projects Plans, Budget Plan, Budget, Time and Time Schedule Schedule, Sub-Project Plan, Prototype plan, Travel Plan, Organisation and responsible within C-Tech and Namtai 2.17 Risk Analysis - Risk Analysis - Suppliers 2.18 Capacity Build Plan - Capacity Build Plan - Suppliers Developed The production capacity must include a spare-part of 1% -> 2% 2.23 IPR Tracked - IPR Disclosures - Suppliers Tracked 2.25 Lessons Learned - Updated Lessons - Suppliers Updated Learned 2.26 Functional - Functional Requirement - Suppliers Requirement Specification on Phone
[SONY ERICSSON LOGO] 4 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P-02:1325 Approved Checked Date Rev Reference NDU/PC Katarina Ekelund 2002-12-03 PB File Specification Rev. A, This need to be a SEMC report, FRS 3.5 Technical Design - Periodical Reports -Suppliers - Report at Deviation - Design Report (BOM) TOLLGATE 2 - Decision to start the SEMC Execution Phase

[SONY ERICSSON LOGO] 5 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File
BOX ACTIVITY NAME OUTPUT RESPONSIBLE COMPLETED NO DATE EXECUTION PHASE TG 2 -TG 3 - -------------------------------------------------------------------------------------------------------- 3.6 Supply Analysis on - Material Supply -Suppliers Present Component Report Material flow, risks if the volume Specification increases 3.9 Customer Package - Product Package -SEMC Design - Customer Package -Suppliers Concept (type of material could be decided) there need to be a final -SEMC model to finalize this item) 3.10 Producibility Review - Producibility Review -Suppliers Conducted Report 3.12 Product Design - Preliminary Product -Suppliers Documents Design Documents (WHAT DATE?) - Preliminary Product -SEMC Design Documents in PRIM and GASK 3.14 User Documentation - User Documentation -SEMC Concept Generated Directed - User Document -Suppliers Concept - Preliminary User -Suppliers Document Technical Design - Design Report -Suppliers
[SONY ERICSSON LOGO] 6 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File 3.16 (Bill of Material) (BOM Updated) 3.17 Production Process - Production Process -Suppliers Specification Updated Specification Updated - SPVR plan 3.18 Tools Designed - Recommendation to -Suppliers Start Tool Design - Design Tools -Suppliers 3.20 Customs Analysis - Customs Analysis -Suppliers Report Updated TEMPLATE FROM SEMC - Report Evaluated -SEMC 3.23 Engineering Prototypes - Engineering Prototypes -Suppliers Built EP 1; EP 2 - Engineering Prototypes Built Report T ONE REPORT FOR EACH EP AND FP PRODUCTION. TEMPLATE FROM SEMC 3.24 Engineering Verification - Engineering Verification -Suppliers Performed Report TEMPLATE FROM SEMC - Decision on Acceptance -Suppliers 3.25 Capacity Build Plan - Updated Capacity Build -Suppliers Updated Plan PLUS SPARE PARTS CAPACITY - Updated Capacity Build -SEMC Plan

[SONY ERICSSON LOGO] 7 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File 3.28 IPR Tracked - IPR Disclosures -Suppliers Tracked 3.30 Material Drive - Approval to Drive -SEMC Material for Volume Production - Material Driving -Suppliers 3.32 Product Safety Review - Product Safety Review -Suppliers Conducted Report Template from SEMC 3.35 Component Risk - Supply Analysis -Suppliers Analysis Performed Report (IS THERE ANY CHANGE IN THE BOM) - Supply Analysis -SEMC Report Evaluated 3.36 Production Concept - Production Concept -Suppliers Verification Verification Everything completed according to RTL - Hard Tools Completed -Suppliers - Process/test equipment etc - Production Concept Evaluated -SEMC 3.38 Customs Analysis - Customs Analysis -Suppliers Report Updated SEE 3.20 Customs analysis Evaluated -SEMC

[SONY ERICSSON LOGO] 8 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File 3.39 User Document - User Document Design -Suppliers Completed Completed 3.40 Customer Package - Customer Package -Suppliers Design Completed Design Completed CAD FILES READY, MASTERPACK, BULK PACK AND ADJUSTMENT FOR PALLET 3.43 Factory Prototypes - Factory Prototypes FP 1 -Suppliers - FP Build Report Built - SAME AS 3.23 3.44 Engineering - Engineering Verification -Suppliers Verification II Performed Report - SAME AS 3.24 - Decision on Acceptance - Changes ? -Suppliers 3.45 User Document - Verification -SEMC Verified - "LEAFLET" Samples to SEMC for approval? Suppliers 3.46 Customer Package - Verification -SEMC Verified Samples to SEMC for the approval? -Suppliers 3.47 Product Design - Product Design -Suppliers Documents Updated Documents Updated

[SONY ERICSSON LOGO] 9 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File When will the document be ready? - Product Design -SEMC Documents in PRIM and GASK Updated 3.49 Risk Analysis - Risk Analysis -Suppliers Updated Updated I 3.50 Functional - Functional Requirement -Suppliers Requirement Specification on Phone Specification Finalized FRS 3.55 TOLLGATE 3 - Decision to Continue -SEMC Execution - Decision to Recommended Public Announcement BOX ACTIVITY NAME OUTPUT RESPONSIBLE COMPLETED NO DATE EXECUTION PHASE TG 3-TG 4

[SONY ERICSSON LOGO] 10 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File 4.1 Pre-Production Starts - Factory Prototypes -Suppliers FP 2; FP 3 SAME AS 3.43 4.3 Customer Package - Customer Package -Suppliers Design Completed Design Completed - Approved Package -SEMC Design - Changes? - LATEST DATE EVERYTHING MUST BE READY -Suppliers 4.4 Interoperability Test - System Verification TEMPLATE -Suppliers Performed - System Verification FSV Report - Decision on Acceptance -Suppliers - Changes? - Internal Type Approval (WHEN IS EVERYTHING READY SO THAT 4.5 Internal Type Approval THE TEST CAN BE DONE?) -Suppliers Conducted - Internal Type Approval Report -SEMC - Decision on Acceptance -SEMC - Changes? -Suppliers - External Type Approval (WHEN IS EVERYTHING READY TO BE 4.6 External Type TESTED?) -Suppliers Approval Conducted - External Type Approval -SEMC

[SONY ERICSSON LOGO] 11 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File 4.9 User Documentation - User Documentation -Suppliers Completed - Decision on Acceptance -SEMC - Changes? -Suppliers - Latest date everything - must be ready 4.10 Product Validation - Customer Services Validation -SEMC (DATE WHEN THE TEST CAN BE PERFORMED) APPROVED Conducted Product Validation - Changes? -Suppliers Date when the test can be performed 4.14 Production - Production Documents -Suppliers Documentation Finalized Finalized (DATE WHEN IT SHOULD BE FINALIZED) - Documents in GASK -SEMC and PRIM. (Code PRA) 4.16 DRS Compliance - DRS Compliancy -Suppliers Protocol - Technical Approval -Suppliers 4.20 Serial Process - Pre-series Build Report -Suppliers Verification Run (SPVR) - SPVR Report -Suppliers - SPVR Approval SEMC - Changes? -Suppliers

[SONY ERICSSON LOGO] 12 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File 4.22 Technical Summary - Technical Summary -Suppliers Review Conducted Review Report 4.25 Risk Analysis - Risk Analysis -Suppliers Updated Updated 4.27 IPR Tracked - IPR Disclosures -Suppliers Tracked 4.31 TOLLGATE 4 - Decision to start -SEMC production and limited launch according to approved plans. BOX ACTIVITY NAME OUTPUT RESPONSIBLE COMPLETED NO DATE

[SONY ERICSSON LOGO] 13 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File EXECUTION PHASE TG 4 - TG 5 5.9 Remaining Supply - Eliminate remaining -Suppliers Issues Eliminated supply issues 5.10 Volume Production - Series Production Units -Suppliers Started and Packaging according to production plan (RTL criteria) 5.11 Transfer Project - Decision to Transfer -SEMC Responsibility to Project Responsibility Product Maintenance to Product Maintenance Project responsibility and organization in the -Suppliers Maintenance phase 5.13 Lessons Learned - Updated Lessons -Suppliers Updated Learned 5.16 TOLLGATE 5 - Decision to Launch the -SEMC Product According to RTL Definition - To Continue the Execution According to Original or Revised Plan BOX ACTIVITY NAME OUTPUT RESPONSIBLE COMPLETED NO DATE CONCLUSION PHASE TG 5-TG 6

[SONY ERICSSON LOGO] 14 (14) Internal Limited TTM Work Model External Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1325 Approved Checked Date Rev Reference NDU/ PC Katarina Ekelund 2002-12-03 PB File 6.1 Volume Production - Volume Production -Suppliers Running According to Original or Revised Plan MONTHLY REPORT 6.10 TOLLGATE 6 - Decision to Close -SEMC Project and Hand over to Maintenance Organization

[SONY ERICSSON LOGO] 1 (5) Internal Limited Reporting and Meetings Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1323 Approved Checked Date Rev Reference NDU/ PC Gunilla Wejfeldt 2002-11-19 A File REPORTING AND MEETINGS CONTENTS 1.1 Project organization....... 0 1.2 Reporting structure........ 2 1.3 Phone list Sony Ericsson... 3 1.4 Phone list Namtai.......... 4 1.5 Phone list C-Tech.......... 5

1.1 PROJECT ORGANIZATION. [PROJECT ORGANIZATION CHART] [SONY ERICSSON LOGO] 2 (5) Internal Limited Reporting and Meetings Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1323 Approved Checked Date Rev Reference NDU/ PC Gunilla Wejfeldt 2002-11-19 A File 1.2 REPORTING STRUCTURE. Peter Johansson is responsible for the coordination of the project management of C-Tech and Namtai. Namtai Project Manager (PM) and C-Tech PM reports weekly through Peter Johansson to Main Project Management. Peter Johansson attends weekly meetings at SEMC. Weekly report according to NDU/ P 02:1666. Mail concerning the project shall be copied to Main Project Management. Urgent matters shall upon receipt be reported to Main Project Management. All issues and contacts between SEMC and supplier go through Main Project Managers if nothing else is agreed. TTM-model according to NDU/ P 02:1325. [SONY ERICSSON LOGO] 3 (5) Internal Limited Reporting and Meetings Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1323 Approved Checked Date Rev Reference NDU/ PC Gunilla Wejfeldt 2002-11-19 A File 1.3 PHONE LIST SONY ERICSSON
Name Company/ Title Number - --------------------------------------------------------------------- Ola Lonhage SEMC/ Main Project +46 46 231645 Manager Draken Jeanette Bengtsson SEMC/ Main Project +46 46 193656 Manager FILIP Maths Gylling SEMC/ Buyer (Paternity +46 46 232879 leave) Niclas Jenvert SEMC/ Buyer +46 46 194673 Carina Rietz SEMC/ Product Manager +46 46 193738 (Maternity leave) Magnus Hultberg SEMC/ Product Manager +46 46 193655 Jessica Reinholds SEMC/ PMQA +46 46 231201 Mats Dahlander SEMC/ Design & Test, FILIP +46 46 232528 Bengt Marntell SEMC/ Design & Test, +46 46 231856 DRAKEN Joshua SEMC/ Designer FILIP Jeanna Kimbre SEMC/ Designer DRAKEN +46 46 231662 Johan Larsson SEMC/ Documentation +46 46 193997 specialist Mika Lilja SEMC/ Customer support +46 46 194011 Andreas Paulsson SEMC/ Product validation +46 46 194395 Hakan Sjoberg SEMC/ Type approval +46 46 193559 Christian SEMC/ Packaging Specialist +46 46 194586 Hakansson Benjamin Wong SEMC/ PMQA, HK Office +852 2590 2399
[SONY ERICSSON LOGO] 4 (5) Internal Limited Reporting and Meetings Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1323 Approved Checked Date Rev Reference NDU/ PC Gunilla Wejfeldt 2002-11-19 A File 1.4 PHONE LIST NAMTAI - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [SONY ERICSSON LOGO] 5 (5) Internal Limited Reporting and Meetings Prepared (also subject responsible if other) No. NDU/ P Jeanette Bengtsson NDU/ P - 02:1323 Approved Checked Date Rev Reference NDU/ PC Gunilla Wejfeldt 2002-11-19 A File 1.5 PHONE LIST C-TECH - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Enclosure 10.1 Prices and Price model. PRICE MODEL. See enclosed Excel sheet, (Enclosure 10.1 A) to be applied as price model. PRICE. The following price of the Product is agreed. All prices in USD. See Enclosure 10.1 B Prices shall be updated during the development work. Present sheet based upon CIF sensor and thereto related memory configuration, Changes in specification may change prices. Prototypes to be charged at agreed product price plus 5.00 USD each The price of the Product is based upon an electronic BOM with CIF Sensor cost of 6.99 USD. The variety of options listed in enclosure 10.1.B is defined in Namtai quote dated 2002-10-12 ed. B. The corresponding price for the Product but with Argus Lite COB is 9.2 USD, based upon an electronic BOM of 5.4 USD excluding assembly of Argus of 0.4 USD. NRE cost: 19200 USD, travel expenses. Tooling cost: 95.000 USD for a production capacity of 200k units per month Test equipment: 136.500 USD. The August and August CI test equipment shall be reused to greatest possible extend. Tooling and test equipment cost shall be amortized over a fixed amount of units, to be defined and added onto the product price. Enclosure 10.1 A Price model 1 MATERIAL COST Bill of material ------------ Material scrap 1% ------------ Material burden 1.5% ------------ TOTAL MATERIAL COST ============ 2 LABOUR COST PROCESS RATE (USD) LABOUR TIME ------------ SMT 0.003/chip ------------ Final assy. 4.24/hour ------------ Testing 4.24/hour ------------ Packaging 4.24/hour ------------ TOTAL LABOUR COST ============ 3 FREIGHT COST According to enclosure ============ 4 FINANCIAL COST 1.5% of bill of material for 60 days credit ============ 0.75% of bill of material for 30 days sea shipment. IF APPLICABLE ============ 0.375% of bill of material for 15 days sea shipment. IF APPLICABLE ============ 5 PROFIT 4.3% of bill of material ============ TOTAL UNIT PRICE ============ TOOLING COST (FOR INFORMATION ONLY) ============

Enclosure 10.1 B Price SONY ERICSSON MOBILE COMMUNICATIONS AB CONFIDENTIAL DATE: 23-SEP-02 MODEL : FILLP (WITH C-TECH SOLUTION) QTY : 1000K
CONFIG. (MECH / PACKING) Core/ Core 1/Core 2/Core 3/Core Core/A 1/A 2/A 3/A Core/B NO OF PLASTIC PIECES PARTS 2 4 2 4 2 4 2 4 2 SPRAY No No Yes Yes No No Yes Yes No PACKING Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Blister MANUAL/CASE/NECKLOOP No No No No Yes Yes Yes Yes Yes ----------------------------------------------------------------------- 1 MATERIAL COST Bill of material 8.62 8.73 9.01 9.40 9.39 9.50 9.78 10.17 9.57 ------ ------ ------ ------ ------ ----- ----- ----- ------- Material scrap 1% 0.09 0.09 0.09 0.09 0.09 0.09 0.10 0.10 0.10 ------ ------ ------ ------ ------ ----- ----- ----- ------- Material burden 1-5% 0.13 0.13 0.14 0.14 0.14 0.14 0.15 0.15 0.14 ------ ------ ------ ------ ------ ----- ----- ----- ------- TOTAL MATERIAL COST 8.84 8.94 9.23 9.64 9.63 9.73 10.02 10.43 9.8O ------ ------ ------ ------ ------ ----- ----- ----- ------- 2 LABOUR COST PROCESS RATE (USD) LABOUR TIME SMT 0.003/chip 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 ------ ------ ------ ------ ------ ----- ----- ----- ------- Final assy 4.24/hour 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 ------ ------ ------ ------ ------ ----- ----- ----- ------- Testing 4.24/hour 0.19 0.19 0.19 0.19 0.19 0.19 0.19 0.19 0.19 ------ ------ ------ ------ ------ ----- ----- ----- ------- Packaging 4.24/hour 0.11 0.11 0.11 0.11 0.12 0.12 0.12 0.12 0.14 ------ ------ ------ ------ ------ ----- ----- ----- ------- TOTAL LABOUR COST 1.00 1.00 1.00 1.00 1.01 1.01 1.01 1.01 1.02 ------ ------ ------ ------ ------ ----- ----- ----- ------- 3 FREIGHT + INSURANCE COST FCA Hong Kong (ship to SEM logistic agent in HK 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 ------ ------ ------ ------ ------ ----- ----- ----- ------- 4 FINANCIAL COST 0.75% of bill of material for 30 days credit 0.06 0.07 0.07 0.07 0.07 0.07 0.07 0.08 0.07 ------ ------ ------ ------ ------ ----- ----- ----- ------- 5 PROFIT 4.8% of bill of material 0.41 0.42 0.43 0.45 0.45 0.46 0.47 0.49 0.46 ------ ------ ------ ------ ------ ----- ----- ----- ------- 6 UNIT PRICE FCA HK USD 10.39 10.50 10.80 11.23 11.23 11.34 11.64 12.07 11.43 ------ ------ ------ ------ ------ ----- ----- ----- -------

CONFIG. (MECH / PACKING) 1/B 2/B 3/B Core/C 1/C 2IC 3IC NO OF PLASTIC PIECES PARTS 4 2 4 2 4 2 4 SPRAY No Yes Yes No No Yes Yes PACKING Blister Blister Blister Gift Box Gift Box Gift Box Gift Box MANUAL/CASE/NECKLOO Yes Yes Yes Yes Yes Yes Yes ------------------------------------------------------------------- 1 MATERIAL COST Bill of material 9.67 9.95 10.35 9.61 9.71 9.99 10.39 ------- ------- ------- -------- -------- -------- -------- Material scrap 1% 0.10 0.10 0.10 0.10 0.10 0.10 0.10 ------- ------- ------- -------- -------- -------- -------- Material burden 1-5% 0.15 0.15 0.16 0.14 0.15 0.15 0.16 ------- ------- ------- -------- -------- -------- -------- TOTAL MATERIAL COST 9.91 10.20 10.60 9.85 9.95 10.24 10.64 ------- ------- ------- -------- -------- -------- -------- 2 LABOUR COST PROCESS RATE (USD) LABOUR TIME SMT 0.003/chip 0.35 0.35 0.35 0.35 0.35 0.35 0.35 ------- ------- ------- -------- -------- -------- -------- Final assy 4.24/hour 0.35 0.35 0.35 0.35 0.35 0.35 0.35 ------- ------- ------- -------- -------- -------- -------- Testing 4.24/hour 0.19 0.19 0.19 0.19 0.19 0.19 0.19 ------- ------- ------- -------- -------- -------- -------- Packaging 4.24/hour 0.14 0.14 0.14 O.14 0.14 0.14 0.14 ------- ------- ------- -------- -------- -------- -------- TOTAL LABOUR COST 1.02 1.02 1.02 1.02 1.02 1.02 1.02 ------- ------- ------- -------- -------- -------- -------- 3 FREIGHT + INSURANCE COST FCA Hong Kong (ship to SEM logistic agent in HK 0.07 0.07 0.07 0.07 0.07 0.07 0.07 ------- ------- ------- -------- -------- -------- -------- 4 FINANCIAL COST 0.75% of bill of material for 30 days credit 0.07 0.07 0.08 0.07 0.07 0.07 0.08 ------- ------- ------- -------- -------- -------- -------- 5 PROFIT 4.8% of bill of material 0.46 0.48 0.50 0.46 0.47 O.48 0.50 ------- ------- ------- -------- -------- -------- -------- 6 UNIT PRICE FCA HK USD 11.54 11.84 12.27 11.47 11.58 11.89 12.31 ------- ------- ------- -------- -------- -------- --------
Enclosure 14.1 Purchase of components. COMPONENTS BOUGHT UNDER SONY ERICSSON AGREEMENTS. Supplier may call off volumes of below listed components from applicable Sony Ericsson agreements. Any such components shall only be used for manufacturing of the Product. Supplier may issue a forecast of the estimated volume to the selected component supplier to secure delivery. Supplier is solely responsible for the supply chain 1. Icon, 2. System connector, Sony Ericsson will advise about agreements with component supplier and valid prices during the project. Enclosure 14.2, Liability and Forecast model The components covered by this Enclosure shall solely be used for the manufacturing of the Product. See enclosed Excel sheet for liability model. Volume figures, component lead-time and price to be updated every month The model will be applicable for any forecast issued by Sony Ericsson as agreed between the parties. Sony Ericsson will issue a revised forecast the last business day in each month. During the ramp up period, (normally three months following the RTL date) Supplier shall review the proposed volume to confirm if the necessary capacity is available. This volume proposal to be communicated in due time before formal fore cast is issued at the end of each month. If a revised forecast or the actual call off volume will be lower for a certain month than the previously agreed, which will result in excess components and such components is not possible to reschedule the following applies; - - Supplier undertakes to keep such material in stock free of charge for the first three months after the concerned month. From month four to nine after such event Sony Ericsson will cover the interest cost of the listed components based upon an reasonable interest rate and reasonable warehousing cost for the components listed herein. After this nine months period Supplier may claim that this liability undertaking by Sony Ericsson shall be executed. - - In an event of excess material Namtai undertakes to make their best effort to cancel any outstanding purchase order of components and to resell or reuse any excess component prior to making any claim to Sony Ericsson - - Sony Ericsson will assume liability for scrap of the above components provided cause of scrap is solely at Sony Ericsson and prior written approval to scrap. Sony Ericsson maximum liability is limited to direct material and the maximum liability figure is defined by the liability model using the applicable forecast volume, component lead-time and prices. - - Sony Ericsson shall have the option to have the components assembled into finished Products at agreed price instead of scrapping the components. If no notice is given to Sony Ericsson within one week after the receipt of revised forecast or actual monthly call off volume it is deemed that the revised forecast is accepted (i.e. No claim is to be made later nor any objection that the increased volume is not possible to meet) Any delay in delivery of the Products, caused by Supplier will in full release Sony Ericsson from its liability under this amendment. Any undertaking of Sony Ericsson and Supplier as defined herein shall be limited in time to 30th June 2005. Enclosure 14.2A Liability and Forecast model CALCULATION OF FORECAST LIABILITY PRODUCT INFORMATION Part no: DPY XXX Description Camera Project Filip Forecast dated tbd Leadtime, Call off. Days 10 Leadtime, Prod. Weeks 12 Liability per 30th March 2003 Product Price 10,9 Leadtime Months 1 2 3 4 5 6 Accumulated BOM cost per month, (USD) 0 0 0 0 0 0 % liability per month over leadtime 100% 70% 40% 30% 0% 0% Forecast month April May June July August September Average forecast per month 0 0 0 0 0 0 Liability per month, (USD) 0 0 0 0 0 0 Total liability. (USD) 0

Delta 0-12, Leadtime 5-12,9-12, Component Part no Weeks Price, USD 13-16 - ------------------------------------------------------------------------------------ Argus LI COB 16 1,75 1,75 Sensor 12 Flash Memory 12 0,5 RAM Memory 12 Lens 12 Tan Cap 9 Regulator 9 Regulator 9 2,25 Tact Switch 8 Crystal 8 8 8 0 2,25 PCB 4 0,45 4 4 4 4 2,7
EX-4.17 15 u98916exv4w17.txt AGMT BETWEEN SONY ERICSSON & NAM TAI JAN 10 2003 EXHIBIT 4.17 Page 1 of 7 10th January 2003 SPECIFIC SERVICE AGREEMENT BETWEEN SONY ERICSSON MOBILE COMMUNICATIONS AB (HEREINAFTER REFERRED TO AS "SONY ERICSSON") AND NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd. (HEREINAFTER REFERRED TO AS THE "SUPPLIER") REGARDING PROJECT "AUGUST CI" Page 2 of 7 10th January 2003 TABLE OF CONTENTS 1. TERMINOLOGY, INTEGRATED PART ...................................... 1 2. SCOPE OF THE SSA .................................................. 2 3. FORECASTS AND ROADMAPS ............................................ 2 4. COMMUNICATION AND CONTACT PERSONS ................................. 2 5. INDUSTRIALISATION SERVICES ........................................ 3 6. INDUSTRIALISATION-TEST APPLICATIONS ............................... 3 7. PROTOTYPES ........................................................ 3 8. SPECIFICATION ..................................................... 3 9. DOCUMENTATION ..................................................... 3 10. PRICING AND TERMS OF PAYMENT .................................... 3 11. TERMS OF DELIVERY ............................................... 4 12. PACKING AND LABELLING ........................................... 4 13. QUALITY ......................................................... 4 14. PURCHASE OF COMPONENTS .......................................... 5 15. TERM OF AGREEMENT AND TERMINATION ............................... 5

ENCLOSURES: Enclosure 2.3 Project Plan, NDU/P-02:1663 Enclosure 10.1 Prices and Price model. Enclosure 14.1 Purchase of components Enclosure 14.2 Liability and Forecast model Page 1 of 7 10th January 2003 SPECIFIC SERVICE AGREEMENT made as of 10th January 2003, by and between Sony Ericsson Mobile Communications AB, Org no 556615-6658, a limited liability company duly incorporated and existing under the laws of Sweden, with its legal address at Nya Vattentornet, S-221 88 Lund, Sweden, hereinafter referred to as "Sony Ericsson", and NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS Ltd, with organisation number 129666, a corporation duly incorporated and existing under the laws of Hong Kong and having its registered office at 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong (hereinafter referred to as the "Supplier"). (hereinafter referred to as the "Supplier"). WHEREAS: 1. Ericsson and Supplier have entered into the General Service and Purchase Agreement, GSPA, dated 15th February 2001 among other agreements, The GSPA has been duly assigned to Sony Ericsson Mobile Communications AB during 2002. 2. The GSPA contains the general terms and conditions for the performance of Product Supply to Sony Ericsson, from Supplier, 3. It is intended that the GSPA will be supplemented by one (1) or more SSA's setting out the specific provisions relating to the performance of Product Supply, and 4. The Supplier has explained that it is willing and fully able to perform the Product Supply on behalf of Sony Ericsson for delivery of high quality Products, under the terms and conditions set out in this SSA and the GSPA. NOW THEREFORE, in consideration of the mutual obligations herein contained, the Parties agree as follows: 1. TERMINOLOGY, INTEGRATED PART The GSPA shall be an integrated part of this SSA and, accordingly, all terms and conditions in the GSPA shall also apply to this SSA. Capitalised terms contained herein shall have the meanings assigned to them below or as ascribed to them in the GSPA unless otherwise defined in the context or document where it is used. "AGREEMENT", means this Specific Service Agreement. "GSPA", means the General Service and Purchase Agreement referred to in the "Whereas"-section above entered into between the Parties. Page 2 of 7 10th January 2003 "PRODUCT", means the Camera August CI, a cost improved version of the camera August developed by C Technologies AB on behalf of Sony Ericsson and as further specified in this Agreement. "PA", means the Purchase Agreement separately signed covering the Product. The PA will be the new name of the SPA mentioned in the GSPA. "SSA", means this Specific Service Agreement. 2. SCOPE OF THE SSA 2.1 Under the terms and conditions set forth in the Agreement Documents (i) Supplier shall - exclusively for Sony Ericsson - perform Product Supply regarding the Product, and (ii) Sony Ericsson shall be entitled to purchase the Products from Supplier under the PA. 2.2 In the event of an inconsistency in the Agreement Document, the inconsistency shall be resolved by giving documents precedence in the following order: (i) The Purchase Order, excluding Sony Ericsson's general purchasing conditions if such have been enclosed with the Purchase Order, (ii) The PA, (iii) The GSPA. (iv) This Agreement excluding the Enclosures, (v) Enclosure 2.3 Project Plan (vi) Enclosure 10.1 Prices and Price model (vii) Enclosure 14.1 Purchase of components, (viii) Enclosure 14.2 Liability and Forecast model. 2.3 Included in the Product Supply shall be repair and maintenance services as set out in Enclosure 2.3. 3. FORECASTS AND CHANGE OVER IN PRODUCTION 3.1 The change over from the camera August to August CI shall be made as a running change in production. Supplier shall plan and perform a smooth and efficient change of components and material of the product without causing any disturbances in deliveries of the August camera or delays in delivery of the new cost improved August CI. Forecast provide by Sony Ericsson will show the total amount of August and August CI unless otherwise agreed during the project. A detailed supply and delivery plan shall be agreed between the Parties. 4. COMMUNICATION AND CONTACT PERSONS 4.1 In accordance with Subsection 5.5 of the GSPA the Parties hereby appoint the contact persons set out in Enclosure 2.3 to receive and to communicate information. Page 3 of 7 10th January 2003 5. INDUSTRIALISATION SERVICES 5.1 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.1 of the GSPA, lead and be responsible for the industrialisation of Product. 5.2 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.4 of the GSPA and Enclosure 2.3, perform the necessary design work implement the cost improvements required and furthermore manufacture the test applications required. 5.3 The requirements for traceability as provided in Subsection 6.7 in the GSPA shall be as set out in Enclosure 2.3. 6. INDUSTRIALISATION-TEST APPLICATIONS. 6.1 Supplier shall develop and deliver Manufacturing Test Applications as set out in Section 7 of the GSPA and as the case may be in Enclosure 2.3 7. PROTOTYPES 7.1 Supplier shall (i) provide Sony Ericsson with Prototypes (ii) review the Prototypes for manufacturability, (iii) perform the testing of the Prototype, as defined in Enclosure 2.3 and (iv) provide Sony Ericsson with written reports of the analysis of the Prototypes. 8. SPECIFICATION 8.1 Supplier shall not deliver any Products unless they meet the requirements set out in the Specification as set out in Enclosure 2.3 and amended from time to time in and as further described in Section 14 in the GSPA. 9. DOCUMENTATION 9.1 Project Documentation The Supplier shall submit written reports to Sony Ericsson on the activities and the progress of the Product Supply. Such reports shall include the reports and plans specified in Enclosure 2.3. 9.2 Product Documentation Supplier shall produce and deliver to Sony Ericsson Product Documentation fulfilling the requirements set out in templates included in Enclosure 2.3. 10. PRICING AND TERMS OF PAYMENT Page 4 of 7 10th January 2003 10.1 The current price and the price model of the Product shall be as set out in the PA. All invoices sent by Supplier shall be in USD or Euro as agreed in the PA 10.2 Price review The price of the Products shall be reviewed and agreed quarterly before the ending of every quarter in order for the prices to be firm for deliveries during the following quarter. The basis for the price review shall be: (i) significant changes in volumes, and/or; (ii) fluctuations in the exchange rate as defined below, and/or; (iii) changes to the Specification, and/or; (iv) increased production efficiency including but not limited to "The learning curve advantage", and/or; (v) changes in the price of the components. (vi) delivery performance in the last quarter before against agreed and acknowledge order, call of lead time Changes in the Specification and/or changes of a specific component price during a quarter, which causes a different price shall immediately or with a reasonable delay - due to material in stock - apply to all ordered Products. Such reasonable delays shall however only relate to reasonable explainable normal stock levels or situations with higher stock levels attributable to Sony Ericsson. At the quarterly price review meetings Supplier will describe and specify the changes made during the quarter. The different price shall be passed on to Sony Ericsson at the aforementioned fixed exchange rate as defined in GSPA. 11. TERMS OF DELIVERY 11.1 Delivery time The Supplier shall perform the Product Supply, in accordance with the time-schedule set out in Enclosure 2.3 Dates of delivery of volume produced Products shall be as stated in the relevant P.O. 11.2 Delivery terms Applicable terms of delivery shall be FCA Hong Kong International Airport, INCOTERMS 2000, unless otherwise agreed in P.O. 12. PACKING AND LABELLING 12.1 The Products shall be packed and marked separately as set out in the Specifications and the applicable Purchase Order. The Purchase Order and product numbers shall be set out in the shipping documents. 13. QUALITY Page 5 of 7 10th January 2003 13.1 All Product Supply shall be handled in accordance with the standards/requirements set out in the Specification and in Enclosure 2.3 14. PURCHASE OF COMPONENTS 14.1 The Supplier shall purchase materials at contracted prices under existing Sony Ericsson Agreements for supply of materials as set out in Enclosure 14.1. 14.2 Sony Ericsson liability for components as related to volume forecast as currently agreed for the Camera August. Current August fore cast and liability undertaking will pass August CI as the change over is performed. Supplier is responsible to balance the supply of the concerned components in relation to the change over from August to August CI 14.3 The Supplier is responsible for the purchase and supply of all components. 15. TERM OF AGREEMENT AND TERMINATION 15.1 This Agreement shall come into force upon its execution by duly authorised representatives of both Parties and shall remain in effect until three (3) months have passed following written notice of termination by either Party, unless terminated on an earlier date as set out in Section 29 "TERM OF AGREEMENT AND TERMINATION" in the GSPA. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed, in duplicate, each party taking one copy. Date: 10th January 2003 Date: 10th January 2003 Place: Lund Place: Lund NAM TAI ELECTRONIC & SONY ERICSSON MOBILE ELECTRICAL PRODUCTS Ltd COMMUNICATIONS AB /s/ KARENE WONG /s/ Kazuaki Takanose - ----------------------- ------------------------ KARENE WONG Kazuaki Takanose EX-4.18 16 u98916exv4w18.txt BASIC AGMT BETWEEN JCT WIRELESS & NAM TAI JAN '03 EXHIBIT 4.18 AGREEMENT THIS AGREEMENT is made and entered into this 8th day of Jan 2003 by and between:- 1. Jiang Cheng Tong Wireless Technology Ltd., a corporation duly organized and existing under the laws of Hong Kong with its principal place of business at Room 1501B, Tower l, China HK City, 33 Canton Road, Kowloon, Hong Kong (hereinafter called "the Customer"); and 2. Nam Tai Telecom (Hong Kong) Co. Ltd., a corporation duly organized and existing under the laws of Hong Kong, with its registered office at 15/F, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong (hereinafter called "NTT") The parties agree as follows: ARTICLE 1 DEFINITIONS In this Agreement, the following terms shall have the following meanings: (a) "Products" shall mean such products, articles or goods to be agreed upon between the parties from time to time which are manufactured by or for NTT according to the Purchase Orders placed by the Customer from time to time and the Specification (as provided in the next paragraph) for the purpose of supplying to the Customer. (b) "Specification" shall mean the specification of the Products determined and confirmed in writing between the parties hereto from time to time. (c) "Purchase Order" shall mean a purchase order of the Products given pursuant to this Agreement. ARTICLE 2 SALE OF PRODUCTS The Customer hereby agrees to purchase from NTT and NTT hereby agrees to sell to the Customer the Products subject to and upon the terms and conditions set forth herein. The Customer will place Purchase Orders with NTT for quantities of the Products as and when required. NTT shall use its reasonable endeavours to supply to 1 the Customer all the quantity of Products described in the Purchase Order(s) issued by the Customer according to Article 3 hereof. ARTICLE 3 PURCHASE ORDERS 3.1 The Customer shall place Purchase Orders with NTT at least three months prior to its scheduled shipment date "together with forecasts of Purchase Orders to be placed with NTT for two consecutive months thereafter. The terms and conditions of this Agreement shall apply to such Purchase Orders (if accepted) and any contracts for the sale and purchase of the Products concluded pursuant thereto. 3.2 Any Purchase Order sent to NTT by the Customer shall be accepted entirely at only the discretion of NTT, by signing and returning the duplicate of the Purchase Order to the Customer, and if only so accepted, shall constitute an individual legally binding contract between the Customer and NTT. Any Purchase Order not accepted by NTT within 10 days of its receipt of such Purchase Order shall be deemed to have been rejected by NTT. An accepted Purchase Order shall not be allocated, changed or cancelled without the prior mutual written agreement of both-parties. ARTICLE 4 PRICE AND PAYMENT The price and terms of payment of the Products shall be agreed by the parties hereto from time to time in relation to the related Purchase Order. The prices are payable in U.S. dollar and shall include all and any sales, use, or other taxes in relation to the sale of the Products. The payment of such prices shall be made by open account net 30 days credit from date of delivery of products to the Customer by NTT. ARTICLE 5 DELIVERY NTT shall, after the inspection provided in Article 6.1 hereof, ship the Products at its own cost and responsibility to the Customer's designated place in Hong Kong on or prior to the date described in the Purchase Order, provided, however, that without prejudice to Article 15, NTT shall not be liable for any delay in delivery caused by the Customer or by any reason out of the control of NTT. 2 ARTICLE 6 INSPECTION 6.1 NTT shall, prior to the shipment of the Products, inspect the Products to check if they meet with the Specification and other quality standard agreed between the parties hereto from time to time in writing and shall deliver the Products which pass such inspection. 6.2 The Customer shall, within fourteen (14) working days after the delivery of the Products according to Article 5 hereof, inspect the quality, quantity and function of such Products to verify that the Products comply with the Specification and the terms of the contract of sale and purchase concluded pursuant to the Purchase Order. The Customer shall be deemed to have accepted the Products in all respects if no complaint or objection is raised with NTT in writing within such 14 working days. In case any defect is found in the Products, NTT shall, at the discretion of the Customer and upon notice being given by the Customer, repair such defect(s) or re-deliver the replacement Products to the Customer at its own costs and expenses. Rejected Products shall be returned by the Customer to NTT and the costs and expenses incurred therefrom shall be, in case the Customer returns such Products by means of transportation specified by NTT, borne by NTT. Any and all the Products shall be deemed to have passed the Customer's inspection unless any notification of failure to the inspection is made by the Customer within such fourteen (14) working days. 6.3 The Customer or its representative shall have during the term of this Agreement the right to enter and inspect NTT's office, plants, factory and other facilities at any reasonable time upon prior appointment and to give NTT any instruction, if necessary, for the purpose of quality control and smooth operation of the manufacture of Products. ARTICLE 7 TITLE AND RISK OF LOSS Title to any Products and risk of loss or damage thereto shall pass to the Customer when the Products pass the inspection by the Customer or is deemed to have been accepted by the Customer as provided in Article 6.2 hereof. NTT shall thereafter be relieved from all liabilities for damage to or claims from the Customer or any third parties caused by any defects in the Products. ARTICLE 8 WARRANTY NTT warrants that the Products conform to the Specification and other requirements 3 with respect to the function and quality made by the Customer and accepted by NTT and that the materials and workmanship of the Products shall be free from defects for a period of fifteen months from the date the title to such Products passes to the Customer. During the said 15 months period, NTT shall repair the defected Products and return them to the Customer, with rework costs borne by NTT while transportation costs borne by Customer. ARTICLE 9 MOLD, JIG, AND EQUIPMENT 9.1 The Customer may, if necessary, at the costs of the Customer, furnish NTT with the molds, jigs and other tools and equipment which the Customer deems necessary for the manufacture of the Products by NTT. 9.2 NTT shall receive and hold such molds and jigs furnished by the Customer according to Article 9.1 and return to the Customer after the termination or cancellation of this Agreement or upon the request from the Customer. 9.3 To fulfill Customer production requirements, NTT will invest in the testing equipment and toolings at NTT cost, and in return, NTT shall charge Customer a mutually agreed machine leasing cost per unit which leasing cost shall be paid by the Customer to NTT for the Products ordered until a mutually agreed order quantity has been reached ("the Target Quantity"). In the event Customer and NTT agree to terminate this Agreement or otherwise while the Target Quantity has not yet been fulfilled, Customer agrees to pay NTT the balance of testing equipment and toolings investment cost which have not yet been recovered from the leasing cost received from the Customer as aforesaid within 60 days after termination on a pro-rata basis. For avoidance of doubt, any such testing equipment and tooling invested by NTT shall remain properties of NTT irrespective of the fulfillment of the Target Quantity and the payment of the leasing cost therefor. ARTICLE 10 SUPPLY OF MATERIALS NTT shall procure materials which are necessary for the manufacture of the Products at its own responsibility. However, the Customer may, if necessary, supply materials to NTT at a rate from time to time agreed between the Customer and NTT. 4 ARTICLE 11 SUBCONTRACT NTT may subcontract any part of the manufacturing process of the Products to any third party with the Customer's prior written consent. In such event of subcontracting, NTT shall use its reasonable endeavours to procure and ensure that the subcontractor complies with and observes all the applicable terms and conditions provided herein. ARTICLE 12 CONFIDENTIALITY Each of the parties hereto agrees to maintain in confidence and not to disclose to any third party all the information disclosed by the other party to it hereunder (except to the extent (i) reasonably necessary for such party to carry out the terms and conditions of this Agreement and any matters ancillary thereto or (ii) ordered to be disclosed pursuant to any order, decree or judgement made or issued by any court of competent jurisdiction. Such information and the confidentiality obligation imposed on the parties hereto shall not include or extend to the information which: (a) is already known to the other party at the time of the disclosure; or (b) is generally available to public at the time of the disclosure. ARTICLE 13 TERMS 13.1 This Agreement shall be effective from the date first written above and shall continue in force for a period of one (1) year and shall be renewed automatically thereafter on a year to year basis, unless either of the parties hereto gives the other a 90 days written notice of termination provided that the notice of termination shall not take effect until the expiration of the first anniversary of this Agreement. 13.2 Notwithstanding the provision of Article 13.1 and Article 14, the provisions of Article 8 Article 12 and Article 20 shall survive the termination or cancellation of this Agreement. ARTICLE 14 CANCELLATION AND TERMINATION 14.1 In case either party breaches or defaults any of the provisions hereof, the other party may give to such breaching or defaulting party written notice of such 5 breach or default, and if such breaching or defaulting party does not effect an adequate remedy thereof within thirty (30) days after the date of dispatch of said notice, this Agreement shall be terminated at the option of the complaining party by the dispatch of written notice to that effect to such party within seven (7) days from the expiration of said thirty (30) days period. 14.2 Upon the occurrence of any of the following events or circumstances, either party may terminate this Agreement by written notice to the other party: (a) in case the other party attempts to assign or transfer the rights or obligations hereunder without the prior written consent of such party; (b) if any distress or execution shall be levied upon any of the other party's goods and remain unsatisfied for a period of 5 days; (c) if the other party offers to make any arrangement with its creditors; (d) if the other party is unable to pay its debts as they fall due; (e) if any resolution or petition to wind up the other party (other than for the purpose of amalgamation or reconstruction without insolvency) shall be passed or presented; (f) if a receiver or manager shall be appointed over the whole or any part of the other party's business or assets; (g) if the other party shall suffer any proceedings analogous to those proceedings described in sub-paragraphs (b), (e) or (f) above, under any foreign law. ARTICLE 15 FORCE MAJEURE No party shall be liable to the other party for inability, default or failure of performance hereunder due to force majeure events, which shall include, but not limited to, acts of God, storms, shipwreck, war, riots, strike, lockout, industrial action, fire, flood, earthquake or other such unforeseeable calamity, any law, rule, regulation or governmental action or other like evens beyond the reasonable control of the parties; provided that such party shall make every reasonable effort to remove the obstacle and to resume performance at the earliest practicable time. 6 ARTICLE 16 SETTLEMENT The parties will endeavor to settle amicably any and all disputes which may arise under this Agreement. ARTICLE 17 NON-WAIVER Failure by either party to enforce any provision of this Agreement will not be deemed a waiver of future enforcement of that or any other provisions. ARTICLE 18 SEVERABILITY In the event that any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, the parties hereto agree that such holding shall not invalidate or render unenforceable any other provision hereof. ARTICLE 19 ASSIGNMENT Neither party shall assign, transfer or otherwise dispose of this Agreement or any rights or obligations hereunder to any third party without the prior written consent of the other party. ARTICLE 20 LIMITATION OF LIABILITY 20.1 Notwithstanding anything contained in this Agreement or any of the Purchase Orders, in no circumstances shall NTT be liable, in contract, tort (including negligence or breach of statutory duty) or otherwise howsoever, and whatever the cause thereof (a) for any loss of profit, business, contracts, revenues, or anticipated savings, or (b) for any special indirect or consequential damage of any nature whatsoever. 20.2 Without affecting the generality of Article 20.1, and notwithstanding anything contained in this Agreement or any of the Purchase Orders, NTT's liability to the Customer, if any, in respect of any Purchase Order, in contract, tort (including negligence or breach of statutory duty) or howsoever otherwise arising, shall be limited to the price of the Products specified in the 7 relevant Purchase Order. ARTICLE 21 NOTICES All notices, certificates or other communications hereunder shall be deemed given when delivered by hand, sent by overnight courier, or sent by certified or registered mail, postage prepaid, return receipt requested addressed to the address first above mentioned. Each party hereto may by facsimile notice or by such other notice described hereunder, designate any further or different address to which subsequent notices, or other communications shall be sent without any requirement of execution of any amendment to this Agreement. ARTICLE 22 COUNTERPARTS This Agreement may be executed in counterparts by the parties hereto, and each such counterpart shall be considered an original and all such counterparts shall constitute one and the same instrument. ARTICLE 23 GOVERNING LAW This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of Hong Kong. Each of the parties hereto hereby submits to the non-exclusive jurisdiction of the courts of Hong Kong. ARTICLE 24 ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersede and replace all prior or contemporaneous understandings or agreements, written or oral, regarding such subject matter. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to execute this Agreement as of the date first above written. 8 Signed by: FEI LIU For and on behalf of /s/ Fei Liu Jiang Cheng Tong Wireless Technology Ltd. in the presence of: For and on behalf of Albert Wong NAM TAI TELECOM (HONG KONG) COMPANY LIMITED Signed by: /s/ Albert Wong ------------------------- Authorized Signature 23HA For and on behalf of Nam Tai Telecom (Hong Kong) Co. Ltd. in the presence of: /s/ Ivan Cheung 9 EX-4.19 17 u98916exv4w19.txt BASIC AGMT BETWEEN OPTREX & NAM TAI JAN 1 2003 EXHIBIT 4.19 Basic Agreement on Liquid Crystal Display Module This Agreement is hereby entered into and effective as of January 1st, 2003 by and between; OPTREX CORPORATION a corporation organized and existing under the laws of Japan having its principal place of business at 4th Floor, Cosmo Park Bldg.5-7-18 Higashi-nippori, Arakawa-ku, Tokyo, Japan (hereinafter, "Optrex"), And NAMTAI TELECOM (HONG KONG) COMPANY LIMITED, a corporation organized and existing under the laws of Hong-Kong having its principal place of business at 15th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong (hereinafter, "Namtai"). WITNESSETH WHEREAS, Optrex and Namtai have agreed as follows concerning continuous transactions of liquid crystal display modules for mobile phone (hereinafter, "Modules"). WHEREAS, Optrex and Namtai hereby facilitate their transactions in accordance with the concept of respect for mutual benefit and under the theory of good faith. NOW, THEREFORE, in consideration of the forgoing premises and mutual covenants, the parties agree as follows: Article 1 This Agreement and Individual Contracts This Agreement sets forth the basic terms and conditions concerning continuous product transactions between Optrex and Namtai, and applies to the individual contracts to be agreed through consultation by the parties hereto (hereinafter, "Individual Contracts"). Article 2 Contents of Individual Contracts 1. The Individual Contracts shall include order date, Module names, specifications, quantities, delivery dates, delivery locations, inspection and other delivery conditions, total price amount, unit prices, payment date, and payment method, and, when raw materials are furnished, the material names, quantities, delivery dates, delivery locations and other delivery conditions, total price amount, payment date, and payment method thereof. 2. Notwithstanding the provision of Paragraph 1, some terms and conditions of the Individual Contracts may, upon consultation between the parties hereto, be set forth in memoranda or other written agreements in advance. 1 Article 3 Executions of Individual Contracts 1. The Individual Contract is executed when Optrex places an order in writing, and Namtai accepts such order. Notwithstanding the foregoing, unless Namtai, within five (5) days from the receipt of Optrex's purchase order, explicitly declares its intention to decline the order placed by Optrex, such order shall be deemed to be accepted by Namtai. 2. Optrex shall, at the timing of placing the firm order as stipulated in the foregoing clause, provide to Namtai three (3) month forecasts of order quantity of the Modules. Provided, however, that the quantities specified as the second (2nd) and third (3rd) month are only the forecast and Optrex shall, in no event, to be obligated to purchase such forecast quantity. Further, with respect to the long-term-delivery Supply Materials, Namtai shall request the supply to Optrex beforehand and Optrex shall procure such after accepting such offer. Optrex shall not be obligated to purchase any parts, which exceeds this quantity. Further, notwithstanding the Article 41 and 42, Optrex shall also purchase certain quantity of the Supply Materials, at the same price as Namtai purchased, which arises as a result of Namtai's necessity to meet the minimum order quantity and which Namtai came to own by Namtai's order exceeding the Optrex's firm order quantity of the Modules, if such excessive quantity exists at the time of termination of production of a specified type of Module or at the termination of this Agreement and such excessive quantity is left in spite of Namtai's utmost efforts to minimize such excessive quantity. 3. If Optrex, with the consent of Namtai, places an order by email or in some other electromagnetic form instead of through the exchange of written documents as set forth in Paragraph 1, Namtai shall record the order in a computer file for its own use. 4. When Optrex needs to confirm the computer file record specified in Paragraph 3, Namtai shall, upon a request from Optrex, immediately print a hardcopy thereof and provide it to Optrex. Article 4 Changes to Individual Contracts 1. In there is a need to change the terms and conditions of the Individual Contract, Optrex and Namtai shall consult each other and make changes. 2. The monetary liability or other responsibility for losses or damages incurred as a result of changes enacted under Paragraph 1 shall be borne in accordance with the following way. (i) If Namtai suffers any losses or damages due to the reason attributable to Optrex, Optrex shall be held liable, and Namtai may seek monetary compensation for its losses or damages. (ii) If monetary losses or damages arise due to the reasons attributable to both Optrex and Namtai, Optrex and Namtai shall consult each other to reach a settlement. (iii) If monetary losses or damages arise due to the reasons other than those in the above items (i) and (ii) above, Namtai shall be held liable, and Optrex may seek monetary compensation for its losses. Article 5 Specification Sheets 1. Optrex may submit the specifications for the Modules by using specification sheets. 2. In the event that Namtai has questions or desires changes in the specification sheet submitted by Optrex, Namtai shall immediately request and conduct consultations with Optrex. 3. When changes are made to the specification sheet, Optrex shall immediately inform 2 Namtai thereof, and Namtai shall, without delay, modify the specification sheet and take other necessary actions based thereon. The notifications of changes shall be made in accordance with the same manner as Paragraph 2. 4, If Namtai believes that instructions in the specification sheet submitted by Optrex could cause safety problems in the Modules, it must inform Optrex thereof in writing. Article 6 Unit Price 1. Unit prices shall be determined by consultation between Optrex and Namtai in consideration of factors such as quantity, specifications, delivery date, payment term, quality, prices of materials, labor costs, market price trends, and insurance premiums to be borne by Namtai. 2. In the event that there arises any changes to the conditions such as quantity, specifications, delivery date, payment term, materials, and so on which constitute the basis of the determination of the unit price during the term of this Agreement, then the unit price may be reconsulted Article 7 Supply of Raw Materials and Other Items 1. Upon consultation with Namtai, and when any one of the following case applies, Optex is entitled to Supply_Namtai with raw materials, products, or ware in process to be used by Namtai (hereinafter, "Supply Materials"). (i) When it is necessary to maintain the quality, performance, and standards of the Modules specified in the Individual Contract. (ii) When Namtai requests such supply to Optrex. (iii) When there are some other justifiable reasons. 2. When Optrex causes a designated subcontract company to supply such Supply Material directly to Namtai, Optrex shall inform so to Namtai in advance. Article 8 Acceptance of Supply Materials 1. When Namtai receives the Supply Materials from Optrex or its designated subcontract company, Namtai shall, within two (2) days, inspect such Supply Materials. 2. In the event that Namtai discovers defects in the Supply Materials, or discovers defects therein during manufacturing process (including fabricating and repair process; hereinafter referred to the same meaning), Namtai shall immediately inform Optrex thereof and await instructions. 3. If Namtai does not hear any instructions from Optrex within fourteen (14) days from the date of any notice of defects to Optrex, or the defects discovered are not cured within thirty (30) days from the notice of defects to Optrex, Namtai is entitled to return the defective Supply Materials to Optrex and request for replacement. In such event, Namtai is entitled to charge the costs and expenses directly related to the return of the defective Supply Materials to Optrex. Provided, however, that in the event no defect was found, Namtai shall either take out such Supply Materials or pay the price and Optrex is entitled to charge any direct inspection and return expenses of Optrex to Namtai Provided, further that, upon consultation between the parties, the reasonable extension period, shall be determined, if additional time is required for analysis of such defects. 3 Article 9 Ownership of Supply Materials 1. The ownership of the Supply Materials provided free of charge, work in process and completed Modules manufactured therefrom, shall belong to Optrex. 2. The ownership of the Supply Materials provided at charge shall transfer from Optrex to Namtai when Namtai receives said Supply Materials. Article 10 Handling of Remnant Supply Materials When the Supply Materials have been provided free of charge, Namtai must handle any remnant Supply Materials, ends, shavings, and other remaining parts in accordance with Optrex's instructions. Article 11 Lease of Machinery, Molds, and Other Items 1. Optrex may, if necessary, lease machinery, molds, and other items (hereinafter, "Leased Tools") to Namtai. 2. The lease method, lease duration, fee, procedure, liability for repair or modifying costs, and other matters shall be determined by mutual consultation to be made separately, and if necessary, a memorandum or other document will be executed. 3. Any orders by Namtai for molds or other items serving as the Leased Tools to be leased by Optrex must be placed after consultation with Optrex. 4. When Optrex desires to retrieve the Leased Tools whose lease duration is not predetermined, it must provide Namtai with a reasonable advance notice. Article 12 Administration of Molds, Jigs, and Other Items When Namtai, according to Optrex's specifications, manufactures the molds, jigs, other items for the manufacture of the Modules to be delivered to Optrex, Namtai must give advance notice to and consult with Optrex before modifying, discarding, transferring to another party, or otherwise disposing of such. Article 13 Handling of Supply Materials and Leased Tools 1. Namtai must maintain and administrate the Supply Materials or Leased Tools with duty of care and keep distinct from other items both physically and in its accounts so as to prevent from any confusion with others. 2. Namtai must not lease, transfer to a third party, pledge, mortgage, or otherwise dispose of the Supply Materials or Leased Tools, or use them for any purpose other than that specified in this Agreement. Provided, however, that, Namtai may, after obtaining prior written consent from Optrex, sub-supply or sub-lease the Supply Materials and Leased Tools to a subcontract company by assuming any and all responsibilities therefor. 3. Namtai must return the Leased Tools to Optrex immediately upon termination of the lease duration. 4. Optrex is entitled to visit Namtai's plants, workshops, offices, and other facilities to inspect the maintenance conditions of the Supply Materials and Leased Tools and its manufacturing conditions. "Plants, workshops, offices, and other facilities" include those of Namtai's subcontract company, "ZASTRON ELECTRONIC (SHENZHEN) CO., LTD.," 4 specified in the Article 37. Article 14 Loss of or Damage to Supply Materials and Leased Tools 1. Namtai must immediately notify Optrex of loss, damage, or deterioration of the Supply Materials or Leased Tools. 2, When the cause of loss, damage, or deterioration of the Supply Materials or Leased Tools in Paragraph 1 is attributable to Namtai, Namtai shall, in accordance with Optrex's instructions, provide repair, replacement, or monetary compensation at its own expense. Article 15 Definition of Delivery Date 1. Delivery date means the date upon which the Modules specified by the Individual Contracts must be delivered to a location specified by Optrex. Each delivery date is agreed in the Individual Contract after consultation. 2. Optrex may seek the payment of penalty when Namtai fails to meet the delivery date. Article 16 Delivery Date Changes 1. Namtai must obtain the prior consent of Optrex when it desires to deliver the Modules before the agreed delivery date. 2. When Namtai recognizes that it cannot deliver the Modules on a delivery date, it must inform Optrex in advance of the reason, the projected delivery schedule, and other pertinent information, and comply with any Optrex's instructions. 3. Optrex shall consult with Namtai when changing the delivery date according to its own requirements. Article 17 Quality Assurance Obligation Namtai shall institute and administrate an integrated quality assurance system covering all production processes for the Modules delivered to Optrex, and guarantee the quality demanded by Optrex, and guarantee that said Modules are equipped with the normally expected safety. Article 18 Quality Assurance Actions 1. Namtai must formulate quality assurance guidelines that include the requirements specified separately by Optrex (hereinafter, "Quality Assurance Guidelines"), and in accordance therewith implement integrated quality control covering all processes from order acceptance to delivery, and continually endeavor to adopt scientific methods to improve its level of management. 2. As a rule, Namtai shall submit its Quality Assurance Guidelines within thirty (30) days after the instruction by Optrex, and obtain Optrex's approval. 3. If Namtai desires to change its Quality Assurance Guidelines, it must submit such proposed changes to Optrex and obtain approval in advance. Article 19 Inspections by Namtai 1. Namtai must develop guidelines for its own inspections and obtain Optrex's approval. 2. Namtai must carry out the necessary inspections in accordance with the inspection guidelines specified in Paragraph 1, and deliver the qualified ordered products. The inspection 5 data must be preserved for ten (10) years. Provided, however, that, when Optrex specifies a different preservation period, Namtai must preserve the inspection data for the period to be specified by Optrex. 3. Namtai shall immediately submit the inspection data when so requested by Optrex. Article 20 Submission of Quality Assurance Documents 1. Optrex may request that Namtai submit documents separately specified to Namtai by Optrex as required thereby to confirm the status of Namtai's quality assurance. 2. Namtai must in accordance with a demand by Optrex submit the documents specified in Paragraph 1 by the due date specified by Optrex. Article 21 Recommendations 1. Optrex may, if necessary, provide instructions and recommendations to Namtai concerning Namtai's quality assurance system, including its manufacturing processes. 2. Namtai must immediately make a plan for improvement measures in response to recommendations made pursuant to Paragraph 1, submit such measures to Optrex, and report the subsequent state of implementation and results thereto to Optrex. Article 22 Delivery Optrex will, unless otherwise agreed, receive the Modules delivered by Namtai without conducting inspections. Article 23 Transfer of Module Ownership The ownership of the Module shall transfer from Namtai to Optrex at the time of the delivery of the Module as stipulated in Article 22. Article 24 Risk of Loss The risk of loss shall be borne in accordance with the following solutions when all or part of the Modules or the Supply Materials (hereinafter, "Modules, etc.") suffers loss, damage, or deterioration before the delivery of the Module pursuant to Article 8 and 22. (i) The receiving party shall bear the risk of loss when the cause of such loss, damage, or deterioration is attributable thereto, and the supplying party may bill the receiving party for payment of the price of the Modules, etc. (ii) When the cause is attributable to both parties, they shall resolve the matter through consultation. (iii) When the cause is neither (i) nor (ii) above, the supplying party shall bear the risk of loss, and the receiving party may request to the supplying party the delivery of substitute Modules, etc. or the monetary compensation for losses or damages. Article 25 Payment Date and Payment Method The parties through separate consultations shall determine payment date and payment method of the Module price. Article 26 Payment Offsets 6 1. Optrex's advance payments to Namtai, and other money credits of Optrex to be paid by Namtai maybe offset by Optrex by the equitable amount payable to Namtai each time a money credit arises and is added to the account receivable of Optrex. 2. When an offset is made pursuant to Paragraph 1, the parties shall not exchange receipts for each offset amount. The offset shall be deemed as completed when Optex sends Namtai an itemized statement. 3. When Optrex offsets the Module prices against the prices for the Supply Materials to Namtai, it shall perform the offset on the Module price payment date, The offset method in Paragraph 2 shall be applied mutatis mutandis. Article 27 Solution of Claims In the event of claims or lawsuits regarding the Modules against Optrex by an Optrex customer or other third party, Namtai must cooperate in defending Optrex and resolving the matter in accordance with Optrex's reasonable instructions: Article 28 Liability of Defects In the event that Optrex discovers that Modules have a concealed defect due to the reason attributable to Namtai within three (3) year after transfer of the Module ownership from Namtai to Optrex, Optrex may demand to Namtai the replacement of the Module or reduction of prices, and monetary compensation for damages. Article 29 Product Liability In the event an accident arises due to the defects of the Module attributable to Namtai, and Optrex itself suffers from monetary loss, or Optrex paid any monetary compensation to an Optrex customer or other third party, Optrex may demand that Namtai pay such Optrex's monetary loss, compensation paid by Optrex, legal fees, and other costs of the resolution. Provided, however, that, if Optrex is found to be responsible in part for said defect, the payment amount demanded to Namtai by Optrex shall be reduced in proportion to the extent of Optrex's responsibility. Article 30 Recall If it is found that the Module defect which defect is attributable to Namtai could cause an accident resulting in loss to Optrex's customers or other third parties, and Optrex recalls the Modules or products incorporating the Modules, Namtai shall pay the entire amount of such recall costs. Provided, however, that if Optrex is found to be responsible in part for the Module defect, the payment amount demanded to Namtai by Optrex shall be reduced in proportion to the extent of Optrex's responsibility. Article 31 Product Liability Insurance Namtai shall at its own expense effect a product liability insurance policy for the Modules. The parties shall consult separately on its insurance coverage and other particulars. Article 32 Administration of Technologies and Drawings 1. Namtai shall exercise strict administration and maintenance over the drawings, 7 specification sheets, technologies, and other items disclosed, leased, or supplied by Optrex (hereinafter, "Technical Properties"), and use them exclusively for the purposes of this Agreement. Namtai must not lease, permit the access, or use such for third parties. Provided, however, that, this does not apply when Optrex has granted a prior consent in writing. Further, the ownership of the Technical Properties belongs to Optrex and does not transfer to Namtai by the execution of this Agreement. 2. If Namtai has questions about the Technical Properties specified in Paragraph 1 or other instructions, it shall notify Optrex to that effect and comply with the written instructions thereof. Article 33 Secrecy 1. Namtai shall not disclose or divulge to third parties any of Optrex's management, marketing, or technical secrets obtained through the performance of this Agreement or the Individual Contracts; the terms of this Agreement; or the specifics of the continuous transactions based thereupon. However, this shall not apply to any of the following. (1) Information that was already possessed by Namtai or which was public domain before supply or disclosure. (2) Information obtained lawfully from a third party who has a proper right. (3) Information that became public domain after supply or disclosure through no fault of Namtai. (4) Information for which a prior consent was obtained in writing from Optrex. 2. Namtai must, at the request of Optrex, execute a Secrecy Agreement specified by Optrex and submit such to Optrex with a proper corporate seal. Article 34 Employee Administration Namtai shall minimize its employees who are entitled to the access to any information supplied and produced by Optrex, and shall impose such employees, both during and after their employment at Namtai, secrecy obligations identical to those set forth in the Secrecy Agreement specified in Article 33. Namtai shall, at the request of Optrex, submit a list of such employees to Optrex. Article 35 Industrial Property Rights 1. If, in the course of manufacturing the Modules, any dispute over the infringement of industrial property rights or other disputes arise between Namtai and a third party due to the reason attributable to Namtai, Namtai shall handle and resolve the matter at its sole responsibility, assuming the expenses and liability, and stall pay in full any and all expenses, if any, incurred by Optrex. 2. The ownership of industrial property rights obtained through joint research between Optrex and Namtai Shall be determined through Consultation by the parties. 3. If Namtai applies for industrial property rights on the Modules manufactured according to Optrex's Technical Properties, or on their manufacturing method, it must first Inform Optrex so and obtain Optrex's written consent. 4. Namtai shall waive any right and_not prosecute,.even if designs or manufacturing methods exercised Optrex for the Modules should infringe Namtai's industrial property rights. 8 5. In no event, the industrial property rights owned by Optrex shall transfer to Namtai by entering into this Agreement. Article 36 Prohibition of Manufacture and Sale Unless Namtai obtains prior written consent from Optrex, Namtai must not manufacture or sell any products to customers or other third parties using the technology and know-how disclosed or supplied by Optrex. Article 37 Sub-contract 1. Namtai shall not subcontract the manufacture of the Modules to any third parties without prior written consent from Optrex. Provided, however, that Namtai is entitled to subcontract the manufacture of the Modules to Namtai's affiliate, "ZASTRON ELECTRONIC SHENZHEN) CO, LTD" only. In the event of such subcontract pursuant to Paragraph 1, Namtai shall impose such subcontractor the same obligations as those borne by Namtai hereunder. Namtai is obligated to oversee such subcontractor and ensure they comply with these obligations, and is jointly and severally responsible for the performance of such subcontractor. Article 38 Assignment of Rights and Obligations Neither Optrex nor Namtai, without prior written consent from the other party hereto, may transfer all or part of any of the rights and obligations hereunder (including credits and debts) to third party, or pledge the same as security. Article 39 Notification Namtai shall immediately inform Optrex when any of the following situations arise. (i) When any of the items in Article 40.1 applies. (ii) When Namtai transfers or receives a business related to these transactions with Optrex. (iii) When there has been a significant change, such as change of address, representative, or company name, which may affect the transaction hereunder. Article 40 Cancellation of Agreement 1. When any one of the following applies to Namtai, Optrex may without any notice whatsoever cancel all or part of this Agreement and of the Individual Contracts and seek monetary compensation for damage to Namtai. (1) A note or check issued by Namtai has been dishonored, or a financial institution has suspended business transactions with Namtai. (2) Namtai has been subjected to cancellation, suspension, or other business penalty by regulatory authorities. (3) Namtai has been subjected to attachment, provisional attachment, provisional disposition, compulsory execution, or other similar action. (4) Namtai is subject to petition for bankruptcy proceedings, the start of liquidation under commercial law, the start of special liquidation, the start of reconstruction procedures, or the start of company reorganization. (5) Namtai has passed a resolution to dissolve itself, or has merged with another company. 9 (6) There is some special incident for reasonably recognizing that Namtai has difficulty in manufacturing and supplying the Modules. 2. If one party hereto breaches this Agreement and/or the Individual Contract, and does not perform its obligations thereunder even after the elapse often (10) days since the delivery of a written peremptory notice for performance, the other party may, without further notice, cancel all or part of this Agreement and/or the Individual Contract and demand monetary compensation for losses to the breaching party. 3. When one party hereto becomes entitled to a termination right pursuant to Paragraph 2, the obligations of the other breaching party against non-breaching party shall become immediately and automatically due and payable even if the non-breaching party does not exercise said right, and the breaching party must pay, without delay, all of its obligations to the non-breaching party at one time. Article 41 Measures after Termination 1. In the event of Article 40, Namtai must immediately return to Optrex the specification sheets, Technical Properties, Leased Tools, and Supplied Materials that were provided free of charge. Namtai shall also terminate the use of any and all technologies disclosed by Optrex. 2. In the event of Paragraph 1, Optrex is entitled to, with first priority over third parties, purchase the Modules and ware in process products manufactured according to the Individual Contracts that remain under Namtai. Optrex has the option of exercising first priority for purchasing the Supply Materials supplied at price, or demand the payment of price to Namtai. Notwithstanding the foregoing, in the event Optrex breaches this Agreement or the Individual Contracts, after mutual consultation, Optrex is to purchase the Modules and work in process products manufactured according to the Individual Contracts that remain under Namtai. Article 42 Transaction of Supply Material, etc. In the event Optrex chooses to purchase the Supply Material, etc., Optrex, at the termination of the transaction described herein and at the expiration of this Agreement, purchases the Supply Material according to the following price. (i) The same price as Namtai purchased for the reasonable range of the Supply Materials Supplied at price which Namtai came to own by Namtai's order based on the Optrex's firm order quantity of the Modules (ii) The price mutually consulted between Optrex and Namtai for the reasonable range of the Supply Materials which Namtai came to own by Namtai's order based on the Optrex's forecast (iii) The amount multiplied by its unit price and quantity for the reasonable range of the Modules (iv) The price mutually consulted between Optrex and Namtai for the reasonable range of the work in process Article 43 Resolution Through Consultations The parties hereto shall consult and resolve disputes about the provisions of this Agreement and the Individual Contracts, or about conditions not clearly provided thereunder. 10 Article 44 Arbitration In the event of any dispute relating to the validity, construction, or performance of this Agreement and / or the Individual Contract which cannot be settled amicably by the parties hereto, such dispute shall be finally settled by arbitration under the Rule of Conciliation and Arbitration of the International Chamber of Commerce in Tokyo, Japan by one or more arbitrators appointed in accordance with the said Rule, by which each party hereto is bound. Article 45 Governing Law This Agreement is governed by and construed in accordance with the laws of Japan without reference to its rules or principles on the conflict of laws. Article 46 Language This Agreement shall be executed in both English and Japanese language. In the event there should arise any discrepancy in the construction between these two versions, the English version shall prevail. Article 47 Term of Agreement 1. This Agreement shall become effective on January 22,2003 and remain in force for one (1) year. Provided, however, that the term shall be renewed under the same conditions on a year-to-year basis unless written notice of modification or termination is given by either party to the other at least three (3) months before the expiration date. 2. Notwithstanding the provision of Paragraph 1, Optrex may terminate this Agreement at any time even during its term by sending Namtai at least three (3) month prior written notice. 3. In the event that there are any Individual Contracts, which are in effect at the lime of termination of this Agreement under Paragraph 1, or 2, this Agreement shall remain in effect during the effective terms of such Individual Contracts. 4. Notwithstanding the Paragraphs 2 and 3, the provisions of the following articles shall survive and remain in force after the termination of this Agreement until the time when both parties agree to the termination thereof. Article 19.2 (Inspections by Namtai), Article 27 (Solution of Claims), Article 28 (Liability for Defects), Article 29 (Product Liability), Article 30 (Recall), Article 31 (Product Liability Insurance), Article 32 (Administration of Technologies and Drawings), Article 33 (Secrecy), Article 35 (Industrial Property Rights), Article 36 (Prohibition of Manufacturing and Sale), Article 37 (Sub-contract), Article 41 (Measures after Termination), Article 42 (Transaction of Supply Material, etc. Article 44 (Arbitration), Article 45 (Governing Law) and Article 46 (Language). Article 48 Previous Agreements If there is any discrepancy between the provision of the previous agreement(s) executed by and between Opt and Namtai and this Agreement, the provision of this Agreement shall prevail. 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written in duplicate, with each party, having signed and affixed its seal, retaining one (1) copy in its possession. OPTREX CORPORATION BY /s/ Akinori Miyazaki ---------------------- NAME: Akinori Miyazaki TITLE: Member of The Board General Manager Procurement & Production Control General Division DATE: 2003-4-14 NAMTAL TELECOM (HONG KONG) COMPANY LIMITED BY /s/ Lei Lai Fong ------------------------ NAME: Lei Lai Fong, PATINDA TITLE: Managing Director DATE: 2003-4-22 12 EX-4.22 18 u98916exv4w22.txt BASIC AGMT AND TWO MEMO ON SEPT. 8, 2003 Exhibit 4.22 [CHINESE TEXT] EX-4.24 19 u98916exv4w24.txt AGMT BETWEEN SONY COMPUTER & NAM TAI SEPT 15 2003 EXHIBIT 4.24 PLAYSTATION(R)2 PERIPHERAL PRODUCTS SUPPLY AGREEMENT THIS AGREEMENT is entered into the 15TH day of SEPTEMBER 2003 by and between SONY COMPUTER ENTERTAINMENT EUROPE LIMITED of 30 Golden Square, London, W1F 9LD (hereinafter referred to as "SCEE") -and- NAMTAI ELECTRONIC (SHENZHEN) CO., LTD of Gusu Industrial Estate, Xixiang, Baoan, Shenzhen, PRC, Postal Code :518126 (hereinafter referred to as "Nam Tai") WHEREAS (A) SCEE, Sony Corporation, and/or certain of their affiliates and companies within the group of companies of which any of them form part (hereinafter jointly and severally referred to as "Sony") have developed a 128- bit CD and DVD based home entertainment system (hereinafter referred to as "the PlayStation 2" which is a registered trademark of Sony Computer Entertainment Inc.) and are the owners of certain proprietary information and intellectual property rights pertaining to the PlayStation 2. (B) SCEE has commissioned Nam Tai to supply digital camera peripheral devices based on SCEI's registered design and including certain third party proprietary technology and being compatible with SCEE's EyeToy software. (C) Nam Tai wishes to supply and SCEE wishes to purchase the peripheral products for resale in the Territory on the terms and subject to the conditions of this Agreement. 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement unless the context otherwise requires the following words and expressions shall have the following meanings:- "Acceptance Tests" means the acceptance tests referred to in Schedule 2. "Affiliate of SCEE" means, as applicable, Sony Computer Entertainment Inc in Japan, Sony Computer Entertainment of America, Inc. or any member of the Sony Computer Entertainment group of companies. "Agreement" means this supply agreement including the Schedules hereto. "Chipset" means integrated circuit devices designed and intended for incorporation into a digital camera based peripheral device capable of interfacing with the Software. "Commencement Date" means 15th January 2003. "Confidential Information" means in relation to either party, information belonging or relating to that party, its business, business plans, affairs or activities, which information is confidential and proprietary to that party. "Contract" means a contract for supply of the Peripheral Products between the parties formed by Nam Tai's acceptance or deemed acceptance of SCEE's Purchase Order in accordance with Clause 5.2. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 1 "Control" means, in relation, to either party, the right of a person or persons acting together, whether in law or in fact, to secure whether by means of the holding of shares bearing 50% or more of the voting rights attaching to all of the shares in that party or by having the power to control the composition of the Board of Directors of that party, that all or substantial part of the affairs of that party are conducted in accordance with the wishes of that person or persons, and "Controlled" shall be construed accordingly; "Delivery" means, in relation to any Contract, transfer of physical possession of the Peripheral Products to SCEE or SCEE's agent at the place specified in Clause 7.2. "Design" means the design of the Peripheral Product based upon SCEI's registered design numbers 3012081, 3012082, 3012083 and 3012084 ("the Registered Design"). "Documentation" means documentation relating to the operation, support and maintenance of the Peripheral Products. "Intellectual Property Rights" means any patent, registered design, copyright, design right, topography right, trade mark, business name, application to register any of the aforementioned rights, trade secret, unpatented know-how and right of confidence, and any other intellectual property right of any nature whatsoever in any part of the world. "Peripheral Product(s)" means SCEE's commissioned digital camera based peripheral product based upon the Design, incorporating one or more Chipsets and bearing the Trademarks, and being more fully described in Schedule 1. "Product Failure" means a recognised component, design or technical defect in the Peripheral Product(s). "Purchase Order" means an order placed by SCEE for the supply of the Peripheral Products on the terms and conditions of this Agreement, stating SCEE's order number, the Peripheral Products ordered and the price(s) thereof, and the required Delivery date(s) and Delivery address(es). "Quarter" means one of subsequent periods of three calendar months, the first commencing on the Commencement Date. "Returns" means Peripheral Products which are rejected by SCEE or returned to SCEE by its resellers/ customers as non-conforming, damaged including due to Product Failure. "Software" means software developed by SCEE or parties authorized by SCEE to enable the connection and functioning of a digital camera based peripheral device to a video game console or any software derived from the same. "Specifications" means the Peripheral Product specifications and any other specifications, and any amendments thereto, agreed in writing between Nam Tai and SCEE from time to time. "Term" means the term of this Agreement being two years from the Commencement Date in accordance with Clause 3.1. "Territory" means the world. "Tools" means the tools purchased by Nam Tai to manufacture the Peripheral Products. 'Trademarks" means the PlayStation Family logo, a registered trademark of SCEI and EyeToy, a registered trademark of SCEE. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 2 1.2 The headings in this Agreement are for convenience only and shall not affect its interpretation or construction. 1.3 The Schedules referred to form part of this Agreement. 1.4 References to Clauses and Schedules are, unless otherwise stated, to clauses in and schedules to this Agreement. 2. BASIS OF SUPPLY 2.1 Nam Tai agrees to supply the Peripheral Products to SCEE or its nominated distributors. 2.2 Nam Tai agrees upon receiving payment from SCEE for the value of the remaining life of the tools from SCEE to render up the Tools on the expiration of this Agreement. 2.3 Nam Tai agrees that during the Term and throughout the Territory, without SCEE's consent, it will not, and will procure that its affiliates do not, manufacture, distribute, sell nor supply to any third party, other than SCEE or its nominated distributors, for sale the Peripheral Products or any digital camera based peripheral products intended for use with any video game console, but such consent shall not be unreasonably withheld. For the purpose of this clause 2.3 Nam Tai's affiliates shall mean Nam Tai Electronics Inc and its subsidiaries. 2.4 Nam Tai agrees to purchase the Chipsets for incorporation in the Peripheral Products only from Omnivision Technologies Inc. 3. TERM 3.1 This Agreement shall commence on the Commencement Date and shall continue for a period of two years. 4. SCEE's UNDERTAKINGS 4.1 SCEE agrees to prepare written sales forecasts in accordance with Clause 6 with a view to assisting Nam Tai in preparing its production schedule. 5. ORDERING PERIPHERAL PRODUCTS 5.1 During the continuance of this Agreement Nam Tai shall sell and SCEE shall purchase such quantities of the Peripheral Products as may be ordered by SCEE from time to time under Clause 5.2, subject to the terms and conditions of this Agreement. 5.2 The placing by SCEE of a Purchase Order for Peripheral Products from time to time and written acceptance thereof by Nam Tai shall create a Contract subject to the terms of this Agreement. No Contract shall be deemed concluded unless and until Nam Tai has accepted the Purchase Order by issuing a written order acceptance. Nam Tai shall be deemed to have accepted any Purchase Order placed in accordance with the terms of this Agreement if it has not issued a written order acceptance or rejection within five working days of receipt of such Purchase Order. 5.3 SCEE may vary the terms of, or reschedule the Delivery date under, any Contract subject to prior written agreement of Nam Tai. 5.4 SCEE shall be entitled to cancel any Purchase Order, in whole or in part, by giving reasonable notice to Nam Tai provided that SCEE shall be responsible for all direct material costs in terms of finished goods, Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 3 work in progress, parts and labour costs already incurred by Nam Tai in relation to the relevant Purchase Order. 5.5 SCEE shall be under no obligation to place Purchase Orders under this Agreement and shall have the right during the Term hereof to acquire products or services from any third party. 6. SUPPLY OF PRODUCTS AND SALES FORECASTS 6.1 Nam Tai shall maintain sufficient manufacturing and storage facilities, resources, materials, parts and components to meet SCEE's Purchase Orders placed from time to time hereunder. To this end, SCEE has given Nam Tai prior to signing this Agreement a written forecast for its anticipated requirements for the Peripheral Products for the 4-month period commencing on the Commencement Date. 6.2 SCEE agrees to give Nam Tai, not later than 30 days before the beginning of each subsequent month, SCEE's written forecast of its anticipated requirements for the Peripheral Products for the following month. Such forecasts shall be for information only and shall not be binding upon either party. 6.3 If SCEE's orders for the Peripheral Products exceed (or it appears from any of SCEE's forecasts given pursuant to Clause 6.2 that they will exceed) the output capacity or available stocks of Nam Tai, Nam Tai shall as soon as practicable notify SCEE. 7. DELIVERY OF PERIPHERAL PRODUCTS AND PACKING 7.1 Nam Tai shall perform and complete, prior to Delivery, all factory and other tests agreed between the parties and set out in writing in the Specifications or as otherwise reasonably agreed between the parties in writing from time to time. SCEE shall be entitled to have present at such testing such authorised representatives as it reasonably considers necessary. 7.2 Nam Tai shall deliver the Peripheral Products to SCEE or SCEE's carrier FOB China address to be advised or such other address as may be agreed by the parties in writing by the Delivery date(s) specified in the Contract (which shall be not more than 4 weeks from the date of the Purchase Order), or such other date as may be agreed between the parties. Where Delivery of any Peripheral Products is likely to be delayed Nam Tai shall notify SCEE of the relevant facts and circumstances as soon as possible. 7.3 Should the delivery of the Peripheral Products be delayed for more than 2 weeks, the following shall be applicable 7.3.1. Nam Tai shall send to SCEE a letter describing the occurred situation and explaining the reasons why Nam Tai was not successful in dealing with the matter. In addition, the letter shall state what actions Nam Tai will take in order to ensure that a similar situation will not occur again and also describe how the actions will be implemented. 7.3.2. SCEE shall, unless the delay is due to force majeure as set out in Clause 20 below or by an act of SCEE, then be entitled to a reduction of the price payable. Such reduction shall equal one (1) percent of the total sum payable under the relevant purchase order. 7.4 SCEE acknowledges that any liability of Nam Tai to pay liquidated damages under Clause 7.3 shall represent SCEE's sole financial remedy in respect of any delay by Nam Tai in Delivery of the Peripheral Products, but shall be without prejudice to any other rights and remedies available to SCEE. For the avoidance of doubt unless the delay is due to force majeure as set out in Clause 20 below or by an act of SCEE, if any specified Delivery date is not met within 30 days (whether in whole or in part), then Nam Tai shall be deemed to be in material breach of this Agreement. 7.5 Nam Tai shall deliver the Peripheral Products properly packed to ensure against risks in transit to the Territory. Nam Tai shall include for all shipments a packing list that contains SCEE's Purchase Order number, quantity shipped and number of cartons comprised in the shipment. Nam Tai's packing list is to Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 4 be enclosed in an envelope and is to be adhered to an exposed side of a shipping container to allow easy access. In addition a copy of such packing list is to be enclosed in a prominent position inside each container. 7.6 SCEE shall arrange inspection of the shipments in China on Delivery for conformity with shipping documents only. SCEE shall have the right to inspect the Peripheral Products at any time prior to or after Delivery and SCEE shall have the right to reject non-conforming or defective Peripheral Products which shall be replaced by Nam Tai at its cost FOB China within 30 days of notification by SCEE. SCEE shall invoice Nam Tai for the actual costs of shipping, insuring and importing such replacement Products into the Territory. 8. DOCUMENTATION 8.1 Nam Tai shall supply adequate sets of the Documentation in advance of Delivery, in hard copy and, if requested by SCEE, in electronic form (in such format as may be reasonably requested by SCEE). The Documentation shall include sufficient drawings and instructions to allow SCEE to operate and maintain the Peripheral Products, including details of any special environmental controls required to ensure that the Peripheral Products meet the Specifications. 8.2 Nam Tai shall supply at SCEE's request, free of charge for each Peripheral Product supplied, extra sets of Documentation. 9. RISK AND TITLE 9.1 The Peripheral Products shall be at the risk of Nam Tai during transit to China and Delivery and Nam Tai undertakes to insure the Peripheral Products against loss or damage during transit and Delivery. 9.2 Nam Tai warrants that the Peripheral Products passed in required product qualification shall be supplied with full title guarantee. 9.3 Title, risk of loss or damage and responsibility to insure the Peripheral Products shall pass from Nam Tai to SCEE at the FOB point following Delivery. 10. QUALITY ASSURANCE AND FACTORY INSPECTION 10.1 Nam Tai shall test and inspect the Peripheral Products in conformity with ISO 9000 and 9001 Quality Standards prior to shipment and shall retain and make available a copy of all factory acceptance test reports to SCEE on request. SCEE reserves the right to periodically audit Nam Tai's product quality assurance and test procedures in any reasonable manner including observation by SCEE of tests being conducted on the Peripheral Products, subject to SCEE giving Nam Tai at least one week's written notice of the requested observation date. SCEE shall arrange for pre-shipment inspection from time to time at its cost at Nam Tai's manufacturing facility. Nam Tai agrees to notify SCEE as soon as reasonably practicable (and in any event by not more than 14 days before the proposed shipment date) of the date the Peripheral Products will be loaded for shipment to China with a view to SCEE arranging for inspection of loading at its option. 10.2 SCEE may provide materials on loan to enable Nam Tai to test to the Specifications. SCEE shall retain title in and control over any materials made available to Nam Tai and may require the return of the same on demand. 10.3 SCEE shall provide 10 PAL debugging stations for production testing only and SCEE shall retain title in and control over these debugging stations which are for factory use only. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 5 10.4 Nam Tai's factory address is: Gusu Industrial Estate, Xixiang, Baoan, Shenzhen, PRC Postal Code: 518126 11. ACCEPTANCE 11.1 Unless otherwise agreed between the parties in writing, acceptance by SCEE of each Peripheral Product shall occur on successful completion of the Acceptance Tests in respect of that Peripheral Product in accordance with Schedule 1. 11.2 Acceptance Tests shall be carried out in accordance with the terms of Schedule 2. 11.3 Acceptance Tests shall commence as soon as reasonably practicable after Delivery (and in any event within 14 days thereafter, unless otherwise agreed between the parties in writing). 11.4 Nam Tai shall, without charge, make available staff, materials and facilities reasonably necessary for performance of the Acceptance Tests. 11.5 Nam Tai shall be entitled to have present at the Acceptance Tests such authorised representatives as it reasonably considers necessary. 11.6 If any of the Peripheral Products fail to pass the Acceptance Tests, Nam Tai shall promptly investigate and rectify all faults to enable the Acceptance Tests to be repeated. If, following that investigation and repetition of the Acceptance Tests, the Peripheral Products still fail to pass the Acceptance Tests, then SCEE will be entitled to reject the Peripheral Products or treat the failure as a material breach for the purposes of Clause 15.1.1. 12. RETURNS 12.1 SCEE shall notify Nam Tai in writing on a monthly basis of numbers of Returns which verified as manufacturing defects and Nam Tai shall ship replacement units at its cost to SCEE within 60 days of such notification. Shipment shall be FOB China provided that Nam Tai shall be liable for costs actually incurred by SCEE in shipping the replacements to the Territory including freight, insurance, tax and duties and shall be invoiced by SCEE on a monthly basis in respect of any such costs. 12.2 Nam Tai agrees that in the event of Product Failure should the failure rate exceed 1% of sold quantity of the Peripheral Products manufactured by Nam Tai then Nam Tai shall either replace or reimburse the full cost of the defective Peripheral Products as agreed between the parties. 12.3 SCEE shall at its cost co-ordinate return of Returns to its authorised Returns facilities. SCEE agrees that it shall at its cost audit and dispose of Returns, provided that Nam Tai shall bear the costs of auditing and disposal of Returns exceeding 2% ("Excessive Returns") of the quantity under a purchase order together with the cost of returning such Excessive Returns to SCEE's authorised Returns facilities. At Nam Tai's request and cost SCEE shall arrange for all Returns to be despatched to Nam Tai's nominated address. SCEE shall invoice Nam Tai on a monthly basis for costs of auditing and disposal of Excessive Returns or the despatch of Returns to Nam Tai at Nam Tai's request pursuant to this Clause 12.3. 12.4 SCEE shall maintain audit and disposal records in respect of Returns which Nam Tai may inspect from time to time during office hours subject to Nam Tai giving SCEE at least one week's prior written notice. Nam Tai shall be entitled to inspect Returns which have not been disposed of during office hours on similar notice. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 6 12.5 SCEE will provide Nam Tai with a monthly Returns/Product Failure report for the Territory showing units of Peripheral Products purchased in the Territory which are returned to SCEE's authorised Return facilities during the relevant month by country, by number of units and by reason for the return. 13. TECHNICAL SUPPORT AND PROMOTIONAL ASSISTANCE 13.1 Subject to Clause 13.2, SCEE agrees that it shall at its cost during the Term provide an after sales service and technical support for customers in the Territory in relation to the Peripheral Products by providing access to SCEE's Customer Service Helpline during normal business hours Monday to Friday. 13.2 In the event Excessive Returns result in SCEE's Customer Service Helpline receiving calls 20% or more in excess of the average number of calls in relation to Peripheral Products per month SCEE reserves the right to invoice Nam Tai on a monthly basis for the costs of providing its Customer Service Helpline to Peripheral Products customers if the said increase of number calls is caused solely by the Peripheral Products manufactured by Nam Tai. 13.3 Nam Tai will provide 100 samples of the Peripheral Products to SCEE free of all charges, duties, taxes and levies for the purposes technical support training and promotional purposes. Nam Tai shall assist with training of SCEE's technical support staff to the extent reasonably required by SCEE. SCEE undertakes not to sell such promotional samples but use them only to procure orders. 14. PRICE AND PAYMENT 14.1 The price payable for the Peripheral Products is set out in Schedule 3, inclusive of packaging costs. All unit pricing is FOB China. Accordingly (i) Nam Tai shall be responsible for arranging and the cost of insurance and shipping to Delivery, compliance with any applicable export controls and regulations, and all applicable export licences, duties, taxes and other, charges payable on export; and (ii) SCEE shall be responsible for arranging and the cost of insurance and shipping from Delivery, and all applicable import duties, levies and sales taxes and other charges payable on import. 14.2 Unless otherwise agreed in writing, payment of all amounts due by SCEE under this Agreement shall be paid within 30 days from the date of invoice, subject to receipt of Nam Tai's valid and correct invoice, by BACS transfer to Nam Tai's nominated account. 14.3 Any sums payable by Nam Tai pursuant to this Agreement whether in respect of Returns pursuant to Clause 12.2, Product Failure pursuant to Clause 12.3, technical support pursuant to Clause 13.2, liquidated damages pursuant to Clause 7.3, sums SCEE may lawfully claim from Nam Tai pursuant to Clause 14.4 or otherwise, shall be paid in Euros by telegraphic transfer to SCEE's nominated bank account within 30 days of the date of SCEE's invoice. In the event Nam Tai fails to make any payment by the due date Nam Tai shall be liable to pay interest on the overdue amount at the rate of 3% per annum above the base rate from time to time of Barclays Bank which interest shall accrue on a daily basis from the date when payment becomes overdue until full payment is made (whether before or after judgment). 14.4 SCEE shall be entitled to invoice Nam Tai for any sums it may lawfully claim from Nam Tai including any duties, charges or liabilities that ought to have been paid by Nam Tai but which SCEE pays or is held liable. 15. TERMINATION 15.1 Either party shall have the right at any time by giving notice in writing to the other party to terminate this Agreement or any Contract immediately on the occurrence of any of the following events: 15.1.1 the other party commits a material breach of any of the terms of this Agreement which is incapable of remedy or which it fails to remedy within thirty days of receiving written notice from the other party to do so; or Sony Computer Entertainment Europe PlayStation Peripheralsupply Agreement CONFIDENTIAL Page 7 15.1.2 the other party becomes or is deemed to be insolvent as defined in the Insolvency Act 1986 or equivalent legislation or unable to pay its debts or a petition is presented or order made or meeting convened or resolution passed for the purpose of winding up, or enter into liquidation whether compulsorily or voluntarily or compounds with its creditors generally or has a receiver, administrator or administrative receiver appointed over all or any part of its assets or any proposal is made for a company voluntary arrangement in respect of that party, or that party threatens to take or takes or suffers any similar action in consequence of debt or insolvency in any jurisdiction; or 15.1.3 the other party challenges or takes any step which is inconsistent with the Intellectual Property rights of the terminating party. 15.1.4 the other party undergoes a change of Control, it being obliged to notify the terminating party in writing within thirty (30) days after such change. 15.2 At such time SCEE is required by it's parent company to deal only with "Green Partners" SCEE reserves the right to give Nam Tai 3 months notice of termination. 15.3 Termination of this Agreement shall be without prejudice to any subsisting right or remedy of either party in respect of any matter which arose before such termination nor shall it affect the obligations of either party in respect of any subsisting obligation remaining to be performed thereafter or the right of SCEE to continue to receive and resell any stock and Peripheral Products which it has already ordered or received from Nam Tai or for which it has accepted orders from third parties during the Term. 16. ENHANCEMENTS AND MODIFICATIONS AND NEW VERSIONS 16.1 Nam Tai will not make any change to the specification of the Peripheral Products manufactured by Nam Tai without prior approval by SCEE. 17. WARRANTIES AND UNDERTAKINGS BY NAM TAI 17.1 Nam Tai warrants and undertakes that it will at all times during the continuance of this Agreement and where applicable, following termination of this Agreement observe and perform the terms and conditions set out in this Agreement and in particular:- 17.1.1 that it has the right, power and authority to enter into, and fully to perform its obligations under this Agreement and each Contract, and that its entry into and performance under the terms of this Agreement will not infringe the rights of any third party or cause it to be in breach of any obligations to a third party. Without limitation, Nam Tai warrants that it is and shall be entitled to supply the Peripheral Products to SCEE without recourse to any third party. Nam Tai undertakes that it shall not, during the Term of this Agreement, enter into any contract or accept any obligation inconsistent or incompatible with Nam Tai's obligations under this Agreement; 17.1.2 that it shall efficiently procure manufacture and assembly of the Peripheral Products to promptly meet orders from SCEE as soon as possible. 17.1.3 that the Peripheral Products delivered under this Agreement shall be free from defects in materials and workmanship and shall perform substantially in conformance with the Specifications for a period of twelve (12) months from the date of purchase by the consumer ("the Warranty Period"). This warranty shall include parts and labour and shall apply to all Returns that are or become defective during the applicable Warranty Period and are returned to SCEE or are found by SCEE to be defective. Within the Warranty Period Nam Tai will replace, without charge to SCEE, all Returns. 17.1.4 that it shall ensure that the Peripheral Products, including its packaging are of merchantable and satisfactory quality, fit for purpose, are subject to a high standard of quality control, conform with Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 8 sample and all applicable laws and regulations in the EU including for the avoidance of doubt Sony's pan-national technical standards and are at all times covered by product liability and errors and omissions insurance, a copy of the policy for which shall be provided to SCEE on demand and SCEE shall be noted when the relevant insurance policy expires during the Term of this Agreement. 17.1.5 that any Peripheral Products supplied under this agreement comply with EC Directive 76/769/EEC (as amended) and the Dutch Cadmium Decree WMS 1999. Specifically the test proving compliance to EC Directive 76/769/EEC must conform to standard EN1122 and any certificates submitted must reflect this. Nam Tai shall with respect to cadmium provide a certificate from an independent testing house (acceptable to SCEE) confirming that the Products do not exceed the level of cadmium set out in such Directive or Decree. 17.1.6 that it shall promptly replace any Peripheral Products which SCEE notifies to Nam Tai are Returns which SCEE or its customers believe to have a defect in materials or workmanship; in the event SCEE incurs any reasonable costs or losses or claims as a result of breach of the above warranties, Nam Tai shall indemnify and reimburse SCEE such costs or losses (including legal costs) on demand. 18. INTELLECTUAL PROPERTY AND INDEMNITY 18.1 Nam Tai warrants and confirms to SCEE that (i) Nam Tai owns or has the right to license to SCEE all the Intellectual Property Rights in the Peripheral Product other than those rights already owned by either SCEE or Omnivision Technologies Inc. or their respective affiliates and (ii) the sale, use, distribution, marketing, promotion, and any other dealings with the Peripheral Products by SCEE, its agents, distributors, licensees and customers under this Agreement will not in any way violate or infringe any Intellectual Property Rights, moral rights, or privacy rights of any third party. 18.2 Nam Tai hereby grants SCEE all such rights and Licences in relation to the Peripheral Products and all its elements including its name and packaging as SCEE requires in order for SCEE and its agents, distributors and licensees to freely and exclusively market, distribute, promote, sell and authorise use of the Peripheral Products during the Term and thereafter throughout the Territory. 18.3 SCEE warrants and confirms to Nam Tai that SCEE owns or has the right to license the Registered Design and the Trademarks. For the avoidance of doubt, any Intellectual Property Rights arising out of modifications, variations or alterations made to the Design of the Peripheral Product shall remain vested in SCEE. 18.4 SCEE hereby grants Nam Tai a non-exclusive licence to use the Trademarks and any other Intellectual Property Rights of SCEE necessary in order to manufacture the Peripheral Products during the Term throughout the Territory for supply to SCEE and its nominated distributors. Nam Tai shall have no other rights in respect of the Trademarks or any other Intellectual Property Rights of SCEE and shall not use the Trademarks or such Intellectual Property Rights for any purpose other than as provided for expressly in this Agreement. 18.5 Nam Tai now indemnifies SCEE and any Affiliate of SCEE, its sub-licensees and assigns from and against any and all actions, proceedings, damages, awards, losses, demands and expenses (including legal costs on an indemnity basis) arising from or which result from any breach of the warranties set out in this Clause 18 if the same is not the responsibility of SCEE. Sony Computer Entertainment Europe PlayStation Peripheralsupply Agreement CONFIDENTIAL Page 9 19. CONFIDENTIALITY Without prejudice to the Non Disclosure Agreement signed by Nam Tai, each of the parties agrees that it will not at any time after the date of this Agreement make use of or disclose to any person (other than to those of its officers, employees and advisors in whose province it is to know the same) any Confidential Information (other than information properly available to the public or disclosed pursuant to an order of a court of competent jurisdiction) relating to the other party or its business including the identity of its customers, its products, finances, contractual arrangements or methods or doing business and, without limitation, any books and records which, by law, may be required to be disclosed by either party to the other, and each party shall use its respective reasonable endeavours to prevent the publication or disclosure of any such Confidential Information. 20. FORCE MAJEURE Neither party shall be liable for any loss or damage incurred or suffered by the other party arising from the first party's delay or failure to fulfil any of its obligations under this Agreement to the extent that such delay or failure is caused by any cause or circumstance beyond that party's reasonable control and not due to its negligence. Subject to the party delaying promptly notifying the other party promptly in writing of the reason for the delay, the likely duration of the delay and using its best endeavours to cure the breach, the delaying party's obligations (to the extent affected by the delay), shall be suspended during the period that the cause persists provided that if performance is not resumed within 30 days of that notice the non-delaying party may forthwith by notice in writing terminate this Agreement or any Contract (or part thereof) affected. 21. VARIATION This Agreement may only be varied by agreement in writing signed by the authorised representatives of both parties. 22. WAIVER No failure or delay by any party in exercising any right power or remedy under this Agreement shall operate as a waiver of that right power or remedy. No waiver of any provision of this Agreement shall be effective unless given in writing. Any waiver of any provision of this Agreement shall not be construed as a waiver of any other provision or such provision in relation to any future or continuing event or circumstance. 23. NOTICES Any notices or communications given under this Agreement shall be validly given if delivered by courier to the recipient's address set out at the head of this Agreement, or if by facsimile to SCEE at facsimile number +44 (020) 7859 5030 attn Director of Legal and Business Affairs and to Nam Tai at facsimile number 86-755-2749-4013, attn Ms. Margie Lee. Proof of delivery if sent by courier and confirmation of transmission if sent by facsimile shall be sufficient evidence of service. 24. ASSIGNMENT AND SUBCONTRACTING Except that SCEE may assign its rights and obligations hereunder to another company within the Sony Corporation or Sony Computer Entertainment Inc group of companies, the rights and obligations under this Agreement shall not be assigned by either party without the prior written consent of the other. Nam Tai may subcontract its manufacturing obligations under this Agreement provided for the avoidance of doubt that Nam Tai remains liable for the acts and omissions of its subcontractor and has advised SCEE in writing prior to manufacturing. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 10 25. SEVERABILITY The invalidity or unenforceability of any term of or any right arising pursuant to the Agreement shall not in any way affect the remaining terms or rights. 26. ENTIRE AGREEMENT This Agreement constitutes the entire agreement and understanding between the parties with respect to its subject matter and supersedes any prior agreement, understanding or arrangement between the parties whether oral or in writing. No representation, undertaking or promise shall be taken to have been given or be implied from anything said or written in communications between the parties prior to the date this Agreement was executed except as set out in this Agreement. Neither party shall have any remedy in respect of any untrue statement made to it upon which it has relied in entering into this Agreement (unless such untrue statement was made fraudulently) and that parry's only remedies shall be for breach of contract as provided in this Agreement. For the avoidance of doubt, any SCEE's existing or future standard terms and conditions in relation to any Purchase Order shall not form part of this Agreement and/or the Purchase Order. 27. LIMITATION OF LIABILITY 27.1 Neither party shall be liable for any consequential, incidental, indirect, economic or punitive damages whatsoever (including but not limited to damages for loss of business or personal profits, business interruption, loss of business, or personal or confidential information, or any other pecuniary loss, damages for loss of privacy, or for failure to meet any duty, including any duty of good faith, or to exercise commercially reasonable care or for negligence) arising out of or in any way related to this Agreement even if the parties have been advised of the possibility of such damages. This limitation shall be effective even if any remedy fails of its essential purpose. 27.2 Nam Tai's maximum aggregate liability to SCEE in respect of any Contract, whether arising under any indemnity, for any breach of its obligations under this Agreement, shall in no circumstances exceed 150% of the price payable pursuant to such Contract. 27.3 Nothing in this Agreement or in any contract shall exclude or in any way limit either party's liability for fraud or for death or personal injury caused by its negligence, or any other liability to the extent that such liability may not be excluded or limited as a matter of law. 27.4 For the avoidance of doubt, all factory and any other tests mentioned in this Agreement are only applicable to the Peripheral Product and are not applicable to any other products, software, packing materials or whatever which may be packed and/or sold together with the Peripheral Product. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 11 28. GOVERNING LAW AND JURISDICTION This Agreement shall be governed by and construed in accordance with English law and the parties submit to the jurisdiction of exclusive jurisdiction of the English courts for the purposes of enforcing any claim arising under this Agreement without prejudice to SCEE's right to bring proceedings in any other court having jurisdiction where Nam Tai is resident from time to time. Nam Tai irrevocably agrees to appoint an agent for service of process in the United Kingdom for the purposes of this Clause 27 with 30 days of the date of this Agreement and shall notify SCEE of the name and address of such agent within 5 working days of such appointment. If for any reason such agent ceases to act as such or ceases to have an address in England, Nam Tai irrevocably agrees to appoint a substitute process agent acceptable to SCEE and to deliver to SCEE a copy of the new process agent's acceptance of that appointment within 30 days of such cessation. Signed by the authorized representatives of the parties on the date set out above SONY COMPUTER ENTERTAINMENT NAMTAI ELECTRONIC(SHENZHEN) CO., LTD EUROPE LIMITED /s/ Christopher Deering /s/ Karene Wong - -------------------------------- -------------------------------- Signature Signature Christopher Deering Karene Wong - -------------------------------- -------------------------------- Name Name President Director - -------------------------------- -------------------------------- Title Title Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 12 SCHEDULE 1 PRODUCT DESCRIPTION Pls refer to the attached specification. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 13 SCHEDULE 2 ACCEPTANCE TESTS Test Marks of CE, FCC and C-Tick applied for by Nam Tai. SCEE will perform the following test at the factory: When the camera's Blue LED is lit and Red LED flashes, a live image displays on the TV screen. The software reads the camera's VIDs and PIDs and displays these two codes on the TV screen. If there is a live image display and VIDs and PIDs code on the TV screen, then the test is successful. Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 14 SCHEDULE 3 PRICE Unless otherwise agreed in writing by the parties, the price payable by SCEE for the Peripheral Products pursuant to Clause 14 is set out below. For the avoidance of doubt, the net price is the actual price paid by SCEE to Nam Tai pursuant to the payment method referred to in Clause 14.2 of this Agreement. Net price/unit $15 Sony Computer Entertainment Europe PlayStation PeripheralSupply Agreement CONFIDENTIAL Page 15 EX-4.25 20 u98916exv4w25.txt SERVICE AGMT BETWEEN SONY ERICSSON & NAMTAI 2003 EXHIBIT 4.25 Page 1 of 7 19 September 2003 SPECIFIC SERVICE AGREEMENT BETWEEN SONY ERICSSON MOBILE COMMUNICATIONS AB (HEREINAFTER REFERRED TO AS "SONY ERICSSON") AND NAMTAI ELECTRONIC (SHENZHEN) COMPANY LTD. (HEREINAFTER REFERRED TO AS THE "SUPPLIER") REGARDING PROJECT "JI-LONG" Page 2 of 7 19 September 2003 TABLE OF CONTENTS 1. TERMINOLOGY, INTEGRATED PART ........................ 1 2. SCOPE OF THE SSA .................................... 2 3. FORECASTS AND ROADMAPS .............................. 2 4. COMMUNICATION AND CONTACT PERSONS ................... 2 5. INDUSTRIALISATION SERVICES .......................... 2 6. INDUSTRIALISATION-TEST APPLICATIONS ................. 3 7. PROTOTYPES .......................................... 3 8. SPECIFICATION ....................................... 3 9. DOCUMENTATION ....................................... 3 10. PRICING AND TERMS OF PAYMENT ....................... 3 11. TERMS OF DELIVERY .................................. 4 12. PACKING AND LABELLING .............................. 4 13. QUALITY ............................................ 4 14. PURCHASE OF COMPONENTS ............................. 5 15. TERM OF AGREEMENT AND TERMINATION .................. 5

ENCLOSURES: Enclosure 2.3 Project Plan, 1/10053-FCP101XXX Latest Edition Enclosure 10.1 Prices and Price model Enclosure 14.1 Purchase of components Enclosure 14.2 Forecast Flexibility & Liability model Page 1 of 7 19 September 2003 SPECIFIC SERVICE AGREEMENT made as of 19th September 2003, by and between Sony Ericsson Mobile Communications AB, Org no 556615-6658, a limited liability company duly incorporated and existing under the laws of Sweden, with its principal office at Nya Vattentornet, S-221 88 Lund, Sweden, hereinafter referred to as "Sony Ericsson", and NAMTAI ELECTRONIC (SHENZHEN) COMPANY LTD., a corporation duly incorporated and existing under the laws of The Peoples' Republic of China ("PRC") and having its registered officer at Gu Su Industrial Estate, Xinan, Baoan, Shenzhen, PRC (hereinafter referred to as the "Supplier"). (hereinafter referred to as the "Supplier"). WHEREAS: 1. Ericsson and Namtai Electronic & Electrical Products Ltd have entered into the General Service and Purchase Agreement, GSPA, dated 15th February 2001 among other agreements, The GSPA has been duly assigned to Sony Ericsson Mobile Communications AB during 2002 and duly assigned to Namtai Group Management Ltd, Hong Kong at 16th July 2003. 2. The GSPA contains the general terms and conditions for the performance of Product Supply to Sony Ericsson, from Supplier, 3. It is intended that the GSPA will be supplemented by one (1) or more SSA's setting out the specific provisions relating to the performance of Product Supply, and 4. The Supplier has explained that it is willing and fully able to perform the Product Supply on behalf of Sony Ericsson for delivery of high quality Products, under the terms and conditions set out in this SSA and the GSPA. NOW THEREFORE, in consideration of the mutual obligations herein contained, the Parties agree as follows: 1. TERMINOLOGY, INTEGRATED PART The GSPA shall be an integrated part of this SSA and, accordingly, all terms and conditions in the GSPA shall also apply to this SSA. Capitalised terms contained herein shall have the meanings assigned to them below or as ascribed to them in the GSPA unless otherwise defined in the context or document where it is used. "AGREEMENT", means this Specific Service Agreement. "GSPA", means the General Service and Purchase Agreement referred to in the "Whereas"-section above entered into between the Parties. Page 2 of 7 19 September 2003 "PRODUCT", means the Bluetooth Headset Ji-Long, developed by Sony Ericsson and as further specified in this Agreement. "PA", means the Purchase Agreement separately signed covering the Product. The PA will be the new name of the SPA mentioned in the GSPA. "SSA", means this Specific Service Agreement. 2. SCOPE OF THE SSA 2.1 Under the terms and conditions set forth in the Agreement Documents (i) Supplier shall - exclusively for Sony Ericsson - perform Product Supply regarding the Product, and (ii) Sony Ericsson shall be entitled to purchase the Products from Supplier under the PA. 2.2 In the event of an inconsistency in the Agreement Document, the inconsistency shall be resolved by giving documents precedence in the following order: (i) The Purchase Order, excluding Sony Ericsson's general purchasing conditions if such have been enclosed with the Purchase Order, (ii) The PA, (iii) The GSPA. (iv) This Agreement excluding the Enclosures, (v) Enclosure 2.3 Project Plan (vi) Enclosure 10.1 Prices and Price model (vii) Enclosure 14.1 Purchase of components, (viii) Enclosure 14.2 Forecast, Flexibility & Liability model 2.3 Included in the Product Supply shall be repair and maintenance services as set out in Enclosure 2.3. 3. FORECASTS AND ROADMAPS 3.1 A forecast of RTL and production volumes may be included in Enclosure 2.3. These volume are only for production and capacity planning purposes. Sony Ericsson is not committed to buy according to the forecasted volumes. Sony Ericsson is liability for forecasted volumes as per Article 14. 4. COMMUNICATION AND CONTACT PERSONS 4.1 In accordance with Subsection 5.5 of the GSPA the Parties hereby appoint the contact persons set out in Enclosure 2.3 to receive and to communicate information. 5. INDUSTRIALISATION SERVICES Page 3 of 7 19 September 2003 5.1 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.1 of the GSPA, lead and be responsible for the industrialisation of Product. 5.2 Supplier shall, as part of the Product Supply and in accordance with Subsection 6.4 of the GSPA, provide information for the design work and furthermore manufacture the test applications. 5.3 The requirements for traceability as provided in Subsection 6.7 in the GSPA shall be as set out in Enclosure 2.3. 6. INDUSTRIALISATION-TEST APPLICATIONS. 6.1 Supplier shall develop and deliver Manufacturing Test Applications as set out in Section 7 of the GSPA and as the case may be in Enclosure 2.3 7. PROTOTYPES 7.1 Supplier shall (i) provide Sony Ericsson with Prototypes (ii) review the Prototypes for manufacturability, (iii) perform the testing of the Prototype, as defined in Enclosure 2.3 and (iv) provide Sony Ericsson with written reports of the analysis of the Prototypes. 8. SPECIFICATION 8.1 Supplier shall not deliver any Products unless they meet the requirements set out in the Specification as set out in Enclosure 2.3 and amended from time to time in and as further described in Section 14 in the GSPA. 9. DOCUMENTATION 9.1 Project Documentation The Supplier shall submit written reports to Sony Ericsson on the activities and the progress of the Product Supply. Such reports shall include the reports and plans specified in Enclosure 2.3. 9.2 Product Documentation Supplier shall produce and deliver to Sony Ericsson Product Documentation fulfilling the requirements set out in templates included in Enclosure 2.3. 10. PRICING AND TERMS OF PAYMENT 10.1 The current price and the price model of the Product shall be as set out in Enclosure 10.1. All invoices sent by Supplier shall be in USD or Euro as agreed in the PA Page 4 of 7 19 September 2003 10.2 Price review The price of the Products shall be reviewed and agreed quarterly before the ending of every quarter in order for the prices to be firm for deliveries during the following quarter. The basis for the price review shall be: (i) significant changes in volumes, and/or; (ii) fluctuations in the exchange rate as defined below, and/or; (iii) changes to the Specification, and/or; (iv) increased production efficiency including but not limited to "The learning curve advantage", and/or; (v) changes in the price of the components. (vi) delivery performance in the last quarter before against agreed and acknowledge order, call of lead time Changes in the Specification and/or changes of a specific component price during a quarter, which causes a different price shall immediately or with a reasonable delay - due to material in stock - apply to all ordered Products. Such reasonable delays shall however only relate to reasonable explainable normal stock levels or situations with higher stock levels attributable to Sony Ericsson. At the quarterly price review meetings Supplier will describe and specify the changes made during the quarter. The different price shall be passed on to Sony Ericsson at the aforementioned fixed exchange rate as defined in GSPA. 11. TERMS OF DELIVERY 11.1 Delivery time The Supplier shall perform the Product Supply, in accordance with the time-schedule set out in Enclosure 2.3 Dates of delivery of volume produced Products shall be as stated in the relevant P.O. 11.2 Delivery terms Applicable terms of delivery shall be FCA Hong Kong international Airport, INCOTERMS 2000, unless otherwise agreed in P.O. 12. PACKING AND LABELLING 12.1 The Products shall be packed and marked separately as set out in the Specifications and the applicable Purchase Order. The Purchase Order and product numbers shall be set out in the shipping documents. 13. QUALITY 13.1 All Product Supply shall be handled in accordance with the standards/requirements set out in the Specification and in Enclosure 2.3 Page 5 of 7 19 September 2003 14. PURCHASE OF COMPONENTS 14.1 The Supplier shall purchase materials at contracted prices under existing Sony Ericsson Agreements for supply of materials as set out in Enclosure 14.1. 14.2 Sony Ericsson liability for components as related to volume forecast as set out in Enclosure 14.2 14.3 The Supplier is responsible for the purchase and supply of all components. 15 TERM OF AGREEMENT AND TERMINATION 15.1 This Agreement shall come into force upon its execution by duly authorized representatives of both Parties and shall remain in effect until three (3) months have passed following written notice of termination by either Party, unless terminated on an earlier date as set out in Section 29 "TERM OF AGREEMENT AND TERMINATION" in the GSPA. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed, in duplicate, each party taking one copy. Date: 19th September 2003 Date: 19th September 2003 Place: Shenzhen, China Place: Lund NAMTAI ELECTRONIC SONY ERICSSON MOBILE (SHENZHEN) CO. LTD. COMMUNICATIONS AB /s/ Karene Wong /s/ Matho Gylling - -------------------- ------------------------- KARENE WONG Matho Gylling 08-Dec-03 16-08-03 Enclosure 10.1 Prices and Price model. PRICE MODEL. See enclosed Excel sheet, (Enclosure 10.1 A) to be applied as price model. PRICE. The following price of the Product is agreed. All prices in USD. Price of 18.77 Prices shall be updated during the development work. Tooling cost: 80300 USD for a production capacity of 100k units per month. Production Jig : 10000 USD for a production capacity of 100k units per months. Tooling shall be amortized over a fixed amount of units of 100k, to be defined and added onto the product price. Enclosure 10.1 A Price model 1 MATERIAL COST Bill of material 15.5103 Material scrap 1% 0.1551 Material burden 1.5% 0.2327 TOTAL MATERIAL COST 15.9000 ======= 2 LABOUR COST PROCESS RATE (USD) LABOUR TIME SMT 0.003/chip 0.6020 Final assy. 4.24/hour 0.6590 Testing 4.24/hour 0.5410 Packaging 4.24/hour 0.1293 TOTAL LABOUR COST 1.9300 ======= 3 FREIGHT COST According to enclosure 0.0700 ======= 4 FINANCIAL COST 1 .5% of bill of material for 60 days credit 0.75% of bid of material for 30 days 0.1200 sea shipment. IF APPLICABLE ======= 0.375% of bill of material for 15 days sea shipment. IF APPLICABLE 5 PROFIT 4.8% of bill of material 0.7500 ======= TOTAL UNIT PRICE 18.7700 ======= TOOLING COST (FOR INFORMATION ONLY) 80,300 =======

Enclosure 14.1 Purchase of components. COMPONENTS BOUGHT UNDER SONY ERICSSON AGREEMENTS. Supplier may call off volumes of below listed components from applicable Sony Ericsson agreements. Any such components shall only be used for manufacturing of the Product. Supplier may issue a forecast of the estimated volume to the selected component supplier to secure delivery. Supplier is solely responsible for the supply chain 1. Icon 2. System connector 3. Bluetooth chip set 4. Battery Sony Ericsson will advise about agreements with component supplier and valid prices during the project. Enclosure 14.2, Forecast, Flexibility & Liability model Sony Ericsson's forecast and production planning process, named Seihan Process is based upon constraint planning, i.e. the planning process takes all constraints regarding the product, components, manufacturing capacity, and other thereto related matters of Sony Ericsson entire supply chain. The Seihan Process operates with a six months planning period. This Forecast, Flexibility & Liability model, the Model, defines the responsibilities and undertaking of both Parties with regard to forecasts, flexibility and lead-times. The components covered by this Model shall solely be used for the manufacturing of the Product. See enclosed Excel sheet, Enclosure 14.2A defining the Model. Components included in the Model shall have a significant impact upon the Product price and/or the applicable delivery lead-time. Standard components shall not be included in the Model. Volume figures, component lead-times and prices shall be updated on a monthly base by Sony Ericsson. (Seller shall provide input for lead-times.) Sony Ericsson shall issue a new Model the last business day of each month, with updated forecast volumes, prices and lead-times for the following six months. Prices and lead times shall be agreed with supplier prior to such update. If the forecast proposal during the ramp-up period, (normally three months from the RTL-date) is higher than the latest agreed flexibility limits or production capacity Sony Ericsson may issue a forecast proposal to Supplier in order for Supplier to confirm if the availability of the necessary production capacity. This forecast proposal shall be communicated in due time before the Model shall be issued at the end of each month. Supplier undertakes that for all components listed in the Model actively work for to reduce the lead-time for each component in order to increase the flexibility of production process and to reduce its own financial exposure. The agreed objective, which is not a binding commitment of the Supplier, shall be to reduce lead-time by 20% annually. If Supplier does not receive the purchase orders in the quantity amount as stated in the forecast or any part thereof for any month within the agreed lead-time, the Supplier shall withhold purchase of components for that month and for subsequent months in the excess of the purchase orders received. For purpose of clarification; The forecasted volume do not constitute a commitment to buy the Product, deviations is likely to appear It is recommended that purchase orders for component shall be placed at component suppliers on weekly bases to enable high flexibility. Seller to align amount of components in stock and on PO with amount of Products on order and in production considering the applicable lead-time for each component Supplier shall always have an obligation to reallocate any components in stock and on order which becomes in excess due to changes in Enclosure 14.2, Forecast, Flexibility & Liability model forecasted volumes within (above) the flexibility limit. The agreed flexibility limit each month is 60% of the forecasted volume of the previous months forecast. For any components in excess, covered by the Model but outside the flexibility limit, Sony Ericsson shall bear liability for the cost of the excess components outside the flexibility limit, provided the Model is rejected as defined below. Sony Ericsson may allocate these excess volume within (above) the flexibility limit to subsequent months on the condition that such excess volume shall not be reallocated over any period more than 6 months thereafter. In case of sudden, unforeseen events which would significantly change the forecast volume or call off quantities during a calendar month, the Model shall be updated and agreed by the parties to reflect the status at such time, (week) by inserting the current week in the Model. The forecasted volume for each month as stated in the latest agreed Model shall be adjusted on a prorata basis to match the current week. The Supplier shall within three days from receipt of a new Model review and confirm the acceptance of the same. However, if the forecasted volume in the new Model is without (below) the 60% flexibility limit, Supplier may reject the new Model and the following shall apply; (Enclosure 14.2B is an illustration of the application of the Model in various scenarios) - Supplier undertakes to use his best commercial effort to reallocate, divest and cancel any excess component due to the new forecast provided by Sony Ericsson. Any remaining components (calculated on a 4-weeks basis) which are covered by the Model shall be kept in stock free of charge for the first three months following the rejection of the new Model. After this three months period Supplier may agree to the liability undertaking by Sony Ericsson as set out in the latest agreed Model. Such liability undertaking is calculated as defined in the latest agreed model. - Sony Ericsson will assume liability for the scrapping of excess components covered by the Model provided that Sony Ericsson has given the Supplier a written approval to scrap. Sony Ericsson maximum liability shall always be limited to the direct cost for the components; taking into consideration the applicable lead-times and the forecast volume all as defined in the Model. - Sony Ericsson shall always have the option to have any excess components assembled into finished Products at agreed price instead of scrapping the components. - Supplier may invoice (30 days net) Sony Ericsson for any components covered by this Model and still remaining after three months or at the end of the undertaking Any non insignificant delay in delivery of the Products, caused by Supplier shall fully relieve Sony Ericsson from its liability under this Article. Any undertaking by Sony Ericsson and/or Supplier as defined herein shall be valid until for 30th December 2004. Enclosure 14.2, Forecast, Flexibility & Liability model Supplier may invoice Sony Ericsson for any components left at 30th December 2004 and covered by the last agreed Model within 30 days thereafter and Sony Ericsson shall settle any such invoice within 30 days from the date of invoice. The Supplier shall deliver the concerned components as advised by Sony Ericsson, FCA "HK / SZ" acc. to INCO-terms 2000. Enclosure 14.2 A Forecast, flexibility and Liability model DEFINITION OF FORECAST, FLEXIBILITY & LIABILITY, THE MODEL Fore cast & liability (?) Part no: DPY XXX (?) Description BT (?) (?) Project A Long (T2 Up Version) Date of "The Model" 30th November 2003 Week of "The Model" end of week 48 (N) Leadtime, call off, Weeks 2 Leadtime, w/o f.c Weeks 16 Product Price 18.77
Month 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated BOM cost 15,51025 15,51025 8,37829 6,21020 8,00000 0 per month, (USD) % Liability per Month 100% 85% 80% 97% 50% 0% Forecast week 49-01 (N+1-5) 02-05(N+6-9) 06-09 (N+10-13) 10-14(N10+14-18) 15-18 (N+19-22) 19-22(N+23+26) Forecast month December January February March April May Average forecast per month 0 0 0 50,000 50,000 50,000 Maximum liability per month, 0 0 0 301,195 150,000 0 (USD) - ------------------------------------------------------------------------------------------------------------------------------------ Total liability, (USD) 451,195

Flexibility Presently agreed/installed max. production capacity 25000 per week Leadtime to increase capacity with 50% 16 Weeks Leadtime to increase capacity with 100% 16 Weeks Maximum flexibility within installed capacity to increase % of volume month 1 production per month, upword flexibility
Prices and Leadtime of selected components. All Leadtimes are including 2 weeks for manufacturing.
Component NT Part no. Part no. Leadtime Weeks Price, USD - ---------------- ---------------- --------------- -------------- ----------- -------- MULTICHIP MODULE 0107- 16 6.00000 "BFB 101" MICROCIRCUIT 0107- 16 PCF(?) Transistor 0103-BSH 10301 BSH103 14 0.06700 Transistor 0103-FDN 10301 FDN338P 14 0.09700 THERMISTOR 0214- 14 0.02620 6.21020 CHIP CAP 0309-0015(?)A111 12 0.00231 CHIP CAP 0309-2201BJA111 12 0.00500 Chip inductor 0406-22302191 LOH32CN4220K21L 12 0.03950 Transistor 0101-UMA 11N21 10 0.03400 Transistor 0101-BC857891 10 0.02200 Transistor 0101-2018TL21 (?) 10 0.06220 Transistor 0101-C(?)17091 (?) 10 0.0(?)00 DIODE SCH 010(?)-1P(?)11 (?) 10 0.09000 SUPPRESSOR VARISTOR 0213-567(?)0521 (?) 10 0.13500 LED 0 109-165HRY01 (?) 10 0.07(?)00 PUSH-BUTTON 1806-EVOPPK12 (?) 10 0.17949 MELTING FUSE 1916-05230303 (?) 10 0.0935(?) TRANSISTOR 0101- (?) 10 0.02700 LDO REGULATOR 0107- 10 0.12000 RECTIFIER 0106- 10 0.07000 MULTILAYERPRINTBOAR 0601- 10 0.84000 XTAL 13MHZ 4x2.5x1mm 1903- 10 0.33(?)00 8.37829 (?) CAP 0305-3363(?) 8 0.12308 CHIP CAP 0309-1001BKA211 8 0.00550 CHIP CAP 0309-1002(?)KA211 8 0.01283 CHIP CAP 0309-10037ZA211 8 0.032(?)2 CHIP CAP 0309-1004(?)ZB211 8 0.01154 CHIP CAP 0309-0330BJA111 8 0.00942 CHIP CAP 0309-470(?)ZC211 8 0.032(?) CHIP CAP 0309(?)BA111 8 0.00410 Chip inductor 0406-10002(?)f (?) 8 0.01000 Chip inductor 0406-680021C1 (?) 8 0.057500 PCB 8 0.084000 Battery 1712-GP 1588(?)1 (?) 8 0.93000 10.96527 CHIP RES 0210-00001J(?)1 6 0.00138 CHIP RES 0210-1001(?)A 6 0.01269 CHIP RES 0210-00101(?)1 6 0.00136 CHIP RES 0210-1003FA 6 0.00118 CHIP RES 0210-1002BA 6 0.0034(?) CHIP RES 0210-22001B(?)1 6 0.00231 CHIP RES 0210-22021B(?)1 6 0.00923 CHIP RES 0210-22011B(?)1 6 0.00.462 CHIP RES 0210-00471J(?)1 6 0.00069 CHIP RES 0210-45021BB1 6 0.00231 CHIP RES 0210-00(?)21J(?)1 6 0.00069 CHIP RES 0210-0(?)201B(?)1 6 0.00231 CHIP RES 0210- 6 0.00090 CHIP RES 0210- 6 0.00(?)92 CHIP RES 0210- 6 0.00115 CONNECTOR 1803-03402K43 6 0.30500 SPEAKER 1921-131(?)0541 6 0.58000 MICROPHONE 1911-44052A62 6 0.3(?)538 TOP HOUSING NEW 6 0.4(?)23 BOTTOM HOUSING NEW 6 0.57077 DECORATIVE PANEL NEW 6 0.0(?)154 MIC BOOT NEW 6 0.05538 ACTION BUTTON NEW 6 0.03538 LIGHT GUIDE NEW 6 0.0348(?) VOLUME UP NEW 6 0.113(?)5 VOLUME DOWN NEW 6 0.11.3(?)5 MIC DOOR NEW 6 0.113(?)5 HOOK BEARING NEW 6 0.113(?)5 SCREW 6214-0 (?)6403 6 0.02462 BEZEL BEZEL 6 0.06815 COVER SHIELD NEW 6 0.01(?)2 ANTENNA NEW 6 0.04(?)15 FLIP OUTSIDE NEW 6 0.041(?)15 FLIP INSIDE NEW 6 0.033(?)5 FLIP PLASTIC NEW 6 0.01(?)2 FLIP SHAFT NEW 6 0.05077 HINGE BASE NEW 6 0.1(?)7(?) HINGE RUBBER NEW 6 0.0(?) HOOK NEW 6 0.22923 HINGE JOINT NEW 6 0.02923 BATTERY FOAM NEW 6 0.00(?) LIGHT GUIDE FOAM NEW 6 0.00585 CONNECTOR CLOTH NEW 6 0.0094 SEMC ICON 8.0mm 0.09(?) Others (All + Bulk 0. (?)4 Packing) 15,51025 GRAND TOTAL 15.51025
Enclosure 14.2A Forecast, Flexibility and Liability model DEFINITION OF FORECAST, FLEXIBILITY & LIABILITY, THE MODEL. FILL OUT YELLOW AND BLUE FIELDS YELLOW FIELDS TO BE UPDATED MONTHLY BROWN FIELDS CALCULATED BY FORMULA
FORE CAST & LIABILITY Part no: DPY XXX Description BT Headset Project Ji Long (T2 Up Version) Date of "The Model" 31st December 2003 Week of "The Model" week 01 (N) Leadtime, Call off. Weeks 2 Leadtime, w/o f.c. Weeks 16 Product Price 18.77 Month 1 2 3 4 Accumulated BOM cost per month, (USD) 15,51025 15,51025 8,37829 6,21020 6,21020 % Liability per Month 100% 85% 80% 97% 97% Liability Amount = Accumulated BOM Cost (*) Liability % 15,5103 13,1837 6,7026 6,0239 6,0239 Forecast week 02-05 (N + 1-4) 06-09 (N+5-8) 10-14 (N+9-13) 15-18 (N+14-17) Forecast month January February March April Average forecast per month 0 0 30 000 20 000 10 000 Maximum liability per month, (USD) 0 0 201 079 120 478 60 239 Total liability, (USD) 471 796 FORE CAST & LIABILITY Part no: Description Project Date of "The Model" Week of "The Model" Leadtime, Call off. Weeks Leadtime, w/o f.c. Weeks Product Price Month 5 6 Accumulated BOM cost per month, (USD) 6,00000 0,00000 0,00000 % Liability per Month 50% 0% 0% Liability Amount = Accumulated BOM Cost (*) Liability % 3,0000 0,0000 0,0000 Forecast week 19-22 (N+18-21) 23-27 (N+22-26) Forecast month May June Average forecast per month 30 000 10 000 20 000 Maximum liability per month, (USD) 90 000 0 0 Total liability, (USD)

FLEXIBILITY Presently agreed/installed max. production capacity 25000 per week Leadtime to increase capacity with 50% 16 Weeks Leadtime to increase capacity with 100% 16 Weeks Maximum flexibility within installed capacity to increase production per month, upward flexibility. % of volume month 1
REMARKS : 1. THIS LATEST UPDATED MODEL IS ACCEPTABLE WITH THE ASSUMPTION THAT THE REVISED QTY SHOULD BE WITHIN (ABOVE) FLEXIBILITY LIMIT (60%) OF PREVIOUS MONTHS FORECAST. THE NEW MODEL IS REJECTED IF THE REVISED QTY IS LESS THAN 60% OF PREVIOUS FIGURES. FOR EXAMPLE, THE PREVIOUS FIGURES IS 50K, THE LIMIT FOR REVISED QTY IS 30K. 2. BOTH PARTIES HAS AN OBLIGATION TO REALLOCATE OR REUSE EXCESS MATERIAL DUE TO THE LOWER FORECAST AS DESCRIBE IN ENCLOSURE 14.2 Enclosure 14.2A Forecast, Flexibility and Liability model DEFINITION OF FORECAST, FLEXIBILITY & LIABILITY, THE MODEL. FILL OUT YELLOW AND BLUE FIELDS YELLOW FIELDS TO BE UPDATED MONTHLY BROWN FIELDS CALCULATED BY FORMULA
FORE CAST & LIABILITY Part no: DPY XXX Description BT Headset Project Ji Long (T2 Up Version) Date of "The Model" 31st December 2003 Week of "The Model" week 01 (N) Leadtime, Call off. Weeks 2 Leadtime, w/o f.c. Weeks 16 Product Price 18,77 Month 1 2 3 4 Accumulated BOM cost per month, (USD) 15,51025 15,51025 8,37829 6,21020 6,21020 % Liability per Month 100% 85% 80% 97% 97% Liability Amount = Accumulated BOM Cost (*) Liability % 15,5103 13,1837 6,7026 6,0239 6,0239 Forecast week 02-05 (N+1-4) 06-09 (N+5-8) 10-14 (N+9-13) 15-18 (N+14-17) Forecast month January February March April Average forecast per month 0 0 29 000 21 000 8 000 Maximum liability per month, (USD) 0 0 194 376 126 502 48 191 Total liability, (USD) 456069 FORE CAST & LIABILITY Part no: Description Project Date of "The Model" Week of "The Model" Leadtime, Call off. Weeks Leadtime, w/o f.c. Weeks Product Price Month 5 6 Accumulated BOM cost per month, (USD) 6,00000 0.00000 0,00000 % Liability per Month 50% 0% 0% Liability Amount = Accumulated BOM Cost (*) Liability % 3,0000 0,0000 0,0000 Forecast week 19-22 (N + 18-21) 23-27 (N+22-26) Forecast month May June Average forecast per month 29 000 13 000 16 000 Maximum liability per month, (USD) 87 000 0 0 Total liability, (USD)

FLEXIBILITY Presently agreed/installed max. production capacity 25000 per week Leadtime to increase capacity with 50% 16 Weeks Leadtime to increase capacity with 100% 16 Weeks Maximum flexibility within installed capacity to increase production per month, upward flexibility. % of volume month 1
REMARKS : 1. THIS NEW MODEL IS REJECTED SINCE THE REVISED QTY IS WITHOUT (BELOW) FLEXIBILITY LIMIT (60%) OF PREVIOUS MONTH FORCAST. FOR EXAMPLE, THE PREVIOUS FIGURES IS 50K, THE LIMIT FOR REVISED QTY IS 30K. SINCE THIS MODEL IS REJECTED IT IS NOT VALID, IE THE LATEST AGREED MODEL, IE END NOVEMBER WOULD BE VALID. Enclosure 14.2A Forecast, Flexibility and Liability model DEFINITION OF FORECAST, FLEXIBILITY & LIABILITY, THE MODEL. FILL OUT YELLOW AND BLUE FIELDS YELLOW FIELDS TO BE UPDATED MONTHLY BROWN FIELDS CALCULATED BY FORMULA
FORE CAST & LIABILITY Part no: DPY XXX Description BT Headset Project Ji Long (T2 Up Version) Date of "The Model" 31st December 2003 Week of "The Model" week 01 (N) Leadtime, Call off. Weeks 2 Leadtime, w/o f.c. Weeks 16 Product Price 18,77 Month 1 2 3 4 Accumulated BOM cost per month, (USD) 15,51025 15,51025 8,37829 6,21020 6,21020 % Liability per Month 100% 85% 80% 97% 97% Liability Amount = Accumulated BOM Cost (*) Liability % 15,5103 13,1837 6,7026 6,0239 6,0239 Forecast week 02-05 (N+1-4) 06-09 (N+5-8) 10-14 (N+9-13) 15-18 (N + 14-17) Forecast month January February March April Average forecast per month 0 0 29 000 21 000 8 000 Maximum liability per month, (USD) 0 0 194 376 126 502 48 191 Total liability, (USD) 456 069 FORE CAST & LIABILITY Part no: Description Project Date of "The Model" Week of "The Model" Leadtime, Call off. Weeks Leadtime, w/o f.c. Weeks Product Price Month 5 6 Accumulated BOM cost per month, (USD) 6,00000 0,00000 0,00000 % Liability per Month 50% 0% 0% Liability Amount = Accumulated BOM Cost (*) Liability % 3,0000 0,0000 0,0000 Forecast week 19-22 (N+18-21) 23-27 (N+22-26) Forecast month May June Average forecast per month 29 000 13 000 16 000 Maximum liability per month, (USD) 87 000 0 0 Total liability, (USD)

FLEXIBILITY Presently agreed/installed max. production capacity 25000 per week Leadtime to increase capacity with 50% 16 Weeks Leadtime to increase capacity with 100% 16 Weeks Maximum flexibility within installed capacity to increase production per month, upward flexibility. % of volume month 1
REMARKS : 1. THIS NEW MODEL IS REJECTED SINCE THE REVISED QTY IS WITHOUT (BELOW) FLEXIBILITY LIMIT (60%) OF PREVIOUS MONTH FORCAST. FOR EXAMPLE, THE PREVIOUS FIGURES IS 50K, THE LIMIT FOR REVISED QTY IS 30K. SINCE THIS MODEL IS REJECTED IT IS NOT VALID, IE THE LATEST AGREED MODEL, IE END NOVEMBER WOULD BE VALID. EX-4.26 21 u98916exv4w26.txt CONSTRUCTION AGMT BETWEEN NAMTAI & TAKASAGO 2003 EXHIBIT 4.26 CONTRACT SUMMARY Part I - Key Particulars Project: Phase 4, Gusu Industrial Estate, Xixiang, Baoan, Shenzhen, PRC Parties: (1) Namtai Electronic (Shenzhen) Co Ltd ("THE EMPLOYER"), a company incorporated under the laws of the PRC; and (2) Takasago Thermal Engineering (Hong Kong) Co Ltd ("THE MAIN CONTRACTOR"), a company incorporated under the laws of the HKSAR. Date of Contract: 28 October 2003 Contract Sum: RMB124,400,000.00 Contract Commencement Date: 23 September 2003 Contract Completion Date: 11 October 2004 Architect: David S K Au & Associates Ltd Quantity Surveyor: Levett & Bailey Chartered Quantity Surveyors Ltd Part II - Material Terms The followings are the material terms of the subject contract in relation to the rights and obligations of the parties: - (1) The Employer and the Contractor entered into the contract under which the Employer engaged the Contractor to carry out the construction of the factory premises ("THE WORKS") for Phase 4, Gusu Industrial Estate, Xixiang, Baoan, Shenzhen, PRC, the details and specifications of which are set out in the contract documents attached to the contract, and the Contractor agrees to carry out the Works in accordance with the general conditions of the contract ("GCC"). (2) The Main Contractor is obliged to carry out, take full responsibility for the care of, and complete the Works as required in (1) above to the reasonable satisfaction of the Architect in every respect (GCC-1), and the Main Contractor has a duty to comply with the instructions issued by the Architect in accordance with the provisions of the contract. (GCC-2) (3) The Main Contractor is under a duty to comply with and give notices required by any legislation or ordinance of the government of the PRC, the local authorities or any statutory undertaker which has jurisdiction with regard to the Works or with whose systems the same are connected. The Main Contractor is also responsible for obtaining all necessary permits from the said government and authorities for the commencement and the completion of the Works, and the fees and tax liabilities to be incurred therefor. (GCC-4) (4) The Architect may issue instructions requiring a variation of the Works. All variations required by the Architect shall be measured and valued by the Quantity Surveyor in accordance with the provisions of the contract. (GCC-11) (5) When in the opinion of the Architect the Works are practically completed, he shall issue a certificate of practical completion. Any defects or other faults which shall appear within 24 months of practical completion which are due to materials or workmanship not in accordance with the contract, shall be specified by the Architect in a schedule of defects, and the Main Contractor shall make good the defects in the said schedule within a reasonable time at his own cost. (GCC-15) (6) The Main Contractor shall be liable for, and shall indemnify the Employer against, any expense, liability, loss, claim or proceedings in respect of personal injury to or the death of any person arising out of or in the course of or caused by the carrying out of the Works, unless the death or injury is caused by the Employer or any person for whom the Employer is responsible. (GCC-18) (7) The Main Contractor shall be liable for, and shall indemnify the Employer against, any expense, liability, loss, claim or proceedings in respect of any damage to property in so far as such damage arises out of or in the course of or by reason of the carrying out of the Works, and provided that the same is due to any negligence, omission or default of the Main Contractor, his servants or agents or of any sub-contractor, his servants or agents. (GCC- 18) (8) The Main Contractor shall maintain contractor's all risk insurance under which the Main Contractor shall insure against, amongst other things, loss or damage by fire, lighting, typhoon, flood, earthquake, aircraft or other devices or articles dropped therefrom, and riot. The Main Contractor shall also maintain third party insurance under which the Main Contractor shall insure against, amongst other things, liability in respect of personal injuries or deaths, and of injury or damage to property arising out of or in the course of or caused by the carrying out of the Works. (GCC-19 and 20) (9) If the Main Contractor fails to complete the Works by the contract completion date or within any extended time under the provisions of the contract, the Main Contractor shall pay the Employer RMB41,000.00 per day as liquidated damages for the period of delay. (GCC-22) (10) If in the opinion of the Architect the completion of the Works is likely to be delayed beyond the contract completion date by reason of, for example, force majeure, fire, lighting, explosion, flood, earthquake, aircraft or other devices or articles dropped therefrom, riot or civil commotion, and Architect's instructions issued under GCC-11, then the Architect shall estimate the length of the delay and make a fair and reasonable extension of time for completion of the Works. (GCC-23) (11) If the Architect is of the opinion that the Main Contractor has been involved in direct loss and/or expense for which he would not be reimbursed by a payment made under any other provision in the contract by reason of the regular progress of the Works having been materially affected by, for example, the Main Contractor not having received in due time necessary instructions, drawings, details or levels from the Architect for which he specifically applied, the opening up for inspection of any work covered up or the testing of any of the work, materials or goods, then the Architect or the Quantity Surveyor shall ascertain the amount of such loss and/or expense which shall be added to the contract sum. (GCC-24) (12) If the Main Contractor shall make default of its obligation under the contract, then the Architect may give him a notice specifying the default, and if the Main Contractor either shall continue such default for fourteen days after receipt of such notice or shall at any time thereafter repeat such default, then the Employer may within seven days after the expiry of the said fourteen day period determine the employment of the Main Contractor. (GCC-25) (13) Unless the Employer has been in repudiatory breach of the contract or any of the events as stated in GCC-26(2) has occurred, the Main Contractor is not entitled to determine its employment under the contract unless with the consent of the Employer. The events as stated in GCC-26(2) include the Employer having failed to pay the Main Contractor the amount due on any certificate within 28 days upon presentation of the same, the Employer having interfered with the issue of any certificate due under the contract, the carrying out of the whole or substantially the whole of the uncompleted works is suspended for a continuous period of 3 months by reason of force majeure, and the Main Contractor not having received in due time necessary instructions, drawings, details or levels from the Architect. (GCC-26) (14) The Architect shall not nominate any person as a nominated sub-contractor against whom the Main Contractor objects with reason or who will not enter into a sub-contract which provides, inter alia, that the nominated sub-contractor shall carry out and complete the sub-contract works in every respect to the reasonable satisfaction of the Main Contractor and of the Architect, and in conformity with all the reasonable directions and requirements of the Main Contractor, and that the nominated sub-contractor shall observe, perform and comply with all the provisions of the contract. The nominated sub-contractor shall be deemed to be a sub-contractor of the Main Contractor, and the nominated sub-contract works shall form part of the Works. The Main Contractor shall enter into a sub-contract with the nominated sub-contractor specifying the quality, quantities, construction period and management matters in respect of the nominated sub-contract works. The Architect shall include the value of the works by a nominated sub-contractor in the calculation of the amount as stated due in any certificate to be issued to the Main Contractor. The sum representing the value of the said works shall be paid by the Main Contractor to the nominated sub-contractor within 14 days of receiving payment from the Employer less any retention money, any sum to which the Main Contractor may be entitled in respect of delay in completion of the nominated sub-contract works, and payment made previously. (GCC-27) (15) The Architect shall not nominate any person as a nominated supplier who will not enter into a contract of sale which provides, inter alia, that the materials to be supplied shall be to the reasonable satisfaction of the Architect, that the nominated supplier shall make good by replacement any defects in the materials which appear within the maintenance period as is mentioned in the supply contract, and that delivery of the materials shall be commenced and completed at such times as the Main Contractor may reasonably direct. The nominated sub-contractor shall be deemed to be a supplier of the Main Contractor, and the materials supplied by the nominated supplier shall form part of the Works. The Main Contractor shall enter into a supply contract with the nominated sub-contractor specifying the quality, quantities, delivery period, management and installation matters. The Main Contractor shall include in the interim payment applications the applications for payment in respect of the materials supplied by the nominated supplier. The Main Contractor shall pay nominated supplier within 14 days of receiving payment from the Employer or within the period specified in the supply contract. (GCC-28) (16) The Architect shall issue an interim payment certificate on a monthly basis stating the amount due to the Main Contractor from the Employer. Upon the issuing of the interim payment certificate, the Main Contractor shall be entitled to payment therefor within 28 days. The Employer may retain 10% of the total value of the works as retention money provided that the sum so retained shall not exceed the limit of RMB 5,390,000.00 or the limit as reduced according to the provisions of the contract. The Employer's interest in the retention money shall be fiduciary as trustee for the Main Contractor. Unless the Employer is entitled under the provisions of the contract to deduct the retention money by reason of, for example, the Main Contractor having failed to rectify the defects of the Works, the Employer is obliged to release the retention money in accordance with the provisions of the contract. On the issue of the certificate of practical completion, the Employer shall release to the Main Contractor half of the retention money. On the expiration of the 24 months defects liability period or the issuing of the certificate of completion of making good defects, whichever is later, the Employer shall release the balance of the retention money. (GCC-30) (17) The Main Contractor shall obtain a guarantee of an insurance company or bank to be jointly and severally bound with the Main Contractor in favour of the Employer in a sum of RMB11,190,000.00 for the due performance of the contract on the part of the Main Contractor. (GCC-31) (18) If during the currency of the contract there shall be an outbreak of hostilities (whether war is declared or not) in which any city of the PRC shall be involved on a scale involving the general mobilisation of the armed forces of the PRC, then either the Employer or the Main Contractor may determine the employment of the contract. (GCC-32) (19) In case of any dispute or difference shall arise between the Employer or the Architect on his behalf and the Main Contractor, either during the progress or after the completion or abandonment of the Works, as to the construction of the contract or as to any matter arising thereunder, then such dispute or difference shall be referred to and determined by arbitration at Hong Kong International Arbitration Centre and in accordance with the arbitration rules of the United Nations Commission on International Trade Law. (GCC-35) EX-4.27 22 u98916exv4w27.txt INVESTMENT AGMT & SHAREHOLDERS AGMT DEC 9 2003 EXHIBIT 4.27 EXECUTION COPY INVESTMENT AGREEMENT STEPMIND AMONG THE UNDERSIGNED: - - MR. ANDRE JOLIVET, a French national, born on July 4, 1962, in Quimper, France, residing at 47 rue Henri Tariel, 92130 Issy les Moulineaux, France, - - MR. ALAIN JOLIVET, a French national, born on April 14, 1949, in Plogastel Saint-Germain, France, residing at 1 rue du General Gouraud, 92190 Meudon, France, (hereinafter collectively referred to as the "FOUNDERS") - - REMOTE REWARD SAS, a French societe par actions simplifiee with a share capital of EUR 90,481,410, with its registered office at 4 ter rue de l'Ouest, 92100 Boulogne, registered in the Commercial Registry under the number 433458304 RCS Nanterre, represented by Mr. Andre Jolivet, in his capacity as President, (hereinafter "REMOTE REWARD"), AND - - AGF INNOVATION 3, AGF INNOVATION 4, AGF INNOVATION 5, fonds communs de placement dans l'innovation, each represented by its managing company, AGF PRIVATE EQUITY, a French societe par actions a directoire et conseil de surveillance with a share capital of Euros 1,000,000, with its registered office at 11, rue Scribe, BP 293, 75425 Paris Cedex 09, registered in the Commercial Registry under the number 414 735 175 RCS Paris, duly empowered to so represent each such entity, itself represented by Mr. Guillaume Lautour, duly empowered for the purpose hereof, (hereinafter "AGF PE"), - - MIGHTY WEALTH GROUP LIMITED, an international business company incorporated in the British Virgin Islands, with a share capital of USD 50,000, with its registered office at Palm Grove House, P.O. Box 438, Road Town, Tortola, BVI, registered under the number 565041, represented by Mr. Tony Cheung, in his capacity as Director, (hereinafter "MWGL"), - - NAM TAI ELECTRONICS INC. a company incorporated in the British Virgin Islands, under registration number 3805, with its registered office at McW. Todman & Co., McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands, represented by Mr. Joseph Li, in his capacity as chief executive officer, (hereinafter "NAM TAI"), (AGF PE, MWGL and Nam Tai are hereinafter collectively referred to as the "INVESTORS" and individually as an "INVESTOR"), (The Founders, Remote Reward and the Investors being hereinafter collectively referred to as the "PARTIES" and individually as a "PARTY"). RECITALS: 1. STEPMIND is a French societe anonyme, with a registered capital of Euros 34,709,907.90, having its registered office at 4 ter, rue de l'Ouest, 92100 Boulogne, registered with the Registry of Commerce and Companies under number 432 237 949 RCS Nanterre (hereinafter the "COMPANY"). The Company was incorporated on June 19, 2000. 2. The Company is engaged primarily in the business of the design and development of baseband integrated circuits, radio frequency integrated circuits (transceivers), as well as system and protocol stacks that address Wide Area Networks (GSM/GPRS/EDGE) and Wireless Local Area networks (802.11a, 802.11b, 802.11g, hiperlan 2) standards. 3. On the date hereof, the Company's share capital consists of 6,463,670 shares, all of the same category, with a par value of Euros 5.37 each. Following the authorization by the Company's extraordinary shareholders' meeting dated June 19, 2002, the Board of Directors of the Company granted on June 19, 2002, November 26, 2002 and June 18, 2003, respectively, 915,471, 76,060 and 32,140 employee warrants (Bons de Souscription de Parts de Createur d'Entreprise) (the "EMPLOYEE WARRANTS"), 1,012,683 of which remain validly granted as of the date hereof. Set forth in EXHIBIT A is the allocation of the capital of the Company on a Fully Diluted basis (i) as of the date hereof and (ii) immediately prior to the completion of the First Capital Increase (as defined below). 4. The Board of Directors of the Company called on October 22, 2003 a general meeting, to be held on November 12, 2003, to decide on (i) a reduction in the share capital of a total amount of Euros 9,943,063.561 by reduction of the par value of the shares from Euros 5.37 to Euros 3.8317 (to offset past losses of the Company) and on (ii) a reduction in the share capital of a total amount of Euros 24,702,207.64 by reduction of the par value of the shares from Euros 3.8317 to Euro 0.01 by allocation of such amount to a special "premium" account. 2 5. Subject to the terms and conditions set forth in this Agreement and its Exhibits (the "AGREEMENT"), the Investors desire to participate in a total investment in the Company in two installments for an aggregate maximum amount of fifteen million one thousand six hundred eighty two Euros and fifty eight cents (EUR 15,001,682.58) in consideration for the subscription by the Investors for 3,858,678 ABSA Shares (as defined below) (the "INVESTMENT"). 6. The Parties have executed on the date hereof a shareholders' agreement (the "SHAREHOLDERS' AGREEMENT") and Andre Jolivet, Remote Reward and the Investors have executed on the date hereof a representations and warranties agreement with respect to the Company's activity, assets and liabilities (the "REPRESENTATIONS AND WARRANTIES AGREEMENT"); the Shareholders' Agreement and the Representations and Warranties Agreement shall enter into force on the Closing Date (as defined below). 7. The purpose of this Agreement is to set forth the details and terms of the Investment, the conditions therefor, and the mutual covenants of the Parties with respect thereto. NOW, THEREFORE, THE PARTIES HERETO AGREE: ARTICLE 1 - DEFINITIONS "ABSA SHARES": has the meaning ascribed thereto in Section 2.1, and shall include reference to the ABSA Shares 1, the ABSA Shares 2 and/or the ABSA Shares 3, as the context requires. "ABSA SHARES 1": has the meaning ascribed thereto in Section 2.3. "ABSA SHARES 2": has the meaning ascribed thereto in Section 2.4. "ABSA SHARES 3": has the meaning ascribed thereto in Section 3.4. "AGF PE": has the meaning ascribed thereto in the Preamble. "AGREEMENT": has the meaning ascribed thereto in the recitals. "BSPCE": has the meaning ascribed thereto in Section 7.1. "CLASS A SHAREHOLDERS": means the holders of Class A Shares. "CLASS A SHARES": means (i) the 6,463,670 existing ordinary shares of the Company and (ii) all the ordinary shares to be subscribed for by exercise of the Employee Warrants. "CLASS B SHAREHOLDERS": means the holders of Class B Shares. "CLASS B SHARES": means (i) the new preferred shares to be issued in connection with the First and Second Capital Increases and (ii) the new 3 preferred shares to be issued upon exercise of the Warrants, in each case having the rights and privileges described in the Shareholder Resolutions, as summarized in Section 2.2.2 below. "CLOSING DATE": means the date on which the First Closing occurs. "COMPANY": has the meaning ascribed thereto in the recitals of this Agreement. "CONTRACTUAL UNDERTAKING": has the meaning ascribed thereto in Article 4. "EMPLOYEE WARRANTS": has the meaning ascribed to it in the recitals of this Agreement. "ESCROW AGENT": has the meaning ascribed thereto in Section 2.2. "ESCROW AGREEMENT": has the meaning ascribed to it in Section 2.2. "EXTRAORDINARY SHAREHOLDERS MEETING": means the Extraordinary Shareholders Meeting of the Company contemplated by Section 3.1. "FIRST CAPITAL INCREASE": has the meaning ascribed thereto in Section 2.1. "FIRST CLOSING": has the meaning ascribed thereto in Section 2.3. "FOUNDERS": has the meaning ascribed thereto in the Preamble. "FULLY DILUTED": refers to the capital of the Company, on an as-if-converted basis, i.e., assuming that all Securities giving right to a portion of the capital and/or voting rights of the Company have been exercised, except the Warrants or Warrants 2004. "INVESTMENT": has the meaning ascribed thereto in the recitals of this Agreement. "INVESTORS": has the meaning ascribed thereto in the Preamble. "LIQUIDATION PREFERENCE": has the meaning ascribed thereto in Section 3.2. "NET PROCEEDS OF LIQUIDATION": has the meaning ascribed thereto in Section 3.2. "NOTICE": has the meaning ascribed thereto in Article 13. "OBJECTION PERIOD": means the twenty-day period following the filing of the minutes of the extraordinary shareholders meeting to be held on November 12, 2003, referred to in paragraph 4 of the recitals 4 and in Section 3(a), during which the creditors of the Company may challenge the second reduction in the share capital of the Company described Section 3(a). "PARTIES": has the meaning ascribed thereto in the Preamble. "PER SHARE VALUE": has the meaning ascribed thereto in Section 3.3. "REMOTE REWARD": has the meaning ascribed thereto in the Preamble. "REPRESENTATIONS AND WARRANTIES AGREEMENT": has the meaning ascribed to it in the recitals of this Agreement. "SECOND CAPITAL INCREASE": has the meaning ascribed thereto in Section 2.1. "SECOND CLOSING DATE": means, alternatively, (i) the date on which the ABSA Shares 2 shall be subscribed for and fully paid by the Investors, or (ii) the date on which the Warrants 2004 shall be exercised and the ABSA Shares 3 shall be subscribed for and fully paid by the Investors. "SECURITY": any security or right, which at any time reflects a portion of the capital of the Company or which gives a right, immediately or in the future, by way of conversion, exchange, reimbursement or exercise of a coupon or in any other manner whatsoever, to the attribution, exchange or subscription to a security representing a portion of the capital or voting rights of the Company. "SHAREHOLDER RESOLUTIONS": has the meaning ascribed to it in Section 3.1 of this Agreement. "SHAREHOLDERS AGREEMENT": has the meaning ascribed to it in the recitals of this Agreement. "SHARES": means the outstanding shares of the Company as at the date hereof. "TRANSACTION DOCUMENTS": means this Agreement, the Shareholders' Agreement and the Representations and Warranties Agreement "TRIGGERING TRANSACTION": has the meaning ascribed thereto in Section 3.3 of this Agreement. "VALUATION CRITERIA": has the meaning ascribed thereto in Section 3.3. "WARRANTS": has the meaning ascribed to it in Section 2.3. "WARRANTS 2004": has the meaning ascribed to it in Section 2.3. 5 ARTICLE 2 - TERMS AND CONDITIONS OF THE INVESTMENT 2.1 DESCRIPTION OF THE INVESTMENT On the terms and subject to the conditions of this Agreement, the Investors shall subscribe for an aggregate of 3,858,678 actions a bons de souscription d'actions ("ABSA SHARES"). The Investment shall consist in two successive capital increases of the Company: - as described more fully in Section 2.3, and subject to the satisfaction of the conditions set forth in Article 4, a first increase in the Company's share capital in a total amount, issuance premium included, of seven million four hundred eighty eight thousand six hundred ninety three Euros and sixty cents (EUR 7,488,693.60) (the "FIRST CAPITAL INCREASE"), which will be completed on January 2, 2004; and - as described more fully in Section 2.4, a second increase in the Company's share capital in a total amount, issuance premium included, of seven million five hundred twelve thousand nine hundred eighty eight Euros and ninety eight cents (EUR 7,512,988.98) (the "SECOND CAPITAL INCREASE"), which will be completed on or before March 15, 2004. The Second Capital Increase will be (i) if any of the conditions set forth in Article 8 does not exist on February 23, 2004, pursuant to subscription by the Investors for the ABSA Shares 2, or (ii) if all of the conditions set forth in Article 8 exist on February 23, 2004, by exercise of the Warrants 4 and subscription by the Investors for the ABSA Shares 3. The proceeds of the Investment shall be used to fund the capital requirements of the Business Plan of the Company attached as EXHIBIT G hereto, as such Business Plan may be duly modified after the Closing by the Board of Directors of the Company, to fund the capital requirements of future Business Plans to be duly approved by the Board of Directors of the Company and generally to meet the cash requirements of the Company in the ordinary course. Set forth on EXHIBIT B is the allocation of the Company's share capital, on a Fully Diluted basis, (i) immediately following the consummation of the First Capital Increase and (ii) immediately following the consummation of the Second Capital Increase. 2.2 PAYMENTS IN ESCROW Each Investor undertakes to pay into escrow, on or before December 19, 2003 (or, if later, within two (2) business days after satisfaction of the conditions set forth in Sections 4(a) and (b)), its total maximum share of the Investment, pursuant to the terms of an escrow agreement (the "ESCROW AGREEMENT") to be executed among the Investors, the Company and HSBC, as the escrow agent thereunder (the "ESCROW AGENT"), such escrow agreement to be agreed upon between the Investors, the Company and the Escrow Agent. The amount to be so paid into escrow by each Investor is as follows: 6 - AGF Innovation 3: Euros 3,000,337;22, - AGF Innovation 4: Euros 2,500,281 - AGF Innovation 5: Euros 1,000,112.40; - MWGL: Euros EUR 4,250,475.98; and - Nam Tai: Euros 4,250,475.98. The Escrow Agreement shall instruct the Escrow Agent as follows: - within two (2) business days after the date on which the Escrow Agent shall have received subscription forms from all of the Investors for the number of ABSA Shares 1 set forth opposite their names in Section 2.3, but not earlier than January 2, 2004, the Escrow Agent shall transfer to the Company's account opened for the purposes of the First Capital Increase the amounts held in escrow corresponding to the amount of the First Capital Increase and to the Company's regular account any interest earned thereon; - if the Escrow Agent has not received the subscription forms of all of the Investors on or before January 15, 2004, then the Escrow Agent shall transfer to each Investor its pro rata portion of the First Capital Increase and of the Second Capital Increase, together with the interest earned thereon (unless otherwise instructed by each Investor with respect to its portion thereof). The amounts held in escrow and corresponding to the amount of the Second Capital Increase shall be released by the Escrow Agent in accordance with Article 8 below. 2.3 THE FIRST CAPITAL INCREASE The First Capital Increase shall consist of 2,858,280 ABSA Shares (the "ABSA SHARES 1") per value of Euro 0.01, which shall be issued for a global subscription price of Euros 7,488,693.60, resulting in a global premium of Euros 7,460,110,80. The price per ABSA Share 1 shall be Euros 2.62, i.e. with a premium of Euros 2.61 per ABSA Share 1. Subject to the satisfaction of the conditions set forth in Article 4, each Investor agrees severally, and not jointly, to so subscribe for the number of ABSA Shares 1 for the subscription price set forth opposite such Investor's name below: - AGF Innovation 3: 571,656 ABSA Shares 1 for a price of Euros 1,497,738.72, AGF Innovation 4: 476,380 ABSA Shares 1 for a price of Euros 1,248,115.60 and AGF Innovation 5: 190,552 ABSA Shares 1, for a price of Euros 499,246.24; - MWGL: 809,846 ABSA Shares 1, for a total subscription price of Euros 2,121,796.52; - Nam Tai: 809,846 ABSA Shares 1, for a total subscription price of Euros 2,121,796.52. 7 Each ABSA Share 1 shall consist of one Class B Share, with attached thereto: - one anti-dilution warrant as described under Article 3.3 below (the "WARRANTS"); - and one additional warrant as described under Article 3.4 below (the "WARRANTS 2004"). No Investor shall be bound to subscribe to its part of the ABSA Shares 1 as mentioned above in case of breach by any other Investor of its obligation to subscribe, as provided in Section 11.3 below. The closing of the subscription for the ABSA Shares 1 by the Investors (the "FIRST CLOSING") is subject to the satisfaction or waiver by the Investors of the conditions set forth in Article 4 below and shall occur on the later of (i) January 2, 2004 and (ii) the third business day following satisfaction, or waiver by the Investors, of the conditions set forth in Article 4 below. If the Closing has not occurred on or before January 15, 2004, then, as provided in Article 11 below, any Investor may terminate this agreement as to such Investor. 2.4 THE SECOND CAPITAL INCREASE The Second Capital Increase shall consist of 1,000,398 ABSA Shares (the "ABSA SHARES 2") par value of 0.01 Euro, which shall be issued for a global subscription price of Euros 7,512,988.98, resulting in a global premium of Euros 7,502,985.00. The price per ABSA Share 2 shall be Euros 7.51, i.e. with a premium of Euros 7.50 per ABSA Share 2. If any of the conditions set forth in Article 8 does not exist as determined pursuant to the procedure set forth in Article 8, each Investor agrees severally, and not jointly, to subscribe for the number of ABSA Shares 2 set forth opposite such Investor's name: - AGF Innovation 3: 200,080 ABSA Shares 2 for a price of Euros 1,502,600.80, AGF Innovation 4: 166,733 ABSA Shares 2 for a price of Euros 1,252,164.83 and AGF Innovation 5: 66,693 ABSA Shares 2 for a price of Euros 500,864.43; - MWGL: 283,446 ABSA Shares 2, for a total subscription price of Euros 2,128,679.46; - Nam Tai: 283,446 ABSA Shares 2, for a total subscription price of Euros 2,128,679.46. Each ABSA Share 2 shall consist of one Class B Share with one Warrant attached thereto. No Investor shall be bound to subscribe to its portion of the ABSA Shares 2 as mentioned above in case of breach by any other Investor of its obligation to subscribe, as provided in Section 11.3 below. 8 ARTICLE 3 - CORPORATE ACTION 3.1 RESOLUTIONS Remote Reward and the Founders undertake to cause the Company to convene an Extraordinary Shareholders Meeting to be held on or prior to December 15, 2003 to approve the resolutions attached hereto as EXHIBIT C (the "SHAREHOLDERS RESOLUTIONS"), providing for the First Capital Increase and the Second Capital Increase, the creation of the Class B Shares, the Warrants and the Warrants 2004 comprising the ABSA Shares 1, the creation of the Class B Shares and the Warrants comprising the ABSA Shares 2, the waiver by the shareholders of the Company to their preferential rights to subscribe for the ABSA Shares 1 and for the ABSA Shares 2 and the Class B Shares to be issued upon exercise of the Warrants and the Warrants 2004 and the other matters set forth therein relating to the Investment and the terms and conditions thereof. The Founders shall inform the Investors as to the scheduled date of the Extraordinary Shareholders Meeting. At the Extraordinary Shareholders Meeting, the Founders and Remote Reward undertake to vote to approve the Shareholders Resolutions; provided, however, that such contractual obligation to vote in favor of the Resolutions shall not apply to the resolution therein concerning increase of the share capital of the Company to the benefit of employees of the Company. 3.2. RIGHTS AND PRIVILEGES ATTACHED TO CLASS B SHARES As set forth in the Shareholders Resolutions, two categories of shares of the Company shall be created by the Extraordinary Shareholders Meeting, with the rights and privileges as more fully set forth therein, which are summarized as follows: All existing shares of the Company shall be converted into Class A Shares, and shares to be subscribed for upon exercise of the Employee Warrants shall be Class A Shares. The Class B Shares shall entitle their holders to receive a liquidation preference in case of winding-up of the Company (the "LIQUIDATION PREFERENCE"), pursuant to which any net proceeds of liquidation, after paying up all liabilities of the Company (except for the unpaid portion of any Shareholder Loans (as such term is defined in the Shareholders' Agreement)) and after reimbursement to all shareholders, regardless of their share category, of the nominal value of their shares (the "NET PROCEEDS OF LIQUIDATION"), shall be used to reimburse the Class B Shareholders in priority as set forth below, with the balance of the Net Proceeds of Liquidation to be distributed to Class A Shareholders pro-rata based on their respective shareholding interests; provided, however, that there shall be no Liquidation Preference if the Net Proceeds of Liquidation are greater than (i) twenty-nine million nine hundred sixty-six thousand and six hundred and seventy Euros (EUR 29,966,670) (if the ABSA Shares 2 are subscribed for by the Investors) or (ii) fourteen million nine hundred eighty-three thousand and three hundred and thirty-five Euros (EUR 14,983,335) (if the ABSA Shares 2 are not subscribed for by the Investors). 9 3.2.1 If the ABSA Shares 2 are subscribed for by the Investors, then the amount of the Liquidation Preference shall be calculated as follows: (a) if Net Proceeds of Liquidation are less than ten million Euros (EUR 10,000,000): - then the Liquidation Preference payable to all Class B Shareholders shall be an amount Y, calculated in Euros: Y = X * 0.8 where X equals the Net Proceeds of Liquidation and - the Liquidation Preference payable to each Class B Shareholder shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Class B Shares held by such Class B Shareholder and NB equals the total number of Class B Shares issued. (b) if the Net Proceeds of Liquidation are at least ten million Euros (EUR 10,000,000), but less than twenty million Euros (EUR 20,000,000): - then the Liquidation Preference payable to all Class B Shareholders shall be an amount Y, calculated in Euros as follows: Y = (EUR 6,000,000) + (X * 0.2) where X equals the Net Proceeds of Liquidation: and - the Liquidation Preference payable to each Class B Shareholder shall be equal to an amount Z, calculated in Euros : Z = (Y ) * (N/NB) where N equals the number of Class B Shares held by such Class B Shareholder and NB equals the total number of Class B Shares issued. (c) if the Net Proceeds of Liquidation is at least twenty million Euros (EUR 20,000,000), but less than twenty-nine million nine hundred sixty-six thousand and six hundred and seventy Euros (EUR 29,966,670): - then the Liquidation Preference payable to all Class B Shareholders shall be equal to EUR 10,000,000; and - the Liquidation Preference payable to each Class B Shareholder shall be equal to an amount Z, calculated in Euros : 10 Z = (EUR 10,000,000) * (N/NB) where N equals the number of Class B Shares held by such Class B Shareholder and NB equals the total number of Class B Shares issued. 3.2.2 If the ABSA Shares 2 are not subscribed for by the Investors, then the amount of the Liquidation Preference shall be calculated as follows: (a) if Net Proceeds of Liquidation are less than five million Euros (EUR 5,000,000): - then the Liquidation Preference payable to all Class B Shareholders shall be an amount Y, calculated in Euros: Y = X * 0.8 where X equals the Net Proceeds of Liquidation and - the Liquidation Preference payable to each Class B Shareholder shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Class B Shares held by such Class B Shareholder and NB equals the total number of Class B Shares issued. (b) if the Net Proceeds of Liquidation are at least five million Euros (EUR 5,000,000), but less than ten million Euros (EUR 10,000,000): - then the Liquidation Preference payable to all Class B Shareholders shall be an amount Y, calculated in Euros as follows: Y = (EUR 3,000,000) + (X * 0.2) where X equals the Net Proceeds of Liquidation: and - the Liquidation Preference payable to each Class B Shareholder shall be equal to an amount Z, calculated in Euros : Z = (Y ) * (N/NB) where N equals the number of Class B Shares held by such Class B Shareholder and NB equals the total number of Class B Shares issued. 11 (c) if the Net Proceeds of Liquidation is at least ten million Euros (EUR 10,000,000), but less than fourteen million nine hundred eighty-three thousand and three hundred and thirty-five Euros (EUR 14,983,335): - then the Liquidation Preference payable to all Class B Shareholders shall be equal to EUR 5,000,000; and - the Liquidation Preference payable to each Class B Shareholder shall be equal to an amount Z, calculated in Euros : Z = (EUR 5,000,000) * (N/NB) where N equals the number of Class B Shares held by such Class B Shareholder and NB equals the total number of Class B Shares issued. 3.3 WARRANTS The Shareholder Resolutions provide for the rights and characteristics of the Warrants, which are summarized as follows: The Warrants shall expire on the fifth anniversary of the Extraordinary Shareholders Meeting. Notwithstanding the foregoing, any unexercised Warrants shall be deemed to be null and void upon listing of the Shares of the Company on a regulated market. Each Warrant shall give the right to subscribe for a number of Class B Shares as hereafter determined, at a subscription price equal to the then par value of Class B Shares, without any premium. The Warrants shall become exercisable upon the occurrence of any of the following transactions (a "TRIGGERING TRANSACTION") with respect to the share capital of the Company if the Company issues any Security, including any Security issued in respect of any merger (fusion) or any partial contribution of assets (apport partiel d'actifs), but not including any Security issued: - as a result of the exercise of warrants (bons de souscription d'actions, bons de souscription de parts de createur d'entreprise, options de souscription d'actions) issued in favour of employees or consultants of the Company or any of its subsidiaries; - as a result of the incorporation of premiums or reserves into the share capital of the Company; - as a result of the prior exercise of the Warrants or the Warrants 2004; provided, that the issuance price, exchange value, conversion value, subscription price or repurchase price per share to which the Security gives a right (or the average price per such share) at which the Triggering Transaction occurs (the "PER SHARE VALUE") is less than "P" (as defined below), it being understood that this price shall be adjusted to take into account, if necessary, any other transactions that would have occurred prior to the Triggering Transaction and which would have resulted in an adjustment of the rights of the holders of Warrants pursuant to French law. 12 In the event the Per Share Value is not a determined cash amount, the Founders and Remote Reward, on the one hand, and the Investors, on the other hand, shall in good faith consult with each other in order to agree with respect to the Per Share Value. If the Founders and Remote Reward, on the one hand, and the Investors, on the other hand, are unable to agree with respect to the Per Share Value within five (5) days after the request of any of the Investors, Remote Reward or the Founders, then any of the Founders, Remote Reward or any Investor may request by notice to the others that such Per Share Value be determined by an expert evaluation as set forth below. Within 10 days after any such notification, the Founders and Remote Reward, on the one hand, and the Investors, on the other hand, shall each designate by notice to the other an expert, which shall be a first-rank investment bank with offices in Paris, with demonstrated significant experience in mergers and acquisitions in Europe and in particular in the valuation of companies in the telecommunications industry with activities in Europe. If either of the Founders and Remote Reward, on the one hand, or the Investors, on the other hand, shall fail to so designate such an expert, such expert shall be designated by the Paris Tribunal de Commerce, ruling in refere proceedings without appeal, based on request by the other. Any expert so appointed shall act as a third party within the meaning of article 1592 of the French Civil Code, and not as an arbitrator. The experts shall be instructed to determine the Per Share Value based on valuation methods relevant to the Triggering Transaction and the entities concerned, including, as applicable, the cash requirements of the relevant entity and considering the valuation method of price-per-engineer (if the relevant entity is in the telecom industry, with consideration given to the relative weight of design functions as compared to other activities of such the relevant entity and to software engineers as compared to hardware engineers) (collectively, the "VALUATION CRITERIA"). Each expert so designated shall be instructed by the appointing party to deliver its determination to all of the Parties and to the Company, together with all supporting calculations and justification within fifteen (15) days after its appointment. The Parties shall cause the Company to provide to both experts all supporting documentation reasonably requested by either expert in respect of its determination and shall otherwise cooperate with the experts. The Founders and Remote Reward, on the one hand, shall bear the fees and expenses of the expert appointed by or on behalf of them, and the Investors, on the other hand, shall bear the fees and expenses of the expert appointed by or behalf of them. If the higher of the Per Share Values as determined by the two experts does not exceed the lower of the Per Share Value by an amount equal to or greater than 33% of the lower of such Per Share Values, then the Per Share Value shall be deemed to be the average of the two Per Share Values as determined by the two experts. If, however, the higher of the Per Share Values as determined by the two experts exceeds the lower of such Per Share Values by an amount equal to or greater than 33% of the lower of such Per Share Values, then the Founders, Remote Reward and the Investors shall meet within ten (10) days after the receipt of the second expert evaluation in order to agree with respect to the Per Share Value. If they shall fail to so agree, a third expert shall be designated in accordance with the following paragraph. 13 The third expert shall be appointed by the Paris Tribunal de Commerce based on request by any of the Parties hereto, and shall be a first-rank investment bank with offices in Paris, with demonstrated significant experience in mergers and acquisitions in Europe and in particular the valuation of companies in the telecommunications industry with activities in Europe and with no conflict of interest with any of the shareholders or of the Company. The expert shall be instructed to base its determination of the Per Share Value on the Valuation Criteria and to deliver its determination to the Parties and the Company within fifteen (15) days after its appointment. The Parties hereto shall share equally the fees and expenses of such expert. The Per Share Value shall be deemed to be the average of (i) the Per Share Value as determined by such third expert and (ii) the Per Share Value determined by one of the two first experts that shall be the closest to the Per Share Value determined by such third expert. Upon occurrence of a Triggering Transaction, a holder of Warrants shall be entitled to exercise its Warrants, in whole or in part, at any moment prior to the expiration of the Warrants. For the avoidance of doubt, if, upon occurrence of a Triggering Transaction, a holder of Warrants does not exercise part or all of its Warrants in the conditions set forth above, such holder would be entitled to exercise any remaining Warrants in the conditions set forth above with respect to any further Triggering Event. In case the Warrants would become exercisable in the conditions set forth above, each Warrant shall give the right to subscribe for, at the par value of the Class B Shares of the Company on the exercise date, a number "NA" of Class B Shares, determined as follows: P - V NA = --------------- V - VN Where: "P" equals (i) in the event that the ABSA Shares 2 are subscribed for by the Investors, EUR 3.89, or (ii) in the event that the ABSA Shares 2 are not subscribed for by the Investors, EUR 1.94, such amounts to be adjusted, if necessary, to take into account any division or grouping of the shares which would result in an adjustment of the rights of the holders of the Warrants under French law, "VN" is the par value of a Class B Share on the exercise date (i.e. Euro 0.01 on the Closing Date), "V" is the average Per Share Value in the Triggering Transaction. It being specified that "NA" shall, in any case, be capped at a number of six (6). 14 As an example, assuming that (i) the ABSA Shares 2 have been subscribed for and (ii), during the exercise period of the Warrants, shares are issued for a price per share equal to EUR 2.50 (V), and the par value of B Shares remains EUR 0.01 (VN), each Warrant would entitle its holder to subscribe, at par value, to the following number shares: 3.89 - 2.50 1.39 NA = ---------------- = ------------ 2. 50 - 0.01 2.49 NA = 0.558 Each holder of Warrants shall be entitled to subscribe only a whole number of Class B Shares. The total number of Class B Shares resulting from the exercise of the Warrants by each Investor shall be rounded down to a whole number of shares in case of decimals. 3.4 WARRANTS 2004 The Shareholder Resolutions provide for the rights and characteristics of the Warrants 2004, which are summarized as follows: The Warrants 2004 shall be exercisable from March 16, 2004 until April 15, 2004, provided that the Warrants 2004 may only be exercised if the Investors shall not be required in accordance with Article 8 of this Agreement to subscribe for the ABSA Shares 2. The Warrants 2004 shall thus become null and void (i) on the date of subscription for the ABSA Shares 2, or (iii) in any case on April 15, 2004, if not validly exercised prior thereto. The Warrants shall give the right to subscribe for a total number of 1,000,398 ABSA Shares, each comprised of one Class B Share, per value Euro 0.01 per Share, with one Warrant attached thereto (the "ABSA SHARES 3"). Each Warrant 2004 shall give the right to subscribe for 0.35 ABSA Shares 3. ARTICLE 4 - CONDITIONS TO THE FIRST CLOSING The obligation of each Investor to subscribe for the ABSA Shares 1 created by the First Capital Increase is subject to the following conditions being satisfied (or waived by such Investor): (a) approval by the extraordinary shareholders meeting of the Company to be held on November 12, 2003 of: (i) the reduction in the share capital of a total amount of Euros 9,943,063.561 by reduction of the par value of the shares from Euros 5.37 to Euros 3.8317 on the basis of the report of the statutory auditor of the Company; (ii) the reduction in the share capital of a total amount of Euros 24,702,207.64 15 by reduction of the par value of the shares from Euros 3.8317 to Euro 0.01 on the basis of the report of the statutory auditor of the Company, subject to the absence of objections of the creditors of the Company during the Objection Period; (b) approval by the Extraordinary Shareholders Meeting of the Shareholder Resolutions and in particular of: (i) the creation of two categories of shares, the approval of the rights and obligations attached to each category of shares and the modifications to be made accordingly to the articles of association of the Company, on the basis of a report of a special appraiser ("Commissaire aux avantages particuliers") in accordance with Section L 225-147 of the French Commercial Code and the conversation of existing shares to class A shares, subject to the final completion of the Capital Increase; (ii) the conversion of existing shares to Class A Shares; (iii) the creation of the Class B Shares and the Warrants constituting the ABSA Shares 1 and the ABSA Shares 2, the approval of the First Capital Increase and of the Second Capital Increase and a waiver by the Current Shareholders of their preferential rights to subscribe for the ABSA Shares 1 and for the ABSA Shares 2, on the basis of the report of the statutory auditor of the Company and of a report of a special appraiser ("commissaire aux avantages particuliers") in accordance with Section L 225-147 of the French Commercial Code; (iv) the appointment of new members of the board of directors of the Company so that the composition of the board is in full compliance with the Shareholders' Agreement on the Closing Date, subject to the final completion of the Capital Increase; (v) amendment of the statuts of the Company to reflect the actions taken in the Shareholder Resolutions; and (vi) the cancellation of all warrants (BSPCE) issued by the Company to the benefit of employees or managers of the Company except the Employee Warrants (i.e. all warrants issued prior to June 19, 2002), with the approval of all holders of such warrants. (c) expiration of the Objection Period without any creditor of the Company having challenged the second reduction in the share capital referred to in Section 3(a)(ii); (d) execution by each holder of Employee Warrants (except for any such holder who is a party to the Shareholders Agreement) of (i) a French translated version of the Contractual Undertaking attached as EXHIBIT D (the "CONTRACTUAL UNDERTAKING") and (ii) a waiver letter in the form attached in EXHIBIT E hereto; (e) absence of any resignation, dismissal, disability or death affecting any Key Employee (as defined in the Shareholders Agreement); 16 (f) execution by each of the Key Employees of a French version of the agreement, substantially in the form attached as EXHIBIT F hereto, providing for non-compete commitments; (g) the purchase, at the Closing, by Remote Reward of the ten Shares held by Yves Jolivet; (h) compliance by the Founders with the provisions of Article 5 hereunder; (i) absence of any significant change to the Business Plan of the Company as attached in EXHIBIT G hereto; and (j) execution by Remote Reward and Andre Jolivet of the share pledge agreements referenced in Section 3.9 of the Representations and Warranties Agreement. ARTICLE 5 - DOCUMENTS TO BE EXCHANGED AT FIRST CLOSING 5.1. At the First Closing, each Investor shall deliver to the Escrow Agent (with copy to the Company) a duly executed subscription form (bulletin de souscription) for the number of ABSA Shares 1 subscribed for by it as provided in Section 2.3. 5.2. At the First Closing, each Investor shall receive: (a) all documents relating to the reductions in the share capital of the Company mentioned in Paragraph 4 of the Recitals and in Section 3(a) above, and in particular: (i) certified copies (certifiees conformes) of the minutes of the meeting of the Board of Directors dated October 15, 2003, of the minutes of the meeting of the Works Council of the Company dated October 17, 2003, of the minutes of the meeting of the Board of Directors dated October 22, of the report of the Board to the shareholders meeting dated November 12, 2003, of the minutes of the shareholders meeting to be held on November 12, 2003 and of the acknowledgment by the President that no creditor has challenged such reduction, (ii) copies of the reports of the statutory auditors of the Company on the reductions in the share capital, (iii) and all documents evidencing that all publication formalities regarding such capital reduction have been duly performed; (b) a certified copy (certifiee conforme) of the minutes of the Extraordinary Shareholders Meeting; (c) a certified copy of the minutes of the board meeting that convened the Extraordinary Shareholders Meeting; (d) a certified copy of the report of the board to the Extraordinary Shareholders Meeting; (e) a certified copy of the amended statuts of the Company; 17 (f) a copy of the special appraiser's (commissaire aux avantages particuliers) reports; (g) a copy of the statutory auditor's reports to the general meeting to be held on November 12, 2003, regarding the reductions in the share capital referenced in Paragraph 4 of the recitals, and to the Extraordinary Shareholders Meeting, regarding the First and Second Capital Increases; (h) a copy of the Contractual Undertaking executed by all current holders of Employee Warrants (except those who are parties to the Shareholders' Agreement); (i) a copy of the non-compete agreement executed by the Key Employees; (j) an attestation d'inscription en compte (share certificate) by the Company reflecting the recording of such Investor on the books of the Company as a holder of the number of Class B Shares and Warrants subscribed for by it; (k) evidence of the purchase by Remote Reward of the ten Shares owned by Yves Jolivet; (l) a copy of the waiver letters executed by all holders of Employee Warrants; and (m) a copy of the share pledge agreements referenced in Section 3.9 of the Representations and Warranties Agreement, executed by Remote Reward and Andre Jolivet. ARTICLE 6 - MANAGEMENT OF THE COMPANY UNTIL THE FIRST CLOSING DATE Except as required to comply with the terms of this Agreement, the Founders shall manage the Company and conduct its Business as a bon pere de famille (in a reasonably prudent manner) and shall cause the Company not to take any material action out of the ordinary course prior to the Closing Date without the prior unanimous agreement of the Investors. In particular, the Company shall not take any of the actions set forth in Section 2.3 paragraphs (ii) and (iii) of the Shareholders' Agreement without the unanimous consent of the Investors, such consent not to be unreasonably withheld. ARTICLE 7 - MANAGEMENT OF THE COMPANY AFTER THE FIRST CLOSING DATE 7.1. EMPLOYEE WARRANTS The Parties shall cause the Company to create, immediately after the Closing Date, an additional warrant pool (in the form of bons de souscription de parts de createur d'entreprise ("BSPCE")) for the benefit of the employees of the Company, giving right to up to an aggregate amount of 230,000 new Class A Shares, i.e. 1.99% of the total number of Shares immediately following the consummation of the Second Capital Increase, on a Fully Diluted basis, under conditions (vesting, duration, etc.) to be determined by the Board of Directors, which shall be allocated as indicated on 18 Schedule 2.22(ii) of the Representations and Warranty Agreement. The Parties agree that, as a prior condition to the granting to any employee of the Company of any such BSPCEs, such employee shall be required to enter into a Contractual Undertaking (except for any such employee who is a party to the Shareholders Agreement or has prior to such grant already executed the Contractual Undertaking). The Parties shall promptly after the Closing Date cause the Company to cancel the existing Employee Warrants with the approval of their holders and to issue 1,023,671 new BSPCEs with the same conditions of the existing Employee Warrants except for (i) the exercise price of such BSPCE, which shall be Eur 3.89, and (ii) the vesting period which shall be reduced, if applicable, to take into account the vesting already acquired by holders of Employee Warrants. The Parties shall cause the Board of Directors of the Company to take all action necessary (A) to grant to all employees holding Employee Warrants as of the Closing Date the same number of such new BSPCEs as the number of Employee Warrants held by them on the Closing Date and (B) to grant all or a portion of the remainder of such 1,023,671 BSPCEs as follows: Louis NOVE (770 new BSPCEs), David HEUDE (770 new BSPCEs), Frank LECLERE (1,920 new BSPCEs, provided that he becomes an employee of the Company) and Thierry GODARD (such number of such new BSPCEs, not to exceed 5,000, to be granted in accordance with the terms of his current bonus arrangement based on 2003 performance). 7.2 MANAGEMENT - INSURANCE 7.2.1 The Parties shall use commercially reasonable efforts to obtain, within 90 days after the Closing Date, proposals from recognized and established insurance providers in order for the Company to enter into an individual life insurance policy of not less than Euros 1 million for each Key Employee and Andre Jolivet (Key man insurance) with the Company designated as beneficiary. The Parties shall submit the proposals received to the Board of Directors of the Company in order for the Board of Directors to decide upon such proposals within three months after the date hereof. 7.2.2 The Founders shall use commercially reasonable efforts to obtain, within 90 days after the date hereof, proposals from recognized and established insurance providers in order for the Company to enter into a Directors and Officers Liability insurance policy (without payment of an excessive premium). 7.3 ISSUANCE PREMIUM The Parties agree that the issuance premium resulting from the transactions contemplated hereby shall be used to offset, if applicable, future losses of the Company and agree to take all actions as shareholders of the Company to ensure that such issuance premium is not distributed to the shareholders of the Company before the expiry of a one (1)-year period from the Closing Date. 19 ARTICLE 8 - CONDITIONS TO THE SUBSCRIPTION OF THE ABSA SHARES 2 The Investors shall subscribe for the ABSA Shares 2 unless all of the following conditions exist, as of February 23, 2004: 1. The WLAN solution does not meet the current expectations for such solution in all of the following ways: (i) the Balsa 1 chip area is not less than 30 mm2, (ii) the current consumption of the Balsa 1 chip, when the chip is in active mode, is more than 250 mA, (iii) performance of the physical layer (modem) are not compliant with IEEE 802.a/b/g standards, (iv) the Salsa "alpha" critical CISF reaction times are not achieved, and (v) the Salsa "alpha" RAM code plus data total footprint is not more than 256 Kilo Octets. 2. Stepmind has not received purchase commitments, in writing, for Alice GSM/GPRS or GSM/GPRS/EDGE radio chips to be included in handset platforms having a yearly production plan of at least two million units. 3. Following a WLAN pipeline qualification process, pursuant to which two members of the Board of Directors (one of whom shall be a representative of AGF PE on the Board of Directors) shall participate in contacts, organized by the Company, with potential customers of Alice W2 and Salsa, at least two potential customers shall not have confirmed orally or in writing that (i) if the specifications shown by the MPWa versions of Alice W2 and Salsa are confirmed with the production versions, then they consider that the Company's offer is competitive on a technical basis and that they will afford the Company the possibility to participate in a selection process during 2004, and (ii) based on the specifications of the Company's products, they project any aggregate requirement of (x) at least 1,000,000 units of Alice W2 or (y) at least 150,000 units of Salsa, for which their decision will be made during the subsequent twelve (12) months. 20 The Parties agree to cause the Board of Directors of the Company to meet not earlier than February 23, 2004, but not later than March 5, 2004 (and, in any event, as close as possible to the dates of the 3GSM Convention to be held in Cannes) in order to discuss and decide in good faith whether the foregoing conditions exist as of February 23, 2004. The Parties undertake to cause their respective representatives on the Board of Directors to be present or represented at such meeting, and, if such meeting is not held on that date (or such other date as shall be agreed in writing by all parties hereto), as a result of the failure to achieve the required quorum, then, (i) if the representatives of AGF PE shall have failed to be present or represented at such meeting, but the representatives of Remote Reward and Andre Jolivet were present or represented at such meeting, it shall be deemed for purposes of this Agreement that all of the foregoing three conditions do not exist (and the Investors shall then be committed to subscribe for the ABSA Shares 2), or (ii) if the representatives of AGF PE were present or represented at such meeting, but the representatives of Andre Jolivet and Remote Reward were not present or represented at such meeting, it shall be deemed for purposes of this Agreement that all of the foregoing three conditions do exist (and the Investors shall then not be committed to subscribe for the ABSA Shares 2),. The Parties shall cause the Board of Directors to provide to each Party and the Escrow Agent, within three (3) days after such meeting, a copy of the minutes of the Board of Directors, signed by at least 5/7ths of the directors present or represented at such meeting, setting forth the discussions of the Board of Directors and its decision as to whether all of the three conditions set forth above exist as of February 23, 2004. Unless all of the three conditions set forth above are met as of February 23, 2004, the Investors shall execute and deliver to the Escrow Agent (with a copy to the Company) the bulletins de souscription providing for the subscription by the Investors for the ABSA Shares 2 within two (2) business days following receipt of the minutes of the meeting of the Board of Directors mentioned above (or the deemed non-existence of the four conditions set forth above, as the case may be). The Escrow Agreement shall instruct the Escrow Agent as follows with respect to the Second Capital Increase: In the event the minutes of the meeting of the Board of Directors convened to decide with respect to the existence of the three conditions set forth above shall indicate the decision of the Board of Directors that any of the three conditions set forth above did not exist as of February 23, 2004, then the Escrow Agent shall, within two (2) business days after receipt from all of the Investors of the bulletins de souscription for the Second Capital Increase, transfer all funds held in escrow to the Company, to the account opened specifically for the purpose of the Second Capital Increase and transfer any interest earned thereon to the regular account of the Company (the coordinates of both accounts to be provided to the Escrow Agent by the Company) In the event such minutes shall indicate the decision of the Board of Directors that all of the three conditions set forth above existed as of February 23, 2004, or in case the Escrow Agent has not received the minutes of the Board duly signed in accordance with the provisions hereof, then the Escrow Agent shall, within two (2) business days after receipt by the Escrow Agent of such minutes, transfer all funds held in escrow corresponding to the amount of the Second Capital Increase, together with any interest earned thereon, to the Investors, such 21 funds to be allocated among the Investors pro rata based on their portion of the Second Capital Increase as set forth in Section 2.4 above. In the event that the Escrow Agent has not received the minutes of the Board of Directors on or before March 15, 2004, the Escrow Agent shall transfer all funds held in escrow corresponding to the amount of the Second Capital Increase, together with any interest earned thereon, to the Investors, such funds to be allocated among the Investors pro rata based on their portion of the Second Capital Increase as set forth in Section 2.4 above. ARTICLE 9 - MANAGEMENT OF THE COMPANY FROM THE CLOSING DATE TO THE SECOND CLOSING DATE From the Closing Date until the Second Closing Date, the Parties agree that no shareholders' meeting shall be convened and no decision shall be made by the shareholders during a general meeting without the prior approval of all Investors. ARTICLE 10 - LAW - JURISDICTION This Agreement shall be governed by and construed in accordance with French law. Any dispute arising out of or relating to this Agreement shall be submitted to the jurisdiction of the competent court in the jurisdiction of the Court of Appeals of Paris, to which the Parties hereby irrevocably agree. ARTICLE 11 - TERM AND TERMINATION OF THIS AGREEMENT 11.1 This Agreement shall become effective upon its signature and shall cease being effective after all undertakings and obligations of all Parties under this Agreement or pursuant to the provisions of this Agreement have been fulfilled or waived, or until this Agreement has been validly terminated in accordance with this Article 11, except for provisions which by nature are intended to remain in effect following such fulfillment, waiver or termination, including in particular Article 20. 11.2 If the Closing has not occurred on or before January 15, 2004, then (i) any Investor may terminate this agreement as to such Investor and (ii) the Founders and Remote Reward may terminate this Agreement, unless, in each case, the failure of the Closing to occur shall be attributable to the breach by the Party wishing to so terminate this Agreement of any of its obligations hereunder. 11.3 If any Investor shall breach its obligation to subscribe set forth in Section 2.3 or Section 2.4: - any other Investor may terminate this Agreement as to itself and thus not be obligated to subscribe for its portion, as applicable, of the ABSA Shares 1 or ABSA Shares 2; and 22 - the Founders and Remote Reward may collectively terminate this Agreement as to all Parties, immediately upon notice to the other Parties, without prejudice to any right of any party to seek damages from the breaching party. ARTICLE 12 - MODIFICATION OF THE AGREEMENT No modification to the Agreement shall be effective unless contained in a writing signed by a duly authorized representative of each of the Parties. ARTICLE 13 - NOTICE BETWEEN THE PARTIES Any notice, request, formal notice or other communication pursuant to the provisions of this Agreement ("NOTICE") shall be made in writing to the addresses mentioned below and shall be deemed to have been properly served: (i) on the date of delivery, in the case of delivery by hand to the Party on which notice must be served; (ii) for all Parties other than the Founders, on the date of transmission, in the case of transmission by fax, followed by telephone confirmation of receipt immediately following completion of the transmission; (iii) on the third day following pre-paid delivery by a recognized express international courier service (e.g., DHL). The addresses for Notice to the Founders shall be the residential addresses set forth on page 1 of this Agreement. Any Party may change its address or the name of the addressee for purposes of this Article 10 by sending the other Parties a written notice of its new address in the manner provided above. Party: AGF Innovation 3, AGF Innovation 4 or AGF Innovation 5, notice to be sent to AGF PE at the following address: Address: 11, rue Scribe, BP 293 75425 Paris CEDEX 09 Attention: Guillaume Lautour/Benoist Grossmann Tel: 01 58 18 56 56 Fax: 01 42 65 56 81 Party: Mighty Wealth Group Limited Address: Unit B3, 22/F, Unimix Ind. Centre, 2 Ng Fong Street, San Po Kong, Kowloon, Hong Kong Attention: Tony Cheung Tel: 852-2649-3739 Fax: 852-2648-8806 Party: Nam Tai Electronics, Inc. c/o Nam Tai Group Management Limited Address: 15/F, China Merchants Tower Shun Tak Centre 168-200 Connaught Road Central Hong Kong Attention: Joseph Li Tel: (852) 2263 1218 Fax: (852) 2263 1223 23 Party: REMOTE REWARD Address: 4 ter, rue de l'Ouest, 92100 Boulogne Attention: President (Andre Jolivet) Tel: 01.41.10.29.10 Fax: 01.41.10.29.28 ARTICLE 14 - NO WAIVER The failure to partially or totally exercise any right whatsoever resulting from the provisions of the Agreement shall not be deemed a waiver of this right or any other right arising from the Agreement for the future. ARTICLE 15 - ENTIRE AGREEMENT This Agreement, with its exhibits, sets forth the entire agreement of the Parties with respect to the business referred to herein. Those documents shall prevail over any negotiations, discussions, communications, understandings or prior agreements between the Parties relating to the subject matter of this Agreement and over any earlier drafts of this Agreement which are all subsumed in these documents. ARTICLE 16 - SUPPLEMENTARY AGREEMENTS; WAIVERS No supplementary agreement or amendment to this Agreement shall be valid unless memorialized by a writing signed by the Parties hereto. Waiver by a Party of any condition or waiver of enforcement of a breach of any provision, term or covenant contained in this Agreement at one or more times shall not be considered or construed as a recurring or continuing waiver of that condition or of the right to enforce a breach of any other provision, term or covenant of this Agreement. ARTICLE 17 - SUCCESSORS, HEIRS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES This Agreement shall inure to the benefit of and be binding on the Parties and their respective successors, heirs and assigns, regardless of whether they are minors or otherwise under a disability, provided however that unless otherwise expressly provided for herein, no Party may assign or delegate any of the obligations created under this Agreement without the prior written consent of the other Parties. ARTICLE 18 - GENERAL COVENANT The Parties hereto shall sign and deliver all documents, provide all information and take or prevent the taking of all reasonable and lawful measures that may be necessary or appropriate to the achievement of the objective of this Agreement. 24 ARTICLE 19 - SEVERABILITY This Agreement shall be deemed severable and the fact that any term or provision hereof may be invalid or impossible to perform shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. In addition, the Parties shall replace any invalid or unenforceable term or provision hereof with a valid and enforceable provision as similar as possible to the invalid or unenforceable provision. ARTICLE 20 - CONFIDENTIALITY The Parties undertake to keep this Agreement strictly confidential. No Party shall disclose or permit the disclosure of the existence or of all or any part of this Agreement to third parties except: - - with the prior consent of the other Parties, - - in the case of litigation between the Parties, - - if the disclosure of certain information is requested by any competent authorities by law or regulation, including any regulatory authorities, - - to the Parties' legal counsel and to the commissaire aux comptes of the Company and to the commissaire aux avantages particuliers to be designated as provided herein. ARTICLE 21 - REPRESENTATIONS AND WARRANTIES 21.1 Each Party represents and warrants to the other Parties as of the date hereof and as of the Closing Date: - - that it is duly established under the law of the jurisdiction in which it is established and is in good standing in such jurisdiction; - - that it has full power and authority to execute and deliver the Transaction Documents; - - that the execution and delivery of the Transaction Documents by such Party of each Transaction Documents to which it is a party, and the performance by such Party of all of its obligations set forth therein has been, or prior to the Closing Date will be, duly authorized and approved by all requisite corporate action, except for such actions that are specifically intended by the terms of the Transaction Documents to be approved after the Closing Date; - - that the Transaction Documents to which such Party is a party, when executed and delivered, taking into account their respective effective dates, will be valid and binding obligations of such Party in accordance with their terms and will not breach any legal or regulatory provisions nor any organizational documents of such Party; and - - that the execution and delivery of the Transaction Documents to which such Party is a party by such Party do not conflict with and will not result in any default, violation, modification, suspension or termination of any contract or undertaking to which such Party is a party. 25 21.2 MWGL hereby represents that it is 100% owned and controlled by Mr. Chambers Wong and Mr. Tony Cheung. Executed in eight (8) original counterparts. /s/ Alain Jolivet /s/ Andre Jolivet - ----------------------------- ----------------------------- Alain Jolivet Andre Jolivet Date: November 28, 2003 Date: November 28, 2003 Place: Paris Place: Paris REMOTE REWARD AGF Innovation 3 By: /s/ Andre Jolivet By: /s/ Guillaume Lautour - ----------------------------- ----------------------------- Name: Andre Jolivet Name: Guillaume Lautour Date: November 28, 2003 Date: November 28, 2003 Place: Paris Place: Paris AGF Innovation 4 AGF Innovation 5 By: AGF Private Equity By: AGF Private Equity By: /s/ Guillaume Lautour By: /s/ Guillaume Lautour - ----------------------------- ----------------------------- Name: Guillaume Lautour Name: Guillaume Lautour Date: November 28, 2003 Date: November 28, 2003 Place: Paris Place: Paris MIGHTY WEALTH GROUP LIMITED NAM TAI ELECTRONICS, INC. By: /s/ Cheung Tze Tung By: /s/ Joseph Li - ----------------------------- ----------------------------- Name: Cheung Tze Tung Name: Joseph Li Date: December 10, 2003 Date: December 9, 2003 Place: Hong Kong Place: Hong Kong 26 27 LIST OF EXHIBITS EXHIBIT A Allocation of the Fully Diluted share capital (i) as of the date hereof and (ii) immediately prior to the closing of the First Capital Increase EXHIBIT B Allocation of the Fully Diluted share capital (i) immediately after the closing of the First Capital Increase and (ii) immediately after the closing of the Second Capital Increase. EXHIBIT C Shareholder Resolutions EXHIBIT D English draft of the Contractual Undertaking to be executed in French by holders of Employee Warrants EXHIBIT E Draft waiver letter to be executed by each holder of Employee Warrants EXHIBIT F English draft of the non-compete agreement EXHIBIT G Business Plan 28 EXECUTION COPY ================================================================================ SHAREHOLDERS' AGREEMENT OF STEPMIND DATED NOVEMBER 27, 2003 ================================================================================ SHAREHOLDERS' AGREEMENT This Shareholders' Agreement (this "AGREEMENT") is entered into on the 27th day of November, 2003, AMONG THE UNDERSIGNED: - - MR. ANDRE JOLIVET, a French national, born on July 4, 1962 in Quimper, residing at 47, rue Henri Tariel 92130 Issy les Moulineaux , - - MR. ALAIN JOLIVET, a French national, born on April 14, 1949, in Plogastel Saint-Germain, France, residing at 1 rue du General Gouraud, 92190 Meudon, France, (collectively referred to herein as the "FOUNDERS" and individually as a "FOUNDER") - - REMOTE REWARD SAS, a French societe par actions simplifiee with a share capital of EUR 90,481,410, with its registered office at 4 ter rue de l'Ouest, 92100 Boulogne, registered in the Commercial Registry under the number 433458304 RCS Nanterre, represented by Mr. Andre Jolivet, in his capacity as President, (hereinafter "REMOTE REWARD"), AND: - - AGF INNOVATION 3, AGF INNOVATION 4 AND AGF INNOVATION 5, fonds communs de placement dans l'innovation, each represented by its managing company, AGF Private Equity, a French societe par actions a directoire et conseil de surveillance with a share capital of EUR 1,000,000, with its registered office at 11, rue Scribe, BP 293, 75425 Paris Cedex 09, registered in the Commercial Registry under the number 414 735 175 RCS Paris, which is duly authorized to so represent each such entity, itself represented by Mr. Guillaume Lautour, duly empowered for the purpose hereof, (hereinafter collectively referred to as "AGF PE", being specified that, when necessary in this Agreement, all investment funds managed by AGF PE shall be considered as one Person or Shareholder), - - MIGHTY WEALTH GROUP LIMITED, an international business company incorporated in the British Virgin Islands, with a share capital of USD 50,000, with its registered office at Palm Grove House, P.O. Box 438, Road Town, Tortola, BVI, registered under the number 565041, represented by Mr. Tony Cheung, in his capacity as Director, (hereinafter "MWGL"), 3 - - NAM TAI ELECTRONICS INC. a company incorporated in the British Virgin Islands, under registration number 3805, with its registered office at McW. Todman & Co., McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands, represented by Mr. Joseph Li, in his capacity as chief executive officer, (hereinafter "NAM TAI"), (hereinafter collectively referred to as the "INVESTORS" and individually as an "INVESTOR"), (The Founders, Remote Reward and the Investors being hereinafter collectively referred to as the "PARTIES" and individually as a "PARTY"). IN THE PRESENCE OF: - - STEPMIND, a French societe anonyme, with a registered capital of EUR 34,709,907.90, having its registered office at 4 ter, rue de l'Ouest, 92100 Boulogne, registered with the Registry of Commerce and Companies under number 432 237 949 RCS Nanterre, represented by Mr. Alain Jolivet acting as President-Directeur General, (hereinafter the "COMPANY") RECITALS: WHEREAS, On the date hereof, the Company's share capital consists of 6,463,670 shares, all of the same category, with a par value of EUR 5.37 each. Following the authorization by the Company's extraordinary shareholders' meeting on June 19, 2002, the Board of Directors of the Company issued on June 19, 2002, November 26, 2002 and June 18, 2003, respectively, 915,471, 76,060 and 32,140 employees' warrants (Bons de Souscription de Parts de Createur d'Entreprise) (the "EMPLOYEE WARRANTS"), 1,012,683 of which remain validly granted as of the date hereof. Set forth in EXHIBIT A is the allocation of the Company's Fully Diluted share capital (i) on the date hereof and (ii) immediately prior to the completion of the Investment (as defined below). The Company is engaged primarily in the business of the design and development of baseband integrated circuits, radio frequency integrated circuits (transceivers), as well as system and protocol stacks that address Wide Area Networks (GSM/GPRS/EDGE) and Wireless Local Area networks (802.11a, 802.11b, 802.11g, hiperlan 2) standards. 30 4 The Parties have entered into an investment agreement as of the date hereof ("INVESTMENT AGREEMENT"). Pursuant to terms and subject to the conditions of the Investment Agreement, the Investors have agreed to subscribe for an aggregate of 3,858,678 actions a bons de souscription d'actions (the "ABSA SHARES"), to be subscribed for in two installments: - subscription by the Investors of an aggregate of 2,858,280 ABSA Shares 1 (as defined below), for a total subscription price of EUR 7,488,693.60, each ABSA Share 1 to be comprised of one Class B Share, with one Warrant and one Warrant 2004 (as such terms are defined below) attached thereto, the foregoing subscription referred to as the "FIRST CAPITAL INCREASE"); - subscription by the Investors for either (i) an aggregate of 1,000,398 ABSA Shares 2 (as defined below), for a total subscription price of EUR 7,512,988.98, each ABSA Share 2 to be comprised of one Class B Share with one Warrant attached thereto, or (ii) an aggregate of 1,000,398 ABSA Shares 3 (as defined below) by exercise of the Warrants 2004, each ABSA Share 3 to be comprised of one Class B Share with one Warrant attached thereto, with (i) or (ii) being referred to as the "SECOND CAPITAL INCREASE"). Set forth on EXHIBIT B is the allocation of the share capital of the Company on a Fully Diluted basis (i) immediately following the First Capital Increase and (ii) immediately following the Second Capital Increase. The Founders, Remote Reward and the Investors have agreed to enter into this Agreement to reflect their agreements regarding the management of the Company and the sales of the Company's securities. NOW, THEREFORE, IT IS AGREED AS FOLLOWS: ARTICLE I - DEFINITIONS The terms defined in this Article 1 shall have the meanings ascribed to them below when used in this Agreement: "ABSA Shares" has the meaning ascribed to it in the recitals and shall include, as required by the context, reference to the ABSA Shares 1, the ABSA Shares 2 and/or the ABSA Shares 3. "ABSA Shares 1" has the meaning ascribed to it in the Investment Agreement. "ABSA Shares 2" has the meaning ascribed to it in the Investment Agreement. "ABSA Shares 3" has the meaning ascribed to it in the Investment Agreement. "Accepting Security Holder" has the meaning ascribed to it in Section 5.3 of this Agreement. 5 "Affiliate": shall mean (i) with respect to Remote Reward or any Founder, (a) any Person that directly or indirectly controls him or it, is controlled by him or it, or is under common control with him or it; provided, that such Person is a commercial company having legal personality and with its registered seat or office in Europe and the legal representative of such Affiliate is and remains, as the case may be, Andre Jolivet or Alain Jolivet and (b) with respect to any Founder, the spouse, linear ascendants or linear descendants of such Founder; (ii) with respect to AGF PE, (a) any Person that directly or indirectly controls it, is controlled by it, or is under common control with it, (b) any venture enterprise investment fund for which such Person is the management company or any investment fund for which such Person is the manager, and (c) any Affiliate (as defined in (a) or (b), of the management company or manager of such investment fund; provided, in each case, that such Person, or the managing company or manager of such Person is a commercial company having legal personality and with its registered seat or office in Europe; (iii) with respect to MWGL, any company having legal personality, which is wholly owned and controlled by Mr. Tony Cheung and Mr. Chambers T. Y. Wong; and (iv) with respect to Nam Tai, any Person that directly or indirectly controls it, is controlled by it, or is under common control with it. "Agent" has the meaning ascribed to it in Section 5.2 of this Agreement. "AGF PE" has the meaning ascribed to it in the Preamble of this Agreement. "AGF PE Directors" has the meaning ascribed to it in Section 2.1 of this Agreement. "Agreement to be Bound" means an agreement (i) signed by the proposed transferee of any Security, (ii) pursuant to which the transferee agrees, subject to completion of the Transfer concerned, to become a party to this Agreement, and (iii) as a result of which he will be bound by all of the obligations hereunder and be entitled to all of the rights hereunder applying to the transferor. "Board of Directors" means the board of directors of the Company. "Bona Fide Offer" means a firm, irrevocable, written offer for the Transfer of a specific number of Securities, which specifies (i) the number and kind of Securities of which transfer is contemplated, (ii) the price or other consideration offered for such Securities; (iii) the terms and conditions of the offer and (iv) the name and address of the proposed transferee and of those Persons who directly or indirectly have ultimate control over the proposed transferee, (v) if the proposed transferee is a Third Party, an Agreement to be Bound executed by such Third Party and (vi) if such proposed transfer would trigger any Proportional Co-Sale Right or any Tag Along right, an irrevocable commitment from the proposed transferee to purchase that number of Securities that any Shareholder(s) would be entitled to sell pursuant to such right(s). "Business Day" shall mean any day other than a Saturday, a Sunday or a day in which banks in Hong Kong or Paris are authorized or required to close. 6 "Class B Shares" means the Class B Shares of the Company created by the Shareholders Resolutions as contemplated in the Investment Agreement. "Closing Date" means the date on which the First Capital Increase is consummated. "Company" has the meaning ascribed to it in the Preamble of this Agreement. "control" shall have the meaning given in article L.233-3 of the Commercial Code. "Co-Selling Investor" has the meaning ascribed to it in Section 4.3 of this Agreement. "Dissenting Offerees" has the meaning ascribed to it in Section 4.2 of this Agreement. "Employee Warrants" has the meaning ascribed thereto in the recitals of this Agreement. "Exit Notice" has the meaning ascribed to it in Section 5.3 of this Agreement. "First Capital Increase" has the meaning ascribed to it in the recitals of this Agreement. "Former Affiliate" has the meaning ascribed to it in Section 4.5 of this Agreement. "Former Controlling Party" has the meaning ascribed to it in Section 4.5 of this Agreement. "Founders" has the meaning ascribed to it in the Preamble of this Agreement. "Fully Diluted" refers to the capital of the Company, on an as-if-converted basis, i.e. assuming that all Securities giving right to a portion of the capital and/or voting rights of the Company have been exercised, except the Warrants and the Warrants 2004. "Investment Agreement" has the meaning ascribed thereto in the recitals of this Agreement. "IPO" means the admission of the Securities of the Company to listing on a regulated exchange market. "Key Employees" means, on the date hereof, the following persons: - - Jean-Louis Dornstetter - - Fabrice Jovenin - - Bernard Ginetti, and any other person designated as a Key Employee by the Board of Directors in accordance with Section 2.3 of this Agreement. "Listing" has the meaning ascribed to it in Section 5.1 of this Agreement. "Majority Shareholders" has the meaning ascribed to it in Section 4.6 of this Agreement. "New Controlling Party" has the meaning ascribed to it in Section 4.5 of this Agreement. "Notice of Acceptance" has the meaning ascribed to it in Section 4.2 of this Agreement. 7 "Offered Securities" has the meaning ascribed to it in Section 4.2 of this Agreement. "Offerees" has the meaning ascribed to it in Section 4.2 of this Agreement. "Other Investors Directors" has the meaning ascribed to it in Section 2.1 of this Agreement. "Other Security Holders" has the meaning ascribed to it in Section 5.3 of this Agreement. "Person" means any individual, legal entity, or organization, or any agency, authority or other governmental subdivision, whether having legal personality or not. "Pre-Emptive Right" means the pre-emptive right of the Parties set forth in Section 4.2 of this Agreement. "Pre-Emptive Right Transaction" has the meaning ascribed to it in Section 4.5 of this Agreement. "Preference Amount" has the meaning ascribed to it in Section 6.1 of this Agreement. "Proceeds" has the meaning ascribed to it in Article VI of this Agreement. "Proportional Co-Sale Right" means the proportional co-sale right of the Investors set forth in Section 4.3. "Purchaser" has the meaning ascribed to it in Section 4.6 of this Agreement. "Remaining Co-Sale Shares" has the meaning ascribed to it in Section 4.3 of this Agreement. "Remote Reward" has the meaning ascribed to it in the Preamble of this Agreement. "Representations and Warranties Agreement" means the representations and warranties agreement among Remote Reward, Andre Jolivet and the Investors executed as of the date hereof. "Re-Sale Transaction" has the meaning ascribed to it in Section 4.5. "Re-Selling Party" has the meaning ascribed to it in Section 4.5. "Result Notice" has the meaning ascribed to it in Section 4.7 of this Agreement. "Second Capital Increase" has the meaning ascribed to it in the recitals of this Agreement. "Securities" means all series of shares of the Company and any security entitling the holder thereof (including through beneficial ownership or legal ownership of Shares), by way of conversion, subscription, exercise of an option or any other conceivable means, to a financial interest or a voting right in the Company, as well as any subscription right in connection with an issuance of Securities of the Company. "Security Holder" means a holder of Securities, as evidenced by the corporate books and records. 8 "Shareholder" means a holder of Shares, as evidenced by the corporate books and records. "Shares" means the shares of the Company. "Tag Along Right" means the tag along right of the Parties set forth in Section 4.4. "Tagging Offeree" has the meaning set forth in Section 4.4 of this Agreement. "Third Party" means, on a given date, any Person who is not a party to this Agreement on such date. "Transaction" has the meaning ascribed to it in Article VI of this Agreement. "Transaction Documents" means any of the following documents: the Investment Agreement, this Agreement, and the Representations and Warranties Agreement. "Transfer" when used in connection with any Security of the Company means, the act of transferring, selling, assigning, pledging, hypothecating, granting a security interest in or a lien on, placing in trust (voting or otherwise), contributing as a capital contribution or in any other manner, including by way of a merger, encumbering or disposing, directly or indirectly, voluntarily or otherwise, of any Security so designated, including any transfer of Securities by an individual to his or her heirs or spouse, including as a result of death or the liquidation of marital community property. "Transfer Proposal" has the meaning ascribed to it in Section 4.2 of this Agreement. "Transfer Proposal Date" has the meaning ascribed to it in Section 4.2 of this Agreement. "Transfer Proposal Notice" has the meaning ascribed to it in Section 4.2 of this Agreement. "Transferee" has the meaning ascribed to it in Section 4.5 of this Agreement. "Transferor" has the meaning ascribed to it in Section 4.2 of this Agreement. "Valuation of the Company" has the meaning ascribed to it in Article VI of this Agreement. "Valuation Criteria" has the meaning ascribed to it in Section 4.2 of this Agreement. "Warrants" means the anti-dilution warrants attached to each ABSA Share subscribed for by the Investors, as more fully described in the Investment Agreement. "Warrants 2004" means the warrants attached to the ABSA Shares 1 giving the right to subscribe, upon exercise thereof, for a determined number of ABSA Shares 3, as more fully described in the Investment Agreement. 9 ARTICLE II - MANAGEMENT OF THE COMPANY SECTION 2.1 BOARD OF DIRECTORS The Board of Directors shall be composed of 7 members. AGF PE shall be entitled to appoint two (2) members of the Board of Directors (the "AGF PE DIRECTORS"), the Investors (other than AGF PE) shall together be entitled to appoint two (2) members of the Board of Directors (the "OTHER INVESTORS DIRECTORS"), Andre Jolivet shall be entitled to appoint one (1) member of the Board of Directors and Remote Reward shall be entitled to appoint one (1) member of the Board of Directors. The rights of each Party mentioned above to appoint members of the Board of Director shall be subject to such Party holding at least 5% of the share capital of the Company on a Fully Diluted basis. The directeur general of the Company shall be appointed as the seventh Director. Each Party shall vote in favor of the candidates reasonably proposed by the other Parties, in accordance with the above provisions, at each Shareholders' Meeting held for the purpose of electing directors or re-appointing directors and the Parties shall ensure that their representatives, in case of appointment of members to the Board of Directors by the Board (cooptation), vote in favor of the candidates reasonably proposed by the other Parties in accordance with the above provisions at any meeting of the Board of Directors voting on such an appointment. If a director chosen from among the candidates proposed by a Party ceases being a director for any reason, the other Parties' representatives (in the event of a cooptation) shall vote in favor of a Person reasonably chosen among the Persons which the Party has designated to fill the vacant director's seat. If a Party wishes to remove a director whom it nominated in accordance with this Article, the other Parties shall vote in favor of such removal. The members of the Board of Directors shall be reimbursed for their reasonable travel and out-of-pocket expenses incurred to attend physically one meeting of the Board of Directors annually, and any meeting where the physical presence of the members of the Board of Directors is required in accordance with applicable law based on the agenda for the meeting, upon presentation of the relevant receipts, such travel to be business class and to include not more than two nights of hotel stay at a reasonably priced hotel. 10 SECTION 2.2 MEETINGS OF THE BOARD OF DIRECTORS The Board of Directors shall meet as often as necessary and, in any event, at least once per calendar quarter. The President of the Board of Directors shall, upon joint request by one of the AGF PE Directors and one of the Other Investors Directors, call a meeting of the Board to be held not later than seven (7) Business Days following the receipt of any such request, provided that the directors making such request shall undertake to attend such requested board meeting. Notice convening a meeting of the Board of Directors must be given five (5) Business Days before the meeting, or such shorter notice period as may be agreed by all members of the Board of Directors. All meetings of the Board of Directors may be held by telephone or videoconference to the full extent permitted by law. Except as provided herein, the quorum requirements for meetings of the Board of Directors shall be as provided by applicable law. With respect to any meeting of the Board of Directors called to consider any of the matters referred to in Section 2.3 (ii) or (iii) hereunder, in addition to the quorum requirements for meetings of the Board of Directors as provided by applicable law, a quorum shall be deemed to exist only if at least one of the AGF PE Directors and at least one of the Other Investors Directors attend or are represented at such meeting. If such meeting cannot be held because neither of the AGF PE Directors or neither of the Other Investor Directors are present or represented at such meeting, a second meeting of the Board of Directors shall be called with the same agenda as the first meeting, not earlier than five (5) Business Days after the date scheduled for the previous meeting. The quorum requirements for such second meeting, and any subsequent meeting held with the same agenda, shall be as required by applicable law, without the requirement that one of the AGF PE Directors and one of the Other Investors Directors be present or represented. SECTION 2.3 DELIBERATIONS OF THE BOARD OF DIRECTORS (i) All decisions of the Board of Directors shall require the approval of the majority of the Directors present or represented at such meeting, except for the appointment of the directeur general, which shall require the vote of two-thirds of the Directors present or represented at such meeting, and for the decisions listed below. The President of the Board of Directors shall not have a casting vote. 11 (ii) The Parties represented on the Board of Directors shall take all actions to ensure that none of the following actions are taken or approved by the Board of Directors, the President of the Board of Directors, or any manager of the Company, and that none of the following actions are submitted by the Board of Directors or by such Parties to the approval of the shareholders' meeting, without the prior approval of a majority of 6/7ths of the Board of Directors present or represented at a valid meeting of the Board of Directors: (a) Amend the articles of association (statuts) of the Company or equivalent document in respect of foreign subsidiaries; (b) Acquire, sell, transfer, lease, pledge or otherwise dispose of (whether by a single transaction or a series of related transactions) the whole or any material part of its business or assets (except for current assets realized in the ordinary course of trading) representing more than EUR 500,000 per transaction, not provided for in the approved annual budget; (c) Create, acquire, establish, sell, transfer, merge or otherwise dispose of any subsidiary or of any interest in any other company, group or entity; (d) Take any steps to wind-up or have an administrator appointed over the management of the Company; (e) Conclude any legal arrangement which grants an exclusive or controlling right to any party of the Company's intellectual property or otherwise materially changes the management of the Company's intellectual property; (f) Issue or grant any right, option or warrant to subscribe for or otherwise acquire any share of the Company to any Founders, except as the same may result from a statutory right to subscribe; (g) Conclude or amend any agreement between the Company and any of its shareholders, officers or managers (directly or indirectly); (h) Increase or decrease the share capital of the Company; (i) Authorize the issuances of any securities having a preference over or on a par with Class B Shares or change the rights, preferences or privileges of the Class B Shares; and (j) Change the number of members of the Board of Directors. The Parties shall procure that none of the above-mentioned decisions shall be taken with respect to any subsidiary of the Company without submitting it to the prior approval of the Board of Directors of the Company at the majority defined in this Section 2.3 (ii). (iii) The Parties represented on the Board of Directors shall take all actions to ensure that none of the following actions are taken or approved by the Board of Directors, the President of the Board of Directors, or any manager of the Company, and that none of the following actions are submitted by the Board of Directors or by such Parties to the approval of the shareholders' meeting, without the prior approval of a majority of 5/7ths of the members of the Board of Directors present or represented at a valid meeting of the Board of Directors: (a) Approve any change in the Business Plan; (b) Introduce or effect any change in the nature of the Company's business, except as provided in the approved Business Plan; 12 (c) Approve the annual budget and the annual financial statements; (d) Contract any commitment not provided for in the approved annual budget including any guarantee, pledge or other security in excess of EUR 200,000, whether in a single transaction or a series of related transactions; (e) Incur any indebtedness for borrowed money in excess of a maximum aggregate sum outstanding at any time of EUR 200,000; (f) Pay or otherwise declare a dividend or other distribution; (g) Appoint (or change the remuneration or amend the employment agreement of) the officers and managers (mandataires sociaux) of the Company, the Key Employees and, more generally of the directeur financier, directeur des ventes or any other directeur, and any employee with a gross compensation (including any bonus or commission and the value for taxation purposes of any benefits in kind) in excess of EUR 100,000 per annum; (h) Make any changes in the statutory auditors or accounting reference date; (i) Decide any IPO; (j) Issue or grant any right, option or warrant to subscribe for or otherwise acquire any share of the Company (except to the Founders), except as the same may result from a statutory right to subscribe, or create any stock purchase plans; (k) Designate any person as a Key Employee; (l) Grant dismissal indemnities in addition to those required by applicable law; and (m) Decide, with respect to any Key Employee, whether to exercise the option to require such Key Employee to be bound by its non-compete undertaking as provided in the non-compete agreement attached as EXHIBIT D hereto. The Parties shall procure that none of the above-mentioned decisions shall be taken with respect to any subsidiary of the Company without submitting it to the prior approval of the Board of Directors of the Company at the majority defined in this Section 2.3(iii). (iv) The Parties undertake to vote against any resolution submitted by any Shareholder to any meeting of the shareholders of the Company concerning any of the actions listed in paragraphs (ii) and (iii) above that has not been approved by the requisite majority of the Board of Directors in accordance with paragraphs (ii) and (iii) above. SECTION 2.4 PROVISION OF INFORMATION (a) The Parties shall cause the Board of Directors to cause the Directeur General of the Company to provide the Parties with the following information: - - Monthly, within 15 days after the end of each calendar month: balance sheet, statement of cash flow and income statement, including a report on the material events having occurred during the relevant month and including such other information as requested by Investors; 13 - - Quarterly, within 30 days after the end of each calendar term: quarterly financial statements (balance sheet, statement of cash flow and income statement) un-audited consolidated quarterly financial statements, together with a report on recent developments as well as on the financial, commercial and technical forecasts of the Company; - - Yearly, within ninety days after the end of each fiscal year, the annual financial statements (balance sheet, statement of cash flow and income statement) and, as the case may be, the consolidated annual financial statements together with the statutory auditor's report; - - Yearly, within thirty days prior to the beginning of each fiscal year, annual budget relating to the up-coming fiscal year including the income statements for each quarter, the monthly cash forecasts, the input/output plan in the investment expenditures of the Company and its subsidiaries, as the case may be; - - At the request of any Investors, the Minutes of the Board and Shareholder's meeting. (b) The Parties shall provide the directeur general of the Company with a copy of the executed Representations and Warranties Agreement, and shall instruct the directeur general to notify the Parties hereto promptly of any fact of which the directeur general has knowledge which is reasonably likely to result in a claim for indemnification thereunder as provided therein. (c) Any Party or Parties that individually or collectively hold more than 10% of the share capital of the Company on a non-diluted basis may convene by notice to the other Parties that hold more than 10% of the share capital of the Company on a non-diluted basis an informational meeting, in which all such Parties may participate by telephone or videoconference, to discuss the matters set forth in such notice and any other matters notified to all such Parties by facsimile at least 24 hours prior to the scheduled informational meeting. Such informational meetings shall occur at least once every six weeks. (d) In addition to the foregoing rights to receive information, each Investor may conduct one or more audits of the Company's books, records, commercial, financial and strategic documentation on reasonable notice to the Company, to be conducted in a manner not to unreasonably interfere with the Company's operations. The Investors agree to cooperate reasonably with each other in respect of any such audits in order to avoid multiple audits. The reasonable costs of one audit per year shall be borne by the Company; the costs of any additional audit shall be borne by the Investor conducting the audit; provided, that if the Board of Directors in its good faith judgment shall determine that the results of the audit were materially beneficial to the Company, then the Board of Directors shall authorize the reimbursement by the Company of, and the Company shall reimburse, the reasonable fees and expenses related to such audit. 14 ARTICLE III - CONTRACTUAL UNDERTAKING The Parties agree that the granting after the date hereof of any Securities to any employee or manager of the Company shall be conditioned upon the prior execution by such employee or manager of a French translated version of the draft Contractual Undertaking attached as EXHIBIT C hereto. Each Party hereby empowers the President of the Board of Directors to execute, on its behalf, any such Contractual Undertaking. ARTICLE IV - TRANSFERS OF SHARES SECTION 4.1 RESTRICTIONS ON TRANSFER (a) The following Transfers are not subject to any restriction (provided that the assignee, if it is a Third Party, agrees to be bound by this Agreement in accordance with Section 13.4 below): (i) Transfers of Securities by any Party to one of its Affiliates, provided that (A) such transferring Party provides reasonable evidence to the other Parties that such transferee is effectively an Affiliate and provided further that, (B) in the event where such Affiliate ceases to be an Affiliate of such Party, the Securities so Transferred shall be Transferred back to the initial Party (in case of failure to do so, the Securities held by such Affiliate would become subject to the provisions of Section 4.5 below); provided, however, that no Founder shall Transfer Securities to his spouse, linear ascendants or linear descendant under this Section 4.1(a) without the prior consent of AGF PE, such consent not to be unreasonably withheld and such consent to be provided, in particular, where such Founder (A) demonstrates that such Transfer is advantageous for such Founder for tax or estate planning purposes, and (B) provides reasonable assurance that such Transfer will not materially negatively affect the management, financial situation or prospects of the Company or the liquidity of the Investors Securities; (ii) Transfers of Securities by any Party that is an investment fund, in preparation for liquidation, to its owners or members or to other investment funds on the secondary market; provided, however, that there are no more than ten such owners, members or other funds; (iii) Transfers of one Share by a Party to a member of the Board of Directors, and Transfer by such member of the Board of Directors back to such Party; (iv) Transfers of Securities in accordance with Section 6.2; (v) Transfers of Securities made in accordance with the provisions of Article V and VIII; (vi) Transfers of Securities by a Founder as may be required by the provisions of the Representations and Warranties Agreement signed on the date hereof; 15 (vii) Transfers of Securities by Remote Reward to Alkantz in accordance with the call option agreement referred to in Article X. Any Transfer of Security made in accordance with the provisions of this Section 4.1 shall be notified to the President of the Board of Directors and to the Parties. In all other cases, Securities shall only be Transferred in strict accordance with all of the terms, provisions and conditions of this Agreement. (b) In addition to the other restrictions on Transfer set forth herein, as an essential condition to the investment of the Investors contemplated by the Investment Agreement, each Founder and Remote Reward undertake not to Transfer any Security directly or indirectly owned by him or it from the date hereof until the earlier of (i) December 31, 2006 or (ii) a Listing, except as permitted pursuant to Section 4.1(a) above and in the following cases: - in case of a Transfer of at least 95% of the Securities of the Company in accordance with Section 4.6 hereof; - in case of exercise of his or its rights under Section 4.4 hereof; - Transfer(s) of up to a maximum number of Shares representing in the aggregate during the above-mentioned period, not more than 10% of the Shares owned by him or it as of the Closing Date. SECTION 4.2 PRE-EMPTIVE RIGHT (a) If one or several Parties (a "TRANSFEROR") receive(s) a Bona Fide Offer from a Third Party or a Party, which it (or they) accept(s), subject to the rights of the other Parties as provided herein, or addresse(s) a Bona Fide Offer to a Third Party or a Party, for all or any portion of its (their) Securities (the "OFFERED SECURITIES"), the Transferor shall give the President of the Board of the Company and the other Parties hereto written notice (the "TRANSFER PROPOSAL NOTICE") of its decision to Transfer, together with a copy of the Bona Fide Offer, and shall offer (the "TRANSFER PROPOSAL") to sell the Offered Securities to the other Shareholders which are Parties hereto (jointly referred to as the "OFFEREES"), subject to the provisions of paragraph (b) below, for cash consideration and on the other terms contained in the Bona Fide Offer. If applicable, the Transfer Proposal Notice shall also contain the information needed by any Offeree to exercise its Proportional Co-Sale Right and its Tag Along Right. If the proposed transferee is a Party, (i) it shall be entitled to exercise its Pre-Emptive Right under this Section 4.2(a) as if it were an Offeree, (ii) the Transfer Proposal Notice shall indicate whether, in case of exercise by any Offeree of its Pre-Emptive Rights, the proposed transferee wishes to exercise its Pre-Emptive Rights, and (iii) if the proposed transferee so indicates that it wishes to exercise its Pre-Emptive Rights, such proposed transferee shall be considered to be an Offeree for the purposes of paragraphs (c) to (h) hereafter (with the exception of paragraphs (f) to (h)) and, for computing purposes, shall be deemed to have exercised its Pre-Emptive Right on all the Offered Securities. 16 (b) Any Offeree that wishes to exercise its Pre-Emptive Right shall have thirty (30) days from the date of receipt of the Transfer Proposal Notice (the "TRANSFER PROPOSAL DATE") to accept the Transfer Proposal by giving written notice to the Transferor and to the President of the Board of the Company (the "NOTICE OF ACCEPTANCE"). In the Notice of Acceptance the Offeree must specify the number of Offered Securities that it wishes to purchase through exercise of its Offeree's Pre-Emptive Right and, if applicable, must indicate whether it agrees to purchase through the exercise of its Pre-Emptive Right any Securities of any Party that exercises its Proportional Co-Sale Right or its Tag Along Right. Each Notice of Acceptance shall be unconditional and irrevocable, subject to paragraph (d) below. (c) Any portion of the consideration for the Offered Shares to be paid in accordance with the Bona Fide Offer which is in securities listed on a regulated market where the average daily value of transactions on such security over the six (6) months preceding the Transfer Proposal Date exceeds five hundred thousand euros (EUR 500,000) (it being understood that the French Marche Libre shall not be considered as a regulated market), shall be deemed to be valued at the average closing price over the twenty (20) trading days prior to the Transfer Proposal Date. (d) If the consideration to be paid pursuant to the Bona Fide Offer is not entirely in cash or in cash and securities listed on a regulated market where the average daily amount of transactions on such security over the six (6) months preceding the Transfer Proposal Date exceeds five hundred thousand euros (EUR 500,000) (it being understood that the French Marche Libre shall not be considered as a regulated market), the Transferor shall offer to the Offerees, in the Transfer Proposal Notice, terms for the payment of consideration by the Offerees for the Offered Securities which are substantially equivalent in cash to those set out in the Bona Fide Offer. If the Offerees accepting the Transfer Proposal believe in good faith that the terms offered by the Transferor are not as advantageous as those offered in the Bona Fide Offer (hereinafter the "DISSENTING OFFEREES") they may reject such terms by so notifying the Transferor and the President of the Board of the Company in the Notice of Acceptance. Any Dissenting Offeree must provide notice of such rejection to all other Parties hereto. If the terms of the offer are not so rejected by any Offeree, they shall be deemed accepted all Offerees that accepted the Transfer Proposal. If any Dissenting Offeree shall so reject the fairness of the consideration proposed by the Transferor, if all Dissenting Offerees and the Transferor cannot reach an agreement on the consideration within ten (10) days of receipt of the Notice of Acceptance or if the Transferor does not withdraw the Transfer Proposal within ten (10) days after the expiration of the foregoing ten (10)-day period, then any of the Transferor or Dissenting Offerees may request by notice to the others that the cash value of the consideration set forth in the Bona Fide Offer for all of the Offered Securities shall be determined by an expert evaluation as set forth below. 17 Within 10 days after any such notification, the Transferor, on the one hand, and the and the Dissenting Offerees, on the other hand, shall each designate by notice to the other an expert, which shall be a first-rank investment bank with offices in Paris and with demonstrated significant experience in mergers and acquisitions in Europe and in particular in the valuation of companies in the telecommunications industry with activities in Europe. If either of the Transferor, on the one hand, or the Dissenting Offerees, on the other hand, shall fail to so designate such an expert, such expert shall be designated by the Paris Tribunal de Commerce ruling in refere proceedings, without appeal, based on request by the other group, and any other Offeree that exercised its Pre-Emptive Right hereunder shall be entitled to be heard. Any expert so appointed shall act as a third party within the meaning of article 1592 of the French Civil Code, and not as an arbitrator. The two experts shall be instructed to determine the cash value of the consideration set forth in the Bona Fide Offer based on valuation methods relevant to the Bona Fide Offer and the entity concerned, including, as applicable, the cash requirements of the relevant entity and considering the valuation method of price-per-engineer (if the relevant entity is in the telecom industry, with consideration given to the relative weight of design functions as compared to other activities of such the relevant entity and to software engineers as compared to hardware engineers) (collectively, the "VALUATION CRITERIA"). Each expert so designated shall be instructed by the appointing party to deliver its determination to all of the Transferor, the Dissenting Offerees, any other Offeree that exercised its Pre-Emptive right or its Tag-Along Right hereunder and to the Company, together with all supporting calculations and justification within fifteen (15) days after its appointment. The Parties shall cause the Company to provide to both experts all supporting documentation reasonably requested by either expert in respect of its determination and shall otherwise cooperate with the experts. The Transferor, on the one hand, shall bear the fees and expenses of the expert appointed by or on behalf of it, and the Dissenting Offerees, on the other hand, shall bear the fees and expenses of the expert appointed by or behalf of them. If the higher of the valuations of the consideration as determined by the two experts does not exceed the lower of the valuations of the consideration by an amount equal to or greater than 33% of the lower of such valuations of the consideration, then the valuation of the consideration shall be deemed to be the average of the two valuations of the consideration as determined by the two experts. If, however, the higher of the valuations of the consideration as determined by the two experts exceeds the lower of such valuations of the consideration by an amount equal to or greater than 33% of the lower of such valuations of the consideration, then the Transferor and all Offerees shall meet within ten (10) days after the receipt of the second expert evaluation in order to agree with respect to the Per Share Value. If they shall fail to so agree, a third expert shall be designated in accordance with the following paragraph. 18 The third expert shall be appointed by the Paris Tribunal de Commerce based on the first request by any of the Transferor or the Dissenting Offerees, and shall be a first-rank investment bank with offices in Paris, with demonstrated significant experience in mergers and acquisitions in Europe and in particular in the valuation of companies in the telecommunications industry with activities in Europe and with no conflict of interest with any of the Shareholders or of the Company. The expert shall be instructed to base its determination of the valuation of the consideration on the Valuation Criteria and to deliver its determination to the Parties and the Company within fifteen (15) days after its appointment. The Parties hereto shall share equally the fees and expenses of such expert. The valuation of the consideration shall be deemed to be the average of (i) the valuation of the consideration as determined by such third expert and (ii) the valuation of the consideration determined by one of the two first experts that shall be the closest to the valuation of the consideration determined by such third expert. The cash value of the consideration for the Offered Securities as determined by the expert procedure described above shall be binding on the Dissenting Offerees and also on the other Offerees. If such cash value so determined by the expert procedure is greater than 110% of the consideration mentioned in the Transfer Proposal Notice, any Offeree that accepted the Transfer Proposal shall be entitled to decide not to pursue the purchase of the Offered Securities by giving the Transferor notice thereof in writing within ten (10) days from the date of determination of the valuation of the consideration as set forth above. In such case, if applicable, any such withdrawing Offeree shall be entitled to exercise immediately its Proportional Co-Sale Right or its Tag Along Right. The Transferor shall also be entitled not to proceed with the contemplated Transfer by giving the other Parties notice of its decision within the ten (10)-day period specified above, if the cash consideration for the Offered Securities so determined by the expert procedure is less than 90% of the cash consideration set forth determined by the Transferor in the Transfer Proposal Notice. (e) If the aggregate number of Securities that the Offerees wish to preempt pursuant to the Notices of Acceptance (taking into account, if applicable, any withdrawal by any Offeree of its Notice of Acceptance as permitted pursuant to paragraph (d) above following determination of the value of consideration in accordance with the expert procedure) is lower than the number of Offered Securities (increased, if applicable, by the Securities of any Party that exercises its Tag Along Right), this Pre-Emptive Right shall not apply. (f) In the event the Pre-Emptive Right does apply in accordance with the preceding paragraphs: 19 (i) In the event the Transferor is an Investor, the Offered Securities (increased, if applicable, by the Securities of any Party that exercises its Tag Along Right) shall be allocated, as a first-rank right, among the Investors who exercised their Pre-Emptive Rights in accordance with Section 4.2(b) above, pro rata based on the ratio which the number of Shares held by each such Investor bears to the number of Shares held by all Investors who so exercised their Pre-Emptive Rights, but limited, for each such Investor, to the number of Securities it wished to pre-empt based on its Notice of Acceptance. The remaining Offered Securities (increased, if applicable, by the Securities of any Party that exercises its Tag Along Right), if any, shall be allocated, as a second-rank right, among those of the Founders and Remote Reward that exercised their Pre-Emptive Rights in accordance with Section 4.2(b) above, pro rata based on the ratio which the number of Shares held by each of them bears to the number of Shares held by those of them that exercised their Pre-Emptive Rights. (ii) If the Transferor is a Founder or Remote Reward (subject to Section 4.1(b) above), the Offered Securities (increased, if applicable, by the Securities of any Party that exercises its Tag Along Right) shall be allocated, as a first-rank right, among those of the Founders and Remote Reward that exercised their Pre-Emptive Rights in accordance with Section 4.2(b) above, pro rata based on the ratio which the number of Shares held by each of them bears to the number of Shares held by those of them that exercised their Pre-Emptive Rights, but limited, for each of them, to the number of Securities it wished to pre-empt based on its Notice of Acceptance. The remaining Offered Securities (increased, if applicable, by the Securities of any Party that exercised its Tag Along Right), if any, shall be allocated, as a second-rank right, among the Investors that exercised their Pre-Emptive Rights in accordance with Section 4.2(b) above, pro rata based on the ratio which the number of Shares held by each such Investor bears to the number of Shares held by all such Investors who exercised their Pre-Emptive Right. In connection with the allocation of Securities under this Section 4.2(f), Securities shall be rounded off to the closest whole number. (g) The purchase price for the Offered Securities which are to be purchased by the Offerees who accept said Transfer Proposal in accordance with this Section 4.2 shall be payable to the Transferor in cash on the later to occur of (i) sixty (60) days after the Transfer Proposal Date or (ii) in the event the value of the consideration is rejected by any Dissenting Offeree, thirty (30) days after the date on which the Transferor and the Offerees agree with respect to such consideration or such consideration is conclusively determined in accordance with the expert procedure as provided in paragraph (d) above. 20 Unless otherwise agreed by the Transferor and the Offerees accepting the Transfer Proposal, transfer to the Offerees of title to the Offered Securities (together with, if applicable, the Securities of the Parties who exercise their Proportional Co-Sale Right or their Tag Along Right) shall take place concurrently with the payment of the price, at the registered office of the Company, during working hours. At that time, the Transferor shall deliver the share transfer order required to properly transfer the Offered Securities (together with, if applicable, the Securities of the Parties who exercise their Proportional Co-Sale Right or their Tag Along Right) to the relevant Offerees in consideration for payment of the corresponding sale price. (h) The Transferor may proceed with the transfer of the Offered Securities pursuant to the Bona Fide Offer only if the Pre Emptive Rights hereunder do not apply, in accordance with paragraph (e) above; provided, that: - the Transfer of the Offered Securities in accordance with the Bona Fide Offer occurs within thirty (30) days after the later to occur of (i) expiration of the 30-day period set forth in Section 4.2(b) for submitting Notices of Acceptance, where there is no Dissenting Offeree, or (ii) in the event the value of the consideration is rejected by any Dissenting Offeree, thirty (30) days after the date on which the Transferor and the Offerees agree with respect to such consideration or such consideration is conclusively determined in accordance with the expert procedure described in paragraph (d) above; - the necessary steps are taken by the Transferor to provide for the exercise of the Proportional Co-Sale Right and Tag Along Right, where applicable; and - if the transferee is not a Party, it shall have duly executed and delivered to the Parties hereto an Agreement to be Bound. (i) If the Bona Fide Offer concerns at least 95 % of the share capital of the Company on a non-diluted basis, the Parties agree that all time limits mentioned in paragraphs (a) to (h) above shall be modified as follows: - the Offerees shall have ten (10) days after the date of receipt of the Transfer Proposal Notice to exercise their Pre-Emptive Right and to send the Notice of Acceptance in accordance with paragraph (b); - in case the terms of the Offer are rejected in accordance with paragraph (d), the concerned Parties shall try to reach an agreement on the consideration within three (3) days from the Notice of Acceptance; if they fail to reach an agreement within this three-day period, the price of the Offered Shares shall be determined in accordance with the expert procedure, in accordance with paragraph (d) above, each expert thus appointed being instructed to submit its valuation within 15 days after its appointment; in view of the valuation resulting from the expert procedure and in the specific cases provided for in paragraph (d), the concerned Parties shall give notice of their decision not to pursue the purchase or, when applicable, the Transfer of concerned Securities within three (3) days from the date of determination of the valuation of the consideration; 21 - payment of the purchase price of the Offered Securities by the Offerees shall take place on the last to occur of (i) fifteen (15) days after the Transfer Proposal Date or (ii) in the event the value of the consideration is rejected by any Dissenting Offeree, five (5) days after the date on which the Transferor and the Offerees agree with respect to such consideration or such consideration is conclusively determined in accordance with the expert procedure described in paragraph (d) above. Except for the foregoing modifications to the applicable time limits, all other provisions of this Section 4.2 will be applicable without any modification. SECTION 4.3 PROPORTIONAL CO-SALE RIGHT (DROIT DE SORTIE PROPORTIONNELLE) If, in accordance with Section 4.2(a), the Transferor is a Founder or Remote Reward, and if the proposed Transfer described in the Transfer Proposal does not trigger the application of Section 4.4 hereof, each Investor shall be entitled to choose to participate in said Transfer as follows: (a) Each Investor wishing to participate in the Bona Fide Offer (a "CO-SELLING INVESTOR"), instead of exercising its Pre-Emptive Right in accordance with Section 4.2 of this Agreement, shall so notify the Transferor and the President of the Board of the Company in writing during the thirty (30) day period set forth in Section 4.2(b) above (or, in case the consideration is rejected by a Dissenting Offeree in accordance with Section 4.2(d), within ten days after the value of the consideration is agreed by the Transferor and the Offerees or is determined in accordance with the expert procedure as provided in Section 4.2(d)). (b) Each Co-Selling Investor shall be entitled, in accordance with the terms of the Bona Fide Offer, to Transfer, at the same time and on the same terms and conditions as the Transferor, a number of Securities equal to the total number of Offered Securities multiplied by a fraction, the numerator of which is the total number of Shares held by the Co-Selling Investor, and the denominator of which is the aggregate number of Shares collectively held by all Co-Selling Investors and the Shares held by the Transferor, such that the number of Securities to be transferred to the proposed transferee is equal to the number of Offered Securities set forth in the Transfer Proposal; provided that the Co-Selling Investor may not participate with respect to less than such number of Securities so determined. (c) In the event any Investor shall not wish to exercise its Proportional Co-Sale Right hereunder, then, unless such Investor exercise its Pre-Emptive Right hereunder, then the remaining Co-Selling Investors may Transfer, in accordance with the terms of the Bona Fide Offer, at the same time and on the same terms as the Transferor, such number of Shares which such Investor would have been permitted to Transfer pursuant to its Proportional Co-Sale Right (the "REMAINING CO-SALE SHARES"), each other Investor to be permitted to Transfer a portion of such Remaining Co-Sale Shares determined pro rata based on the number of Shares held by each other Co-Selling Investor. The Co-Selling Investors shall not be required to give any representations and warranties (other than standard non-operational representations and warranties such as regarding due ownership of the Shares being Transferred and due authorization to Transfer such Shares), nor agree to any non-compete undertaking, in connection with the Transfer. 22 In order to ensure that the proposed transferee purchases from all Co-Selling Investors such number of Securities as determined above, the Transfer of the Offered Securities to the proposed transferee by the Co-Selling Investors shall occur simultaneously with such transfer by the Transferor in accordance with Section 4.2(h) above, failing which the Transferor shall be bound to purchase the Offered Securities sold by the Co-Selling Investors. SECTION 4.4 TAG ALONG RIGHT (DROIT DE SORTIE TOTALE) If, as a result of the Transfer contemplated in the Transfer Proposal (or successive Transfers over the 12-month period preceding the date of the Transfer Proposal to the same proposed transferee(s)), the proposed transferee(s) (acting jointly as that term is defined in article L.233-10 of the Commercial Code) would have control over 50% or more of the share capital or voting rights of the Company (on a non-diluted basis), then the following Tag Along Right shall apply: (i) each Party wishing to participate in the Bona Fide Offer (a "TAGGING OFFEREE"), instead of exercising its Pre-Emptive Right in accordance with Section 4.2 above, shall notify the Transferor and the President of the Board of the Company in writing during the thirty (30)-day period set forth in Section 4.2(b) above (or, in case the consideration is rejected by a Dissenting Offeree in accordance with Section 4.2(d), within ten days after the value of the consideration is agreed by the Transferor and the Offerees or is determined in accordance with the expert procedure as provided in Section 4.2(d)), that it wishes to exercise its Tag Along Right provided by this Section 4.4; (ii) each Tagging Offeree shall be entitled, in accordance with the terms of the Bona Fide Offer, to Transfer, at the same time and on the same terms and conditions as the Transferor Shareholder(s) (subject to the provisions of Article VI if the Tagging Offeree is an Investor), all or a portion of its Securities, at its own choice, to the proposed transferee. In the event the Tag Along Right hereunder is triggered by successive Transfers of Securities over the 12-month period preceding the date of the Transfer Proposal, the purchase price to be received by the Tagging Offeree(s) shall be the higher of (i) the price set forth in the Bona Fide Offer triggering the application of the Tag Along Right or (ii) the average of the Transfer prices paid by the proposed transferee pursuant to such previous successive Transfers. The Tagging Offerees shall not be required to give any representations and warranties (other than standard non-operational representations and warranties such as regarding due ownership of the Shares being Transferred and due authorization to Transfer such Shares) or agree to any non-compete undertaking, in connection with the Transfer. 23 In order to ensure that the proposed transferee purchases from all Tagging Offerees the Securities to be sold pursuant to the exercise of the Tag Along Right above, the Transfer of the such Securities to be sold pursuant to the exercise of the Tag Along Right above to the proposed transferee by the Tagging Offerees shall occur simultaneously with the transfer of the Offered Securities by the Transferor in accordance with Section 4.2(h) above, failing which the Transferor shall be bound to purchase the Offered Securities sold by the Tagging Offerees. SECTION 4.5 TRANSFERS FROM A PARTY TO AN AFFILIATE - CHANGE IN CONTROL In the event that (i) in accordance with Section 4.1 a Party (the "FORMER CONTROLLING PARTY") has Transferred part or all of its Securities to an Affiliate and such Affiliate ceases to be an Affiliate (the "FORMER Affiliate") of the Former Controlling Party (the Person newly controlling the Former Affiliate being referred to as the "NEW CONTROLLING PARTY"), (ii) there occurs a change of control of Remote Reward (the Person formerly controlling Remote Reward being in such case referred to as the "FORMER CONTROLLING PARTY" and the Person newly controlling Remote Reward being in such case referred to as the "NEW CONTROLLING PARTY"), or (iii) MWGL ceases to be wholly owned and controlled by Mr. Tony Cheung and Mr. Chambers T. Y. Wong, each other Party shall have the right, during the 24 month period following such event, to exercise its Pre-Emptive Right and purchase the Securities held by the Former Affiliate, Remote Reward, or MWGL, as the case may be, in accordance with Section 4.2, as if the concerned Former Affiliate, Remote Reward, or MWGL had transferred all of its Securities to a Third Party, with the price to be determined in accordance with paragraph (c) below and with the pre-empted Securities to be allocated pursuant to the provisions of Section 4.2(f) among the Offerees who exercise their pre-emptive rights hereunder. If the New Controlling Party, as a result of the change of control of the Former Affiliate, of Remote Reward, or of MWGL, as the case may be, holds more than 50% of the share capital or voting rights of the Company (on a non diluted basis), and if a Party does not wish to exercise its Pre-Emptive Right as described above, such change of control shall trigger the Tag Along Right set forth in Section 4.4 above, with each such Party (as a Tagging Offeree) being entitled to sell all the Securities that such Party holds to, at such Party's option, the Former Affiliate, Remote Reward, or MWGL, as the case may be, or the New Controlling Party (the "Transferee"). In case of exercise of either the Pre-Emptive Right or the Tag Along Right provided above, the price of the Securities to be sold shall be the fair market value of the Securities as agreed by the Former Affiliate, Remote Reward (provided, that in the event of a change of control of Remote Reward due to the death of Andre Jolivet, references to Remote Reward in this paragraph shall be replaced by a reference to Philippe Rechsteiner or, if he shall not be available, to Patrick Guerillot or, if she shall not be available, to Alain Jolivet), or MWGL, as the case may be, on the one hand and the Offerees on the other hand. Failing such agreement, the Former Affiliate, Remote Reward, or MWGL, as the case may be, shall indicate to the Offerees its estimate of such fair market value, and such fair market value shall be determined in accordance with the expert procedure set forth Section 4.2(d) (the two first experts being appointed in such case by the Former Affiliate, Remote Reward, or MWGL, as the case may be, on the one hand, and by the Offerees, on the other hand). If the fair market value as determined in accordance with the expert procedure is less than 90% of such value as 24 estimated by the Former Affiliate, Remote Reward, or MWGL, as the case may be, prior to the determination in accordance with the expert procedure, than any Offeree may elect not to Transfer its Securities, by so notifying to the Former Affiliate, Remote Reward, or MWGL, as the case may be, prior to the expiration of the 10-day period after determination of the fair market value in accordance with the expert procedure. Such transfers shall otherwise be in accordance with the provisions set forth in Sections 4.2 and 4.4 above. Notwithstanding the foregoing, with respect to any Transfer under this Section 4.5 pursuant to an exercise of a Pre-Emptive Right (a "PRE-EMPTIVE RIGHT TRANSACTION"), in the event there shall be a sale by any Party that exercised its Pre-Emptive Right of any Securities (the "RE-SELLING PARTY") within nine (9) months following the Pre-Emptive Right Transaction, to any third party purchaser (a "RE-SALE TRANSACTION") for consideration per Share that exceeds the consideration per Share in the Pre-Emptive Right Transaction, then, the Re-Selling Party shall pay to the Party that was required to transfer shares to the Re-Selling Party in the Pre-Emptive Right Transaction an amount equal to a percentage of the difference between the per-Share consideration in the Pre-Emptive Right Transaction and the per-Share consideration in the Re-Sale Transaction, multiplied by the number of shares that were Transferred in the Pre-Emptive Right Transaction, as follows (i) if the Re-Sale Transaction occurs within three (3) months after the Pre-Emptive Right transaction, such percentage shall be 100%, (ii) if such Re-Sale Transaction occurs three (3) months or more after, but less than six (6) months after, the Pre-Emptive Right, such percentage shall be 66% and, (iii) if such Re-Sale Transaction occurs six (6) months or more after, but less than nine (9) months after, the Pre-Emptive Right, such percentage shall be 33%. As soon as any Party has knowledge of any event likely to trigger any of the pre-emptive or exit rights described in this Article, it shall notify such event to the President of the Board of the Company, who shall immediately inform the other Parties. 25 SECTION 4.6 DRAG ALONG RIGHT (SORTIE FORCEE) (a) If a Transfer that would give rise to an obligation to send a Transfer Proposal would result in the Transfer of 95% or more of the Securities of the Company (on a non-diluted basis), then the Transfer Proposal shall be sent to all Shareholders and the President of the Board of Directors, and such Transfer Proposal may, at the Transferor's option, reference the Drag-Along Right provided by this Section 4.6 and the Contractual Undertaking. Such a proposed Transfer shall be subject to the time limits set forth in Section 4.2(i). (b) If Shareholders representing 75 % or more of the Company's capital and voting rights (on a non-diluted basis) (hereinafter the "MAJORITY SHAREHOLDERS") notify the Transferor and the President of the Board of Directors within ten (10) days after the date of the Transfer Proposal that they wish to accept such Bona Fide Offer from the proposed transferee (the "PURCHASER"), then the Majority Shareholders may then provide joint notice to all Shareholders that they wish to exercise the Drag Along Right provided by this Section 4.6. (c) If, with respect to the proposed Transfer, the Pre-Emptive Rights provided under Section 4.2 shall have been validly exercised with respect to all of the Offered Securities as provided by Section 4.2(e), then (i) the pre-empting Offerees may, at their option, by notice to the Parties that are not pre-empting Offerees, elect to exercise a drag-along right to purchase all Securities held by such other Parties, or (ii) such other Parties may, by notice to the pre-empting Offerees, exercise a tag-along right to sell to the pre-empting Offerees all of their Securities, in each case on the terms and for the consideration set forth in the Transfer Proposal or as determined in accordance with Section 4.2(d), as applicable. In each case, the Securities to be Transferred to the pre-empting Offerees shall be allocated among the pre-empting Offerees pro rata based on the percentage of Offered Securities that would otherwise be purchased by such pre-empting Offerees. Such Transfers shall occur simultaneously with the Transfer pursuant to the Pre Emptive Right as contemplated in Section 4.2(i). (d) If, however, with respect to the proposed Transfer, the Pre-Emptive Rights provided under Section 4.2 shall not have been validly exercised with respect to all of the Offered Securities as provided by Section 4.2(e), then the Drag Along Right provided herein shall be valid, and all Parties shall transfer their securities to the proposed transferee upon the terms and conditions, and for the consideration, set forth in the Transfer Proposal. Such Transfers shall occur simultaneously on the date which is thirty (30) days after the expiration of the 10-day period provided in paragraph (b) above, or such other date as may be agreed by the transferee and the transferors. The Parties other than the Transferor shall not be required to give any representations and warranties (other than standard non-operational representations and warranties such as regarding due ownership of the Shares being Transferred and due authorization to Transfer such Shares) or agree to any non-compete undertaking, in connection with the Transfer. 26 In the event that the proposed transferee wishes to acquire more than 95 % of the Securities but less than 100% of the Securities of the Company, the number of Securities to be sold by the shareholders who did not wish to exercise their tag-along right in accordance with Article 4.4 above shall be allocated among them on a prorata basis. If any Party shall fail to execute its obligations pursuant to this Article, the Majority Shareholders may deposit, on an escrow account, opened in the books of the Caisse des Depots et Consignations, in the name of each defaulting Party, the price for the Securities of the defaulting Minority Shareholders. In such event, the mere delivery to the Company of the Transfer Proposal referencing their intention to exercise the provisions of this paragraph together with the receipt of the deposit of the applicable price on an escrow account will be deemed to be a valid share transfer form and shall bind the Company to book the corresponding transfers on the share transfer register and on the shareholders' accounts. SECTION 4.7 CENTRALIZATION OF THE OFFERS BY THE BOARD OF DIRECTORS The Parties hereby empower the Board of Directors of the Company to centralize the notices received by the Parties and to organize the Transfer of Securities pursuant to the provisions of this Article 4. To this end, copies of all notices under Article 4 shall be provided to the President of the Board, who shall notify the Parties, within a five (5)-Business Day period following the expiration of the thirty (30)-day period indicated in Section 4.2(b) (or, if applicable, of the ten (10) day period indicated in Section 4.2(d)), if applicable (as such periods may be shortened as provided in Section 4.2(i), the result of the centralizing of the offers by the Board of Directors of the Company (the "RESULT NOTICE"). The Transfer of Securities under this Section 4.7 shall occur within the periods set forth by the Board of Directors in the Result Notice in application of the terms hereof. ARTICLE V - LISTING OR OTHER LIQUIDITY EVENT 5.1 Without prejudice to the rules of majority under Section 2.3 above to decide on such IPO, the Parties hereby declare their common desire, and agree that it is their common intention, to achieve an IPO on a regulated European or North-American stock exchange operating regularly (hereinafter referred to as the "LISTING") or some other commercially appropriate transaction pursuant to which the Investors would transfer their Shares at a price at least equal to market value on or before December 31, 2007. No listing of securities of subsidiaries shall occur prior to a Listing. The Investors shall be entitled to subscribe to Shares in connection with any Listing on terms and conditions that are as favorable as the most favorable obtained in this regard by any other Shareholder and pro-rata to their shareholding in the Company as at the date of the Listing or other event, failing which, upon timely notice by any Investor, the Company shall not pursue such Listing. 27 The Company will bear all of its expenses incurred in connection with an IPO. If the Company's Securities are listed on a US market, the Company will grant to the Investors customary demand and piggyback registration rights. 5.2 In case no Listing or transaction pursuant to which the Investors have transferred their Shares at a price at least equal to the fair market value thereof has occurred on or before December 31, 2007, then, upon notice by any Investor to the Parties and the Company on or before December 31, 2009, the Investors shall consult and attempt to agree in good faith based on a list of candidates proposed by each of the Investors and by Remote Reward, with respect to an investment bank, which shall be a first-rank investment bank with offices in Paris, with demonstrated significant experience in mergers and acquisitions in Europe and in particular in the valuation of companies in the telecommunications industry in Europe, with no conflict of interest with any Party, to be appointed by the Shareholders (hereinafter referred to as the "AGENT"). If the Investors are not able to agree with respect to the identity of the Agent within 90 days after such notice to all Parties, then upon request by any Investor, the Agent shall be designated promptly by the President of the Board of Directors among the candidates proposed by each of the Investors and Remote Reward. The Agent shall be appointed to sell 100% of the Securities of the Company at the then most advantageous terms, as soon as possible and at the latest, if possible, within six (6) months after its appointment. Each of the Party shall be entitled to present to the Agent an offer to take over 100% of the Securities of the Company. 5.3 Once the Agent has identified one or several potential purchasers wishing to acquire the Securities held by the Investors at a price calculated prorata based on the market value of 100 % of the Securities of the Company, he shall so notify the President of the Board and the Parties, such notice to include the identity of the proposed purchaser(s), the terms and conditions of the proposed purchase (subject to, if applicable, the provisions of Article VI) and the number of Securities proposed to be purchased (the "EXIT NOTICE"). If, within the ten (10)-day period following the Exit Notice, any Investor elects to accept the offer from the potential purchaser (the "ACCEPTING SECURITY HOLDERS"), it shall so notify the other Parties (the "OTHER SECURITY HOLDERS") and the President of the Board of the Company. If the Accepting Security Holders do not collectively accept the offer set forth in the Exit Notice with respect to all of the Securities proposed to be purchased therein, then the Other Security Holders shall be bound to Transfer to the potential purchaser a number of Securities such that such potential purchaser is able to purchase all of the Securities set forth in the Exit Notice, with each such Other Security Holder being bound to Transfer, under the terms and conditions set forth in the Exit Notice (subject to, if applicable, the provisions of Article VI), to the potential purchaser a number of Securities equal to such deficiency multiplied by a fraction, the numerator of which is the number of Shares held by such Other Security Holder and the denominator of which is the total number of Shares held by such Other Security Holder. The Other Security Holders shall not be required to give any representations and warranties (other than standard non-operational representations and warranties such as regarding due 28 ownership of the Shares being Transferred and due authorization to Transfer such Shares), nor agree to any non-compete undertaking, in connection with the Transfer. The obligation of any Other Security Holder to Transfer Securities to the potential purchaser under the foregoing provisions shall only apply if the Transfer of the Securities to the proposed purchaser is consummated within three months after date of the Exit Notice. The provisions of the Section 4.6(c) shall be applicable mutatis mutandis to this provision. ARTICLE VI - ALLOCATION OF TRANSFER PROCEEDS For the purposes of this Article VI: - - "TRANSACTION" means (a)(i) the merger or consolidation of the Company into or with one or more entities, (ii) the merger or consolidation of one or more persons into or with the Company if, in the case of (i) or (ii), the Shareholders of the Company prior to such merger or consolidation do not retain at least a majority of the voting power of the surviving entity (on a non-diluted basis), or (b) the voluntary Transfer to another Person of the share capital of the Company if, after such Transfer, the Shareholders of the Company prior to such Transfer do not retain at least a majority of the voting power of the Company (on a non-diluted basis). - - "PROCEEDS" shall mean the aggregate net proceeds of the Transaction received by all Security Holders participating in the Transaction or by the Company, as the case may be, whether cash, securities, assets or some other form of consideration. - - "VALUATION OF THE COMPANY" shall mean the valuation for 100 % of the share capital of the Company on a Fully Diluted basis taken into account in the Transaction to calculate the compensation received by the Shareholders for their Shares. (i.e. for instance valuation of the Company taken into account to calculate the exchange ratio in case of merger or contribution in kind of the Shares). In the event the Transaction is not entirely paid in cash, the Founders and Remote Reward, on the one hand, and the Investors, on the other hand, shall in good faith consult with each other in order to agree with respect to the Valuation of the Company. If the Founders and Remote Reward, on the one hand, and the Investors, on the other hand, are unable to agree with respect to the Valuation of the Company within five (5) days after the request of any of the Investors, Remote Reward or the Founders, then any of the Founders, Remote Reward or any Investor may request by notice to the others that such Valuation of the Company be determined in accordance with the expert procedure as provided in Section 4.2.(d) above (and in such case the two first experts shall be appointed by the Founders and Remote Reward, on the one hand, and by the Investors, on the other hand). 29 SECTION 6.1 ALLOCATION OF THE TRANSFER PROCEEDS In respect of the first Transaction after the date hereof, in which the Valuation of the Company is less than (i) twenty nine million, nine hundred sixty six thousand, six hundred seventy euros (EUR 29,966,670) (in the event the ABSA Shares 2 are subscribed for by the Investors) or (ii) fourteen million nine hundred eighty-three thousand and three hundred and thirty-five euros (EUR 14,983,335) (in the event the ABSA Shares 2 are not subscribed for by the Investors), then, in consideration for the risks incurred by the Investors by subscribing for the ABSA Shares while the Company is in a development stage, the Parties expressly agree that the Proceeds of the Transaction, shall be allocated in priority to the Investors as set forth below (the amount to be so allocated to the Investors or any Investor, the "PREFERENCE AMOUNT"), with the remainder of the Proceeds to be allocated to the other Shareholders pro rata as if the priority allocation did not exist: A - CALCULATION OF THE PREFERENCE AMOUNT IF THE ABSA SHARES 2 ARE SUBSCRIBED FOR BY THE INVESTORS. If the ABSA Shares 2 are subscribed for by the Investors, then the Preference Amount shall be calculated as follows: (a) if the Valuation of the Company is less than ten million euros (EUR 10,000,000), then: (i) in respect of a Transaction pursuant to which 100% of the share capital is Transferred or a Transaction by way of merger or consolidation, then the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = X * 0.8 where X equals the Proceeds of the Transaction - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Shares held by such Investor and NB equals the total number of Shares held by all Investors; (ii) in respect of any Transaction in which less than 100% of the share capital of the Company is Transferred, then the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = P (X * 0.8) where X represents the Proceeds of the Transaction, and P represents a fraction, the numerator of which is the number of Shares Transferred by the Investors 30 in the Transaction, and the denominator of which is the total number of Shares owned by the Investors. the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Shares transferred by such Investor in the Transaction and NB equals the total number of Shares Transferred by all Investors in the Transaction. (b) if the Valuation of the Company in the Transaction is at least ten million Euros (EUR 10,000,000), but less than twenty million Euros (EUR 20,000,000) then: (i) in respect of a Transaction pursuant to which 100% of the share capital is Transferred or a Transaction by way of merger or consolidation, then: - the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = (EUR 6,000,000) + (X * 0.2) where X equals the Proceeds of the Transaction - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y) * (N/NB) where N equals the number of Shares held by such Investor and NB equals the total number of Shares held by all Investors. (ii) in respect of any Transaction in which less than 100% of the share capital of the Company is Transferred, then: - the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = (P) * (EUR 6,000,000) + (X * 0.2) where X represents the Proceeds of the Transaction, and P represents a fraction, the numerator of which is the number of Shares Transferred by the Investors in the Transaction, and the denominator of which is the total number of Shares owned by the Investors. 31 - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Shares transferred by such Investor in the Transaction and NB equals the total number of Shares Transferred by all Investors in the Transaction. (c) if the Valuation of the Company is at least twenty million Euros (EUR 20,000,000), but less than twenty nine million, nine hundred sixty six thousand and six hundred and seventy euros (EUR 29,966,670) then: (i) in respect of a Transaction pursuant to which 100% of the share capital is Transferred or a Transaction by way of merger or consolidation, then: - the Preference Amount to be received by the Investors as a group shall be ten million euros (EUR 10,000,000) or a portion of the Proceeds of the Transaction valued at ten million euros (EUR 10,000,000), and - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (EUR 10,000,000) * (N/NB) where N equals the number of Shares held by such Investor and NB equals the total number of Shares held by all Investors. (ii) in respect of any Transaction in which less than 100% of the share capital of the Company is Transferred, then: - the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = (P) * (EUR 10,000,000) where P represents a fraction, the numerator of which is the number of Shares Transferred by the Investors in the Transaction, and the denominator of which is the total number of Shares owned by the Investors. - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Shares transferred by such Investor in the Transaction and NB equals the total number of Shares Transferred by all Investors in the Transaction. 32 B - CALCULATION OF THE PREFERENCE AMOUNT IF THE ABSA SHARES 2 ARE NOT SUBSCRIBED FOR BY THE INVESTORS If the ABSA Shares 2 are not subscribed for by the Investors, then the Preference Amount shall be calculated as follows: (a) if the Valuation of the Company is less than five million Euros (EUR 5,000,000), then: (i) in respect of a Transaction pursuant to which 100% of the share capital is Transferred or a Transaction by way of merger or consolidation, then the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = X * 0.8 where X equals the Proceeds of the Transaction - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Shares held by such Investor and NB equals the total number of Shares held by all Investors; (ii) in respect of any Transaction in which less than 100% of the share capital of the Company is Transferred, then the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = P (X * 0.8) where X represents the Proceeds of the Transaction, and P represents a fraction, the numerator of which is the number of Shares Transferred by the Investors in the Transaction, and the denominator of which is the total number of Shares owned by the Investors. the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Shares transferred by such Investor in the Transaction and NB equals the total number of Shares Transferred by all Investors in the Transaction. 33 (b) if the Valuation of the Company in the Transaction is at least five million Euros (EUR 5,000,000), but less than ten million Euros (EUR 10,000,000) then: (i) in respect of a Transaction pursuant to which 100% of the share capital is Transferred or a Transaction by way of merger or consolidation, then: - the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = (EUR 3,000,000) + (X * 0.2) where X equals the Proceeds of the Transaction - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y) * (N/NB) where N equals the number of Shares held by such Investor and NB equals the total number of Shares held by all Investors. (ii) in respect of any Transaction in which less than 100% of the share capital of the Company is Transferred, then: - the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = (P) * (EUR 3,000,000) + (X * 0.2) where X represents the Proceeds of the Transaction, and P represents a fraction, the numerator of which is the number of Shares Transferred by the Investors in the Transaction, and the denominator of which is the total number of Shares owned by the Investors. - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Shares transferred by such Investor in the Transaction and NB equals the total number of Shares Transferred by all Investors in the Transaction. 34 (c) if the Valuation of the Company is at least ten million Euros (EUR 10,000,000), but less than fourteen million nine hundred eighty-three thousand and three hundred and thirty-five Euros (EUR 14,983,335) then: (i) in respect of a Transaction pursuant to which 100% of the share capital is Transferred or a Transaction by way of merger or consolidation, then: - the Preference Amount to be received by the Investors as a group shall be five million euros (EUR 5,000,000) or a portion of the Proceeds of the Transaction valued at five million euros (EUR 5,000,000), and - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (EUR 5,000,000) * (N/NB) where N equals the number of Shares held by such Investor and NB equals the total number of Shares held by all Investors. (ii) in respect of any Transaction in which less than 100% of the share capital of the Company is Transferred, then: - the Preference Amount to be received by the Investors as a group shall be an amount Y or a portion of the Proceeds of the Transaction valued at Y, as follows: Y = (P) * (EUR 5,000,000) where P represents a fraction, the numerator of which is the number of Shares Transferred by the Investors in the Transaction, and the denominator of which is the total number of Shares owned by the Investors. - the Preference Amount payable to each Investor shall be equal to an amount Z, calculated in Euros: Z = (Y ) * (N/NB) where N equals the number of Shares transferred by such Investor in the Transaction and NB equals the total number of Shares Transferred by all Investors in the Transaction. SECTION 6.2 MISCELLANEOUS For the purposes of this Article VI, the Parties agree that, in the event of any contact with a Third Party in connection with a Transaction, they will inform the Third Party of the existence of the provisions of this Article VI and of the resulting allocation of the purchase price. 35 The Parties acknowledge that such Third Party(ies) shall be required as a term and condition of the Transaction to directly pay to the Investors their share of the Proceeds determined pursuant to the provisions of this Article and, as a consequence, the Parties shall refrain from entering into any agreement providing for a Transaction pursuant to which the Proceeds would not be so allocated to the Parties in accordance with the provisions of this Article. If, however, the allocation of the Proceeds directly resulting from the Transaction cannot, due to requirements of law, be modified to reflect the foregoing allocation (e.g., contribution in kind of shares, merger), then the Parties other than the Investors shall be bound to Transfer to the Investors, upon any Investor's request, prior to the closing of the considered Transaction, Shares of the Company, at a price of Euro 0.01 per Share, so that, as a result of the contemplated Transaction and of such Transfers of Shares to the Investors, each Investor would receive a share of the Proceeds in accordance with the allocation of Proceeds calculated as mentioned above. If, for any reason whatsoever, the Transfer of Shares in accordance with the preceding paragraph has not occurred prior to the closing of the considered Transaction, the Parties shall immediately upon receipt of the Proceeds re-allocate such Proceeds among themselves in accordance with the foregoing allocations. ARTICLE VII - ISSUES OF SECURITIES - ANTIDILUTION It is the intention of the Parties that each Party shall be given the opportunity to maintain its percentage shareholding in the Company. The Parties thus undertake not to vote in favor of any resolution submitted to the shareholders of the Company that would have the effect of extinguishing the shareholders' preferential subscription right unless each Party shall have been offered to participate in the relevant transaction so as to maintain its percentage holding in the Company's equity to the same level as immediately prior to the such transaction. 36 ARTICLE VIII - OTHER COMMITMENTS SECTION 8.1 FUNDING COMMITMENTS OF REMOTE REWARD In the event the Board of Directors should determine in good faith at any meeting of the Board of Directors held after the end of the year 2004 and before the end of the year 2005 that, as a result of a mere delay in the revenues of the Company that is not linked to a significant decrease in the amount of potential sales that are projected in the commercial pipeline of the Company as compared to the projected figures provided in the business plan attached as EXHIBIT G OF THE INVESTMENT AGREEMENT), it is unlikely that the Company will be able to meet its ordinary course cash requirements beyond the forty five (45)-day period immediately following such meeting, Remote Reward hereby irrevocably undertakes to grant to the Company one or more shareholders loans (the "SHAREHOLDER LOANS"), within ten (10) days after a request by the Board of Directors, such Shareholder Loans to be used by the Company to fund the ordinary course cash requirements of the Company (at the time of the initial meeting of the Board of Directors that determined that the cash deficiency exists, as determined in the amended business plan prepared by the Board of Directors at such meeting) (the "MONTHLY CASH REQUIREMENT") during the six-month period following the 45-day period referred to above. The aggregate amount of such Shareholder Loans shall not exceed the lesser of (i) six (6) times the MONTHLY CASH REQUIREMENT and (ii) EUR 5,000,000. Such Shareholder Loans shall bear interest at an annual rate of EURIBOR plus one base point. The Shareholder Loans shall be repayable upon demand by Remote Reward on the later of (i) January 1, 2006 and (ii) the expiration of a ten (10)-month period following the date of granting of such Shareholder Loan; provided, that Remote Reward shall not request the repayment of all or any portion of the Shareholder Loans to the extent such repayment would endanger the financial situation of the Company and in particular it shall only request repayment to the extent that the Company has enough cash for such repayment. The Shareholder Loans shall be repaid by the Company, at Remote Reward's discretionary option, to be notified to the Company and to all Parties, (i) in cash, (ii) by compensation with the subscription price to be paid by Remote Reward to subscribe for new shares to be issued by the Company; such shares shall be issued at a price to be agreed upon between the Parties, or, failing such agreement, to be determined in accordance with the expert procedure set forth in Section 4.2(d) above or (iii) a combination of (i) and (ii). In the event of liquidation of the Company prior to the repayment in full of the Shareholder Loans, Remote Reward hereby agrees that its rights to repayment of the Shareholder Loans (or the remaining unpaid portion thereof) shall be subordinated to the right of the holders of the Class B Shares to receive the Liquidation Preference pursuant to Article 19-3(a), (b) or (c), as applicable, of the amended by-laws of the Company as of the Closing Date. In the event of a Transaction prior to the repayment in full of the Shareholder Loans, Remote Reward hereby agrees that its right to repayment of the Shareholder Loans (or the remaining unpaid portion thereof) shall be subordinated to the right of the Investors to receive the Preference Amount in respect of such Transactions, with the result that the Preference 37 Amount in respect of such Transaction shall be calculated as if the Valuation and the Transfer Proceeds had been increased by the nominal value of the Shareholder Loans then unpaid by the Company. As an example for the last paragraph, assuming that (i) the ABSA Shares 2 have been subscribed for by the Investors, (ii) that a Transaction concerning 100 % of the share capital of the Company occurs (whereby the Investors would transfer 100 % of their Shares), (ii) the Valuation of the Company in such Transaction is EUR 15,000,000, (iii) the Transfer Proceeds are EUR 15,000,000 and (iii) the remaining amount of the Shareholder Loans is EUR 2,000,000, then the Preference Amount due to the Investors shall be calculated as if there had been no Shareholder Loans, i.e. as if the Transaction occurred with a Valuation of EUR 17,000,000, with Transfer Proceeds of EUR 17,000,000 and the Preference Amount due to the Investors would consequently be EUR 9,400,000 (instead of EUR 9,00,000 if the Valuation and Transfer Proceeds had not been changed as mentioned above). SECTION 8.2 COMMITMENTS OF REMOTE REWARD TO THE COMPANY Remote Reward hereby undertakes to counter-guarantee the guarantee granted by the Company to the benefit of ANVAR, as reflected in the Interim Financial Accounts (as defined in the Representations and Warranties Agreement). Consequently, in the event that the Company is required to pay any amount to ANVAR pursuant to the guarantee granted to ANVAR by the Company, Remote Reward hereby undertakes to indemnify and hold harmless the Company, and to pay to the Company the same amount in cash, within ten (10) days of such payment by the Company. SECTION 8.3 NON COMPETE AGREEMENT The Parties shall use their best efforts to obtain from all Key Employees designated as such by the Board of Director after the Closing Date the execution of a French translated version of the draft non-compete agreement attached as EXHIBIT D hereto. ARTICLE IX - REPRESENTATIONS AND WARRANTIES OF THE PARTIES SECTION 9.1 REPRESENTATIONS AND WARRANTIES OF THE PARTIES Each Party represents and warrants to the other Parties as of the date hereof and as of the Closing Date: - - that it is duly established under the law of the jurisdiction in which it is established and is in good standing in such jurisdiction; - - that it has full power and authority to execute and deliver the Transaction Documents; 38 - - that the execution and delivery of the Transaction Documents by such Party of each Transaction Documents to which it is a party, and the performance by such Party of all of its obligations set forth therein has been, or prior to the Closing Date will be, duly authorized and approved by all requisite corporate action, except for such actions that are specifically intended by the terms of the Transaction Documents to be approved after the Closing Date; - - that the Transaction Documents to which such Party is a party, when executed and delivered, taking into account their respective effective dates, will be valid and binding obligations of such Party in accordance with their terms and will not breach any legal or regulatory provisions nor any organizational documents of such Party; and - - that the execution and delivery of the Transaction Documents to which such Party is a party by such Party do not conflict with and will not result in any default, violation, modification, suspension or termination of any contract or undertaking to which such Party is a party. SECTION 9.2 REPRESENTATION AND WARRANTY OF MWGL MWGL hereby represents that it is 100% owned and controlled by Mr. Chambers Wong and Mr. Tony Cheung. ARTICLE X - RESTRICTIONS CONCERNING OTHER AGREEMENTS No Party hereto shall enter into any agreement or contract with any other Person (including any Party hereto) concerning the management or business of the Company or the Securities, including but not limited to contracts or agreements concerning the purchase, sale or voting of any Securities which are contrary hereto. Notwithstanding the foregoing, Alkanz Co. Ltd. has been or will be appointed to act as an intermediary for the completion of the Investment pursuant to a Consultancy Agreement among the Company, Alkanz Ltd. and Remote Reward. Pursuant to such agreement, Alkanz Ltd. is entitled to receive (i) a fee payable in cash in an amount of EUR 63,654 upon completion of the First Capital Increase by MWGL and EUR 63,861 upon subscription by MWGL for the ABSA Shares 2, and (ii) 16,197 ordinary shares upon completion of the First Capital Increase and 5,669 ordinary shares upon subscription by MWGL for the ABSA Shares 2 or exercise of the Warrants 2004. The cash portion of the fees shall be paid by the Company and the share portion shall be assumed by Remote Reward by execution of a call option agreement between Alkanz Co. Ltd. and Remote Reward. 39 ARTICLE XI - GOVERNING LAW - CHOICE OF FORUM SECTION 11.1 GOVERNING LAW This Agreement shall be governed by and construed in accordance with French law. SECTION 11.2 CHOICE OF FORUM Any dispute arising out of or relating to this Agreement shall be submitted to the jurisdiction of the competent court in the jurisdiction of the Court of Appeals of Paris, to which the Parties hereby irrevocably consent. ARTICLE XII - TERM SECTION 12.1 TERM This Agreement shall be in effect as from the Closing Date, and shall not take effect if the Investment Agreement shall be validly terminated in accordance with its terms. The provisions of this Agreement shall expire ten (10) years as from the Closing Date. SECTION 12.2 TERMINATION (a) This Agreement shall terminate with respect to a Party whenever that Party ceases being a Security Holder (otherwise than as a result of a Transfer to an Affiliate), provided, that this shall not affect the rights of any other Party. (b) In addition, this Agreement shall terminate by operation of law upon an IPO of the Securities of the Company. ARTICLE XIII - MISCELLANEOUS PROVISIONS SECTION 13.1 NOTICES Any notice, request, formal notice or other communication pursuant to the provisions of this Agreement ("NOTICE") shall be made in writing to the addresses mentioned below and shall be deemed to have been properly served: (i) on the date of delivery, in the case of delivery by hand to the Party on which notice must be served; (ii) for all Parties other than the Founders, on the date of transmission, in the case of transmission by fax, followed by telephone confirmation of receipt immediately following completion of the transmission; or (iii) on the third day following pre-paid delivery by a recognized international express courier service (e.g., DHL). The addresses for Notice to the Founders shall be the residential addresses set forth on page 1 of this Agreement. Any Party may change its address or the name of the addressee for purposes of this Article 13.1 by sending the other Parties a written notice of its new address in the manner provided above. 40 Party: AGF Innovation 3, AGF Innovation 4 or AGF Innovation 5, notice to be sent to AGF PE at the following address: Address: 11, rue Scribe, BP 293 75425 Paris Cedex 09 Attention: Guillaume Lautour / Benoit Grossmann Tel: 01 58 18 56 56 Fax: 01 42 65 56 81 Party: Mighty Wealth Group Limited Address: Unit B3, 22/F, Unimix Ind. Centre, 2 Ng Fong Street, San Po Kong, Kowloon, Hong Kong Attention: Tony Cheung Tel: 852-2649-3739 Fax: 852-2648-8806 Party: Nam Tai Electronics, Inc. Address: c/o Nam Tai Group Management Ltd. 15/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central Hong Kong Attention: Joseph Li Tel: (852) 2263 1218 Fax: (852) 2263 1223 Party: REMOTE REWARD Address: 4 ter, rue de l'Ouest, 92100 Boulogne Attention: President (Andre Jolivet) Tel: 01.41.10.29.10 Fax: 01.41.10.29.28 SECTION 13.2 ENTIRE AGREEMENT This Agreement, with its exhibits, set forth the entire agreement of the Parties with respect to the business referred to herein. Those documents shall prevail over any negotiations, discussions, communications, understandings or prior agreements between the Parties relating to the subject matter of this Agreement and over any earlier drafts of the Agreement which are all subsumed in these documents. On the Closing Date, this Agreement shall supersede and render null and void any other agreements existing between some or all of the Parties governing their relationships as Security Holders of the Company (except for the Contractual Undertakings executed in accordance with Article III above). 41 SECTION 13.3 SUPPLEMENTARY AGREEMENTS; WAIVERS No supplementary agreement or amendment to this Agreement shall be valid unless memorialized by a writing signed by the Parties hereto. Waiver by a Party of any condition or waiver of enforcement of a breach of any provision, term or covenant contained in this Agreement at one or more times shall not be considered or construed as a recurring or continuing waiver of that condition or of the right to enforce a breach of any other provision, term or covenant of this Agreement. SECTION 13.4 SUCCESSORS, HEIRS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES This Agreement shall inure to the benefit of and be binding on the Parties and their respective successors, heirs and assigns, regardless of whether they are minors or otherwise under a disability, provided however that unless otherwise expressly provided for herein, no Party may assign or delegate any of the obligations created under this Agreement without the prior written consent of the other Parties. If a Third Party or an Affiliate should acquire Securities previously held by a Party, said Third Party or Affiliate, as the case may be, shall have the same obligations and, provided that the Securities were acquired fully in compliance with this Agreement, the same rights as the original Party, and to this effect, shall sign an Agreement to be Bound. Any such Third Party or Affiliate, as well as any Third Party or Affiliate that becomes an owner of newly issued Securities, shall be required to sign an Agreement to be Bound. In addition, no issuance of Securities to the benefit of a Third Party shall be decided by the Parties until such Third Party duly executes an Agreement to be Bound. Prior to the execution of any such Agreement to be Bound, the Parties shall agree on the rights and obligations of the Third Party under this Agreement. For practical reasons, the Parties empower the President of the Board of the Company to execute, on their behalf, the Agreement to be Bound with the potential transferee or subscriber of new Shares of the Company. SECTION 13.5 GENERAL COVENANT The Parties hereto shall sign and deliver all documents, provide all information and take or prevent the taking of all measures that may be necessary or appropriate to achievement of the purpose of the objects of this Agreement. 42 SECTION 13.6 SEVERABILITY This Agreement shall be deemed severable and the fact that any term or provision hereof may be invalid or impossible to perform shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. In addition, the Parties shall replace any invalid or unenforceable term or provision hereof with a valid and enforceable provision as similar as possible to the invalid or unenforceable provision. SECTION 13.7 ELECTION OF DOMICILE For the performance hereof, the Parties elect domicile at their respective domiciles or principal offices as first above written. SECTION 13.8 CONFIDENTIALITY The Parties undertake to keep this Agreement strictly confidential, and no Party shall disclose or permit the disclosure of the existence or of all or any part of this Agreement to any third party except (i) with the prior consent of the other Parties, (ii) in the case of litigation between the Parties (and then only to the extent required to be disclosed in connection with the proceedings and pleadings related to such litigation), (iii) to the extent disclosure is required by any law or regulation, including disclosure to any regulatory authorities, or (iv) to the Parties' legal counsels. Each Investor undertakes to maintain the confidentiality of any confidential information or trade secrets of the Company made known to such Investor by virtue of its investment in the Company or its representation on the Board of Directors and shall not divulge such confidential information or trade secrets to any third party except (i) with the prior consent of the other Parties, (iii) to the extent disclosure of such information is required by any law or regulation, including disclosure to any regulatory authorities or (iv) to such the Investor's legal counsel. [Remainder of page intentionally left blank] 43 IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the date first set forth above. In nine (9) original copies, - --------------------------- ------------------------------- Alain Jolivet Andre Jolivet REMOTE REWARD AGF INNOVATION 3 By: /s/ Andre Jolivet ----------------------- By: AGF Private Equity Name: Andre Jolivet By: /s/ Guillaume Lautour ----------------------- Name: Guillaume Lautour AGF INNOVATION 4 AGF INNOVATION 5 By: AGF Private Equity By: AGF Private Equity By: /s/ Guillaume Lautour By: /s/ Guillaume Lautour ------------------------ ----------------------- Name: Guillaume Lautour Name: Guillaume Lautour Mighty Wealth Group Limited Nam Tai Electronics, Inc. By: /s/ Tony Cheung By: /s/ Joseph Li ----------------------- ------------------------- Name: Tony Cheung Name: Joseph Li STEPMIND S.A. By: /s/ Alain Jolivet ------------------------ Name: Alain Jolivet 44 LIST OF EXHIBITS EXHIBIT A Allocation of the share capital (i) as of the date hereof and (ii) immediately prior to the Closing Date EXHIBIT B Allocation of the share capital (i) immediately after the consummation of the First Capital Increase and (ii) immediately after the consummation of the Second Capital Increase EXHIBIT C English draft of the Contractual Undertaking to be executed in French EXHIBIT D English draft of the non-compete agreement to be executed in French by Key Employees EXECUTION COPY ====================================== REPRESENTATIONS AND WARRANTIES AGREEMENT BY AND AMONG AGF INNOVATION 3 AGF INNOVATION 4 AGF INNOVATION 5 MIGHTY WEALTH GROUP LIMITED NAM TAI ELECTRONICS, INC. AND ANDRE JOLIVET REMOTE REWARD SAS DATED: NOVEMBER 27, 2003 CONFIDENTIAL 2 REPRESENTATION AND WARRANTIES AGREEMENT This Representations and Warranties Agreement (this "AGREEMENT") is entered into on the 27th day of November 2003, AMONG THE UNDERSIGNED: - - AGF INNOVATION 3, AGF INNOVATION 4 AND AGF INNOVATION 5, fonds communs de placement dans l'innovation, each represented by its managing company, AGF Private Equity, a French societe par actions a directoire et conseil de surveillance with a share capital of Euros 1,000,000, with its registered office at 11, rue Scribe, BP 293, 75425 Paris Cedex 09, registered in the Commercial Registry under the number 414 735 175 RCS Paris (collectively referred to as "AGF PE"), represented by Mr. Guillaume Lautour, duly empowered for the purpose hereof, - - MIGHTY WEALTH GROUP LIMITED, an international business company incorporated in the British Virgin Islands, with a share capital of USD 50,000, with its registered office at Palm Grove House, P.O. Box 438, Road Town, Tortola, BVI, registered under the number 565041, represented by Mr. Tony Cheung, in his capacity as Director, (hereinafter "MWGL"), - - NAM TAI ELECTRONICS INC. a company incorporated in the British Virgin Islands, under registration number 3805, with its registered office at McW. Todman & Co., McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands, represented by Mr. Joseph Li, in his capacity as chief executive officer, (hereinafter "NAM TAI"), (hereinafter collectively referred to as the "INVESTORS" and individually as an "INVESTOR"), 3 AND: - - MR. ANDRE JOLIVET, a French national, born on July 4, 1962 in Quimper, residing at 47, rue Henri Tariel 92130 Issy les Moulineaux , (hereinafter "THE FOUNDER"), - - REMOTE REWARD SAS, a French societe par actions simplifiee with a share capital of Euros 90,481,410, with its registered office at 4 ter rue de l'Ouest, 92100 Boulogne, registered in the Commercial Registry under the number 433458304 RCS Nanterre, represented by Mr. Andre Jolivet, in his capacity as President, (hereinafter "REMOTE REWARD"), (The Founder and Remote Reward being hereinafter collectively referred to as the "GUARANTORS"). (The Guarantors and the Investors being hereinafter collectively referred to as the "PARTIES" and individually as a "PARTY"). WHEREAS: 1. STEPMIND is a French societe anonyme, with a registered capital of Euros 34,709,907.90, having its registered office at 4 ter, rue de l'Ouest, 92100 Boulogne, registered with the Registry of Commerce and Companies under number 432 237 949 RCS Nanterre (hereinafter the "COMPANY"). The Company was incorporated on June 19, 2000. 2. The Company is engaged primarily in the business of the design and development of baseband integrated circuits, radio frequency integrated circuits (transceivers), as well as system and protocol stacks that address Wide Area Networks (GSM/GPRS/EDGE) and Wireless Local Area networks (802.11a, 802.11b, 802.11g, hiperlan 2) standards (the "BUSINESS"). 3. On the date hereof, the Company's share capital consists of 6,463,670 shares, all of the same category, with a par value of Euros 5.37 each. 4 Following the authorization by the Company's extraordinary shareholders' meeting on June 19, 2002, the Board of Directors of the Company granted on June 19, 2002, November 26, 2002 and June 18, 2003, respectively, 915,471, 76,060 and 32,140 employee warrants (Bons de Souscription de Parts de Createur d'Entreprise) (the "EMPLOYEE WARRANTS"), 1,012,683 of which remain validly granted as of the date hereof. 4. The Board of Directors of the Company called on October 22, 2003 a general meeting, to be held on November 12, 2003, to decide on (i) a reduction in the share capital of a total amount of Euros 9,943,063.561 by reduction of the par value of the shares from Euros 5.37 to Euros 3.8317 (to offset past losses of the Company) and on (ii) a reduction in the share capital of a total amount of Euros 24,702,207.64 by reduction of the par value of the shares from Euros 3.8317 to Euro 0.01 by allocation of such amount to a special "premium" account. 5. Subject to certain conditions being met, the Investors desire to participate in an investment in the Company (hereinafter the "INVESTMENT") for an aggregate maximum amount of fifteen million one thousand six hundred eighty-two Euros and fifty-eight (EUR 15,001,682.58). Pursuant to the terms and conditions defined in the investment agreement executed on the date hereof between the Parties and Alain Jolivet (the "INVESTMENT AGREEMENT"), the Investors have agreed to subscribe for an aggregate of 3,858,678 actions a bons de souscription d'actions (the "ABSA SHARES"), to be subscribed for in two installments: - subscription by the Investors for an aggregate of 2,858,280 ABSA Shares 1 for a total subscription price of EUR 7,488,693.60 (the "TRANCHE 1 INVESTMENT"); - depending on the circumstances, either (i) subscription by the Investors for an aggregate of 1,000,398 ABSA Shares 2, for a total subscription price of EUR 7,502,985, or (ii) exercise by the Investors of their Warrants 2004, giving the Investors the right to subscribe for an aggregate of 1,000,398 ABSA Shares 3 (the "TRANCHE 2 INVESTMENT"). 6. The Parties have also executed on the date hereof a shareholders' agreement (the "SHAREHOLDERS' AGREEMENT") which shall enter into force on the Closing Date (as defined below). Unless otherwise specified, the transactions described above shall be referred to as the "TRANSACTIONS". 7. In consideration of their Investment, the Investors requested the Guarantors to make certain representations and warranties with respect to the Company's activities, assets and liabilities which are set forth in this Agreement. This Agreement shall enter into force on the Closing Date. 8. The purpose of this Agreement is to set forth the terms and conditions of such representations and warranties and indemnification therefor in the case of inaccuracies therein. 5 NOW, THEREFORE, the Parties hereto agree as follows: 1. CERTAIN DEFINITIONS For the purposes of this Agreement, including the above recitals, the following terms shall mean: "ABSA SHARES" has the meaning ascribed to it in the recitals and shall include, as the context requires, reference to the ABSA Shares 1, the ABSA Shares 2 and/or the ABSA Shares 3; "ABSA SHARES 1" has the meaning ascribed to it in the Investment Agreement; "ABSA SHARES 2" has the meaning ascribed to it in the Investment Agreement; "ABSA SHARES 3" has the meaning ascribed to it in the Investment Agreement; "AGREEMENT" means the present agreement and its Schedules; "ALKANZ AGREEMENT" has the meaning ascribed to it Section 2.3.4; "BENEFIT PLANS" has the meaning ascribed to it in Section 2.16.2; "BUSINESS" has the meaning ascribed to it in paragraph 2 of the recitals; "CLAIM" has the meaning ascribed to it in Section 3.3; "CLAIM NOTICE" has the meaning ascribed to it in Section 3.3; "CLOSING DATE" means the date on which the ABSA Shares 1 shall be subscribed for and fully paid up by the Investors, in accordance with the Investment Agreement; "CONTRACTS" has the meaning ascribed to it in Section 2.17; "DAMAGES" has the meaning ascribed to it in Section 3.1; "EMPLOYEES" has the meaning ascribed to it in Section 2.16.1; "EMPLOYEE WARRANTS" has the meaning ascribed to it in the recitals of this Agreement; "ENCUMBRANCES" means any and all pledges, claims, privileges, liens, mortgages, charges, community property interests, security interests, "nantissements", "hypotheques", "privileges", "suretes", or similar encumbrances, as well as any "servitudes", or easements, provided, that 6 the term "Encumbrance" shall not include any license; "FINANCIAL ACCOUNTS" has the meaning ascribed to it in Section 2.9.1 of this Agreement; "FULLY DILUTED" refers to the capital of the Company, on an as-if-converted basis, i.e. assuming that all securities giving right to a portion of the capital and/or voting rights of the Company have been exercised, except for the Warrants and the Warrants 2004 (as such terms are defined in the Investment Agreement) attached to the ABSA shares; "GOVERNMENTAL AUTHORITY" means any domestic or foreign court or other judicial authority or governmental, regulatory or administrative body, department, agency, commission, authority or instrumentality; "GUARANTEE" means any obligation or undertaking, which may be in the form of a written guarantee, letter of comfort or letter of intent relating thereto, contingent or otherwise, of any person, directly or indirectly, (i) to guarantee the indebtedness of any other person, (ii) to indemnify or hold harmless any other person or (iii) to pay money to a third party for the benefit of another person; "INTELLECTUAL PROPERTY RIGHTS" has the meaning ascribed to it in Section 2.13; "INVESTMENT AGREEMENT" has the meaning described to it in paragraph 5 of the recitals; "JUDGMENTS" means any judgments, orders, injunctions, writs, decrees, rulings or awards of any court, arbitrator or other Governmental Authority; "KNOWLEDGE OF THE GUARANTORS" means after due inquiry by the Guarantors, in order to verify the accuracy of the representations and warranties by the Guarantors herein, of (i) with Alain Jolivet, in his capacity as directeur general of the Company and (ii) each other manager of the Company reasonably likely in view of his/her functions to have knowledge with respect to the subject matter of any particular representation and warranty; "LAW" means any applicable laws, regulations, directives, statutes and rules of any Governmental Authority; 7 "MATERIAL ADVERSE EFFECT" when used with respect to any event, circumstance, condition, fact, effect, or other matter, shall mean that such event, circumstance, condition, effect or other matter is reasonably likely to have a negative material effect on: (i) the current or prospective business, assets, financial condition, results or operations of the Company taken as a whole; or (ii) the ability of a Party or of the Company to fulfill on a timely basis any material obligation under this Agreement or to carry out the Transactions; but there shall be excluded therefrom any effect resulting from (i) any change after the date of this Agreement in the Law, French Generally Accepted Accounting Principles (French GAAP) or interpretations thereof, or (ii) changes in exchange rates, interest rates or in economic, business or financial market conditions generally; "NET CASH POSITION" means, (i) the sum of the following line items in the Company's balance sheet: valeurs mobilieres de placement, creances (clients et comptes rattaches), creances (autres creances) et disponibilites, minus (ii) the total Dettes set forth in the Company's balance sheet (not including dettes fiscales et sociales); "ORGANIZATIONAL DOCUMENTS" when used with respect to any Person having legal personality, shall mean its statuts, articles of incorporation, by-laws or similar constitutive document; "PERMITS" means any permits, authorizations, approvals, registrations and licenses granted by or obtained from any Governmental Authority; "PERSON" means a natural person, company, partnership, economic interest group, association, trust or unincorporated organization, or a government or any agency or political subdivision thereof; "PREMISES" means the premises that the Company uses to carry on its Business; "PROCEEDING" means any claim, action, suit, dispute or legal, administrative, arbitration or other alternative dispute resolution proceeding or investigation (whether civil, criminal or administrative); "REPRESENTATIVE OF THE means Andre Jolivet, who is appointed by GUARANTORS" each of the Guarantors to act on behalf of the Guarantors for the exercise of the Guarantee; 8 "REPRESENTATIVE OF THE means AGF PE, who is appointed by each of INVESTORS" the Investors to act on behalf of the Investors for the exercise of the Guarantee; "SECOND CLOSING DATE" means the consummation of the Tranche 2 Investment; "SHAREHOLDERS' AGREEMENT" has the meaning ascribed to it in paragraph 6 of the recitals of this Agreement; "SHARES" has the meaning ascribed to in Section 2.3.1; "ST AGREEMENT" has the meaning ascribed to in Section 2.17.1; "TAX" means taxes, duties, levies, fees, assessments and governmental charges of any kind, whether payable directly or by withholding, including without limitation, income, franchise, property, sales, customs, value added, employment, gains, and social security taxes and charges due to any mandatory scheme (including in respect of pension and retirement contributions, family allowance contributions and all other contributions assessed on salaries), together with any interest, penalties or additions to tax with respect thereto, imposed by any Governmental Authority; "TRANCHE 1 INVESTMENT" has the meaning ascribed to it in the recitals; "TRANCHE 2 INVESTMENT" has the meaning ascribed to it in the recitals; "TRANSACTION DOCUMENTS" means any of the following documents: - this Agreement, - the Shareholders' Agreement, - the Investment Agreement; "TRANSACTIONS" has the meaning ascribed to it in the recitals; "WARRANTS" has the meaning ascribed to it in the Investment Agreement; "WARRANTS 2004" has the meaning ascribed to it in the Investment Agreement. 2. REPRESENTATIONS AND WARRANTIES The Guarantors represent and warrant to the Investors that both as of the date hereof and as of the Closing Date (or, only as specifically provided below, as of the Second Closing Date): 2.1 AUTHORIZATION - POWER AND AUTHORITY 2.1.1 The Guarantors have full power and authority to execute and deliver the Transaction Documents. 9 2.1.2 The execution and delivery of this Agreement and the other Transaction Documents has been, and the implementation by the Company of all actions resulting from the Transaction Documents has been, or prior to the Closing Date will be, duly authorized and approved by all requisite corporate action, except for such actions that are specifically intended by the terms of the Transaction Documents to be approved after the Closing Date. 2.1.3 This Agreement and the other Transactional Documents, when executed and delivered, taking into account the effective date set forth herein and therein, will be valid and binding obligations of the Guarantors in accordance with their terms and will not breach any legal or regulatory provisions nor any Organizational Documents of the Company or of Remote Reward. The execution and delivery of this Agreement and the Transaction Documents do not conflict with and will not result in any default, violation, modification, suspension or termination of any contract or undertaking to which the Guarantors or the Company is a party. 2.2 DUE INCORPORATION AND MANAGEMENT The Company is duly and validly incorporated under French Law as a societe anonyme. Its Organizational Documents are in compliance with applicable Law. The corporate bodies of the Company were validly appointed and have validly operated, and all decisions by the aforesaid corporate bodies have been made in accordance with applicable Law. With the exception of the Shareholders' Agreement, there is no agreement relating to the management of the Company. The Company has all requisite corporate power, authorizations and authority to own its properties and assets and to carry on the Business as conducted as of the date hereof. 2.3 THE SHARES 2.3.1 The share capital of the Company prior to the completion of the Tranche 1 Investment, will be of an amount of EUR 64,636.70, consisting of 6,463,670 ordinary shares (the "SHARES"), with a nominal value of EUR 0.01 per share. All such shares are validly issued, fully paid and, other than as contemplated in the Transaction Documents, free from any Encumbrances. The allocation of the share capital on a Fully Diluted basis (i) as of the date hereof, and (ii) immediately prior to the completion of the Tranche 1 Investment, is described in SCHEDULE 2.3.1. The Shares and the Employee Warrants are the only outstanding interests in the share capital of the Company. 2.3.2 None of the Shares have been issued and, to the Knowledge of the Guarantors, none of the Shares have been transferred, in violation of any pre-emptive or similar rights of any other Person or of any securities law of any jurisdiction applicable to such issuance. 10 Since the incorporation of the Company, no interim dividend or other distribution has been declared on the Shares or has been paid or agreed to be paid from the reserves of the Company. All Shares give right to one single voting right and to dividends in proportion to the share capital that such shares represent. All Shares give right to the same rights and there exist no statutory or extra-statutory provisions relating to double voting rights or to the limitation of the voting right in the shareholders meetings of the Company. With the exception of the provisions of the Shareholders' Agreement and except as provided in the current statuts of the Company, the Shares are transferable, subject to no restrictions. 2.3.3 SCHEDULE 2.3.3 sets forth the accurate share capital of the Company on a Fully Diluted basis (i) immediately following subscription for the ABSA Shares 1 in accordance with the terms of the Investment Agreement and (ii) immediately following the Second Closing. 2.3.4 Except for the Employee Warrants, as set forth in the statuts of the Company as of the date hereof, as contemplated in the Transaction Documents and as set forth in the next paragraph, no Person has any outstanding or authorized option, warrant, bond, right, call, commitment, subscription right, conversion right, exchange right, pre-emptive right or other securities or agreements (written or oral, firm or conditional) or any right or privilege (whether by Law, pre-emptive or contractual) that may by its terms be converted into an option, warrant, bond, right, call, commitment, subscription right, conversion right, exchange right, pre-emptive right or other security or agreement pursuant to which (i) the Guarantors and/or the Company is or may be committed to issue, sell, transfer or otherwise dispose of, redeem or acquire any of the Shares or any other interest in the share capital of the Company, other than as contemplated by the Investment Agreement, or (ii) the Company and/or the Guarantors has/have granted, or may be obligated to grant, to any Person other than the Parties, a right to participate in the revenues or profits of the Company. Notwithstanding the foregoing, Alkanz Co. Ltd. has been or will be appointed to act as an intermediary for the completion of the Investment pursuant to a Consultancy Agreement among the Company, Alkanz Ltd. and Remote Reward. Pursuant to such agreement, Alkanz Ltd. is entitled to receive (i) a fee payable in cash in an amount of EUR 63,654 upon completion of the First Capital Increase by MWGL and EUR 63,861 upon subscription by MWGL for the ABSA Shares 2, and (ii) 16,197 ordinary shares upon completion of the First Capital Increase and 5,669 ordinary shares upon subscription by MWGL for the ABSA Shares 2 or exercise of the Warrants 2004. The cash portion of the fees shall be paid by the Company and the share portion shall be assumed by Remote Reward by execution of a call option agreement between Alkanz Co. Ltd. and Remote Reward. 11 2.4 ISSUANCE OF THE ABSA SHARES RESERVED FOR THE INVESTORS The ABSA Shares 1 to be issued to the Investors shall, at the Closing Date and, the ABSA Shares 2 or the ABSA Shares 3, as the case may be, shall, at the Second Closing Date, be issued in accordance with the Investment Agreement, free from any Encumbrances, subject to the provisions of the Shareholders' Agreement. The ABSA Shares will be validly issued and in particular will not be issued in violation of any preemptive right or similar rights applicable to such issuance. 2.5 BANKRUPTCY The Company has not been declared unable to meet its debts as they fall due, been held in default by lenders under any material debt financing, nor been subject to bankruptcy or equivalent proceedings. No administrative receiver or manager has been appointed to manage any of the properties, assets or business of the Company. The Company has not been subject to any proceedings provided for by French Statute n(degree)84-148 dated March 1, 1984 relating to prevention and treatment of companies' difficulties or any similar regulation, and, in particular, the Company is not in a cessation de payment position. No meeting of the board of directors or the shareholders has been convened at which a resolution has been proposed, and no resolution has been passed, for the dissolution or liquidation of the Company or split (scission) of the Company. 2.6 GOING CONCERN (FONDS DE COMMERCE) The going concern (fonds de commerce) of the Company is free and clear of all Encumbrances, except for Encumbrances in the ordinary course of business. The Company is not a party to any contract granting to any third party any rights with respect to its fonds de commerce (including location-gerance or societe en participation). The fonds de commerce of the Company has been created, and was not acquired, by the Company. Since the incorporation of the Company, there has been no Material Adverse Effect concerning the fonds de commerce of the Company, to the Knowledge of the Guarantors or which the Guarantors should reasonably be expected to have known, which has a significant negative effect on the current value of the Company. It is acknowledged that the reserves by the statutory auditor set forth in the Interim Accounts (as defined below) do not constitute such a Material Adverse Effect. 2.7 INTERESTS IN OTHER PERSONS The Company does not own any shareholding, equity interest or voting rights in any company incorporated under the Law of any jurisdiction, and the Company is not a member of any economic interest grouping, partnership, association or unlimited 12 liability legal entity or other entity of any kind, or its equivalent under foreign law, excluding memberships in any professional association and investments in valeurs moblieres de placement (including 7,800 shares of STMicroelectronics). The Company does not serve as legal representative, manager or director, or member of a supervisory board and, more generally, does not hold a similar position, in law or in fact, in any company, grouping, partnership, association, unlimited liability legal entity or other entity whether or not a legal entity or its equivalent under foreign law. 2.8 PRODUCTS The products provided or sold by or on behalf of the Company comply with applicable Law and to the Knowledge of the Guarantors, do not contain any material defects, (other than ordinary course defects that are customary in the relevant industry or those disclosed in SCHEDULE 2.8), which are reasonably likely to materially negatively affect the conduct of the Business. Based on the reports summarized and attached as SCHEDULE 2.8, the Company has reasonably concluded that the products covered thereby have satisfactorily passed the internal tests of the Company, in each case taking into account the relevant stage of development of each such product. 2.9 FINANCIAL ACCOUNTS - CORPORATE AND FINANCIAL RECORDS - ACCOUNTS RECEIVABLE - OFF BALANCE SHEET LIABILITIES 2.9.1 Attached as SCHEDULE 2.9.1(I) are (i) the audited financial accounts of the Company as of December 31, 2002, together with the notes thereto and (ii) the interim unaudited financial accounts of the Company as of July 31, 2003, which were subject to a limited review by the statutory auditor of the Company, together with the notes thereto (the "INTERIM ACCOUNTS") (the Interim Accounts and the December 31, 2002 accounts being collectively referred to as the "FINANCIAL ACCOUNTS"). The Financial Accounts (i) were prepared in accordance with generally accepted French accounting principles ("FRENCH GAAP") applied on a consistent basis and (ii) are true, complete and accurate and, except as set forth on Schedule 2.9.2(II), present fairly the entirety of the assets and liabilities and the financial position of the Company at the date thereof, subject, in the case of the Interim Accounts, to normal year-end adjustments. 2.9.2 The corporate records, account books, files and other corporate and financial records of the Company have been fully, properly and accurately kept, completed and maintained in accordance with all applicable legal and administrative requirements in all material respects, and do not require any material rectification. All such records are under the exclusive ownership and control of the Company or its outside advisors. 13 2.9.3 All notes and accounts receivable, payable to, or for the benefit of, the Company reflected in the Financial Accounts are valid, current and collectible in the ordinary course of business in amounts not less than the aggregate amount thereof (net of related reserves reflected in the Financial Accounts) carried on in the books of the Company and, to the Knowledge of the Guarantors, will not to be subject to any counterclaims or set-offs. 2.9.4 Except as reflected in the Interim Accounts, the Company does not have any off-balance sheet liabilities (engagements hors bilan) other than those reflected in the Financial Accounts, and in particular, has not granted any Guarantees (in any form whatsoever, including as a comfort letter), sureties or warranties with regard to the performance of obligations contracted by third parties (including shareholders, corporate officers or members of their staff). The Company has no material contingent liabilities, except current liabilities, which could be reasonably expected to have, either in any individual case or in the aggregate, a Material Adverse Effect. 2.9.5 The Net Cash Position of the Company as of October 31, 2003 is set forth on SCHEDULE 2.9.5. 2.10 TAX MATTERS 2.10.1 The Company has properly and timely filed, or caused to be filed with all appropriate Governmental Authorities, all Tax returns, reports and declarations required by applicable Law, each of which returns, reports and declarations correctly reflects the Tax liabilities and all other information required to be reported therein. All Taxes required to be paid by the Company have been paid in full when due. The Company has not performed any action outside the ordinary course of business which creates or will create a tax liability not recorded in the Financial Accounts. Except as set forth on SCHEDULE 2.10.1, there are no audits, investigations or claims pending or threatened in writing relating to Taxes. No deficiencies for any Taxes which remain unpaid have been assessed against the Company. 2.10.2 Except as set forth on SCHEDULE 2.10.2, the Company does not benefit from any favorable Tax treatment depending on undertakings of the Company, which will continue to bind the Company after the Closing Date. 2.11 REAL PROPERTY 2.11.1 The Company may validly use the Premises The use of the Premises is in compliance with any material provision of applicable Law with respect to operating the Business. The Company does not own any real property. 14 2.11.2 The terms and conditions of the leases under which the Company leases the Premises are subject to the laws and regulations applicable to commercial leases ("baux commerciaux") (i.e. Articles L.145-1 up to L.145-60 of the French Commercial Code). 2.12 PERSONAL PROPERTY The equipment, furniture, fixtures and other items of tangible personal property owned, leased or used by the Company (hereafter the "MACHINERY AND EQUIPMENT") are in good operating condition and repair subject to normal wear and tear and are in the possession and under the control of the Company. Except for office equipment and vehicles subject to ordinary course business leases, the Company owns outright and has good and marketable title, free and clear of any Encumbrance, to such assets and the Company is not in breach or default with respect to any assets leased by them. The machinery and equipment are sufficient and adequate to allow the Company to carry on its business as presently conducted. 2.13 INTELLECTUAL PROPERTY 2.13.1 To the Knowledge of the Guarantors, the Company validly owns or has a valid right to use all of the intellectual property rights, including but not limited to patents, trademarks, trade names, processes, software, trade names, domain names, that are necessary for the Company to carry on its Business as currently conducted (the "INTELLECTUAL PROPERTY RIGHTS"). The Company has taken all measures consistent with industry practice in order to ensure the protection of all Intellectual Property Rights owned by it. The Company has not been notified of any claim that has been filed, nor has the Company received any claim or threat of a claim in writing, alleging that the Intellectual Property Rights owned by the Company infringe or conflict with the Intellectual Property Rights of any third party, nor, to the Knowledge of the Guarantors has the Company been notified or received any such claim relating to Intellectual Property Rights which are used, but not owned, by the Company. In particular, the Company validly owns all of the Intellectual Property Rights developed by any current and former employees and all current and former consultants and independent contractors of the Company during their employment or in connection with their retention by the Company. 2.13.2 To the Knowledge of the Guarantors, the Intellectual Property Rights owned by the Company do not conflict with any proprietary, public or registered rights of any third party and do not conflict with any other rights of any third party and there are no infringements of such rights by any third party. 15 2.14 INSURANCE The Company maintains valid and non-expired insurance policies against loss, damage and liability with customary and usual provisions. All premiums relating to such insurance have been paid when due. The Company has not committed any act or omission reasonably expected to lead to the termination, rescission or detrimental amendment of any or all of the insurance policies. The Company has not received written notice of cancellation of any insurance policy and there is no fact or event, to the Knowledge of the Guarantors, that provides a basis for any such cancellation. 2.15 LITIGATION There are no Proceedings pending or, to the Knowledge of the Guarantors, threatened, against the Company or the Founder (that would prevent him from holding his office) and there is no other dispute, to the Knowledge of the Guarantors, which could reasonably be expected to lead to such Proceedings. 2.16 EMPLOYEES 2.16.1 SCHEDULE 2.16.1 sets forth an accurate and complete list of all employees of the Company (collectively, the "EMPLOYEES") as of the date hereof. Such list contains (i) the name of each Employee, (ii) his/her job title and (iii) the current annual compensation paid or payable. The Company has not committed itself, except in the usual course of business or as set forth in Article 7 of the Investment Agreement or in Section 2.22(iii) below, to increasing the remuneration and benefits or modifying the employment agreements of the employees. 2.16.2 With the exception of the Employee Warrants, as set forth on SCHEDULE 2.16.2 or in Section 2.222(iii) below, or as contemplated in Article 7 of the Investment Agreement, there are no severance or other similar contracts and no pensions or retirement benefits, deferred compensation, bonus, profit sharing, stock purchase or stock option schemes, vacation benefits, sickness or disability benefits, company saving plans or employee funds or similar employee benefit plans or arrangements or other forms of incentive compensation or post-retirement insurance benefits or early retirement agreements of the Company (such plans, funds or arrangements, the "BENEFIT PLANS") which provide for any individual or collective terms beyond mandatory applicable statutory or regulatory obligations. The Company complies with all mandatory applicable statutory or regulatory obligations concerning Benefit Plans. 2.16.3 All employment contracts to which the Company is a party or is bound have been entered into under ordinary and customary conditions. 16 2.16.4 No sum is due to any former employee or any current or former director (including any mandataires sociaux) of the Company in relation to their employment agreement or as consideration of their duties as directors other than rights and expense reimbursements already determined in their amount but not due yet. 2.16.5 The Company is in compliance in all material respects with all applicable legal requirements and agreements (in particular labor and social security regulations, as well as applicable collective bargaining agreements towards employees and ex-employees) relating to employment, employment practices, termination of employment, wages, bonuses and terms and conditions of employment, including employee compensation matters. 2.17 CONTRACTS 2.17.1 All contracts that are material to the Business, to which the Company is a party (the "CONTRACTS") are valid, binding and, to the Knowledge of the Guarantors, enforceable in accordance with their terms and the Company is not in breach of any Contract in such a way as to give rise to any material liability of the Company or to justify the termination of such Contract. There is no pending or, to the Knowledge of the Guarantors, any threatened, commercial litigation with the agents, distributors, suppliers, of any nature whatsoever, likely to affect the good performance, the qualification of the Contracts or their renewal. 2.17.2 None of the Contracts entitles the counterparty to terminate, modify or accelerate any obligations or rights under such Contract according to its express terms as a result of the consummation of the Transactions. Except for the Cooperation Agreement, dated June 30, 2003, between the Company and ST Microelectronics NV (the relevant provision of such agreement being attached as SCHEDULE 2.17.2), none of the Contracts entitles the counterparty to terminate, modify or accelerate any obligations or rights under the relevant Contract according to its express terms as a result of (i) a change in control of the Company, (ii) the modification of the share capital of the Company or (iii) the termination of the employment or office of the Founder in the Company. The Company has not received or given written notice that it or any other party is in material default under any Contract. The Company has not renounced any right resulting from any Contract that could have a Material Adverse Effect. 2.17.3 Except as set forth on SCHEDULE 2.17.3, the Company is not a party to any contract providing any non-competition commitment by the Company nor any restriction on the right of the Company to conduct its Business in any specific market or territory. 17 2.18 COMPLIANCE WITH LAW The operations of the Company have been and are conducted in all material respects in compliance with the Permits that are necessary up for the conduct of the Business, with all applicable Law relating to the Business or the Company's assets and with all Judgments applicable to the Company. The Company has executed, when necessary and in accordance with applicable Law, all required declarations and notifications to all competent authorities. 2.19 DEBTS The Company is not a party and is not bound to any loan agreement, repurchase agreement, mortgage, security agreement, guarantee (except as disclosed in the Interim Accounts) or other document or arrangement relating to the borrowing of money or for lines of credit, not including the advance in the amount of EUR 850,000 to the Company by ANVAR disclosed in Section 2.21 below, which is reimbursable by the Company in whole or in part depending upon the success of the underlying product. 2.20 RELATIONSHIPS BETWEEN THE COMPANY AND THE SHAREHOLDERS No shareholder of the Company directly or indirectly has any indebtedness to the Company for borrowed money, nor does the Company have any indebtedness to any shareholder of the Company for borrowed money. No shareholder owns, in whole or in part, any asset, of any nature whatsoever, necessary for the Company to carry on its Business. No shareholder has granted a guarantee of any nature whatsoever to the Company or is the beneficiary of a guarantee of any nature whatsoever granted by the Company. The Guarantors have not made any shareholder loan (compte courant) to the Company which has not been repaid in full. The contracts entered into by the Company which fall into the scope of Article L.225-38 of the French Commercial Code have been validly authorized or ratified by the competent corporate bodies of the Company. All transactions between the Company, on the one hand, and the Guarantors, on the other hand, were achieved on prices, terms and conditions which were no less favorable to the Company than would be negotiated in an arm's-length transaction with independent third parties other than the Company. 2.21 SUBSIDIES Except as set forth on SCHEDULE 2.21, the Company does not currently benefit from any subsidy, aid, Tax break, grant program, loan at a preferential rate, special contract or lease or similar benefit made available to the Company by a Governmental Authority. 18 2.22 EVENTS THAT OCCURRED SINCE JULY 31, 2003 Since July 31, 2003: (i) There has been no Material Adverse Effect specific to the Company and the Business. (ii) There has been no significant increase in the expenses or commitments of the Company, except in the ordinary course of business or as contemplated or disclosed herein. (iii) Except as set forth on SCHEDULE 2.22(iii) or as contemplated in Article 7 of the Investment Agreement (x) the Company has not hired or given notice of termination of employment to any employee or manager (mandataire social) of the Company and no employee or manager has resigned from his or her position and (y) there has not been any substantial change in the employment agreement or in the conditions applicable to any employee or manager of the Company. (iv) The Company has not executed any distribution agreement or sales agent contract; provided, that the Company is in the process of negotiating and may execute prior to the Closing Date certain sales representative or distributor agreements as set forth on SCHEDULE 2.22(iv). (v) Except as contemplated in the Transaction Documents, the Company has not made, agreed to make or entered into any: - investment for an amount exceeding 200,000 Euros; - transfer of assets for an amount exceeding 100,000 Euros; - issuance of any security or undertaking to issue any security of the Company; - pledge or guarantee granted by the Company on any of its assets; - substantial change to any Contract to which the Company is a party (except that it has been orally agreed with the non-exclusive sales representative of the Company in Korea that such sales representative may market to Samsung Mobile at a reduced commission (2% instead of 4% for other accounts)); - termination of any agreement with any significant customer or supplier of the Company. 2.23 DUE INQUIRY The representations and warranties contained in this Agreement do not contain any untrue, inaccurate or incomplete statement of a material fact or omit to state any material fact necessary in order to make any such representations or warranties not misleading. In particular, the Guarantors have made due inquiry, in order to verify the 19 accuracy of the representations and warranties by the Guarantors set forth herein, of (i) Alain Jolivet, in his capacity as directeur general of the Company, and (ii) each other manager of the Company reasonably likely in view of his or her functions to have knowledge with respect to the subject matter of any particular representation and warranty. 3. INDEMNIFICATION BY THE GUARANTORS 3.1 SCOPE OF THE GUARANTEE From and after the Closing Date and subject to the provisions of this Article, the Guarantors, acting jointly and severally (solidairement et conjointement), undertake to indemnify the Investors in respect of any of the following ("DAMAGE" or "DAMAGES"): (i) any liability or loss incurred or sustained by the Company which should have been, but which was not, accounted for (or, if accounted for, which was insufficiently accounted for) in the Financial Accounts, and which was not subject to any reserve (or, if subject to a reserve, was subject to an insufficient reserve), in the Financial Accounts, in each case to the extent the origin or cause is found in, or which otherwise results from, an event that occurred or a circumstance that existed prior to the Closing Date, excluding any liability or loss that was incurred or sustained by the Company in the ordinary course (including in connection with the transactions contemplated in the Transaction Documents); (ii) any claim, liability, loss, expense (including legal and accounting expense) or damages incurred or sustained by the Company, relating to or arising out of any inaccuracy in any representation or warranty contained in this Agreement and relating to any event occurring or any condition existing at or prior to the Closing Date; and (iii) any amounts required to be paid by the Company as a result of in in relation to the tax audit disclosed on SCHEDULE 2.10.1. provided, that in no event shall the Guarantors be deemed to provide any guarantee whatsoever with respect to the amount of tax loss carryforwards included in the Financial Accounts. With respect to any Damage, the Guarantors shall pay to each Investor a percentage of such Damage equal to the percentage ownership of such Investor in the capital of the Company as set forth opposite such Investor's name on SCHEDULE 3.1 hereto. As an exception to the above, the Guarantors, acting jointly and severally, undertake to pay to the Investors 100% of the amount of any Damage imposed upon or incurred by the Investors, relating to or arising out of, directly or indirectly, any inaccuracy or breach of the representation and warranty contained in Section 2.4 of this Agreement. 20 3.2 OBLIGATION TO INFORM From the effective date of this Agreement until the expiration of the Claims Period, the Representative of the Guarantors shall notify the Representative of the Investors of any information or event which is reasonably likely to result in any Damage, within thirty (30) days following actual Knowledge by any Guarantor of such information. The Representative of the Guarantors shall send in a timely manner to the Representative of the Investors a copy of all documents relating to the potential exercise of this guarantee, and shall transmit to the Representative of the Investors upon their first request all additional information or documents requested by the Representative of the Investors. Provided, that the failure of the Representative of the Guarantors to comply with this provision shall not increase the rights of the Investors hereunder to any indemnification except insofar as such failure shall itself increase the amount of Damages otherwise existing. 3.3 CLAIM NOTICE The Representative of the Investors shall deliver to the Representative of the Guarantors a notice setting forth any claim for indemnification (a "CLAIM NOTICE"), including but not limited to any claim by any third party or any litigation or pre-litigation procedure, likely to reasonably entail the exercise of this Guarantee (a "CLAIM"). The Claim Notice shall also set forth a description, in reasonable detail, of the events justifying, in the bone fide opinion of the Investors, the exercise of the Guarantee. Failing any answer from the Representative of the Guarantors or any Guarantor within sixty (60) days as from the receipt of the Claim Notice, the corresponding indemnification shall be deemed accepted by the Guarantors. 3.4 ASSESSMENT OF THE AMOUNT OF INDEMNIFICATION TO BE PAID TO THE INVESTORS The Guarantors shall be jointly and severally liable for the payment to the Investors of any amount of indemnification due in compliance with the terms of this Guarantee. As between the Guarantors, the final liability of each of the Guarantors for the payment of such amount shall be in proportion to their shareholdings in the Company as of the date of receipt of the corresponding Claim Notice. Without limiting the joint and several nature of the liability of the Guarantors hereunder, the Investors shall not seek from any Guarantor the portion of indemnification due by the other Guarantor unless and until such other Guarantor shall have failed to make timely payment of such indemnification due hereunder in accordance with Section 3.8 hereof. The Investors shall not be entitled to make a claim for indemnification other than for the payment of the amount equal to interests and penalties for late payment relating to any tax reassessment resulting in a mere transfer of income or charges from one fiscal year to another, and which does not generate any additional tax burden for the Company in relation to that which it would have borne in the absence of such reassessments. 21 The amount of Damage shall be calculated after deduction of: - the reintegration of the amount after Tax of any reserve or provision, which has its origin, cause or source in the Damage in question; - any insurance proceeds or other contribution that the Company has received as of the date of assessment of the Damage with respect thereto; - or any other benefit to the Company that directly offsets such Damage (except for any immediate or potential Tax benefit). 3.5 DURATION OF THE GUARANTEE The representations and warranties of the Parties hereto shall survive the Closing Date and shall remain in full force and effect for a period of eighteen months after the Closing Date; provided, however, the representations and warranties related to Taxes to which the Company is or may become liable shall survive until the expiration of the statute of limitations applicable thereto, increased by three months. The Representative of the Investors must provide written notification, with a reasonable description, of all Claims, even if the amount of the corresponding Damage is not yet final, to the Representative of the Guarantors on or before the expiration of the survival period relevant to such claim (the "CLAIMS PERIOD"). The Guarantors shall remain liable after expiration of the Claims Period indicated above for any Damage resulting from or related to any Claim which has been validly notified by the Investors (even if the amount of such Damage is not yet final when claimed) prior to the expiration of the Claims Period. With respect to any claim for indemnification hereunder relating to or arising from any fact that is reasonably foreseeable to result in any basis for a claim for indemnification hereunder, of which the directeur general of the Company had actual knowledge prior to the expiration of the Claims Periods but which was not disclosed to the Investors prior to the expiration of the Claims Period, the Claims Period shall be extended to the earlier of (i) 30 days after the date on which any Investor shall be notified of such fact or (ii) September 30, 2006. 3.6 TRIGGERING THRESHOLD No indemnification shall be due unless the aggregate amount of Damages (excluding Damages contemplated in Section 3.1(iii) above) exceeds EUR 200,000. If such condition is met, the Investors shall be indemnified as from the first Euro of Damages. 22 3.7 CEILING The aggregate amount of indemnification that may be paid to the Investors under this Agreement shall not exceed two thirds of the aggregate amount invested by the Investors in accordance with the Investment Agreement (i.e., EUR 5,000,000 (in the event the ABSA Shares 2 are not subscribed for) or EUR 10,000,000 (in the event the ABSA Shares 2 are subscribed for)). The limitations sets forth above in Sections 3.6 and 3.7 shall not apply to any Damage resulting from any fraudulent act or omission by any Guarantor. 3.8 PAYMENT Any amount owed to the Investors by the Guarantors under this Article 3 shall be paid to the Investors within seventy (70) days after the receipt by the Guarantors of the Claim Notice in the event the Guarantors agree with the amount owed to the Investors as set forth in the Claim Notice or do not timely respond to the Claim Notice as set forth above. In case of dispute between the Investors and the Guarantors with respect to the amount owed to the Investors set forth in the Claim Notice, any amount owed to the Investors by the Guarantors under this Article 3 shall be paid to the Investors within forty (40) days after the final agreement between the Investors and the Guarantors on such amount or, failing any such agreement, within forty (40) days after an enforceable non-appealable decision of a court in accordance with Section 4.1. 3.9 GUARANTEE OF THE GUARANTEE The payment by the Guarantors under this Agreement are guaranteed by pledge agreements (comptes d'instruments financiers) to be executed on the Closing Date between the Investors and each Guarantor, pursuant to which each of the Guarantors pledges 75 % of all the Shares it owns as of the Closing Date as described on SCHEDULE 2.3.1 in favor of the Investors as a guarantee of their indemnification obligations under this Agreement; provided, that (i) such pledge may be exercised only to the extent any Guarantor shall not have made timely payment, as provided in Section 3.8, of any indemnification due hereunder and (ii) in the event such pledge is exercised, the value of the Shares shall be determined as of the date of the related Claim Notice by agreement by the Parties or, failing such agreement, in accordance with the valuation procedure set forth in Section 4.2(d) of the Shareholders' Agreement. 23 4. MISCELLANEOUS 4.1 LAW - JURISDICTION This Agreement shall be governed by and construed in accordance with French law. Any dispute arising out of or relating to this Agreement shall be submitted to the Commercial Court of Paris (Tribunal de Commerce de Paris), to which the Parties hereby irrevocably agree. 4.2 MODIFICATION OF THE AGREEMENT No modification to the Agreement shall be effective unless contained in a writing signed by a duly authorized representative of each of the Parties. 4.3 NOTICE BETWEEN THE PARTIES Any notice, request, formal notice or other communication pursuant to the provisions of this Agreement ("NOTICE") shall be made in writing to the addresses set forth below and shall be deemed to have been properly served: (i) on the date of delivery, in the case of delivery by hand to the Party on which notice must be served; (ii) for all Parties other than the Founder, on the date of transmission, in the case of transmission by fax, followed by telephone confirmation of receipt immediately following completion of the transmission; or (iii) on the third day following pre-paid delivery by a recognized express international courier service (e.g., DHL). The address for Notice to the Founder shall be the residential addresses set forth on page 1 of this Agreement. Any Party may change its address for purposes of this Section 4.3 by sending the other Parties a written notice of its new address in the manner provided above. Party: AGF Innovation 3, AGF Innovation 4 or AGF Innovation 5, notice shall be sent to AGF PE at the following address: Address: 11, rue Scribe, BP 293 75425 Paris CEDEX 09 Attention: Guillaume Lautour/Benoist Grossmann Tel: 01 58 18 56 56 Fax: 01 42 65 56 81 Party: Mighty Wealth Group Limited Address: Unit B3, 22/F, Unimix Ind. Centre, 2 Ng Fong Street, San Po Kong, Kowloon, Hong Kong Attention: Tony Cheung Tel: 852-2649-3739 Fax: 852-2648-8806 24 Party: Nam Tai Electronics, Inc. Address: c/o Nam Tai Group Management Ltd. 15/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central Hong Kong Attention: Joseph Li Tel: (852) 2263 1218 Fax: (852) 2263 1223 Party: REMOTE REWARD Address: 4 ter, rue de l'Ouest, 92100 Boulogne Attn: President (Andre Jolivet) Tel: 01.41.10.29.10 Fax: 01.41.10.29.28 4.5 NO WAIVER The failure to partially or totally exercise any right whatsoever resulting from the provisions of the Agreement shall not be deemed a waiver of this right or any other right arising from the Agreement for the future. 4.6 ENTIRE AGREEMENT This Agreement, with its schedules, sets forth the entire agreement of the Parties with respect to the business referred to herein. Those documents shall prevail over any negotiations, discussions, communications, understandings or prior agreements between the Parties relating to the subject matter of this Agreement and over any earlier drafts of this Agreement which are all subsumed in these documents. 4.7 SUPPLEMENTARY AGREEMENTS; WAIVERS No supplementary agreement or amendment to this Agreement shall be valid unless memorialized by a writing signed by the Parties hereto. Waiver by a Party of any condition or waiver of enforcement of a breach of any provision, term or covenant contained in this Agreement at one or more times shall not be considered or construed as a recurring or continuing waiver of that condition or of the right to enforce a breach of any other provision, term or covenant of this Agreement. 25 4.8 SUCCESSORS, HEIRS AND ASSIGNS; THIRD-PARTY BENEFICIARIES This Agreement shall inure to the benefit of and be binding on the Parties and their respective successors, heirs and assigns, regardless of whether they are minors or otherwise under a disability, provided, however, that unless otherwise expressly provided for herein, no Party may assign or delegate any of the obligations created under this Agreement without the prior written consent of the other Parties. As an exception to the above, in case of transfer of the ABSA Shares by the Investors in accordance with Section 4 of the Shareholders' Agreement, the Investors may transfer the benefit of this Agreement to the transferee of such ABSA Shares without the prior written consent of the Guarantors. 4.9 GENERAL COVENANT The Parties hereto shall sign and deliver all documents, provide all information and take or prevent the taking of all reasonable and lawful measures that may be necessary or appropriate to achievement of the purpose of the objects of this Agreement. 4.10 SEVERABILITY This Agreement shall be deemed severable and the fact that any term or provision hereof may be invalid or impossible to perform shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. In addition, the Parties shall replace any invalid or unenforceable term or provision hereof with a valid and enforceable provision as similar as possible to the invalid or unenforceable provision. 4.11 HEADINGS, CONSTRUCTION The headings in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 4.12 CONFIDENTIALITY The Parties undertake to keep this Agreement strictly confidential. No Party shall disclose or permit the disclosure of the existence or of all or any part of this Agreement to third parties except: - with the prior consent of the other Parties, 26 - in the case of litigation between the Parties, in which event, only information strictly necessary for the defense of each party may be disclosed, - if the disclosure of certain information is requested by any competent authorities by law or regulation, including any regulatory authorities, - to the Parties' legal counsel. 4.13 DISCLOSURE Any item disclosed on any schedule or with respect to any representation and warranty set forth herein shall be deemed to be disclosed with respect to all representations and warranties where such deemed disclosure is reasonable. Without limiting the foregoing, the description of the disclosure of the Alkanz Contract, including the cash payable and the shares of the Company to be transferred in accordance with the terms of such contract, shall be deemed to be disclosed to the Investors in respect of each relevant representation and warranty. IN WITNESS THEREOF, the Parties have entered into this Agreement on November 27, 2003, in eight (8) original counterparts. Mighty Wealth Group Limited REMOTE REWARD By: /s/ Tony Cheung By: /s/ Andre Jolivet -------------------------- ---------------------------- Name: Tony Cheung Name: Mr. Andre Jolivet Nam Tai Electronics, Inc. By: /s/ Joseph Li --------------------------- --------------------------------- Name: Joseph Li Mr. Andre Jolivet AGF Innovation 3 AGF Innovation 4 By: AGF Private Equity By : AGF Private Equity By: /s/ Guillaume Lautour By : /s/ Guillaume Lautour ---------------------------- ----------------------------- Name: Guillaume Lautour Name : Guillaume Lautour AGF Innovation 5 By : AGF Private Equity By: /s/ Guillaume Lautour ---------------------------- Name: Guillaume Lautour 27 LIST OF SCHEDULES SCHEDULE 2.3.1: Allocation of the share capital on a Fully Diluted basis (i) as of the date of signature and (ii) prior to the completion of the Tranche 1 Investment SCHEDULE 2.3.3: Allocation of the share capital on a Fully Diluted basis of the Company (i) after subscription of the ABSA Shares 1 and (ii) after the Second Closing SCHEDULE 2.8 Reports regarding product testing SCHEDULE 2.9.1(i): Audited financial accounts of the Company as of December 31, 2002 and interim unaudited financial accounts as of July 31, 2003 SCHEDULE 2.9.1(ii) Exception to financials statement representation. SCHEDULE 2.9.5 Net Cash Position of the Company as of October 31, 2003 SCHEDULE 2.10.1 Tax audit SCHEDULE 2.10.2 Description of favorable Tax treatment SCHEDULE 2.16.1: List of all employees of the Company as of date of execution, including name, title and current annual compensation SCHEDULE 2.16.2 List of all Benefit Plans in excess of statutory minimums SCHEDULE 2.17.2 Change of Control provision of the ST Agreement SCHEDULE 2.17.3 List of all Contracts including non-compete commitment or otherwise restricting the right of the Company to do business in any specific territory SCHEDULE 2.21 List of subsidies, tax breaks, aids, loan at preferential rate, etc. SCHEDULE 2.22(iii) Description of new hires, terminations and changes in conditions of employment. SCHEDULE 2.22(iv) List of sales representative or distributor contracts under negotiation. SCHEDULE 3.1 Percentage of Damages to be indemnified for each Investor EX-4.28 23 u98916exv4w28.txt SUPPLEMENTAL AGMT JAN 2, 2004 Exhibit 4.28 SUPPLEMENTAL AGREEMENT STEPMIND AMONG THE UNDERSIGNED: - - MR. ANDRE JOLIVET, a French national, born on July 4, 1962, in Quimper, France, residing at 47 rue Henri Tariel, 92130 Issy les Moulineaux, France, - - MR. ALAIN JOLIVET, a French national, born on April 14, 1949, in Plogastel Saint-Germain, France, residing at 1 rue du General Gouraud, 92190 Meudon, France, (hereinafter collectively referred to as the "FOUNDERS") - - REMOTE REWARD SAS, a French societe par actions simplifiee with a share capital of EUR 90,481,410, with its registered office at 4 ter rue de l'Ouest, 92100 Boulogne, registered in the Commercial Registry under the number 433458304 RCS Nanterre, represented by Mr. Andre Jolivet, in his capacity as President, (hereinafter "REMOTE REWARD"), AND - - AGF INNOVATION 3, AGF INNOVATION 4, AGF INNOVATION 5, fonds communs de placement dans l'innovation, each represented by its managing company, AGF PRIVATE EQUITY, a French societe par actions a directoire et conseil de surveillance with a share capital of Euros 1,000,000, with its registered office at 11, rue Scribe, BP 293, 75425 Paris Cedex 09, registered in the Commercial Registry under the number 414 735 175 RCS Paris, duly empowered to so represent each such entity, itself represented by Mr. Guillaume Lautour, duly empowered for the purpose hereof, (hereinafter "AGF PE"), - - MIGHTY WEALTH GROUP LIMITED, an international business company incorporated in the British Virgin Islands, with a share capital of USD 50,000, with its registered office at Palm Grove House, P.O. Box 438, Road Town, Tortola, BVI, registered under the number 565041, represented by Mr. Tony Cheung, in his capacity as Director, (hereinafter "MWGL"), - - NAM TAI ELECTRONICS INC. a company incorporated in the British Virgin Islands, under registration number 3805, with its registered office at McW. Todman & Co., McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands, represented by Mr. KOO Ming Kown, in his capacity as director and chief financial officer, (hereinafter "NAM TAI"), (AGF PE, MWGL and Nam Tai are hereinafter collectively referred to as the "INVESTORS" and individually as an "INVESTOR"), (The Founders, Remote Reward and the Investors being hereinafter collectively referred to as the "PARTIES" and individually as a "PARTY"). RECITALS: 1. STEPMIND is a French societe anonyme, with a registered capital of Euros 34,709,907.90, having its registered office at 4 ter, rue de l'Ouest, 92100 Boulogne, registered with the Registry of Commerce and Companies under number 432 237 949 RCS Nanterre (hereinafter the "COMPANY"). The Company was incorporated on June 19, 2000. 2. The Parties entered into an Investment Agreement, a Shareholders' Agreement and a Representations and Warranties Agreement, all of which were executed on November 28, December 9 and December 10, 2003 (the "AGREEMENTs"). In view of certain commercial and technical developments of the Company as of the date hereof, the parties wish to modify the terms of the Investment contemplated by the Agreements. Now, therefore, the parties hereto agree as follows: 1. Definitions. Capitalized terms used but not defined herein shall have the meaning ascribed thereto in the Agreements. 2. Binding Effect of this Agreement. In the interest of time, the Parties have set forth herein certain modifications to the Agreements which are fully binding on the Parties. It is the intention of the Parties to more formally set forth such modifications in amendments to the Agreements; provided, however, that pending the implementation of such amendments, the terms hereof shall be and shall remain binding on the Parties and shall prevail over any terms inconsistent therewith set forth in the Agreements. 3. Tranche 1. The Parties agree that there shall be no modifications to the First Capital Increase, except for the modifications to the terms of the Warrants described in paragraph 6 below. 4. Shareholder Loan. Remote Reward commits to loan to the Company on first demand of the Company, pursuant to a decision of the Board of Directors of the Company, at any time between May 1, 2004 and July 31, 2004, an amount not to exceed Euros 5 million. Such Shareholder Loan shall bear interest at an annual rate of EURIBOR plus 1% and shall be reimbursable by the Company pursuant to a decision of the Board of Directors of the Company at any time on or before December 31, 2005. Such Shareholder Loan shall be reimbursable, at the option of the Board of Directors of the Company, in cash or, if the Company shall not have repaid such Shareholder Loan on or before April 30, 2006, Remote Reward may require reimbursement of such Shareholder Loan in ordinary shares of the Company, based on a valuation of the Company as agreed by the Parties, or, failing such agreement on or before May 15, 2006, pursuant to the expert evaluation procedure set forth in Section 8.1 of the Shareholders Agreement. The provisions of paragraphs 5 - 7 of Section 8.1 of the Shareholders Agreement shall otherwise be applicable to such Shareholder Loan. 5. Second Capital Increase. Article 8 of the Investment Agreement shall be modified to provide that the Investors shall subscribe for the ABSA Shares 2 only if, as of July 30, 2004, the WLAN solution meets all of the following technical criteria: (i) the Balsa 1 chip area is less than 30 mm2, (ii) the tape-out procedure for the Balsa 1 chip has been commenced, (iii) the Alice W2 chipset substantially meets the specifications therefore set forth in the updated reference data sheet released by the Company during the second quarter of 2004, (iv) performance of the physical layer (modem) is compliant with IEEE 802.a/b/g standards, (v) the Salsa "alpha" critical CISF reaction times are achieved, (vi) the Salsa "alpha" RAM code plus data total footprint is not more than 256 Kilo Octets, and (vii) the Salsa 1 chip is compliant with the full set of security features implemented on a large majority of access points that can be found in the market. In the event such technical conditions are satisfied, then the number of the ABSA Shares 2 shall be such that, for an aggregate investment of Euros 15 million, the total number of ABSA Shares 1 and ABSA Shares 2 represent, on a Fully Diluted Basis, 40% of the share capital of the Company. In the event such technical conditions are not satisfied, then the Investors shall be entitled to exercise the Warrants 2004 and Remote Reward and Andre Jolivet undertake in addition to transfer to the Investors, on or before September 1, 2004, for an aggregate price of Euro 1.00, such number of Shares such that, for an aggregate investment of Euros 7.5 million, the total number of ABSA Shares 1, ABSA Shares 3 and such shares transferred by Remote Reward and Andre Jolivet represent, on a Fully Diluted Basis, 40% of the share capital of the Company. Notwithstanding the foregoing, it is the intention of the Parties that the Shares so transferred have the same rights as Class B Shares, and Remote Reward and Andre Jolivet therefore agree, in the event of a liquidation of the Company or issuance of new Shares at conditions permitting exercise of the Warrants, to take all actions (including transfers of additional Shares or portion of liquidation proceeds) to permit the Investors to be in the same position as if the Shares transferred pursuant to this paragraph were Class B Shares. 6. Warrants. The Parties shall take all corporate actions to modify the exercise conditions of the Warrants in order to reflect the modification of the definition of the "P" resulting from the modification of the average subscription price of the Investment as a consequence of the previous paragraph. 7. Additional Capital Increase. The Board of Directors of the Company shall meet to decide whether an additional capital increase in an amount up to Euros 5 million shall be implemented on or before October 1, 2004. Such capital increase shall occur only if the ABSA 2 Shares are subscribed for. The Founders commit to subscribe for 60% of such capital increase and the Investors commit to subscribe for 40% of such capital increase (provided, that, in the event any Investor other than Nam Tai does not wish to subscribe to such capital increase, Nam Tai shall subscribe for such Investor's pro rata portion of such capital increase). The price of such capital increase shall be equal to the weighted average subscription price of the ABSA Shares 1 and ABSA Shares 2. The shares issued pursuant to such capital increase shall be ABSA Shares, each consisting of one Class B Share and one Warrant. 8. Other Modifications. The Parties shall take all actions to implement the foregoing modifications to the terms of the Investment and to duly amend the Agreements and the Annexes thereto, including, without limitation, (i) modification of the instruction letter to HSBC Private Bank, dated December 11, 2003, to extend the date before which the Second Capital Increase must be completed and otherwise to adjust such instructions to reflect the foregoing; (ii) contractual provisions to provide the Investors with a liquidation preference as if the liquidation preference for the Class B Shares set forth in Section 2.5 of the Investment Agreement were modified to reflect the modification in the share subscription prices provided above, (iii) modification of Section 4.1 of the Shareholders Agreement to permit the transfers by Remote Reward and Andre Jolivet to the Investors provided herein, (iv) modification of Article 6 of the Shareholders Agreement to reflect a Valuation of the Company of Euros 25 million (instead of Euros 29,966,670 million), in the event the ABSA Shares 2 are subscribed for, or Euros 12.5 million (instead of Euros 14,983,335) in the event the ABSA Shares 2 are not subscribed for, (v) modification of Section 4.6 of the Shareholders Agreement to provide that the drag-along right is triggered in respect of a sale approved by 70% of the shareholders (instead of 75%). 9. Miscellaneous. The provisions of the Investment Agreement set forth in Articles 13 - 21 of the Investment Agreement shall apply mutatis mutandis to this Agreement as if set forth herein. IN WITNESS WHEREOF, Executed in eight (8) original counterparts, in Boulogne, France, this 2nd day of January, 2004 /s/ Alain Jolivet /s/ Andre Jolivet - ------------------------------ ------------------------------ Alain Jolivet Andre Jolivet Date: November 28, 2003 Date: November 28, 2003 Place: Paris Place: Paris REMOTE REWARD AGF INNOVATION 3 By: /s/ Andre Jolivet By: AGF Private Equity --------------------------- Name: Andre Jolivet By: /s/ Guillaume Lautour Date: November 28, 2003 --------------------------- Place: Paris Name: Guillaume Lautour Date: November 28, 2003 Place: Paris AGF INNOVATION 4 By: AGF Private Equity AGF INNOVATION 5 By: /s/ Guillaume Lautour By: AGF Private Equity --------------------------- Name: Guillaume Lautour By: /s/ Guillaume Lautour Date: November 28, 2003 --------------------------- Place: Paris Name: Guillaume Lautour Date: November 28, 2003 Place: Paris Mighty Wealth Group Limited By: /s/ Cheung Tze Tung Nam Tai Electronics, Inc. --------------------------- Name: Cheung Tze Tung By: /s/ Joseph Li Date: December 10, 2003 --------------------------- Place: Hong-Kong Name: Joseph Li Date: December 9, 2003 Place: Hong-Kong STEPMIND S.A. By: /s/ Alain Jolivet --------------------------- Name: Alain Jolivet Date: November 28, 2003 Place: Paris EX-4.29 24 u98916exv4w29.txt AGMT BETWEEN FRONTIER PROFIT & NAMTAI MARCH 10, 04 EXHIBIT 4.29 THIS AGREEMENT is made the day of 2004. BETWEEN (1) NAM TAI GROUP MANAGEMENT LIMITED (chinese translation) (business registration number 31660819) whose registered office is situate at 15th Floor, China Merchants Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Hong Kong ("the Vendor"); and (2) FRONTIER PROFIT INC. a company incorporated under the laws of the British Virgin Islands whose registered office is situate at East Asia Chambers, P.O. Box 901, Road Town, Tortola, British Virgin Islands ("the Purchaser"). 1. The Vendor sells and the Purchaser purchases the land described in the First Schedule hereto ("the Property") held from the Government under the Government Lease referred to in the First Schedule hereto ("the Government Lease") absolutely and if the Vendor's interest in the Property is an equitable interest for the entitlement to the grant of a government lease pursuant to the Government Lease absolutely. 2. The purchase price is the sum set out in Part I of the Second Schedule hereto ("the Purchase Price") which shall be paid and satisfied by the Purchaser in manner set out in Part II of the Second Schedule hereto. The Purchase Price or any part thereof shall be paid by way of cashier's orders and/or solicitors' cheques. 3. Completion shall take place at the offices of the Vendor's Solicitors at 60l, Prince's Building, Chater Road, Central, Hong Kong, on or before the date set out in Part III of the Second Schedule hereto. 4. Vacant possession of the Property shall be given to the Purchaser on the date of completion. 5. Time shall in every respect be of the essence of this Agreement. 6. The Vendor shall assign the Property as beneficial owner. 7. The Property is sold subject to and with the benefit of the matters described in the Third Schedule hereto. 8. The Purchaser hereby declares and confirms that the Purchaser has inspected the Property and he is purchasing the Property in its present physical state and condition. The Property is and will be sold on an "as is" basis and in the physical state and condition as it stands. No warranties or representations of any kind are made or given by the Vendor or anybody on his behalf on any of the following matters, namely:- (a) The physical state and condition, quality or fitness of the fittings and finishes or the installations incorporated in the Property or in the building of which the Property forms part ("the Building"); - 1 - (b) The physical state and condition or permitted use of the Property or of the Building; (c) The area of the Property; (d) The composition of the Property or of the Building or the nature or manner of their construction; (e) The fitness of the Property for development or the redevelopment potential of the Property; and (f) The construction of the Property in accordance with the Approved Plan of the Property. 9. The parties hereto hereby declare that they fully understand and acknowledge that no date other than the date of this Agreement (which date will be completed in the Questionnaire Form I.R.S.D. 26 for stamping purpose of this Agreement and/or the Assignment made pursuant to this Agreement [as the case may be]) may be claimed as the relevant date for valuation of the Property once this Agreement and/or the Assignment made pursuant to this Agreement has/have been submitted for stamping. 10. (a) Each party shall pay his own solicitors' costs of and incidental to the preparation, approval and completion of this Agreement and the Assignment made pursuant to this Agreement Provided however that if the Purchaser shall sub-sell the Property or any part or parts thereof to any sub-purchaser(s) at a price or for a total price higher than the Purchase Price mentioned herein or if the Purchaser shall require the Vendor to execute more than one assignment in respect of the Property on completion, then the additional costs (if any) charged by the Vendor's Solicitors for approving such assignment or assignments shall be borne by the Purchaser. (b) All land registration fees and stamp duty payable in connection with this sale and purchase (including but not limited to the land registration fees and stamp duty payable on the agreement for sale (if any) referred to in the Fifth Schedule hereto and this Agreement and its counter-part and the Assignment made pursuant to this Agreement) shall be borne by the Purchaser who shall indemnify and keep the Vendor indemnified against any loss or damage suffered by the Vendor resulting from any delay or default in payment of the said stamp duty. It is hereby agreed that this Clause shall survive notwithstanding completion. (c) The Purchaser hereby expressly agrees and undertakes to deliver to the Vendor or his solicitors a certified true copy of this Agreement, duly stamped or duly endorsed for deferred payment of stamp duty, before completion upon request. (d) It is hereby expressly acknowledged and agreed by the parties hereto that if the Purchaser shall sub-sell the Property to any sub-purchaser(s) at a price higher than the Purchase Price mentioned herein, the Vendor's Solicitors shall charge, in addition to the legal costs for approving an assignment at the consideration equivalent to the Purchase Price mentioned herein, such further legal costs (which the Purchaser hereby agrees to reimburse the Vendor) computed as follows:- (i) for the first sub-sale of the Property by the Purchaser, a sum of HK$1,000.00 or a sum equivalent to the difference between (i) the - 2 - legal costs for approving an assignment of leasehold property at the consideration equivalent to the Purchase Price mentioned herein computed pursuant to Part I in the First Schedule to the Solicitors (General) Costs Rules ("the Rules") of the Legal Practitioners Ordinance Cap.159 of the Laws of Hong Kong and (ii) the legal costs for approving an assignment of leasehold property at the consideration equivalent to the purchase price under the said first sub-sale of the Property computed pursuant to Part I in the First Schedule to the Rules, whichever is the greater; and (ii) for each further sub-sale (if any) of the Property, a sum of HK$1,000.00. 11. There are incorporated into this Agreement as if they were herein written the conditions respectively on the part of the Vendor and the Purchaser set out in Part A of the Second Schedule to the Conveyancing and Property Ordinance, Cap.219 of the Laws of Hong Kong unless they are inconsistent with the provisions herein in which event the provisions herein shall prevail save for Conditions 1, 2, 7 and 10 thereof which shall be omitted. 12. (a) Where the Government Lease was granted on a date less than 15 years before the date hereof, the Vendor shall only prove and give to the Purchaser title to the Property commencing with the Government Lease and extending for the period since the grant of the Government Lease. In any other case, the Vendor shall only prove and give to the Purchaser title to the Property with the Government Lease and documents of title extending not less than 15 years before the date hereof commencing with an assignment, a mortgage by assignment or a legal charge, each dealing with the whole estate and interest in the Property. (b) Any requisition or objection in respect of the title shall be delivered in writing to the Vendor's solicitors not later than seven (7) business days and within business hours from the date of delivery of the title deeds in respect of the Property to the Purchaser's Solicitors and any further requisition or objection arising upon any reply to a former requisition shall be delivered in writing to the Vendor's solicitors not later than seven (7) business days and within business hours from the date of delivery of such reply by the Vendor's solicitors to the Purchaser's solicitors, otherwise the same shall be deemed waived. 13. Completion of the sale and purchase shall take place at the offices of the Vendor's solicitors at or before 5:00 p.m. (if it shall take place on a day between Monday and Friday) and at or before 12:30 p.m. (if it shall take place on a Saturday) on the date set out in Part III of the Second Schedule hereto at the latest. 14. (a) The Vendor declares that he has no actual knowledge and received no notice under the Lands Resumption Ordinance (Cap.124) or the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance (Cap.276) or any form of notice of a similar nature under any other Ordinances the - 3 - implementation of which would materially and adversely affect the occupation or enjoyment of the Property. (b) The Vendor gives no warranty and has no actual knowledge whatsoever whether the Property is included in or affected by any lay-out plans (draft or approved) or any other plans prepared under the Town Planning Ordinance (Cap.131). (c) The Purchaser shall be solely responsible for making his own inquiry and investigation in respect of the matters aforesaid in sub-clauses (a) and (b) of this Clause and of any provisions or redevelopment restrictions affecting the Property or the occupation, value, user or enjoyment thereof under any of the Ordinances. The Vendor shall not be liable for any loss or damage which the Purchaser may incur or suffer as a result of the Property becoming affected or being made subject to the provisions of the said Ordinances and the Purchaser shall take the Property at his own risks and shall complete the purchase of the Property notwithstanding that the Property has or shall have become so affected or has been or shall have been made subject to the provisions of the said Ordinances or any of them. 15. (a) The rents and profit shall be received and all outgoings shall be discharged by the Vendor up to but exclusive of the actual day of completion and as from and inclusive of that day all outgoings shall be discharged by the Purchaser. All such rents, profits and outgoings shall, if necessary, be apportioned between the Vendor and the Purchaser and paid on completion. (b) The Purchaser shall on completion pay to the Vendor the management fee deposit, public water deposit, public utility deposit, public electricity deposit, the sinking fund or funds of a like nature paid or contributed by the Vendor in respect of the Property and all such other deposits (save and except private water meter deposit, private electricity meter deposit and private gas meter deposit in respect of the Property) which the Vendor has paid in respect of the Property and which are found to be transferable and subsisting. 16. The Purchaser has been advised that it would be difficult for the Vendor to transfer the insurance policy (if any) on the Property or the benefit thereof to the Purchaser and hence no such transfer will be made. Immediately after the signing of this Agreement, the Property shall as between the Vendor and the Purchaser be at the Purchaser's risk. The Purchaser is advised to take out proper insurance coverage on the Property for his own protection and benefit. 17. The Vendor and the Purchaser agree and authorise their respective solicitors to complete the transaction on the basis of cross undertakings in the form from time to time recommended by the Law Society of Hong Kong with such variations thereto as they may agree. 18. The Vendor hereby warrants that no order or decision in any manner or form has been or is deemed to have been made by the Lands Tribunal or the District Court or any Court of Record in Hong Kong during the period of two years immediately preceding the date hereof - 4 - under or pursuant to Section 53(2)(b) or (c) or Section 119E(1)(b) or (c) of the Landlord and Tenant (Consolidation) Ordinance (Cap.7) for possession of the Property or any part thereof. 19. Notwithstanding anything to the contrary, it is hereby expressly agreed and declared by the parties hereto that if the Purchaser shall request from the Vendor any certified copies of title deeds or documents in respect of the Property which the Vendor has an obligation hereunder to provide to the Purchaser, the Purchaser shall, notwithstanding the fact that any of such certified copies shall not have been provided to the Purchaser prior to completion, complete the purchase of the Property in accordance with the terms herein contained Provided that the Vendor or the Vendor's solicitors shall give an undertaking to the Purchaser or the Purchaser's solicitors to provide such certified copies to the Purchaser's solicitors. 20. The Vendor and the Purchaser hereby agree that the terms or conditions or matters, if any, set out in the Fourth Schedule hereto shall apply to this Agreement and shall be deemed to be incorporated herein. 21. This Agreement sets out the full agreement between the parties hereto and supersedes any other commitments, agreements, warranties or understandings, written or verbal, that the parties hereto may have had with respect to the subject matter of this Agreement. Without prejudice to the generality of the foregoing and the warranties made or given in this Agreement, no warranties or representations express or implied of any kind other than those set out herein (if any) are or have been made or given by the Vendor or by anybody on his behalf and if any such warranties or representations express or implied has been made, the same is withdrawn or deemed to have been withdrawn immediately before the signing of this Agreement. 22. Each party hereto hereby warrants and represents to and undertakes with the other that the name, address and the number of identification document/Business Registration number (as the case may be) of such party as specified on page 1 of this Agreement and the information specified in the Fifth Schedule to this Agreement are in all respects accurate to the best knowledge of such party and such party undertakes to fully indemnify the other against all loss damage costs claim demand action and proceedings incurred or suffered by or made or taken against the other party as a result of any breach of the aforesaid warranty representation and/or undertaking. It is hereby agreed that this Clause shall survive notwithstanding completion. 23. (a) If the Purchaser shall fail to complete the purchase of the Property in accordance with the terms and conditions of this Agreement:- (i) all sums paid by the Purchaser up to 10% of the Purchase Price by way of deposit shall be forfeited to the Vendor, and the balance of the deposit and other part payment of the Purchase Price paid hereunder (if any) shall be retained and held by the Vendor free of any interest to the Purchaser as security for the damages recoverable by the Vendor against the Purchaser as a result of the Purchaser's breach of this Agreement, such money retained may, at the option of the Vendor, be used to set off against any or all losses, expenses, deficiency in price and other damages suffered by the Vendor; and - 5 - (ii) the Vendor may determine this Agreement without the need to tender an assignment to the Purchaser. (b) Upon determination of this Agreement, the Vendor may resell the Property either by public auction or private contract or in such other manner as the Vendor may in his discretion deem fit and subject to such stipulations as the Vendor may think fit and any increase in price on a resale shall belong to the Vendor. On a resale, any deficiency in price shall be made good and all expenses attending such resale or attempted resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor. (c) On the exercise of the Vendor's right to determine this Agreement as aforesaid the Vendor shall have the right, if this Agreement shall have been registered at the Land Registry or the relevant New Territories Land Registry, to register at the Land Registry or the relevant New Territories Land Registry an instrument signed by the Vendor alone evidencing determination of the sale of the Property as aforesaid. (d) This Clause shall not preclude or be deemed to preclude the Vendor from taking other steps or remedies to enforce the Vendor's rights under this Agreement or otherwise. 24. Notwithstanding any provision to the contrary herein, on the exercise of the Vendor's right to determine and/or rescind and/or annul this Agreement/this sale, the Vendor shall have the right, if this Agreement shall have been registered at the Land Registry or the relevant New Territories Land Registry, to register at the Land Registry or the relevant New Territories Land Registry an instrument signed by the Vendor alone evidencing such determination and/or rescission and/or annulment of the sale of the Property and/or to vacate the registration of this Agreement and on the signing of the said instrument by the Vendor and/or such vacation, the Purchaser shall be deemed to have been divested of any interest in the Property under this Agreement. Upon registration of such an instrument in the Land Registry or the relevant New Territories Land Registry and/or such vacation, a tenant, purchaser, mortgagee or any other person dealing with the Vendor shall not be bound to see or enquire whether the Vendor was entitled to determine or rescind or annul this Agreement and so far as regards the safety and protection of such tenant, purchaser or mortgagee or any other person this Agreement shall be deemed to have been duly terminated rescinded and/or annulled and the remedy (if any) of the Purchaser shall be against the Vendor in damages only. 25. Where two or more persons are comprised in the expressions "the Vendor" and/or "the Purchaser" the agreements herein contained shall be deemed to be made by such persons jointly and severally. 26. In this Agreement, unless the contrary intention appears:- (a) the expressions specified below shall have the following meanings attributed to them:- (i) "business day" - a day on which licensed banks are open for normal banking business in Hong Kong; - 6 - (ii) "business hours" - 9:00 a.m. to 5:00 p.m. on a week day other than Saturday and 9:00 a.m. to 1:00 p.m. on Saturday. (iii) "Hong Kong" - the Hong Kong Special Administrative Region of the People's Republic of China. (b) If any of the date or dates stipulated herein for payment or for completion shall fall on a day which is not a business day or shall fall on a day when typhoon signal No.8 or above or black rainstorm signal is hoisted in Hong Kong at any time during business hours, such date or dates for payment or completion (as the case may be) shall automatically be postponed to the next business day. - 7 - FIRST SCHEDULE 1. The Property - (a) Lot number, sections, undivided shares, description and address etc.: ALL THAT the estate right title benefit and interest of and in ALL THOS 259 equal undivided 279,977th parts or shares of and in ALL THAT piece or parcel of ground registered in the Land Registry as THE REMAINING PORTION OF INLAND LOT NO.8882 And of and in the messuages erections and buildings thereon now known as "THE LEIGHTON HILL (chinese translation)" ("the Development") TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THOSE FLAT A on the 22ND FLOOR (which for the avoidance of doubt includes the A/C Platform thereof) of TOWER 2 and CAR PARKING SPACE NO.A86 on the 1ST FLOOR of the Development as shown and coloured Pink on the Floor Plan(s) annexed to an Assignment registered in the Land Registry by Memorial No. 8796003 ("the said Assignment"). (b) Exceptions and reservations, etc.: Except and reserved as in the Government Lease hereinafter described and the said Assignment are respectively excepted and reserved. (c) Easements and other appurtenant rights, if any: Subject to all subsisting rights rights of way as are described in the said Assignment. 2. The Government Lease - An Agreement and Conditions of Sale deposited and registered in the Land Registry as Conditions of Sale No.12519. The particulars of the said Conditions of Sale are as follows:- (a) Date: the 14th day of May 1998. (b) Parties: Harsco Limited of the one part and the Chief Executive on behalf of the Government of the Hong Kong Special Administrative Region of the other part. (c) Term: For a term of 50 years commencing from the 14th day of May 1998. (d) Lot No: Inland Lot No.8882. - 8 - (e) Modification/Variation: As varied or modified by two several Modification Letters registered in the Land Registry by Memorial Nos. 8158886 and 8220664 respectively. SECOND SCHEDULE Part I (Purchase Price) Purchase Price for the Property: HONG KONG DOLLARS FOURTEEN MILLION ONLY (HK$14,000,000.00). Part II (Manner of Payment) (a) HK$1,400,000.00 to the Vendor as a deposit and on account of the Purchase Price to be paid on or before signing of this Agreement. (b) HK$12,600,000.00 being the balance of Purchase Price to be paid to the Vendor on completion. Part III Date of Completion: the day of 2004 THIRD SCHEDULE A Deed of Mutual Covenant incorporating Management Agreement registered in the Land Registry by Memorial No. 8789714 and the Lease of the Communications Network Area (as defined therein). FOURTH SCHEDULE 1. The Vendor declares that he has no actual knowledge of and received no notice or order from the Building Authority or under the Buildings Ordinance (Cap. 123) and that he has no actual knowledge whatsoever whether there is any unauthorised structure or alteration in or affecting the Property. The Purchaser hereby expressly agrees that the Purchaser shall - 9 - be solely responsible for making his own inquiry and investigation and that if no requisition or objection in respect of unauthorised structure or alteration in or affecting the Property (if any) shall be delivered in writing to the Vendor's Solicitors within ten (10) days from the date hereof (in which respect time shall be of the essence), the Purchaser shall be deemed to have waived his right to raise any requisition or objection in respect of any such unauthorised structure or alteration and shall complete the purchase of the Property notwithstanding any unauthorised structure or alteration (if any) in or affecting the Property. 2. (a) Without prejudice and in addition to the Vendor's rights of rescission and all other rights remedies claims and action which the Vendor may have, if the Purchaser shall fail to complete the purchase of the Property at or before the time set out in Clause 13 of this Agreement on the date set out in Part III of the Second Schedule to this Agreement, the Purchaser shall (subject to sub-clause (b) of this Clause) pay to the Vendor on completion in addition to the balance of Purchase Price interest on the same at the rate of 3% per annum above the prime lending rate quoted by The Hongkong and Shanghai Banking Corporation Limited as at the date set out in Part III of the Second Schedule to this Agreement from such date up to and inclusive of the date on which the purchase shall actually be completed. (b) The Purchaser shall not be liable to pay interest under sub-clause (a) of this Clause to the extent that the delay in completion is attributable to the default of the Vendor. FIFTH SCHEDULE 1. The parties hereto declare that this Agreement is not superseded by any agreement for sale (as defined in the Stamp Duty Ordinance Cap. 117 of the Laws of Hong Kong) made between the same parties hereto on the same terms hereof (as defined in the said Stamp Duty Ordinance). 2. The parties hereto hereby declare that to the best of their knowledge, no consideration (save and except the Purchase Price herein mentioned) has been paid or given, or has been agreed to be paid or given, to any person for or in connection with this Agreement or any conveyance on sale pursuant to this Agreement (excluding legal expenses). 3. The Property comprises a residential property within the meaning of section 29A(1) of the Stamp Duty Ordinance Cap. 117 of the Laws of Hong Kong. - 10 - SIGNED by ) ) ) ) ) for and on behalf of the Vendor in ) ) the presence of/whose signature(s) ) For and on behalf of ) NAM TAI GROUP MANAGEMENT LIMITED is/are verified by :- ) /s/ Ivan Chui Kam Wai ---------------------------------- Authorized Signature 20HA Solicitor, Hong Kong SAR Messrs. Wilkinson & Grist, Solicitors and Notaries, Hong Kong SAR RECEIVED on or before ) ) the day and year first above written of ) ) and from the Purchaser the above- ) ) mentioned deposit in the sum of ) For and on behalf of ) NAM TAI GROUP MANAGEMENT LIMITED HK$1,400,000.00. ) /s/ Ivan Chui Kam Wai ---------------------------------- Authorized Signature 20HA ----------------------------------------- the Vendor - 11 - SIGNED by ) ) ) ) ) for and on behalf of the Purchaser ) For and on behalf of ) FRONTIER PROFIT INC. in the presence of:- ) /s/ T. Murekami ---------------------------------- Authorized Signature Solicitor, Hong Kong SAR - 12 - DATED the day of 2004. NAM TAI GROUP MANAGEMENT LIMITED and FRONTIER PROFIT INC. ----------------------------------------------- AGREEMENT FOR SALE AND PURCHASE ----------------------------------------------- REGISTERED in the Land Registry by Memorial No. on:- p. Land Registrar. WILKINSON & GRIST SOLICITORS AND NOTARIES HONG KONG SAR HC/ml/N416-1V101 EX-8.1 25 u98916exv8w1.txt DIAGRAM OF SUBSIDIARIES (SEE P25-27 OF REPORT) EXHIBIT 8.1 Organisation Chart of Nam Tai Group NAM TAI ELECTRONICS, INC. (Incorporated in the British Virgin Islands & listed on the New York Stock Exchange in the USA) NAM TAI GROUP MANAGEMENT LIMITED (Incorporated in Hong Kong) NAM TAI INVESTMENTS CONSULTANT (MACAO COMMERCIAL OFFSHORE) COMPANY LIMITED (Incorporated in Macau) J.I.C. TECHNOLOGY COMPANY LIMITED (Incorporated in the Cayman Islands & listed on Main Board of Hong Kong Stock Exchange under the symbol <987>) J.I.C. ENTERPRISES (HONG KONG) LIMITED (Incorporated in Hong Kong) JET UP ELECTRONIC (SHENZHEN) CO. LTD. (Incorporated in the PRC) NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED (Incorporated in the Cayman Islands) NAM TAI ELECTRONIC (SHENZHEN) CO. LTD. (Incorporated in the PRC) NAM TAI TELECOM (CAYMAN) COMPANY LIMITED (Incorporated in the Cayman Islands) ZASTRON ELECTRONIC (SHENZHEN) CO. LTD. (Incorporated in the PRC) NAM TEK SOFTWARE DEVELOPMENT COMPANY LIMITED (Incorporated in the Cayman Islands) NAM TEK JAPAN COMPANY LIMITED (Incorporated in Japan) SHENZHEN NAM TEK COMPANY LIMITED (Incorporated in the PRC) SHANGHAI REPRESENTATIVE OFFICE (1). NTEL holds ?? indirect 3.033% interest in Huizhou TCL Mobile Communication Co. Ltd. through holding of a 72.22% interest in Mate Fair Group Limited. -NTEL holds 25% interest in Alpha Star Investments Limited which is the ultimate holding company of the Hong Kong based JCT Wireless Technology Co. Ltd. (2). NTEL holds 74.86% issued ordinary share capital and 423,320,000 preference shares of J.I.C. Technology Company Limited ("JIC Technology"). NTEL will hold 88.39% of enlarged share capital in JIC Technology after conversion in full of the preference shares. (3). JIC Technology holds 5.36% interest in Magic Infomedia Technology Limited (4). Nam tai Electronic (Shenzhen) Co. Ltd. holds 6% interest in TCL Corporation (5). 20% interest in Nam tek Software Development Company Limited is held by Asano Company Limited Note a) The two Hong Kong subsidiaries, Nam Tai Electronic & Electrical Products Limited and Nam Tai Telecom (Hong Kong) Company Limited have ceased to be the operating subsidiaries of the Company and are now ??. b) J.I.C. Electronics Company Limited has been de-registered on 19 December 2003 c) J.I.C. Group (B.V.I.) Limited will be dissolved 28 Organisation Chart of Nam Tai Group NAM TAI ELECTRONICS, INC. (Incorporated in the British Virgin Islands & listed on the New York Stock Exchange in the USA) J.I.C. TECHNOLOGY COMPANY LIMITED (2) (Incorporated in the Cayman Islands & listed on Main Board of Hong Kong Stock Exchange <987>) J.I.C. ENTERPRISES (HONG KONG) LIMITED (Incorporated in Hong Kong) JETUP ELECTRONIC (SHENZHEN) CO. LTD. (Incorporated in the PRC) NAM TAI GROUP MANAGEMENT LIMITED (Incorporated in Hong Kong) NAM TAI ELECTRONIC & ELECTRICAL PRODUCTS LIMITED (Incorporated in the Cayman Islands) NAM TAI ELECTRONIC (SHENZHEN) CO. LTD. (4) (Incorporated in the PRC) NAM TAI TELECOM (CAYMAN) COMPANY LIMITED (Incorporated in the Cayman Islands) ZASTRON ELECTRONIC (SHENZHEN) CO. LTD. (Incorporated in the PRC) NAM TAI INVESTMENTS CONSULTANT (MACAO COMMERCIAL OFFSHORE) COMPANY LIMITED (Incorporated in Macau) NAM TEK SOFTWARE DEVELOPMENT COMPANY LIMITED (5)(Incorporated in the Cayman Islands) NAM TEK JAPAN COMPANY LIMITED (Incorporated in Japan) SHENZHEN NAM TEK COMPANY LIMITED (Incorporated in the PRC) SHANGHAI REPRESENTATIVE OFFICE (1). NTEL holds an indirect 3.033% interest in Huizhou TCL Mobile Communication Co. Ltd. through holding of a 72.22% interest in Mate Fair Group Limited. -NTEL holds 25% interest in Alpha Star Investments Limited which is the ultimate holding company of the Hong Kong based JCT Wireless Technology Co. Ltd. (2). NTEL holds 74.86% issued ordinary share capital and 423,320,000 preference shares of ?? Technology Company Limited ("JIC Technology"). NTEL will hold 88.39% of enlarged share capital in JIC Technology after conversion in full of the preference shares. (3). JIC Technology holds 5.36% interest in Magic Infomedia Technology Limited (4). Nam tai Electronic (Shenzhen) Co. Ltd. holds 6% interest in TCL Corporation (5). 20% interest in Nam tek Software Development Company Limited is held by Asano Company Limited Note: 1. The two Hong Kong subsidiaries, Nam Tai Electronic & Electrical Products Limited and Nam Tai Telecom (Hong Kong) Company Limited have ceased to be the operating subsidiaries of the Company and are now ??. 2. J.I.C. Electronics Company Limited has been de-registered on 19 December 2003 3. J.I.C. Group (B.V.I.) Limited will be dissolved Our significant operating entities are described below: JIC Technology Company Limited JIC Technology Company Limited was formed in the Cayman Islands in June 2002 in connection with a reverse merger with Albatronics, of which we owned slightly more than 50% of the outstanding capital stock. JIC Technology Company Limited is listed on the Hong Kong Stock Exchange. We currently hold 74.86% of the ordinary shares of JIC Technology Company Limited, and upon conversion of the preference shares we own, we would own approximately 88.39% of JIC Technology Company Limited. J.I.C. Enterprises (Hong Kong) Ltd. JIC Enterprises, incorporated in Hong Kong, was established in 1983 and has been in the LCD business for almost 20 years. Originally a small trading company for LCD panels and electronics products, JIC Enterprises is now strategically focused on the sales and marketing of LCD panels and is responsible for customer relationship development. Jetup Electronic (Shenzhen) Co., Ltd. Jetup Electronic was incorporated in 1993 in China and handles the manufacturing and processing works of LCD panels through its factory plants in Baoan County, Shenzhen. Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited Nam Tai Macao was established in August 2003 in Macao, China as our PRC headquarters, due to our continuous increase in investment in China. Macao, like Hong Kong, is a special region of China and has recently introduced an incentive program to attract investment in Macau. It's principal is provision of management and sales co-ordination and marketing services to other group companies. 29 EX-12.1 26 u98916exv12w1.txt CERTIFICATION Exhibit 12.1 CERTIFICATIONS I, Joseph Li, certify that: 1. I have reviewed this annual report on Form 20-F of Nam Tai Electronics, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this annual report; 4. The company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the company and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluations; and d. Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting. 5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the company's auditors and the audit committee of company's Board of Directors (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal controls over financial reporting. /s/ JOSEPH LI ---------------------------------------- Joseph Li Chief Executive Officer Date: March 10, 2004 EX-12.2 27 u98916exv12w2.txt CERTIFICATION Exhibit 12.2 I, M. K. Koo, certify that: 1. I have reviewed this annual report on Form 20-F of Nam Tai Electronics, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the company and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluations; and d. Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting. 5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the company's auditors and the audit committee of company's Board of Directors (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal controls over financial reporting. /s/ M. K. KOO ---------------------------------------- M. K. Koo Chief Financial Officer Date: March 10, 2004 EX-14.1 28 u98916exv14w1.txt CODE OF ETHICS EXHIBIT 14.1 NAM TAI ELECTRONICS, INC. CODE OF ETHICS FOR CHIEF EXECUTIVE AND SENIOR FINANCIAL OFFICERS Nam Tai Electronics, Inc, is committed to conducting its business in accordance with applicable laws, rules and regulations and the highest standards of business ethics and to full and accurate financial disclosure in compliance with applicable law. This Code of Ethics, applicable to the Company's Chairman, Chief Executive Officer, President, Chief Financial Officer and Chief Accounting Officer (or persons performing similar functions including financial controllers and treasurers), and those persons listed each year in the Company's Annual Report on Form 20-F as an officer of a subsidiary of the Company (together, "SENIOR OFFICERS"), sets forth specific policies to guide you in the performance of your duties. As a Senior Officer, you must not only comply with applicable law. You also have a responsibility to conduct yourself in an honest and ethical manner; and you have leadership responsibilities that include creating a culture of high ethical standards and commitment to compliance, maintaining a work environment that encourages employees to raise concerns, and promptly addressing employee compliance concerns. This Code of Ethics is intended to supplement any code of business conduct and ethics that may be adopted by the Company, if so adopted. You will also be bound by the requirements and standards set forth in any such code of business conduct and ethics, if adopted, as well as those set forth in this Code of Ethics and other applicable policies and procedures. COMPLIANCE WITH LAWS, RULES AND REGULATIONS You are required to comply with the laws, rules and regulations that govern the conduct of our business and to report any suspected violations in accordance with the section below entitled "Compliance with Code of Ethics." CONFLICTS OF INTEREST A conflict of interest occurs when your private interests interfere in any way, or even appear to interfere, with the interests of the Company. Your obligation to conduct the Company's business in an honest and ethical manner includes the ethical handling of actual or apparent conflicts of interest between personal and business relationships. Before making any investment, accepting any position or benefits, participating in any transaction or business arrangement or otherwise acting in a manner that creates or appears to create a conflict of interest, you must make full disclosure of all facts and circumstances to, and obtain the written approval of, the Chair of the Audit Committee of the Board of Directors, or if the Chair of the Audit Committee is not available within a reasonable period of time, then any member of the Audit Committee. DISCLOSURES It is Company policy to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in all other public communications made by the Company. As a Senior Officer, you are required to promote compliance policy by all employees and to abide by Company standards, policies and procedures designed to promote compliance with this policy. COMPLIANCE WITH THE CODE OF ETHICS If you know of or suspect a violation of applicable laws, rules or regulations or this Code of Ethics, you must immediately report that information to any member of the Audit Committee of the Board of Directors. No one will be subject to retaliation because of a good faith report of a suspected violation. Violations of this Code of Ethics may result in disciplinary action, up to and including discharge, The Audit Committee of the Board of Directors shall determine, or shall designate appropriate persons to determine, appropriate action in response to violations of this Code. WAIVERS OF THE CODE OF ETHICS If you would like to seek a waiver of the Code of Ethics you must make full disclosure of your particular circumstances to the Chairman of the Audit Committee of the Board of Directors. NO RIGHTS CREATED This Code of Ethics is a statement of certain fundamental principles, policies and procedures that govern the Company's Senior Officers in the conduct of Nam Tai's business, It is not intended to and does not create any rights in any employee, customer, supplier, competitor, shareholder or any other person or entity. 2 EX-23.1 29 u98916exv23w1.txt INDEPENDENT AUDITORS' CONSENT MATCH 10 2004 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-76940 of Nam Tai Electronics, Inc. on Form S-8 and on Registration Statement No. 333-58468 of Nam Tai Electronics, Inc on Form F-3, of our report dated March 5, 2004 appearing in the annual report on Form 20-F of Nam Tai Electronics, Inc for the year ended December 31, 2003. /s/ Deloitte Touche Tohmatsu Hong Kong March 10, 2004 EX-99.1 30 u98916exv99w1.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 99.1 TO ANNUAL REPORT ON FORM 20-F CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002 Nam Tai Electronics, Inc. (the "Company") is filing with the U.S. Securities and Exchange Commission on the date hereof, its annual report on Form 20-F for the fiscal year ended December 31, 2003 (the "Report"). I, Joseph Li, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that, to the best of my knowledge; (i) the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joseph Li ----------------------------- Joseph Li Chief Executive Officer March 10, 2004 1 EX-99.2 31 u98916exv99w2.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 99.2 TO ANNUAL REPORT ON FORM 20-F CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002 Nam Tai Electronics, Inc. (the "Company") is filing with the U.S. Securities and Exchange Commission on the date hereof, its annual report on Form 20-F for the fiscal year ended December 31, 2003 (the "Report"). I, M.K. Koo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C section 1350, as enacted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (i) the Report fully complies with the requirements of section 13(a) or l5(d) of the U.S. Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ M.K. Koo -------------------------- M.K. 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M$#8D#P@PU4>6YHFFZLJVKFFX%?/6]HWG^L[W_@\,"H?$HO$'*/`8!\#H"+U= M#A96,HK-:K?HJ:JKK*VNKZ"ALK @.TM;:WN+FZN[R]OK^PL<+#Q,7&Q\C)RLO,S<3!H"`#L_ ` end -----END PRIVACY-ENHANCED MESSAGE-----


PART I
	Item 1. Identity of Directors, Senior Management and Advisors
	Item 2. Offer Statistics and Expected Timetable
	Item 3. Key Information
	Item 4. Information on the Company
	Item 5. Operating and Financial Review and Prospects
	Item 6. Directors, Senior Management and Employees
	Item 7. Major Shareholders and Related Party Transactions
	Item 8. Financial Information
	Item 9. The Listing
	Item 10. Additional Information
	Item 11. Quantitative and Qualitative Disclosure About Market Risk
	Item 12. Description of Securities Other Than Equity Securities
PART II
	Item 13. Defaults, Dividend Arrearages and Delinquencies
	Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
	Item 15. Controls and Procedures
	Item 16. [Reserved]
	Item 16 A. Audit Committee Financial Expert
	Item 16 B. Code of Ethics
	Item 16 C. Principal Accountant Fees and Services
	Item 16 D. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
PART III
	Item 17. Financial Statements
	Item 18. Financial Statements
	Item 19 Exhibits
SIGNATURES
EXHIBIT INDEX
Memorandum & Articles of Association June 26, 2003
Agmt between Sony Ericsson & Nam Tai March 20, '02
Agmt between Nam Tai(Shenzhen) & Sony Sept 15, '03
Agmt between Sony Ericsson & Nam Tai (Shenzhen)
Purchase Agmt between Citigroup & Nam Tai
Agmt between Omnivision & Namtai July 15 '03
Agmt between JIC Technology & Glory Gate June'03
Agmt Amend. between Sony Ericsson & Nam Tai Jan'03
Sale & Purchase Agmt JIC & Zastron March 10 '03
Sale & Purchase Agmt between Zastron & JIC March03
Agmt among Toshiba, Nam Tai, and Zastron, Jan 27
Agmt between Sony Ericsson & Nam Tai Jan 10 2003
Agmt between Sony Ericsson & Nam Tai Jan 10 2003
Basic Agmt between JCT Wireless & Nam Tai Jan '03
Basic Agmt between Optrex & Nam Tai Jan 1 2003
Basic agmt and two memo on Sept. 8, 2003
Agmt between Sony Computer & Nam Tai Sept 15 2003
Service Agmt between Sony Ericsson & Namtai 2003
Construction Agmt between Namtai & Takasago 2003
Investment Agmt & Shareholders Agmt Dec 9 2003
Supplemental Agmt Jan 2, 2004
Agmt between Frontier Profit & NamTai March 10, 04
Diagram of Subsidiaries (See p25-27 of Report)
Certification
Certification
Code of ethics
Independent Auditors' Consent Match 10 2004
Certification pursuant to Section 906
Certification pursuant to Section 906


PART I
Item 1.	Identity of Directors, Senior Management and Advisors — Not applicable	3
Item 2.	Offer Statistics and Expected Timetable — Not applicable	3
Item 3.	Key Information	3
Item 4.	Information on the Company	14
Item 5.	Operating and Financial Review and Prospects	30
Item 6.	Directors, Senior Management and Employees	46
Item 7.	Major Shareholders and Related Party Transactions	51
Item 8.	Financial Information	53
Item 9.	The Listing	57
Item 10.	Additional Information	57
Item 11.	Quantitative and Qualitative Disclosure about Market Risk	64
Item 12.	Description of Securities Other than Equity Securities — Not applicable	64
PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies — Not applicable	65
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds — Not applicable	65
Item 15.	Controls and Procedures	65
Item 16.	*[Reserved]*	65
Item 16 A.	Audit Committee Financial Expert	65
Item 16 B.	Code of Ethics	65
Item 16 C.	Principal Accountant Fees and Services	66
Item 16 D.	Purchase of Equity Securities by the Issuer and Affiliated Purchasers	66
PART III
Item 17.	Financial Statements — Not applicable	67
Item 18.	Financial Statements	67
Item 19.	Exhibits	68


	At December 31,

	1999		2000		2001		2002		2003

	(in thousands)
Consolidated balance sheet data:
Cash and cash equivalents	$	54,215	$	58,896	$	58,676	$	82,477	$	61,827
Working capital		61,265		89,568		83,982		87,408		96,801
Property, plant and equipment — net		44,717		44,599		70,414		75,914		77,647
Total assets		158,747		208,370		224,573		275,086		297,695
Short-term debt, including current portion of long-term debt		6,949		1,523		3,687		14,970		3,004
Long-term debt, less current portion		—		—		12,860		2,812		1,688
Total debt		6,949		1,523		16,547		17,782		4,692
Shareholders’ equity		125,568		162,364		169,351		202,128		217,118
Common Shares		264		306		312		360		412
Total dividend per share		0.11		0.45		0.13		0.49		1.00


	2001		2002		2003

Property, plant and equipment (net)	$	36,013,000		18,485,000		17,053,000


Customer		Products

Appeal Telecom Co., Ltd		CMOS modules
Canon Electronic Business Machines (H.K.) Co. Ltd		Electronic dictionaries and calculators
Epson Precision (H.K.) Ltd.		LCD modules for cellular phones
Goyo Paper Working Co., Ltd		Game front light panel assembly
Hitachi Media Electronics Co. Ltd(1)		Transformers
JCT Wireless Technology Limited		RF modules and cellular phones in semi-knocked down, or SKD, form
Kanda Tsushin Kogyo Co Ltd (affiliate of Fujitsu)		Caller ID function phones
Mobile Soft Tech, Ltd		Attached Camera
Nanox Ltd.		LCD panels for cordless phones and household appliances
Nishimura Musen Denki Co. Ltd(1)		Transformers
Omnivision Technologies, Inc.		PC Camera, CMOS sensor modules
Optrex Corporation		Assemblies for LCD modules
Seiko Instruments Inc.		Electronic dictionaries
Sharp Corporation		Calculators, pocket computers and control panel modules
Sony Computer Entertainment Europe Limited		Home entertainment products
Sony Corporation		Electronic dictionaries
Sony Ericsson Mobile Communications AB		Mobile phone digital camera accessories
Stanley Electric (Asia Pacific) Ltd.		LCD panels for car audio devices
Texas Instruments Incorporated		Calculators
Toshiba Matsushita Display Technology Co. Ltd.		LCD modules for cellular phones
Wuxi Sharp Electronic Components Co. Ltd		Telecom printed circuit board, or PCB, modules


[ ]		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934


[X]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2003


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Year ended
	December 31,

	2001			2002			2003

Epson Precision (HK) Ltd.		29.9	%		32.2	%		24.8	%
Sony Ericsson Mobile Communications AB		*			16.9			11.3	%
Texas Instruments Incorporated		14.2			11.1			*
Toshiba Matsushita Display Technology Co. Ltd		*			*			10.6	%


				Owned or lease
Location	Square Footage		Principal Use	expiration date(1)

Hong Kong		24,200	Offices	Owned(2)
Macao		1,782	Offices		2005
British Virgin Islands		300	Offices		2004
Principal Manufacturing Facilities		300,800	Manufacturing		2043
Shenzhen, China		39,380	Offices		2043
		237,000	Dormitories and cafeteria		2043
		33,826	Recreational		2043
Other facilities
Shenzhen, China		151,738	Manufacturing LCD panels		2004
		108,181	Dormitories		2004
		2,875	Dormitories		2004
Shekou, Shenzhen, China		6,650	Software development		2004
Shanghai, China		4,754	Software development		2005
Tokyo, Japan		904	Software development		2005

(1)		Only the Chinese government and peasant collectives may own land in China. Our principal manufacturing facilities are located on land in which we have entered into a land lease agreement with the Chinese government that gives us the right to use the land for 50 years. Based on our understanding of the practice as it exists today, at the expiration of the land lease we may be given the right to renew the lease. However, at the end of the lease term, all improvements we have made will revert to the government. For our other facilities, we have entered into factory building lease agreements with peasant collectives or other companies for 10 years or less.

(2)		Although we own the office space, the land on which the building is located is subject to a 75-year lease with the government that expires in 2055, with a right to renew for 75 more years.


	Payments due by period

													2009 and
Contractual obligation	Total		2004		2005		2006		2007		2008		thereafter

Long-term bank borrowing	$	2,813,000	$	1,125,000	$	1,125,000	$	563,000	$	—	$	—	$	—
Operating leases		8,885,000		1,045,000		1,037,000		988,000		1,070,000		1,087,000		3,658,000
Capital expenditures		34,161,000		34,161,000		—		—		—		—		—
Purchase obligations		54,543,000		54,543,000		—		—		—		—		—

Total	$	100,402,000	$	90,874,000	$	2,162,000	$	1,551,000	$	1,070,000	$	1,087,000		3,658,000


	Equivalent
	U.S. Dollar
	Holdings

	December 31, 2003

Japanese yen		2,915,000
United States dollars		51,193,000
Hong Kong dollar		5,783,000
Chinese renminbi		1,935,000
Macao Pataca		1,000


Name	Age		Position with Nam Tai

Tadao Murakami		60	Chairman of the Board and member of the Board of Directors
Joseph Li		52	Chief Executive Officer, President
M. K. Koo		59	Chief Financial Officer and member of the Board of Directors
Guy Bindels		43	Research & Development Director
George Shih		47	Chief Operating Officer
Karene Wong		40	Chairman of the Board of Namtai Electronic and Electrical Products Limited and Namtai Electronic (Shenzhen)
Patinda Lei		37	Chairman of the Board of Zastron Electronic
Lee Kwok Wai, Patrick		39	Managing Director of Zastron Electronic
L. P. Wang		47	Assistant Managing Director of Zastron Electronic
Chen Yee, William		45	Managing Director of Namtai Electronic (Shenzhen)
Kazuhiro Asano		52	Managing Director of Namtek Software
Seitaro Furukawa		62	Chairman of the Board of J.I.C. Technology Company Limited
Ivan Chui		45	Managing Director of J.I.C. Enterprises (HK) Limited
Charles Chu		47	Member of the Board of Directors
Peter R. Kellogg		61	Member of the Board of Directors
Stephen Seung		57	Member of the Board of Directors and Secretary
Dr. Wing Yan (William) Lo		43	Member of the Board of Directors
Mark Waslen		43	Member of the Board of Directors


	Number of
	common shares		Exercise
	subject to		Price ($)		Expiration
Name	options		per share		Date

Tadao Murakami		—		—		—
Joseph Li		—		—		—
M. K. Koo		—		—		—
Guy Bindels		—		—		—
George Shih		—		—		—
Karene Wong		—		—		—
Patinda Lei		—		—		—
Lee Kwok Wai, Patrick		—		—		—
L. P. Wang		—		—		—
Chen Yee, William		—		—		—
Kazuhiro Asano		—		—		—
Seitaro Furukawa		—		—		—
Ivan Chui		—		—		—
Charles Chu		16,500		16.8182		7/8/2006
Peter R. Kellogg		16,500		4.3945		6/22/2004
		16,500		6.0155		4/30/2005
		16,500		16.8182		7/8/2006
Stephen Seung		16,500		16.8182		7/8/2006
Wing Yan (William) Lo		16,500		16.8182		7/8/2006
Mark Waslen		—		—		—


	Shares beneficially(1) owned

Name	Number			Percent

M. K. Koo		5,316,386			12.9
Peter R. Kellogg		5,246,680	(2)		12.7
I.A.T. Reinsurance Syndicate Ltd		4,676,100	(2)		11.3
Li & Chui Holdings (B.V.I.) Ltd.		2,935,087			7.1
Joseph Li		3,013,957	(3)		7.3
Ivan Chui		2,980,957	(4)		7.2
Tadao Murakami		1,849,225			4.5
Guy Bindels		—			—
George Shih		—			—
Karene Wong		34,100			*
Patinda Lei		26,400			*
Lee Kwok Wai, Patrick		935			*
L. P. Wang		600	(5)		*
Chen Yee, William		—			—
Kazuhiro Asano		—			—
Seitaro Furukawa		—			—
Charles Chu		69,000	(6)		*
Stephen Seung		69,800	(7)		*
Wing Yan (William) Lo		16,500	(8)		*
Mark Waslen		10,000			*

*		Less than 1%.

(1)		Pursuant to the rules of the Securities and Exchange Commission, shares of common shares that an individual or group has a right to acquire within 60 days pursuant to the exercise of options are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage of ownership is based on 41,231,272 common shares outstanding as of March 1, 2004.

(2)		Mr. Kellogg holds directly 521,080 common shares and options to purchase 49,500 common shares exercisable within 60 days of March 1, 2004. Indirectly, through I.A.T. Reinsurance Syndicate Ltd., Mr. Kellogg holds 4,676,100 common shares. I.A.T. Reinsurance Syndicate Ltd. is a Bermuda corporation of which Mr. Kellogg is the sole holder of voting stock. Mr. Kellogg disclaims beneficial ownership of these shares.

(3)		Includes shares held of record by Li & Chui Holdings (B.V.I.) Limited for which Mr. Li shares investment and voting control with Mr. Chui. These are the same shares shown in the table for Ivan Chui.

(4)		Includes shares held of record by Li & Chui Holdings (B.V.I.) Limited for which Mr. Chui shares investment and voting control with Mr. Li. These are the same shares shown in the table for Joseph Li.

(5)		Includes 600 common shares that are registered to Tsai Sue Wan, Jean, Mr. Wang’s wife, as to which Mr. Wang disclaims beneficial ownership.

(6)		Includes options to purchase 16,500 common shares exercisable within 60 days of March 1, 2004.

(7)		Includes options to purchase 16,500 common shares exercisable within 60 days of March 1, 2004, and 20,300 common shares that are registered to Violet Seung, Mr. Seung’s wife, as to which Mr. Seung disclaims beneficial ownership.

(8)		Consists of options to purchase common shares exercisable within 60 days of March 1, 2004.

(9)		All the share numbers have been adjusted to give effect to a three-for-one stock split effective on June 30, 2003 and a ten-for-one stock dividend effective on November 7, 2003.


	Percentage Ownership(1)

	February 28,		March 31,		March 1,
	2002		2003		2004

M. K. Koo		29.2		18.9		12.9
Peter R. Kellogg		14.2		12.2		12.7
I.A.T. Reinsurance Syndicate Ltd		12.7		10.7		11.3
Li & Chui Holdings (B.V.I.) Ltd.		10.6		8.7		7.1
Joseph Li		10.6		9.1		7.3
Ivan Chui		10.6		9.0		7.2
Tadao Murakami		8.9		6.0		4.5


	Year ended December 31,

Geographic Areas	2001			2002			2003

China (excluding Hong Kong)		11	%		12	%		25	%
Europe (excluding Estonia)		10			18			21
Japan		10			11			17
United States		15			14			14
Hong Kong		27			24			9
Estonia		—			8			5
North America (excluding United States)		8			3			—
Korea		10			7			6
Other		9			3			3

		100	%		100	%		100	%


					Daily
					Trading
Year ended	High		Low		Volume(1)

December 31, 2003	$	42.48	$	6.94		597,858
December 31, 2002		9.07		5.15		164,011
December 31, 2001		6.38		3.77		81,656
December 31, 2000		6.88		4.31		113,644
December 31, 1999		6.33		2.67		171,761


					Daily
					Trading
Month ended	High		Low		Volume(1)

February 27, 2004	$	33.75	$	25.00		1,041,000
January 31, 2004		34.24		27.88		1,181,705
December 30, 2003		41.46		26.30		1,800,127
November 30, 2003		41.85		31.20		1,259,726
October 31, 2003		42.48		26.25		1,115,678
September 30, 2003		32.90		24.00		953.886


	2003		2002
	US$’000		US$’000

Audit Fees(1)		271		152
Audit-related Fees(2)		1		12
Tax Fees(3)		11		4
All Other Fees(4)		8		—

Total		291		168


Independent Auditors’ Reports			F-1
Consolidated Statements of Income for the years ended December 31, 2001, 2002 and 2003			F-2
Consolidated Balance Sheets as of December 31, 2002 and 2003			F-3
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2001, 2002 and 2003			F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003			F-5
Notes to Consolidated Financial Statements			F-7


													Accumulated			Total
		Common			Common			Additional					Other			Share
		Shares			Shares			Paid-in		Retained			Comprehensive			holders’
		Outstanding			Amount			Capital		Earnings			Income (loss)			Equity

Balance at January 1, 2001			30,641,520		$	306		$	105,936	$	56,127		$	(5	)	$	162,364
Share buy-back program			(683,700	)		(6	)		—		(3,347	)		—			(3,353	)
Shares issued on exercise of advisors’ warrants			900,000			9			3,066		—			—			3,075
Shares issued on exercise of options			348,000			3			1,229		—			—			1,232
Advisors’ warrants			—			—			263		—			—			263
Issue of options (note 12b)			—			—			839		—			—			839
Comprehensive income:
	Net income		—			—			—		9,045			—			9,045
	Foreign currency translation		—			—			—		—			20			20
Cash dividends ($0.13 per share)			—			—			—		(4,134	)		—			(4,134	)

Balance at December 31, 2001			31,205,820			312			111,333		57,691			15			169,351
Share buy-back program			(592,800	)		(6	)		—		(3,522	)		—			(3,528	)
Share redemption			(509,181	)		(5	)		—		(3,120	)		—			(3,125	)
Shares issued on exercise of public warrants			4,381,965			44			29,753		—			—			29,797
Shares issued on exercise of options			1,573,200			15			6,658		—			—			6,673
Advisors’ options (note 12b)			—			—			10		—			—			10
Comprehensive income:
	Net income		—			—			—		20,023			—			20,023
	Foreign currency translation		—			—			—		—			(17	)		(17	)
Cash dividends ($0.49 per share, including special dividend of $0.33 per share)			—			—			—		(17,056	)		—			(17,056	)

Balance at December 31, 2002			36,059,004			360			147,754		54,016			(2	)		202,128
Shares issued on exercise of options			1,425,600			14			8,494		—			—			8,508
Issue of stock dividend			3,746,668			38			50,333		(50,371	)		—			—
Compensation expense (note 3(b)(iv))			—			—			264		—			—			264
Comprehensive income:
	Net income		—			—			—		43,802			—			43,802
Cash dividends ($1.00 per share, including special dividend of $0.80 per share)			—			—			—		(37,584	)		—			(37,584	)

Balance at December 31, 2003			41,231,272			412			206,845		9,863			(2	)		217,118


Classification		Years
Land use right, leasehold land and buildings		20 to 50 years
Machinery and equipment		4 to 12 years
Leasehold improvements		3 to 7 years
Furniture and fixtures		4 to 8 years
Automobiles		4 to 6 years
Tools and molds		4 to 6 years


Property, plant and equipment	$	559
Cash		40
Other assets		870
Liabilities		(1,176	)

Total	$	293


					LPT
		CEP			Segment
		Segment			(LCD
		(reporting			reporting
		unit)			unit)			Total

Balance at January 1, 2002		$	339		$	21,750		$	22,089
Goodwill acquired during the year:
	Additional goodwill of JIC Technology (see note 3(b)(ii))		—			253			253
	Additional goodwill of Mate Fair		788			—			788
Impairment of goodwill on business acquired from MBS			(339	)		—			(339	)
Goodwill release related to disposition of 7.1% interest in J.I.C. Group (see note 3(b)(ii))			—			(1,483	)		(1,483	)

Balance at December 31, 2002		$	788		$	20,520		$	21,308
Goodwill release related to disposition of 5.58% interest in JIC Technology (see note 3(b)(ii))			—			(1,171	)		(1,171	)

Balance at December 31, 2003		$	788		$	19,349		$	20,137


Year ending December 31,
	- 2004	$	92
	- 2005		92
	- 2006		92
	- 2007		92
	- 2008		92

Total		$	460


Number of	Exercise
options granted	price			Exercisable period

In 2001
833,559	$	4.65		March 16, 2001 to March 16, 2004
165,000	$	4.39	*	June 22, 2001 to June 22, 2004
316,200	$	2.33		June 27, 2001 to June 22, 2002
In 2002
900,000	$	6.02	*	April 30, 2002 to April 30, 2005
In 2003
75,000	$	16.82	*	July 8, 2003 to July 8, 2006

* Subsequent to November 7, 2003, the exercise price has been adjusted to reflect the 10 for 1 stock dividend effect.


			Weighted average
	Number		remaining contractual
Exercise prices	of options		life in months

$4.39		16,500		5.7
$6.02		26,050		15.9
$16.82		66,000		30.2

		108,550		23.0


Year ended December, 31	2001			2002			2003

Risk-free interest rate		5	%		4.5	%		2.56	%
Expected life	1 - 3 years			3 years			3 years
Expected volatility		45.0	%		36.0	%		64.24	%
Expected dividend per quarter	$	0.03		$	0.04		$	0.05


	$6.80 Advisors'			$3.42 Advisors'
	warrants			warrants

Risk-free interest rate		6.50	%		6.50	%
Expected life	November 24, 2002			October 4, 2001
Expected volatility		50	%		50	%
Expected dividend per quarter	$	0.03		$	0.03


Year	Shares repurchased		Average purchase price

2001		683,700	$	4.90
2002		592,800	$	5.95


				Weighted
				average number		Per share
Year ended December 31, 2001		Income		of shares *		amount

Basic earnings per share		$	9,045		33,905,444	$	0.27
Effect of dilutive securities
	- Stock options		—		186,978
	- Warrants		—		205,834

Diluted earnings per share		$	9,045		34,298,256	$	0.26


Year ending December 31,
- 2004	$	1,045
- 2005		1,037
- 2006		988
- 2007		1,070
- 2008		1,087
- 2009 and thereafter		3,658

	$	8,885